加载中...
共找到 8,168 条相关资讯
Operator: Thank you for standing by. This is the conference operator. Welcome to the Nexus Industrial REIT Third Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kelly Hanczyk, Chief Executive Officer. Please go ahead. Kelly Hanczyk: I'd like to welcome everyone to the 2025 Third Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Mike Rawle, Chief Financial Officer of the REIT. Before we begin, I'd like to caution with regard to forward-looking statements and non-GAAP measures. Certain statements made during this conference call may constitute forward-looking statements, which reflect the REIT's current expectations and projections about future results. Also during this call, we'll be discussing non-GAAP measures. Please refer to our MD&A and the REIT's other securities filings, which can be found on our website and at sedar.com for cautions regarding forward-looking information and for information about non-GAAP measures. In the third quarter, we took another step in our journey as Canada's industrial building partner by completing 2 exciting new industrial developments and by completing another strong quarter of leasing. Combined, our new developments will add 440,000 square feet of additional GLA and will generate $6.6 million of annual stabilized NOI, representing an enviable 9.4% unlevered return on development costs. On the leasing front, we continue to drive strong organic growth, completing the backfill of 2 of the 3 properties vacated by CCA tenants earlier in the year, advancing leasing on the remaining 2025 and upcoming 2026 renewals and delivering healthy same-property NOI growth in the quarter. I will dive into both the development and leasing achievements into more detail. But first, I'd like to reflect on how far we've come in the last 12 months. In September 2024, we were growing industrial REIT, but we still had 16 retail buildings with over 1.6 million square feet of GLA. We also still had 6 office buildings with nearly 0.5 million square feet, having just closed on the sale of 6 other office buildings. We had completed 3 development projects, but still had significant work to do on our largest project in St. Thomas, and we hadn't yet broken ground at our 102 Avenue project in Calgary. Today, 1 year later, we are in a completely different position. We have nearly sold all of our retail and office buildings at good prices and have used the proceeds to reduce debt and complete development. We are now a pure-play industrial REIT with over 99% of our NOI derived from industrial assets. In this quarter, we completed 2 more attractive projects. We have come a long way in a short time, and I'm immensely proud of our team and the work that we have done. Looking more closely at the development projects that we finished during this quarter, the larger property was a 325,000 square foot expansion, our largest development yet of our building at 70 Dennis Road in St. Thomas, Ontario. This expansion was for an existing tenant, Element5, a leading laminated timber manufacturer. The project was originally planned at 70,000 square feet, but as the tenants' needs grew, we worked with them to adjust the building scope. This resulted in a huge win-win. Element5 has a North American flagship facility, while Nexus owns a well-located high-quality building under a long-term lease. During construction, we earned 7.8% on the development spend. However, effective September, having now met the criteria for substantial completion, the project transitioned to yielding 9% on the completed development cost of $55 million. The second property that we finished was a new 115,000 square foot small bay industrial building at 102 Avenue in Southwest Calgary. We built this on spec, on empty land adjacent to one of our buildings. We completed construction in August and leasing is tracked ahead of plan. We already have tenants for 8 of the 9 units, 5 of which are now firm. We expect the building to begin cash flowing in the fourth quarter and to be fully stabilized in the second quarter of 2026. Once stabilized, the building will generate an 11% unlevered return on its development cost of $15 million and contribute an annual net operating income of $1.6 million. We are still looking for a tenant for our 150,000 square foot Glover new build in Hamilton, which we completed last summer. We own 80% of the property and expect to earn around a 5.9% going yield on our $20 million share of the development costs. It's been a challenging market in Hamilton lately, but we do have a brand new state-of-the-art 40-foot clear LEED-certified product, and we actually will have some pretty good news on that very shortly as things are looking pretty good for us there. But it's a little premature to announce anything, but we'll wait for the next few weeks. We also recently announced 2 additional development projects, which will get underway in the first half of 2026. We are going to build small bay industrial units on vacant land surrounding our industrial building at Adams Road in Kelowna, BC. And at our Richmond property, we're adding 52,000 square feet for an estimated cost of $29 million. The cost is being paid in REIT units issued at $10.50 per unit. We'll earn 6% on our costs during the construction period, and we'll earn a contractual 6% yield upon completion. We expect the construction to begin in the first half of 2026. The third quarter was another strong quarter of organic growth for Nexus. In total, we completed nearly 150,000 square feet of renewals at an average rent lift of 13%. Year-to-date, we have completed a total of 1.1 million square feet of leasing and realized an average leasing spread of over 60% in expiring and in-place rents. In the quarter, our industrial occupancy grew 1% to 96%. Combined with embedded rent escalation in our leases, our leasing activities drove industrial same-property NOI growth of 2.9% in the quarter and on a year-to-date basis. For the full year 2025, we expect to realize same-property NOI growth of approximately 3%. In the third quarter, we signed a 15-year lease for our 223,000 square foot building at Clark Road in London, Ontario with one of Canada's largest construction service firms. This building was vacated in April after Peavey Mart entered creditor protection. The new tenant took occupancy August 1. In their 6-month fixturing period, the tenant will invest between $8 million to $10 million to update the building and pay net rent of $3 per square foot, roughly equivalent to Peavey Mart's exit rate. In January 2026, the fixturing period ends and the rent ramps up to $7 a foot with annual dollar rent steps until 2031 and then 2% thereafter. Our ability to quickly backfill this property is a testament to the strength of our operating team and the quality of the portfolio. It's a really good deal for us. This brings a very strong large tenant, and the reduced rent was due to the fact that we had to put nothing in it and it was an older building, lower clear heights and the rent ramps up relatively quickly back up to market. So we're really pleased with this deal. In April, Peavey Mart also vacated a second building at 40 Avenue in Red Deer, Alberta. We're in discussions with a few prospective tenants. However, it is not yet leased. The building is 190,000 square feet, which is very large for that area. So we're marketing it both for lease and for sale in the event we find an owner operator who is interested. Our cross-dock facility at 102 Avenue in Southeast Calgary, the receiver continued to pay rent through to the end of September, which was longer than what we thought, but we have now a new tenant lined up for December 1. The tenant will pay nominal rent to cover costs during a short fixturing period. And then upon conclusion of the fixturing period, which will be approximately February of 2026, the rent steps up to $27.83 for the 29,000 square foot building. And this is approximately 45% higher than the outgoing rent of $19 per square foot. Overall, while we saw strong organic growth in the quarter, we expect to realize an even bigger benefit in early '26 and from rent steps at Clark Road and 102 Avenue. We've also made good progress on our 2026 renewals. In total, we have 765,000 square feet coming for renewal in 2026. Roughly 50% of this or 385,000 square feet comes due in the first 9 months and the remaining 50% in the fourth quarter. As of today, we have tenants lined up for 90% of the January through September expires, and we will soon begin working on the fourth quarter expires. Nexus has a track record of accretive capital recycling through the disposition of legacy buildings and acquiring newer high-quality tenant industrial buildings. During the quarter, we sold a noncore industrial building located in Saint-Laurent, Quebec for total proceeds of $9.2 million and an implied cap rate of 5.5%. The proceeds were used for debt reduction and for development. After the quarter end, we also closed on the sale of excess land at our remaining retail property, Galeries d'Anjou for cash proceeds to us of $8.5 million. We're now marketing our 50% share of the retail mall for sale. The is an attractive asset in cash flow as well. So we hope it sells in due time. In summary, we continue to advance our strategy in 2025 as Canada's industrial building partner. We will continue to realize organic growth through embedded rent steps and positive mark-to-market on renewal. We will continue our track record of accretive capital recycling through opportunistic acquisition and development. I'll now turn the call over to Mike to give some more color on our financials. Michael Rawle: Thank you, Kelly, and good morning, everyone. Starting with headline earnings in the quarter, net income was $3.4 million, a $49.4 million increase compared to a net loss of $46 million last year. The increase was primarily due to higher fair value adjustments on Class B LP units by $43.3 million compared to a year ago and higher fair value adjustments on derivatives by $20.9 million compared to a year ago, partially offset by lower fair value adjustments on investment properties by $15.4 million and further offset by lower net interest expense by $900,000. Our Q3 net operating income decreased 1.1% or $400,000 year-over-year to $32.2 million. This was primarily due to a $2 million decrease resulting from property dispositions completed since Q3 2024, partially offset by an $800,000 increase in same-property NOI, higher straight-line rent adjustments of $500,000 and a $200,000 increase from completed developments and expansions. Normalized AFFO for the period was $0.146 per unit compared to $0.157 from a year ago, primarily driven by the lower NOI, lower straight-line rent adjustments by $0.5 million and a $300,000 increase in general and administrative expenses from higher compensation and legal expenses. Net interest expense in the quarter was $13.1 million, a $900,000 decrease from the same period last year. The decrease was primarily due to lower credit facility interest expense of $400,000, resulting from more favorable borrowing rates during the period and lower interest on mortgages by $400,000 resulting from property dispositions. At September 30, 2025, our NAV per unit was $12.98, a $0.19 per unit decrease from last quarter, primarily due to the issuance of 2.7 million Class B units in the quarter at $10.50 per unit to fund additional development at our property in Richmond, BC. Our weighted average cap rate decreased by 2 basis points to 5.85% in the quarter. The carrying value of our investment properties decreased by $5.4 million in the quarter, primarily due to the reclassification of our building at 41 Royal Vista Dr, Calgary to assets held for sale. As Kelly mentioned, this quarter, we finished 2 development projects. The completion of these projects will have accounting impacts on our financial results in the future. At our 70 Dennis Road property in St. Thomas, Ontario, the tenant is now paying rent equal to a 9% yield on the $55 million of development costs compared to a 7.8% yield during development. As a consequence, we will generate additional cash flow of approximately $220,000 each quarter. In addition, from an accounting perspective, the full quarterly rent of $1.25 million generated by the building now qualifies as net operating income. This means that it will be included in our FFO and AFFO metrics. Up until September, the 7.8% yield on this expansion was capitalized to property under development and did not qualify as net operating income, FFO or AFFO. So going forward, our key financial metrics will be higher and paint a more accurate picture of our cash earnings. Since we have now completed both the Dennis Road and 102 Avenue projects, we will no longer be able to be capitalizing interest on these buildings, which in the third quarter amounted to approximately $500,000 for the 2 of them combined. I will now turn the call back to Kelly. Kelly Hanczyk: All right. Thanks, Mike. We will now pass the call over to the operator to open the line for questions. Operator: [Operator Instructions] The first question today comes from Kyle Stanley with Desjardins. Kyle Stanley: Just looking at the slight downward revision to your guidance for 2025 on the same property front, I'm just curious what changed, I guess, between August and today that would have driven that? And how much maybe was related to just getting the timing of getting income online? Or was it something more long term in nature that could have an impact to your 2026 growth outlook? I guess, in another way, just trying to think about the slight revision for Q4, does it have an impact on the outlook for '26? Michael Rawle: Kyle, yes, good question. No impact on '26. It's really -- it was driven by primarily 2 different buildings, slightly slower lease-up than we had anticipated. At our 102 Avenue in Southeast Calgary, the receiver stayed in position longer than we had hoped, and it took us a little longer to get -- it will take us a little longer to get the new tenant in at that healthy $27.83 rent because there's a bit of a fixturing period. So they're coming in, in February instead of in 2025, early in 2025. So that's one. And the second one is our lease-up at 855 Park Street in Saskatchewan. We had an expectation to get the new tenant in there a little earlier, and they are lined up for the back half of this year, but it's not as early as we had hoped back in August. Kyle Stanley: Okay. Okay. That's helpful. So limited impact, I guess, on '26, maybe a month in Calgary, to your point, on getting that tenant in, in February. Michael Rawle: Yes, exactly as I told. Kyle Stanley: Okay. Just moving over to your debt stack. Hypothetically, if you were to get an investment-grade credit rating tomorrow, looking at where rates are in the markets, it does look like there would be some pretty significant savings for you. With your swap book, how quickly would you be able to unwind that? And would it be at significant cost? Or -- just walk me through, I guess, your thoughts on that? Michael Rawle: Yes. Good question. So I mean, yes, we've been pretty, I guess, pretty clear that we're heading for an investment-grade credit rating, which is -- we're working through that with the agencies at the moment, but that's probably a back half of 2026 thing. And as far as pricing goes, yes, very attractive rates right now. You're right, there's some benefit there. So we're trying to push the rate a little and get there as soon as we can, but there are limitations. As far as unwinding the hedge book, at the moment, we actually want the hedge book because that effectively keeps us in position for -- like there's a really strong correlation between swap rates and GOCs and government -- investment-grade borrowing yields. So this effectively is like a bond lock for us now. So we would unwind the swap book when we issue investment-grade debt. But up until that point, it basically acts as a good hedge on that bond issuance. So no desire to unwind it at this point. But when we do, it would just be a standard transaction with our counterparties, which are our regular banking partners, so very easy to unwind them at that point. Kyle Stanley: Okay. No, fair enough. And then just last one for me. Kelly, you mentioned Glover and Hamilton making progress. That's great to hear. Obviously, still in negotiations, but how would you say the rent is looking versus maybe what your underwriting had called for? And do you expect a more significant TI package required to get someone in place? Kelly Hanczyk: Yes. A little different route here, Kyle. We are working through an offer to purchase. So I think hopefully, that gets wrapped up and we get something firm and wave in a way we go. So I think at the end of the day, a little different version. It would be a strong deal for us, would free up capital and reduce any burn that were existing on the asset right now as it sits empty. So I think that's the play that's going to happen here. Kyle Stanley: Okay. So just to confirm, you'd be looking to sell it to a potential end user or something like that. That's what you're saying? Kelly Hanczyk: Yes, correct. Operator: The next question comes from Brad Sturges with Raymond James. Bradley Sturges: Just to follow up on that line of questioning on Hamilton. Just would the purchase price be more than the original construction cost? Or how do we think about that? Kelly Hanczyk: I guess my answer would be yes. Bradley Sturges: Okay. Understood. Just on the guidance revision, obviously, a little bit related to timing of leasing. Just what would that imply from an occupancy rate by the end of the year? What -- just to round that discussion off? Michael Rawle: Yes. I'd have to do the calculation. It's, I think, looking pretty healthy. I mean if you back up and look at where we're at today, we have about 475,000 square feet of vacant space, and that is predominantly 4 different buildings. So one is Glover. The other is 7740, the Red Deer, ex Peavey building in Red Deer. And we have 855 in Saskatchewan, which we have a tenant lined up for. And then the final one is the new development at 102 Avenue, which we also have 8 of the 9 units already lined up. And so it's just a matter of the tenants coming in. So leasing for 2025 is in great shape. Bradley Sturges: I guess what's the [indiscernible] in start of next year after the fixturing period. Would you -- do you think that organic growth would kind of get back into that mid-single-digit range? Michael Rawle: Yes, I think a little early for us to give guidance for next year as we're working through our budgeting process now. But next year does look -- I mean, just from what we've disclosed so far, next year looks really strong with the development coming on board and the embedded rent steps that we have. So yes, next year should be a good year for us. Bradley Sturges: And nothing material at this point from a nonrenewal perspective for next year? Kelly Hanczyk: No. It's looking pretty good. Like 3 of them, fairly large, what is this total -- like 400,000 square feet or so comes up from October 31 to December 31. We fully expect all 3 of those to renew. It's all in London. So all 3 are kind of long-term hold tenants for us. Another one in November in that batch was a 91,000 square footer in Montreal in this tenant, just to explain this one. So if anyone is going to leave, it's this one, they were in at a $6 rate, and I think they had like 3 renewal options, 5-year renewal options for like 2% each renewal option flat. And they were looking to consolidate their operations. So we did a 1-year deal with them at $9 per square foot. And I expect them to vacate possibly at the end of November and that we think we can re-lease that in the low teens. So that's the one that possibly, but that's end of the year, November 30. And we've made good progress already on the first half of the year. So things are looking pretty good. Michael Rawle: Yes. So just to reiterate Kelly's comments on the call, for next year's renewals, half of this GLA renews in the first 9 months. And of that, we've done 90% of it already. So we've got lined up, that tenant is lined up. So a really good jump on that. Bradley Sturges: Last question, just from a modeling perspective, straight-line rent, just given the moving parts around fixturing before rent payment, like how should we think about that over the next couple of quarters in terms of contribution to FFO? Michael Rawle: Yes, it's elevated because we've put in -- with these new leases, we've been bringing in people with pretty rapid escalation in rents. So healthy rent steps. So it's higher than it has been in the past, and you saw that this quarter where straight-line rent is higher than where it has been in the past. Bradley Sturges: I guess it would be at a similar level for Q4 relative to Q3 and then it kind of slips back to where you were... Michael Rawle: Yes, I think so. It's probably a fair way of thinking about it. Operator: The next question comes from Matt Kornack with National Bank Financial. Matt Kornack: Just quickly on the Alberta lease maturities, and you may have mentioned it, but I missed it. They're a bit higher rents, presumably at the type of space that's maturing. But are you expecting kind of a new or renewal leasing spread consistent with the Alberta market on those? Or how should we think about the rents that you'd achieve on those? Kelly Hanczyk: I have to just see here what we have expiring. So it's not. Matt, I have to get back to you because I'm not offhand know what the expiring rents are. Matt Kornack: Okay. Fair enough. Just to... Kelly Hanczyk: One of the... Matt Kornack: I think it's 79,000 square feet at $17. And next year, it's 47,000 square feet at $30 -- is it $35. Kelly Hanczyk: Yes, I have to look at which ones those are. I think one of them, we will take a hit. I believe it's the Blackfalds asset that was formerly -- or that is currently occupied by a subtenant of MasTec. And that one, I know we would definitely take probably, I want to say, maybe a $10 hit on that one. That's the one outlier. Matt Kornack: Okay. If I look at -- I mean, we're at like mid-40% spread for '26 across everything. Obviously, London drives a bit of that. But I guess Alberta would maybe bring it down into the 30s, somewhere in the 30s, I guess, on that. Michael Rawle: Yes. I mean -- we don't have a lot of GLA in Alberta, right, renewing. So it's less than 50,000 square feet. Matt Kornack: Okay. Fair enough. And then just to confirm on St. Thomas, you had no NOI contribution in Q3. You'll get the full $1.25 million in Q4. And obviously, you have a step down in capitalized interest, but you're still going to have kind of $300,000 of residual capitalized interest against other assets still under development? Is that... Michael Rawle: Yes, there will be -- so two questions -- with St. Thomas, we had 1 month worth of NOI contribution from it. So I think it was around -- so that was in the September contribution. And you're right, there's about $300,000 of capitalized interest going forward from the other projects that we have underway. Matt Kornack: Okay. And then for the $400,000 per quarter contribution from Calgary that you're going to get in Q2 of '26, like should we assume kind of half of that you get before? And -- or should we kind of split it out over the next couple of quarters? I think it was 33% leased as of Q3. So it's going to ramp up. But just wondering how we should think about that. Michael Rawle: Yes. I mean I would just move it over the months, assume a straight linear ramp-up. Operator: [Operator Instructions] The next question comes from Sam Damiani with TD Cowen. Sam Damiani: Question for me, just on the, I guess, the use of proceeds from the dispositions coming up in Q4. Will the REIT sort of take the opportunity to delever or redeploy into acquisitions? How are we thinking about, I guess, target leverage as you head toward investment-grade rating next year? Michael Rawle: Yes. So ultimately, we're looking to achieve investment-grade rating. Our focus now from a leverage perspective is to get to below 10x. So -- and we have a clear path to that by mid next year-ish. And so that's our target from that perspective. So going where we will use surplus capital or cash from sales will be delevering and the development that we have in flight. And if there are just amazing opportunities that come up, we consider them. But really our focus at this point is ultimately getting to a mid-9s leverage profile. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over to Kelly Hanczyk for any closing remarks. Kelly Hanczyk: All right. Thanks, everyone, for attending, and we'll chat next quarter. And if any questions, just feel free to reach out to Mike or myself. Operator: This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the OTC Markets Group Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Zinn, General Counsel. Please go ahead, sir. Daniel Zinn: Thank you, operator. Good morning, and welcome to the OTC Markets Group Third Quarter 2025 Earnings Conference Call. With me today are Cromwell Coulson, our President and Chief Executive Officer; and Antonia Georgieva, our Chief Financial Officer. Today's call will be accompanied by a slide presentation. Our earnings press release and the presentation are each available on our website. Certain statements during this call and in our presentation may relate to future events or expectations and, as such, may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning risks and uncertainties that may impact our actual results is contained in the Risk Factors section of our 2024 annual report, which is also available on our website. For more information, please refer to the safe harbor statement on Slide 3 of the earnings presentation. With that, I'd like to turn the call over to Cromwell Coulson. Robert Coulson: Thank you, Dan. Good morning, everyone, and thank you for joining us. I will discuss our third quarter 2025 results at a high level and share the status of our key initiatives before turning the call over to Antonia to review our financial results in greater detail. Gross and net revenues each grew by 15% during the third quarter, and each metric was up 12% for the first 9 months of the year. Our third consecutive quarter of double-digit growth was due to strong revenue increases in all our business lines, highlighting the value of our interconnected business model. I want to thank all of my colleagues at OTC Markets for jointly delivering our market reliability and these quarterly results. Our business is a team sport. OTC Link was up 23% during the quarter, Market Data increased 15%, and Corporate Services was up 12%. Throughout 2025, OTC Link's strong revenue has been tied to increased trading volume across our markets. Market Data price increases effective January 1 of this year have been the primary driver of revenue growth in this business line. The Market Data team, in conjunction with our OTC Link Group, continues to build the foundation of our Overnight Trading business, working to onboard current and prospective subscribers, and educating the global trading community on the value of all our offerings. We were pleased to see our Corporate Services business achieve its second consecutive quarter of growth. The bulk of the growth in the third quarter resulted from increased sales of the OTCID Basic Market. Increased new sales of OTCQX and OTCQB, coupled with price increases, also contributed to the Corporate Services results this quarter. We continue to put strategic focus on client success, retention, and the reduction of churn. I would like to provide an update on our 2 primary strategic initiatives for the year, Overnight Trading and the OTCID Market. Overnight Trading enables our broker-dealer subscribers to access thousands of exchange-listed and OTC securities during Asian market hours, at European market open, and overnight in the U.S. Momentum on MOON ATS for NMS securities continues to build. Following the recent end of South Korea's moratorium on retail investor participation in U.S. overnight markets, we've seen early signs of growth in Overnight Trading. MOON ATS has onboarded a number of active broker-dealer subscribers, many of whom have more recently begun engaging in this market. Market Data users have also taken note with firms already subscribing to our data feeds in preparation for increased activity on MOON ATS. As with our existing daytime markets, transparency is paramount. The availability of Market Data to interested overnight market participants around the world is key to the success of this endeavor. As financial markets evolve towards around-the-clock operations, we focus on ensuring our infrastructure and technology continue to meet the needs of our subscribers. Our view towards the overnight market matches our approach to the markets we have operated for many years. We will deliver elegant, reliable, and cost-effective solutions, and work with our subscribers to enable their businesses to scale and grow. Our second priority initiative this year was the OTCID Basic Market. OTCID has seen a rapid uptake since its July 1 launch, as qualifying companies use our services to publish a baseline of ongoing information. OTCID enhances our offering for corporate clients, filling a gap below our premium OTCQX and OTCQB markets. OTCID companies provide basic disclosure for investors, which separates them from securities quoted on Pink Limited that have little to no issuer involvement in their trading market. With the disclosure and management certification-driven service, OTCID connects more companies without the price, float, or financial requirements of our higher-level markets. It is a simple entry point for companies to start streaming information, gain a foothold of liquidity, or test the waters. We have designed our premium markets to provide the functionality for connected companies to stream data that will improve the quality of the market for their securities. In comparison, Pink Limited securities are identified with a yield sign to warn investors to proceed with caution. Our objective is to clearly flag the risks from Pink Limited companies. We all know investor-focused companies need to be actively connected to the market, consistently updating investors, with management teams willing to certify compliance with regulations. Otherwise, it leads to information asymmetries and discounted valuations as well as diminishes market quality. With OTCQX, OTCQB, and now OTCID, our markets provide a digital platform for public companies to take ownership of their U.S. symbols. Our most engaged corporate customers want the ability to perform the same IR disclosure and governance activities as companies listed on NYSE or NASDAQ with less complexity. These best practices, supported by our data processing and distribution capabilities, allow the informational, operational, and compliance experience for brokers and investors to be comparable to exchange-listed securities. These connected companies represent approximately 25% of all securities traded on our platforms at the end of September 2025 and contributed 31% of the dollar volume traded during the third quarter of 2025. As more public companies connect through our Corporate Services, actively publishing ongoing information, and demonstrate global governance standards, we will improve the quality of their individual trading market and expand overall investor interest. In addition to our 2 primary initiatives this year, we have placed significant focus on enhancing the customer experience for companies that choose to trade on our markets. Our revamped customer platform, OTCIQ.com, was launched on August 28 and includes modernized functionality that has been well received by our customers. During the year, we used our EOL technology platform to integrate Canadian SEDAR data into our system, streamlining the initial and ongoing disclosure process for the many Canadian-listed trading companies on our market. We intend to integrate additional disclosure sources over time, bringing the same benefit to companies from other regulatory jurisdictions. Our focus on customer experience will extend into next year and even further as we move into the next phase of this initiative, which is better connecting companies to their trading markets and financial information networks for a future that is online and digital. We also continue to work on our regulatory priorities. As the government reopens, we will continue to engage with regulators and lawmakers on capital formation, market structure, and other key initiatives. As we look to the future, we are excited to explore the opportunities in digital assets and tokenization as emerging regulatory clarity allows market participants to legally and lawfully innovate around these new technologies. In closing, I am pleased to announce that on November 11, our Board of Directors declared a special dividend of $1.75 per share and a quarterly dividend of $0.18 per share, each payable in December. These dividends reflect our ongoing commitment to providing superior shareholder returns. With that, I will turn the call over to Antonia. Antonia Georgieva: Thank you, Cromwell. Thank you all who've joined our call today. The third quarter of 2025 marked the launch of OTCID, and I would like to start by thanking our entire OTC Markets team for making this such a success. Following is a review of our results for the quarter ended September 30, 2025. Any reference made to prior period comparatives will refer to the third quarter of 2024. Turning to Page 7 for a review of our third quarter revenues. We generated $31.6 million in gross revenues, up 15%, compared to the prior year period. Revenues, less transaction-based expenses, were up 13%. OTC Link's gross revenues increased 23%, driven by a 47% increase in transaction-based revenues from OTC Link ECN and OTC Link NQB as we benefited from a higher number of shares traded on those platforms. As an offset, transaction-based expenses increased 50%. Additionally, OTC Link saw an increase in revenues from OTC Link ATS messages due to a higher number of messages in Quote Access Payment service revenue due to the increased volume of trading activity and in certain connectivity revenue due to growth in the number of connection licenses. Trading volumes remain highly unpredictable and could decline in the future. OTC Link finished the third quarter with 114 subscribers to OTC Link ECN, unchanged from the prior year period and 77 subscribers to OTC Link ATS, compared to 80 at the end of the prior year period. OTC Link had 138 unique subscribers across our ATSs as of September 30, 2025, compared to 139 unique subscribers as of September 30, 2024. Revenues from Market Data Licensing increased 15% quarter-over-quarter, reflecting a 23% increase in redistributor-based revenues, 12% increase in revenues from direct sold licenses and 3% increase in revenues from data and compliance solutions. Within the redistributor-based revenues, professional user revenues increased 30%, primarily due to price increases from the beginning of 2025, combined with a 2% increase in professional user count. Nonprofessional user revenues declined 7% as a result of a 16% reduction in reported nonprofessional users, which more than offset the impact of the price increases. Historically, and in the normal course of business, we have seen significant changes in the number of nonprofessional users as market volumes and retail participation on our markets fluctuate, and we may experience further decline in the future. Broker-dealer enterprise licenses and internal system licenses drove the growth in direct sold licenses. Broker-dealer enterprise license revenues increased due to the combined effect of price increases and subscriber growth, while internal system licenses revenues increased due to subscriber growth. Increased revenues from data services and the Blue Sky data product contributed to overall growth in data and compliance solutions revenue, partially offset by lower revenue from EDGAR Online. Corporate Services revenues increased 12% in the third quarter. The impact of annual incremental pricing adjustments effective January 1, 2025, and improved sales served to offset a lower number of OTCQX companies, resulting in a 3% increase in OTCQX revenues. OTCQB revenues increased 10% due to the same factors, combined with a higher number of companies on the OTCQB market. In the third quarter, we added 35 OTCQX companies compared to 18 in the prior year quarter and finished the period with 553 OTCQX companies, down 2%. On OTCQB, we added 77 new companies in the third quarter compared to 46 in the prior year period and finished the quarter with 1,097 OTCQB companies, up 3%. The launch of OTCID on July 1, 2025, resulted in a substantial number of Pink companies upgrading to OTCID. All OTCID companies subscribe to DNS. In addition, select Pink Limited companies also choose to use DNS and other Corporate Services offerings. The resulting growth in DNS subscribers, combined with price increases from the beginning of the year, drove a 48% increase in DNS revenues compared to the prior year period. As of September 30, 2025, 1,077 companies traded on the OTCID Basic Market, up from 1,035 companies at launch on July 1, 2025. Overall, we had a combined 1,511 OTCID companies and Pink Limited subscribers to DNS and other products at the end of the third quarter, representing a 10% increase from 1,379 companies at the end of the prior year period. Month-to-month variability in our Corporate Services subscribers is driven by new sales, offset by nonrenewals, corporate events, and compliance downgrades. Turning now to expenses on Page 8. On a quarter-over-quarter basis, operating expenses increased 8% to $17.9 million. A 6% increase in compensation and benefits expenses, 26% increase in professional and consulting fees, and 9% increase in IT infrastructure and information services costs were the primary contributors. The increase in compensation and benefits reflects higher base salaries and cash-based incentive compensation as well as higher commissions related to increased sales and the updated commission plan in effect from January 1, 2025. Compensation and benefits comprised 62% of our total operating expenses during the third quarter compared to 63% in the prior year period. Professional and consulting fees increased due to increased use of third-party consulting services related to our compliance efforts. Additionally, we saw higher regulatory and clearing costs related to OTC Link ECN and OTC Link NQB due to the increased trading activity. IT infrastructure and information services costs increased due to higher data center costs, reflecting increased cloud services usage as well as higher spending on information services and software licenses. Turning to Page 9. In the third quarter, income from operations increased 23% and net income increased 15%. Operating profit margin expanded to 34.6% compared to 32.4% in the prior year quarter. Our diluted earnings per share increased to $0.71 per share compared to $0.61 per share, or 16%. In addition to certain GAAP and other measures, management utilizes adjusted EBITDA, a non-GAAP measure, which excludes noncash stock-based compensation expense. Our adjusted EBITDA was $12.8 million in the third quarter of 2025, and our adjusted diluted earnings per share were $1.06 per share, each up 19%. Cash provided by operating activities amounted to $13.3 million compared to $5.9 million in the prior year quarter. Free cash flows for the quarter were also $13.3 million compared to $5.8 million in the prior year quarter. Turning to Page 10. During the third quarter of 2025, we returned a total of $2.2 million to investors in the form of dividends, unchanged from the prior year quarter. We remain focused on growing our business, operating as prudent stewards of shareholder capital, and delivering long-term value to our stockholders. With that, I would like to thank everyone for your time and pass it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Steve Silver with Argus Research Corporation. Steven Silver: Congratulations on the quarter. So the operating margin in the quarter showed a nice uptick compared to the most recent quarters. I'm curious as to your thoughts about the prospects for continued margin expansion as we start to look to 2026, obviously sensitive to small moves in operating expense and investments, those types of things. Just curious on your thoughts on the operating margin profile as we start to look towards next year. Robert Coulson: Steve, I get grumpy when it starts going below 30%. Otherwise, we get spendy above 30%. And usually, revenues come in and then you have an investment part. We're not margin-stuck, but we're also not trying to jam our margin compared to the exchange-level margins because in the long run, I believe, that creates a toxic relationship with your clients. And as an independent market operator in the wholesale markets, the broker-dealer community really wants to see us as a Costco-type business. So we want to grow our revenues. We want to be able to invest that in improving our services, improving the value of our services, launching new initiatives to help our client bases succeed. But we're not looking to max out financial engineering in the short term. At the end of the day, this quarter is a nice one because we had really big trading markets 4 years ago post-COVID. And there was a lot of profitability from trading back then. And we're now moving past that back to a higher level. And we can invest and we can grow, but we're not terribly margin concerned, except we want to be profitable. Steven Silver: And then one more, if I may. The prepared remarks sounded like a lot is being done in terms of really scaling the overnight products, especially with the integration with the Market Data Licensing unit. So are there any really major initiatives left in terms of building the infrastructure for the overnight product? Or is it more just blocking and tackling and just onboarding more broker-dealers at this point? Robert Coulson: So the technology infrastructure is built, the network connectivity tentacles takes forever. And you're always working on it, you're expanding things out. And what's interesting is we have an overnight conversation with a Paris-based quantitative trading arbitrage firm, and they're highly interested in participating in that. But they're also going to go, wow, your daytime market has a bunch of opportunities for us. So it's been a great learning experience. The team very quickly built out the infrastructure. Building the connectivity is -- and then expanding that over time takes work, but it also shows that it gives us for our core business, shows how hard it is to build out into all those processes. Operator: Our next question is going to come from the line of Aashi Alpesh Shah with Sidoti & Co. Aashi Shah: I'm here on behalf of Brendan. Congratulations on the quarter. Looking at the OTCID market platform in a bit more detail, it looks like the revenue was up about $1 million in Q3 relative to Q2 of this year. Can you give us an additional detail on how much of that is from the Pink company upgrades paying the onetime application fee? Antonia Georgieva: Aashi, thank you for the question. The application fee is generally amortized over the service period, which is typically 1 year, in some cases, shorter. So it doesn't impact disproportionately any given period or any given quarter. The overall uptick in OTCID revenue this quarter is what we explained last quarter was due to a number of OTCID companies choosing July 1 as the beginning of their service term. So even though our sales of the new OTCID markets were happening throughout the first half of the year and continued in the third quarter, the revenue recognition for a number of those new customers began on July 1, and you see that impact of the revenue being recognized in the third quarter, which was not the case, to a large extent, in the previous 2 quarters. But in terms of the application fee, again, that follows the annual fee in terms of how it is recognized. Aashi Shah: And then of the roughly 430 Pink companies subscribing to DNS, do you foresee perhaps all of them upgrading to OTCID or will some not qualify? Robert Coulson: I'll say some won't qualify and some will be getting services after they've been moved down. The ID process is incredibly automated. There's no cure periods. It's either you're in or you're out. So you're going to see over time, because these companies were DNS subscribers before, but as ID becomes its own entity and the companies settle in, we will -- there's always going to be a DNS where you've got access to put information there, but you may not be where you need to be. And there's a few companies that just want to publish once a year that may not be able to get up to a higher level. So that's still going to be there as part of it. But of course, if a company is doing the work to create public disclosure, they might as well stream it into the market where their stock is trading. Aashi Shah: And lastly, I have one question on the recent blogpost on blockchain and tokenization of securities. I'm curious to hear your thoughts on equity securities eventually being tokenized and whether OTC Markets has made any capital expenditure investment in that initiative or explored integrating some of these technologies into the business at this point? Robert Coulson: We've spent a lot of human capital thinking about it and talking to regulators about it and talking to our clients about it and talking to other players in the space about it. But let's be straightforward, tokenized securities, and I mean real tokenized securities, which your ownership interest can move around on one of the blockchains, are not legal to issue or lawful for broker-dealers to trade yet. We did a blog post, which I suggest you read, is -- and on the ways we see these types of securities coming into the market. And we believe that there is going to be a lot of excitement and energy and some new technology to use. But we also, because we serve the broker-dealer community, we need to be able to bring these securities in and have there be a level of compliance that broker-dealers are comfortable trading these. And the regulations are going to move rather quickly over the next 3 years. And when that happens, we want to be ready. And I think it was over 2 years ago, we got a license on one of our ATSs to be able to trade digital asset securities. And that was a preparation move. We made changes to our system back then. And we are making other changes to be ready to serve our broker-dealers as they bring parts of this technology and securities issued this way into the TradFi infrastructure. Operator: Our next question comes from the line of Jonathan Isaac with Quilt Investment Management. Unknown Analyst: Can you hear me okay? Robert Coulson: Yes. How's your dad, Jonathan? Unknown Analyst: Great. Robert Coulson: Good. Send him my best. Unknown Analyst: I will. Yes, thanks for taking my somewhat meandering but hopefully insightful question and many congrats on the quarter. From what I understand, OTC Markets gained thousands of securities from the fall of the OTC Bulletin Board, going back to the late 1990s. You were a default option or a natural home to many of these securities, if they were no longer on the OTC Bulletin Board, and they flowed in your direction. I wonder if a similar situation is on deck with digital asset securities. 2.5 years ago, Cass Sanford from your firm wrote, "If certain digital assets are, in fact, securities, they would be classified as over-the-counter equity securities, subject to Rule 15c2-11." If I look at CoinMarketCap.com, there appears to be a few thousand crypto assets with a market cap over $1 million. Presumably, stock exchanges or other exchanges might lay claim to some of the larger crypto assets, once we know which are securities. But for smaller crypto assets, what we might even eventually call OTC crypto assets, is OTC Markets positioned yet again to be a default option or a natural home for these securities like you were for OTC Bulletin Board securities years ago by virtue of your regulatory position and accumulated industry economic goodwill? If so, could we see a crypto version of OTC Markets emerge, with crypto assets intermingled in your Market Data, Corporate Services, and OTC Link segments, adding even more business momentum to your corporate flywheel? Robert Coulson: So Jonathan, first, I have to correct your version of history. Unknown Analyst: Okay. Robert Coulson: We didn't just benefit from the OTC Bulletin Board. We competed it out of existence. We better serve the broker-dealer communities, and they had a choice where they could quote and trade, and we brought better technology, better customer service, and we kept innovating forward. So that's how we got it. And the OTC Bulletin Board had a more established brand, but we compete on functionality. And that is always going to be -- if we can offer either broker-dealers or public companies all the core and critical functionality they need without any of the frills or fluff, we'll be fine. So now the hard part is -- and the previous regime at the SEC, we thought was going to bring crypto into the regulated world. And we thought securities law was applicable, but it needed to be fit in. And they were not willing to remove the parts where it doesn't work. Crypto doesn't have a balance sheet, can't file a 10-K. But bringing it in of the regulation of issuers, intermediaries, and insiders, we thought it was a great structure to work with. We were completely wrong because what happened was they use regulation by enforcement and the majority of those coins you see on CoinMarketCap are going to be CFTC regulated, their currencies and their commodities, which is a bummer because we would have loved to help make those issuers more compliant is because those are core skills we have. Now there is a chunk, which is going to be securities, which is using the technology. And that, like any emerging technology or business, there are a lot of people predicting the future and saying this is how it's going to happen. This is fantastic technology. Everything should be atomic settlement. Everyone is going to want to have their own wallet for their crypto. And there are people in TradFi saying, huh, what's the big thing? Our technology is better, and at scale, it's cheaper. And guess what? Both things are going to happen in different ways, and we're going to have more use cases, we're going to have more tools for financial markets, we're going to have more technology, more transparency. And we want to be part of that conversation with regulated broker-dealers. And we believe the core tools of what we do is provide a trading platform for regulated broker-dealers as a wholesale market, distribute the data out to the world, so there's transparency so everybody can see what's happening on the playing field, and engaging issuers to stream information and demonstrate good governance and compliance. Those core skills are still going to exist. And we don't really care whether it's atomic settlement, T+1, T+0, whatever it is, we will be part of it as the regulations move along because we see that overall, the core functionality we do is going to apply to the tokens that are securities. Unknown Analyst: Yes. I have one more question. Robert Coulson: Sure. Unknown Analyst: Yes. Your market integrity initiatives and the growth of Corporate Services are, we could say, aligned. As companies choose to display their compliance standards, fees are paid for providing the stamp of OTCQX, OTCQB, or OTCID. But a vast territory of your markets remains unmonetized and sometimes barely transparent. What is the path forward for monetizing these unengaged firms who, one could say, are free-riding on your market infrastructure and aspects of your compliance systems without paying a fee to Corporate Services? Could you, for instance, charge an annual access fee for the services you provide, much like a municipality might assess a homeowner for removing roots from underneath the public sidewalk, or a public utility might build constituents within their franchise territory to recoup expenses, which have benefited all, but only been borne by some. How do you think about the continued subsidization of the unmonetized portion of your markets and also the limits of their potential monetization? Robert Coulson: Well, that's a nice dream. And since your dad and I both came from the same bible of fundamental value investing that Ben Graham wrote. The classic world was the old pink sheets, investors had to dig around for information. What kind of companies did you find there? Well, you found disconnected companies from their public market. Why were they disconnected? Some of the businesses were distressed. Some of the businesses were declining. Some of the businesses, the management team was dismissive of shareholder needs. Some companies, international companies, are fearful of litigation for any distribution of their information to the market. But what connected all those companies is they trade at a discount. And our job is to have the imperfections in Pink Limited be the responsibility and blame of the issuers. They're not the ones -- and the managers as fiduciaries. I have a belief that managements of public companies have a duty to disclose and inform their investors in a consistent manner wherever they are. But we are not God. And we are something else that is really important. We serve our broker-dealer clients in trading whatever security they need to deliver best execution in, whether the issuer is willing or not, we are the wholesale marketplace for best execution for them to run their businesses efficiently using whatever trading model they believe best serves their clients base and their technology stack, and their business model. And we want to help them be successful. And I often meet people who have that view. These companies are free riding. I actually think it's fantastic because we can suck in all these companies to be trading, and we do seem to make a little bit of money from trading services, and we have a nice business around selling Market Data. So it's not the end of the world. That said, the more companies that engage, the harder for the easy wins of the old-school value investors, who used to dig around for the information, because companies that are connected will improve their market quality. And we want to focus -- people hear a lot of our market integrity issues because we're dealing with problems. But really, the companies we want to serve and what we've built OTCQX for was the companies that want to do the right thing, all the same IR, compliance and governance, and shareholder relations activities as a company that is listed on the New York Stock Exchange or the NASDAQ Stock Market is, however, they want it with less complexity. And they want to do it in a digital manner. And that's what we do. So very simply, but we are not going to force that Pink companies are -- have to pay us something, but we are going to make it very clear to investors of what type of company they are. Unknown Analyst: And just a final follow-up. If one day you were acquired or you merged into a larger company, do you think an acquirer would charge an access fee or might harness some of this latent pricing power? Robert Coulson: I would no longer be CEO. So that decision would be above my pay grade. Operator: [Operator Instructions] And our next question comes from the line of Walter Hopkins with 18th Square. Unknown Analyst: Congrats on a great quarter, and thanks for these fulsome answers. Robert Coulson: Thank you, Walter. Another fellow value investor. So I'm incredibly happy when the value investors start asking questions. Unknown Analyst: Oh great. We'll keep digging around. Right now, roughly what percentage of OTC Markets expenses are fixed versus variable? And also, to the extent possible, could you give some color on the driving factors of each going forward, both the fixed and variable size of the expense base? Antonia Georgieva: Walter, certainly, we do not have -- we have not shared publicly that specific percentages, but I'm happy to walk you through the elements that comprise various variable and fixed items. Starting with the distribution fees and rebates that you can find as a contra revenue leading to our net revenues on the P&L. Those are variable to -- and usually paid to the redistributors of our Market Data. They are linked to the users that generate the professional user and nonprofessional user revenues. Next item -- and variables, I said. Next item is transaction-based expenses. Those vary with the transaction-based revenue. Those are the fees we paid to the providers of liquidity on our ECN and NQB markets. Within comp and benefits, the variable component is the commissions that we called out this year -- this quarter as a key driver of the increase in compensation and benefits. The additional change there to commissions was a change we introduced to the commission plan, meaning increasing the level of commissions from the beginning of this year, but a meaningful component of the variability in commissions comes from the number of sales. Within IT and information services, we have a variable component related to trading activity. Within professional and consulting, the variable components are the regulatory and clearing fees, which we now, per GAAP, call out explicitly in the segment reporting, which you can find in the notes to the financial statements. And the rest of the expenses are largely fixed. Unknown Analyst: And if you have time for just one more. I recently been studying some of the financial data providers like LSEG, FactSet, S&P Global, and so forth. And one of the big takeaways seems to be that these companies tend to have 3 forms of data: proprietary data, like index data, real-time feeds, credit ratings; semi-proprietary data that's hard or impractical to replicate, risk intelligence data, scrubbed financial data; and then there's a commodity data portion, which is comprised of like raw regulatory filings, end-of-day prices, basic news. Could you discuss OTC Markets' Market Data Licensing products in the context of those 3 categories? And maybe broadly speaking, how much falls into each bucket? Robert Coulson: I'll give you a high-level overview, and then I'll pass to Antonia. I look at the data world is there's core data, which you're the unique source. There's competitive data where others offer it, but there's uniqueness in your data quality level, your depth of data, what's included in the set, your licensing agreements. So there's places where things go up and down. Bloomberg can charge a premium for a market data terminal versus someone else. And then there's commodity data. All of those datas are great to sell if you can make a margin. And is -- and core data is -- if you read the book the 7 Powers, it's a cornered resource. It's really hard to get those, though. So you have to be -- there's lots of real-time market data where it is -- where you're not the price-setting market. And those players will have a rent-seeking fee is, we are the price-setting market in OTC securities, and we focus a lot on being -- collecting in that data. And I think the model of operating in OTC equity securities, 3 different ATS models, really opens up for whatever type broker-dealer wants to be doing business with us. And that's a great product is the -- what we don't have, there's exchanges in the U.S. [ for SIP ] has the vendor display rule, which is really a monopoly of the government. Broker-dealers can choose to turn on and off. There's a negotiation we have. That's why we have per user licenses for real-time market data. We have enterprise licenses. And with our per-user licenses, we try to be just comparable to what other markets charge. Our enterprise licenses are because they go to broker-dealers. We want to still be in our Costco pricing model. And that's a part. All of these 2 types of real-time data, we want to fill in with as much different types of content as possible to widen the viewership. And some of those -- and as many different types of securities to have that, but that's hard because there's lots of other electronic platforms that want to trade these things. And then we've got our nonreal-time data products, which our EDGAR Online fundamental data set of SEC filings is could be commodity, could be competitive, depending on where we are in the quality, what we add in extra. There's other ones like our compliance files where I put in the competitive world because we're taking unique information -- we're creating unique information which is from us taking different data sets and applying our internal expertise so it can be easier for broker-dealers. And we're adding some unique pieces. But at the end of the day, it's very complicated, and every piece of it as you create it, when you've got the problem with a core data is you have to got an edge key in the world they want to buy it. And if you've got something unique, you're educating an unwilling buyer until they understand the uniqueness and the value it can add to their process. So that's a high level. And I will let Antonia give a little bit of color on it, but just you can take that look and go through and read our product descriptions and make your own choices and come back and say, hey, that's really -- hey, Cromwell, you really could add this in and then you'd have a much more competitive data set or you'd have a core data, which you could turn into a cornered resources in the 7 Powers framework. Antonia Georgieva: Once again, Walter, that detailed mix of type of Market Data revenue is not something we have consistently disclosed in the past, but I'll give you a directional sense. Majority of our Market Data revenue is generated from the real-time proprietary data that Cromwell described, whether on a per-user basis. That's why we tend to talk about professional user, nonprofessional user contribution as that is a meaningful component. Also, broker-dealer licenses is the same data, only delivered as a fixed enterprise license as opposed to a per user. And we have additional products for -- that incorporate that real-time data into broker machines directly or on a delayed basis or certain derived data that all comprise that proprietary data component. That is, by far, the majority of our Market Data revenue. In terms of the competitive data, again, data services, Blue Sky data, we call those out as meaningful contributors to Market Data revenue as well. They are a minority of the Market Data revenue, but a meaningful piece. And the commodity data is predominantly our retail portal-based EDGAR Online piece. That would be the most commoditized part because you have large data vendors such as FactSet, Capital IQ within S&P 500 and others delivering similar data. Some of the EDGAR Online enterprise contracts deliver unique data as well. That's why I'm distinguishing specifically what we call EDGAR Pro as being the most commoditized of pieces, and it's a really small part of the total. Robert Coulson: And Walter, I also though often have to correct externally and internally because we look at all these companies. There's a lot of companies in the financial markets, you'll look at an exchange group, which has core data. But you have FactSet who's built a fantastic business with competitive and commodity data. And people have a belief that, oh, we only want to focus on where we've got a monopoly, but your real secret sauce is serving your customers. And I'm a believer in our resources-wise of how we get the structure going forward of that, in the 9 months, say there's about $7.5 million in revenue -- $7.6 billion in revenue of what I call the nonreal time data, which has compliance and EDGAR Online and other things. I believe that client base, who is a superb client base in the broker-dealer, bank clearing, and data distributor world, there's real opportunities for us to grow those revenue streams with quite boring data sets that are not a captured resource. Unknown Analyst: Have you seen any demand from AI-focused startups that are trying to suck in data? That was something that came up a lot when I was researching this area. Robert Coulson: Yes, there's going to be a robot that comes and drills into our brains and sucks it all out. It's a real concern for everyone. And the stack for AI has been building the chips, the data centers, the AI software, as it's showing up into the applications that we use, will take a bit of time. But yes, I'm a believer that AI will make data more valuable, but we have to be careful in how we license it. And that's going to be the challenge for every business. You're going to have AI capital versus human capital and what walks out the door, and how do you keep moving forward your value quotient to participants in the market. And just a quick piece is, machine-learning is not a new idea to all the electronic trading firms, which we have been so lucky to be able to serve in the analog-to-digital transformation of financial markets. Operator: Thank you. And I am showing no further questions at this time. And I would like to hand the conference back over to Cromwell Coulson for closing remarks. Robert Coulson: Thank you, operator. I want to thank each of you for joining us today. I would encourage you to read our full quarterly report for the third quarter of 2025 and the earnings press release for more information. Links to both are available on the Investor Relations page of our website. On behalf of the entire team, we look forward to updating you on our key initiatives that will continue to shape the integrity and the competitiveness of the public markets. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Operator: Good day, ladies and gentlemen, and I warmly welcome you to today's conference call of the Friedrich Vorwerk Group SE following the Q3 figures of 2025. And as always, I'm delighted to welcome CEO, Torben Kleinfeldt; and CEO, Tim Hameister. So the gentlemen will speak shortly and guide us through the presentation and the results. And afterwards, we will be happy to take your questions if you may have. And having said this, Mr. Kleinfeldt, the stage is yours. Torben Kleinfeldt: Thank you very much, and also a very warm welcome from my side. My name is Torben Kleinfeldt, CEO of the Friedrich Vorwerk Group SE. I'm on board Friedrich Vorwerk already since 2001 from profession civil engineer. And I'm responsible of the total overall strategy of the company group and also still focused on a lot of hydrogen projects, which are in progress here in our company's group. Yes, a little bit about Friedrich Vorwerk in detail to all of us who have not seen us yet, Friedrich Vorwerk Group is active since 60 years in the industry of energy infrastructure. The company group is very well represented in the northern part of Germany with 40 locations, about 2,200 employees by today. And we can look back on a very strong growth over the last 5 years with an annual growth of above 20% each year. Our main markets here in Friedrich Vorwerk is, as I said, energy infrastructure, mainly covering natural gas, electricity, hydrogen and we have a -- other piece of adjacent opportunities where we cover all our expertise and services in biomethane treatment and also in district heating. And the business update will today will shine another light on some upcoming projects, which would be within our adjacent opportunities here as well. Main customers, of course, the large TSOs operating here in Germany. So on the electricity side, we see TenneT, Amprion, 50Hertz. On the gas side, it's more Open Grid Europe, Ontras, Gascaribe, these are our main customers, but for very special services also serving the chemical and petrochemical industry here in Northern Europe. Due to the energy transition going on here in Germany and in Europe, we can look back on a very strong order backlog today, still having more than EUR 1 billion of orders in the book by today. So what is Friedrich Vorwerk actually doing? Very short update on that or not an update, but a very short introduction to our business. This slide basically represents what we are doing. On the top, you can see our activities within the natural gas infrastructure. So usually, we are able to set up LNG plants or cross-country pipelines and cross-country stations where Germany is taking over natural gas from various sources outside Germany. Then we are able to engineer and also construct large diameter pipelines to transfer the natural gas to, for example, storage facilities or compressor stations, which are needed roughly all 200 to 300 kilometers in the pipeline to boost the flow of gas and finally bring the natural gas to the consumers. And right at the edge of the consumers, which could be a big city or an industrial plant, it requires also gas pressure, let down and regulator stations to supply the natural gas in the right pressure and the right volume. And of course, there, it needs to be metered for later invoicing as well. So Friedrich Vorwerk is basically able to engineer and also set up, maintain and operate all these components of the natural gas split. Pretty much the same activities. We can supply on the future hydrogen grids, which you can see at the very bottom of this slide, except that, of course, hydrogen cannot be found in nature. So it has to be made by splitting water into oxygen and hydrogen. This is basically done by large electrolyzer stations, where we are also able to supply engineering services, and we have a full range of small to medium electrolyzer arrays from 1 megawatt to 5 megawatt, which we can supply to the market. Business in electricity infrastructure, which is shown here in the middle of this slide, looks a bit different. Usually, our services start when we take over underground cable lines from offshore units. So when new wind farms that are situated outside in the North and the Baltic Sea, cables have to be transferred to land. There's a so-called landfall, which is typically done by a horizontal directional drilling method to under board the crucial environmental areas on the shores of the North and the Baltic seas. And then we are able to engineer and also run underground cables to the next transformer of converter stations with laying cables, we can handle up to 525 kilovolt in transmission voltage. And we are also able to engineer and set up transformer inverter stations, inverter stations unnecessary to switch the current from AC to DC. And of course, in today's grids, we can also connect the electricity grid to the heat grid. So we are also able to engineer and set up large-scale power to heat stations. Okay. Short business update, this time, not on our core markets, electricity, natural gas and hydrogen, but on some adjacent opportunities, which came up lately. First of all, I want to focus on what we call the NATO grid. The NATO grid here in Northern Europe has been set up in the cold war area. So in the -- starting in the '70s and '80s, on the right hand, you can see a sketch of the existing NATO pipeline grid, which is basically transferring jet fuel to crucial air fields of the [indiscernible] and the allies as you can see, basically, the NATO pipeline grid ends pretty much in the -- at the former inner-German border. And now since activities are going more to the east, this nature pipeline grid will be expanded by another 300 kilometers towards the Polish German border and then also into Poland and possibly also to the Baltic states. Since this is the pipeline system, pumping fuel, this is, of course, within our scope and it's a very nice addition to our usual portfolio estimated costs to set up this pipeline grid is roughly EUR 5 billion and also the first steps and the signing of contracts with Poland has been done in October. So we really see that this project is being kicked off, and we'll probably see tenders from the NATO grid in 2027. Next and also very interesting for us is decisions made by the German government concerning ramp-up of hydrogen activities here in Germany. First of all, of course, German government has emphasized that they're still looking for further investments in the pipeline infrastructure and also the plant infrastructure mainly focusing on setting up new electrolyzers to fill the hydrogen core grid, which is planned to be set up here in Germany until 2035, which, of course, requires not only the import of hydrogen, but also the production of hydrogen. They also made decisions to accelerate the tenders by digitalization and which is, I think, the most important decision which has been taken that they also accept not only green hydrogen, but also other colors of hydrogen to be transferred in the corporate and make it available for the consumer. So that's very important decisions for our hydrogen activities. And at the moment, we really see that both on the pipeline side and on plant construction sites, new projects pop up, and we received quite a bit of inquiries for setting up electrolyzers and also pieces of pipeline grid, which is summarized under the core grid here in Germany. And the third outlook I want to show is activities in CO2 transport because also here, very important decisions by the German government have been made in early November. So for example, they've agreed in general that we are able to split up the CO2 for certain industries, which cannot eliminate the emission of CO2. So for example, the cement industry is one of the core industries where you cannot get rid of the CO2 except to capture it and then transfer it to a storage facility. And of course, one of our largest customers, Open Grid Europe is already looking into the future CO2 grid, which will connect the emitters of CO2 to the neighboring country, Belgium and Netherlands because these countries are able to take CO2 and pump it in former gas and oil wells to store there for a long, long time. And also one of the CO2 clusters, which is planned is the so-called Elbicluster, which is pretty much in front of our doorstep to transfer CO2 from the cement industry to the ports on the North Sea and then, there it will be liquefied and brought by shipped to Norway, and Norway is able to take over the CO2 and also store it in old natural gas wells. That's it from my side for the moment. And with the update of our future -- possible future activities, and I would then hand over to my colleague, Tim, who will present the financial performance of the company's group for the third quarter. Tim Hameister: Yes. Thanks a lot, Torben . Good afternoon, ladies and gentlemen, and a very warm welcome to our earnings call and the Q3 figures. My name is Tim Hameister, CFO of Vorwerk. And I'm very pleased to walk you through our extremely strong Q3 figures and the updated outlook today. After reporting record revenue in the second quarter, we once again managed to beat that figure in the third quarter, achieving quarterly revenue of more than EUR 200 million for the first time in Vorwerk's history. Despite ambitious year-on-year figures, this represents growth of a fantastic 39%. Although the start of the third quarter in July was mixed due to challenging weather conditions, this was more than offset in August and September. The continued success in recruiting contributed significantly to this, enabling us to hire more than 100 new employees in the third quarter alone, also including a small M&A transaction consisting of roughly 35 employees. From a project perspective, the largest revenue drivers in Q3 were, of course, still the large-scale Anord project, followed by a number of pipeline projects, such as the EWA pipeline as well as several large volume gas pressure regulating and metering stations, which ensured high capacity utilization for our plant construction division. Consolidated revenue for the first 9 months of the year amounted to EUR 505 million, representing growth of 49% compared with the previous year. In both percentage and absolute terms, our electricity segment was once again the growth driver. However, it's also noteworthy that absolute revenue in the natural gas segment increased slightly again compared to the previous year, particularly due to the high number of plant construction projects. Revenue in the clean hydrogen and adjacent opportunity segments is roughly on the same level as the previous year. However, the development of profitability in the third quarter is particularly remarkable. Once again, the already very solid EBITDA margin of 21% in the second quarter was improved by another 4 percentage points to 25.4%, compared to the previous year, this represents an increase of 8 percentage points and a doubling of absolute EBITDA to over EUR 50 million. The EBIT margin even rose by 5 percentage points to a new record high of 19.1%, corresponding to EBIT of EUR 45 million alone in Q3. All segments contributed to this improvement in earnings are the largest increases that were achieved in the pipeline construction projects. In addition, the share of profits from joint ventures, [indiscernible] doubled compared with the previous year due to the higher number of projects awarded in this specific contract structure. Accordingly, the 9-month period closed with EBITDA of EUR 105.8 million, corresponding to a margin of 20.9% and adjusted EBIT of EUR 87.3 million or an EBIT margin of 17.3%. These fantastic results include minor catch-up effects in the mid-single-digit million euro range from variation and change order negotiations, but as already in Q2, the vast majority was achieved with our ongoing projects fueled by our high-quality order backlog. Now let's take a look at the development of order intake. In addition to the conventional order intake figure, we've introduced a new KPI with the half year figures, the total project volume acquired. And I would like to use the opportunity to once again explain the differences between the two key figures to all shareholders who were not present at our last earnings call. So there are basically two different types of project structures. In Option A, Vorwerk acts as a general contractor and handles the entire project through its own P&L statement, which means that 100% of the order value goes into order intake and later into revenue. And the second option, the client awards the entire project to a joint venture. And in this constellation, we do not show the proportional share of the total order volume and conventional order intake. Instead, we are only allowed to show the supply of personnel and equipment to the joint venture, which can, in some cases, be significantly lower than the proportional share of the total project. The order intake figure, therefore, does not reflect the actual project volume handled by the Vorwerk Group, which is why we also report this new K figure. And this KPI also includes the proportionate project volume from the joint ventures in which Vorwerk involved. And therefore, in our opinion, provides a more transparent view of the actual order situation, regardless of the type to contract structure. So the total project volume acquired rose by 45% to EUR 886 million in the first 9 months of 2025, while conventional order intake at EUR 419 million is around 20% below the same period last year. The main reasons for this are, on the one hand, the shift in the order structure toward joint ventures, especially in H1 2025. And on the other hand, our already well-filled order book. Nevertheless, we've also acquired many new and attractive projects in 2025. Some of them, Torben will present later in this call. The order backlog, which corresponds to order intake declined slightly to EUR 1.1 billion for the reasons stated before and currently consists of around 70% order volume attributable to the electricity segment. In addition to the strong development in both revenues and profitability, the development of net cash is impressive as well. Compared to Q3 2024, we've increased net cash by EUR 80 million to EUR 112 million. And thereby creating an excellent basis for further organic and acquisition-driven growth. The main reasons for the significant increase are, firstly, significantly higher profitability. Secondly, an improved negotiation position with regards to the payment terms in the contracts and thirdly, improved working capital management with regards to our internal processes and project controlling. Yes. And based on the strong performance in the current year and especially in Q3 and an unchanged positive outlook, we raised our guidance already for the second time this year, a few weeks ago. We now expect revenues in the range of EUR 650 million to EUR 680 million with an EBITDA margin of 20% to 20%, 22%, which corresponds to a margin improvement of 5 percentage points at the midpoint year-on-year. Now let me now hand it back to Torben for some updates on the ongoing and upcoming projects before we open the floor to your questions. Torben Kleinfeldt: Tim, thank you very much. Yes, very proud to present another major pipeline project, which will be executed in 2026. It is a project driven by German Gasunie division. The project is strongly in conjunction with the ETL 182, which is a 56-inch pipeline running from Stuttgard at the river banks of the Elbit towards the city of Bremen. In the end, this pipeline will be constructed also by a joint venture driven by Friedrich Vorwerk to bring regasified natural gas from Stuttgard to a hub in close to Bremen and the ETL 179.200, which has been awarded in the last month also to the same joint venture will basically connect the Dow Chemical facility, which is located in the northwest of the city of Stuttgard to this new pipeline grid. It is a 900 so 36-inch pipeline, roughly length is 18 kilometers, very difficult terrain for constructing pipelines. But since it is tight conjunction with the ETL 182. This is a very nice top-up to the existing project and we are actually managing this project also with the same resources as the other project. So second project I would like to represent is the TenneT project, which has already been ongoing this summer. It is one of the landfall projects, which is driven by TenneT, basically a framework contract where we are entitled to cross different islands north of the mainland of Germany in the North Sea by means of horizontal directional drilling. We have to execute in total 39 boreholes for the later use of -- with the cable -- with the high-voltage cables. We have already executed five drillings under the island of Baltrum this year and basically stopped operations now over the winter and we'll continue with the operations on the island of Baltrum next year in May when the window for working in the [indiscernible] is being opened. And once all the cables under the island of Baltrum have been laid, we'll shift to the next islands and then also to Buzon, which is shown here on the top right side of the picture. Friedrich Vorwerk and [indiscernible] share here in this joint venture is roughly 40%. So we'll also be entitled to do most of the drillings, which are necessary to complete all landfalls. Third project I want to focus on today is also from natural gas or hydrogen market. It's a plant construction project, a rather large gas metering stations and pressure letdown station, which is located at the compressor station in Boa, which is in former Eastern Germany. This project is set up by Ontras Gas Transport, and it is necessary to transfer hydrogen, which is taken over from the YAGAL pipeline and will be supplied into the grid of Ontras Gas Transport, where it is then transported to numerous industrial consumers in Sachsen and Sachsen-Anhalt. Friedrich Vorwerk not only has the contract to set up this plant, but also to do the full detailed engineering scope. And we have already started executing the engineering part of the project and will then be executing the actual project in 2027 and 2028. So here also a very nice project for our Plant Construction division, not only here in Halle Saale, but also in [ Vismore ] for the prefabrication activities, which are necessary to perform this project. Final project I want to focus on is another district heating project. You know that we have just finished the so-called [indiscernible] in the city of Hamburg, which is a large diameter district heating system, bringing heat from industrial producers in the port area of Hamburg to the north. And the follow-up project is, so to say, the -- it's called the [indiscernible], which in the end then transports the heat from these industrial consumers more in the middle of the city of Hamburg. This is a project in tendered in 3 lots. We have actually been awarded with lot number three. Pipeline here is also flow in the return line, diameter DN600 and 700 millimeters right in the middle of Hamburg. So very difficult inner city terrain to execute. But since we have a very well trained and very well executing district heating team here, we are really happy to have won this project so they continue -- they can continue their good work from the previous projects. And also looking in the future, there will be numerous district heating projects, especially in the city of Hamburg. For example, we are at the moment working on the tender for constructing also a large diameter pipeline grid towards the airport of Hamburg, which will later on supply the actual airport and also the Lufthansa facilities, which are located right at the Hamburg Airport. Yes. Now final slide from my side, at least on the technical part, is a short update on our newly developed welding system, the so-called PX2. PX2 has been developed and is also operated by our subsidiary, 5 CTECT welding system, fully automatic, being able to trace the actual well, so it can adjust automatically. It doesn't need an operator anymore to be run around the pipeline. system has first been tested on the EWA pipeline this year and has now continued on the pipeline. First experience, very high productivity, very little weld defects. We had a defect quota of below 1%. So repair rate below 1%, which is very unusual in the past with other welding systems, we had almost double-digit repair rates. So we are very, very happy to have developed the system, and we were already able to receive contracts outside Germany, for example, in Croatia and Turkey. And at the moment, we are actually supplying welding services in Turkey to a 40-inch pipeline and quite happy with the production. We are doing almost 100 wells a day, which is a very, very good performance and still with a very low repair rate. So the investment in the development of the new PX2 system is, in general, very good for us and opens up a complete new market also on international projects. And of course, finally, switching back to our HR department, I think Tim already focused on it. We have grown by more than 13% in the third quarter of 2025. So taking on a lot of new employees. And in the end, that has really helped for numerous projects, and we are -- we hope we can keep up the pace with our employees and hope with all these people on board for a very successful 2026. This is the end of our presentation, and we are, of course, very happy to take your questions. Operator: [Operator Instructions] We received the first question, or hand from Mr. Stueben. Lasse Stueben: I'll have three questions, please. First of all, the margin profile in the natural gas segment, it was really high again in Q3. I know that's probably in part due to those negotiation payments. But I'm just wondering, can you just give some more explanation to that? And what we should be looking for in terms of the margin profile going forward? The second one is you spoke in the past about a potential delay on the Anord project. I just wanted to ask how that is looking or if there's an update there and what the possible impact is for you? And the third one is the duration of your backlog now. That EUR 1.1 billion that you have in terms of the phasing, does that already cover you for potential double-digit growth in 2026? Or is there still, I guess, some gaps to fill with some short-term projects for 2026 to potentially achieve double-digit growth? Tim Hameister: Yes. Thanks for joining today, Lasse. I would like to start with the first question regarding the segment profitability. In Q3, there were actually two drivers for the strong margin for the natural gas margin. On the one hand side, I already mentioned, there were some negotiation one-off effects from change in variation orders from past projects. And the second effect here was the high share of joint venture profits because this structure is mainly used at the moment in pipeline construction projects. Regarding your second question, Anord, I still foresee that there will be delays in construction due to a lack of building clearance, especially in terms of missing permits, and we are still in constructive discussions with the client to adjust also the relevant targets for the bonus-malus clause since it's not our risk here in the end. So the customer is responsible for obtaining the permits. And we expect to have a result here on this before Christmas this year. Regarding the third question, the backlog. There are just a few projects such as the [indiscernible] project, Torben , as presented, the [indiscernible] duration until 2028. But apart from that, the majority of the backlog will be transferred into revenue in 2026 and 2027. And therefore, we have a very strong basis for further growth in both of the 2 years. Operator: All right. Thank you so much. Yes, no, we did not receive any further questions. So having said that, we received -- yes, just go ahead with you. The follow-up. Lasse Stueben: Yes. Just a follow-up, please. And then just on guidance, revenue guidance for this year. I mean, we've seen in last year, I know it was probably a bit special with Q4 being stronger than Q3. Guidance this year implies that Q4 is quite a bit weaker. So I'm just wondering, sort of -- what the thoughts are behind that and what that kind of means in terms of also potentially a contribution from Anord. I saw it was roughly EUR 180 million in 9 months. I think originally, you were guiding for I think, EUR 250 million or above for this year. So I'm just wondering if that's still current or if we should be modeling a bit less than EUR 250 million from Anord. Tim Hameister: So based on the current forecast and the Q3 figures, this would imply revenues between EUR 145 million and EUR 175 million for the last quarter this year. When you think about the usual seasonality of our business, Q4 is easily weaker than Q2 and Q3, although we had an extraordinary strong Q4 last year. But in general terms, it's are more likely to expect a weaker Q4, at least in terms of revenue due to the weather conditions and less working days since we usually close the construction sites mid-December. And of course, we also try to reflect risks and uncertainties from our project business within the guidance. Regarding Anord due to the missing permits on some of the sections on the track. There will be shifts of revenue to 2027 as well, at least to the first half of 2027. And therefore, we expect that the revenue contribution this year will be a bit lower compared to previous expectations. Operator: And in the meantime, we received questions in our chat box. And the first one is, to put it simply, which is the better leading indicator of future revenue recognition, the order intake or the new KPI total project volume in your opinion? Tim Hameister: So in our opinion, it's of course, the total project volume acquired. That's the reason we have introduced this figure because can transparently show how much project volume is in the end, handled by the Vorwerk group. Although it's important to say that the total project volume is not the figure that will translate into revenue in the next years. Only the order intake will translate into revenue. However, you will see higher profit shares from these joint venture constructions so that in the end, the total EBITDA will be the same regardless of the contract structure. Operator: Next question, how likely is it that you will be able to generate revenues with the CO2 transport network already next year, assuming the Federal Council's approval is greater this year? Torben Kleinfeldt: We do expect not to have any revenues in CO2, at least not in the pipeline business because the first project is being set up here between cement industry farm in [indiscernible] in the Port of [indiscernible] We do expect that public permits for this projects will be applied for next year. We expect to have a duration of about 12 months to get the permits approved. So construction will probably be '27, '28, '29, but we already have some revenues in the CO2 business, we are delivering CO2 purification and liquification plans, especially as an add-on to our biomethane treatment plants. So this liquefied CO2 goes in the food and also in the beverage industry. And we have already supplied a couple of CO2 electrification plans to the market until today. Operator: And the next question, what are your plans for share buybacks? Tim Hameister: Well, we have plans for at least capital allocation, not necessarily for share buybacks our priority number one, to use our cash is, of course, still organic growth, which means that we continue to invest primarily in technical equipment and machinery. In addition, we have to take into account the working capital swings across the year and maintain a very solid balance sheet at all times as this is part also of the pre-liquification processes for our projects. Yes. In addition, we are keeping certain amounts of cash available for potential M&A transactions. And we also expect to pay a higher dividend in the next year since this is linked to the net profit of the company. Operator: And another last question. Do you expect a higher margin in the electricity segment from H2 2027 onwards. Once Anord is completed and follow-up projects will not be executed via IPA? Torben Kleinfeldt: Yes, of course, once the dilutive effect from the Anord project has run out in the next years, and there are no follow-up projects with this specific contract structure. We will, of course, expect higher margins in electricity as well. Operator: So with you now chat and in the queue, there no further question pops up and that seems, we will come to the end of today's conference call. So thank you, everyone, for your showing interest in the Friedrich Vorwerk Group SE and also a big thank you to you, Mr. Kleinfeldt and Mr. Hameister for the time you took today. It was a pleasure to be a host, wish you all a lovely remaining day or evening and hand back for some final remarks, which concludes our call. Torben Kleinfeldt: Yes. Thank you very much for hosting us. Also thanks for listening today. And I can only say let's keep fingers crossed that the weather stay with us to make it a very, very successful year here in 2025 for Friedrich Vorwerk and hope to come back with good news in the beginning of next year. All the best and bye-bye.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Anterix Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Ms. Natasha Vecchiarelli, Vice President of Investor Relations and Corporate Communications. Ma'am, please begin. Natasha Vecchiarelli: Thank you, operator, and good morning, everyone. I'm Natasha Vecchiarelli, Vice President of Investor Relations and Corporate Communications, and I welcome you to our fiscal 2026 Second Quarter Investor Update Call. Joining me today are Scott Lang, our President and CEO; Elena Marquez, CFO; Chris Guttman-McCabe, Chief Regulatory and Communications Officer; and Ryan Gerbrandt, COO. Before we begin, please note that today's discussion may include forward-looking statements regarding our outlook, operations and expected performance. These are based on current assumptions and subject to risks and uncertainties. We encourage you to review our SEC filings for a detailed discussion including Forms 10-K and 10-Q, which are available on our website. We do not undertake any obligation to update forward-looking statements. With that, I'll turn the call over to Scott. Scott Lang: Thanks, Natasha, and good morning, everyone. I appreciate you joining us today. October marked my 1-year anniversary as CEO of Anterix, a year of hard work, and clear progress. I came to Anterix because I believe then, and I have even more conviction now that Anterix is in a unique position to be the first disruptive company in a generation to make an even greater, lasting and profound impact for the entire industry for the next generation. With a strong customer base and asset value that we believe is 10x our current cost basis, a strong balance sheet, a light OpEx model and expansive industry partnerships, we are well positioned to deliver for the industry and our shareholders. Over the past year, we have strengthened our foundation, deepened customer relationships and positioned Anterix to expand be on spectrum while executing on our long-term strategy. Recent transactions including those led by EchoStar and others, reinforce what we have been saying all along. Spectrum is a strategic asset, not only for utilities but also for a wide range of critical infrastructure and adjacent industries. We see this opportunity clearly and are taking deliberate steps to make our company an even more powerful partner for our customers. With that said, momentum toward 10 megahertz continues to accelerate, and we remain engaged with the FCC with confidence and a favorable outcome for Anterix, our customers and the federal government. While 6 megahertz already stands up competitively against any available alternative today, our expansion to 10 megahertz, physicians and tariffs as the future true foundation for critical infrastructure modernization, unlocking additional opportunity for the design, build and operation of private broadband networks. Utilities have entrusted Anterix with this mission to lead solutions that are designed to simplify and accelerate deployments that will capture meaningful incremental value for shareholders. This expansion marks more than the evolution of our spectrum position. It defines our intent to own a larger share of the infrastructure market by being the partner utilities rely upon to connect, secure and modernize the nation's most critical systems. Through our partnerships with leading utilities both those already deploying private networks using our technology and those in our active pipeline, we have seen what works, the unique challenges that utilities face and where they need the most support. That insight is shaping the next chapter of Anterix, expanding beyond spectrum, unlocking incremental opportunity and helping utilities modernize critical infrastructure while driving sustainable growth for our stakeholders. Building on this foundation, I want to highlight two initiatives where we see significant opportunity to scale. Together, these two offerings represent an annual market opportunity of roughly $1 billion, positioning us to capture a share that we believe will be important for our customers and deliver value for our shareholders. The first initiative I'd like to highlight is TowerX as recently announced. TowerX is a first of its kind tower optimization and access program providing utilities with prenegotiated leasing terms standardized pricing and end-to-end support services. Launched together with one of the nation's largest tower companies, Crown Castle, utilities have access to a broad network of tower infrastructure, including Crown Castle's 40,000-plus sites, enabling faster deployment of 900 megahertz private wireless networks. While TowerX accelerates the physical deployment of private networks by simplifying site access and infrastructure readiness, our second offering, CatalyX is designed to fuel adoption, helping utilities deploy their private networks faster. CatalyX was created to meet the clear first step needs customers identified for adopting private wireless networks. This streamlined customer-driven solution, enables utilities to connect and manage devices immediately, even before securing spectrum while simplifying operations, reducing friction and ensuring multiple layers of security, built on cutting-edge SIM and eSIM management in collaboration with a top-tier roaming solution partner CatalyX capitalizes on Anterix' deep customer relationships and ecosystem strengths to generate significant customer value and create new growth avenues for the company. Together, these opportunities position Anterix to accelerate adoption, broaden customer engagement, and lead the transformation of the nation's grid backed by our exclusive 900-megahertz spectrum, proven deployment tools and unmatched industry partnerships. We are empowering utilities to enable connected intelligence, securely, reliably and at scale, delivering real lasting value for our customers, and our shareholders. And finally, before I turn the call over to Elena, I want to give a quick update on new customers. We continue to make strong progress on negotiations with customers that are participating in the Accelerator program and are also pleased to share that we recently were selected after a competitive procurement process to begin contract negotiations on a spectrum opportunity with one operating company that is part of a two operating company organization with the goal to scale across their entire footprint. With that, Elena, welcome to your first earnings call as our new CFO. The floor is yours. Elena Marquez: Thanks, Scott. I'm honored to take on the CFO role at such a transformative time for Anterix. I'm excited to continue partnering with this talented team as we drive our strategy forward, deliver on key initiatives and create meaningful long-term value for our shareholders. As Anterix' new CFO, I want to set the stage for looking at Anterix differently, not as a typical EBITDA or revenue-driven business. Our value is not solely in our quarterly earnings. It is in the strategic spectrum asset that we're actively monetizing and the long-term high-margin cash flows, our 900-megahertz spectrum generates. This is a balance sheet and free cash flow story. Every spectrum transaction, deployment partnership and network solution we execute enhances value and creates optionality for growth. Digging a bit deeper, today, our spectrum assets are carried on our balance sheet at $325 million, far below their true monetization potential. The 85% of our spectrum yet to be monetized is valued in the range of roughly 1.5 to well over $4 billion based on 600 megahertz and AWS 3 auction prices with all of our current contracts falling in that range. The cement headroom provides us with unmatched pricing power and a path to unlocking billions in additional value from our spectrum asset alone. Combined with the new low capital-intensive solutions and services Scott outlined, including TowerX and CatalyX. We're expanding and improving our financial profile. We are focused on growing top line revenue and unlocking even greater value. With both of these products, we're taking recognized market leaders who are part of our active ecosystem and partnering with them to capture new revenue. Turning to our results. We closed our second quarter of fiscal 2026 with approximately $39 million in cash and no debt. Looking ahead, we have approximately $114 million in contracted proceeds to be received with over $60 million of proceeds projected to come primarily in the fourth quarter of fiscal year 2026. Notably, on the contracted proceeds front, during the quarter, we received $29 million in milestone customer payments. Additionally, we continue to successfully deliver spectrum to customers ahead of schedule, thanks to the outstanding coordination between our teams and our utility partners. Through the second quarter of our fiscal year 2026, we received $19 million in accelerated payments, raising our projected cash proceeds for the current fiscal year to $100 million from the $80 million we previously guided on. Turning to our income statement. We see the benefits of our OpEx reductions and our continued financial discipline, setting the foundation to deliver strong results. Additionally, we recorded a total gain of $71 million in the quarter, consisting of $60 million from the exchange of narrowband to broadband licenses across 99 counties and $11 million from the sale and delivery of broadband licenses in 26 counties. These record high onetime gains demonstrate our continued ability to monetize our spectrum assets and deliver on our commitments to current and prospective customers. With that, I will turn it back to Scott. Scott Lang: Thank you, Elena. I am betting on us. We are building a new enteric leaner, more focused and positioned to deliver long-term growth and value for customers and shareholders alike. The progress we have made this year is real, and the opportunity ahead is exciting. To reinforce this conviction I invested in Anterix in the open market following last quarter's earnings call, and I plan to be doing that again in the near future. On behalf of our leadership team and the entire Anterix organization, thank you for your continued confidence and support. We will now open the line for questions. Operator: [Operator Instructions]. Our first question or comment comes from the line of Mike Crawford from B. Riley Securities. Michael Crawford: A couple of quick questions on the balance sheet. One, in income statement. What are these wireless licenses that you entered into agreement with an incumbent for in June and you have $28 million that you need to pay in. For which licenses? Scott Lang: Elena, do you want to take that? Michael Crawford: I'm here. She might be on mute. So there were disclosures regarding this in the last two Qs, but I don't know the number you guys are talking about this. Scott Lang: Sorry, Mike. Give Elena and... Elena Marquez: Can you hear us? Scott Lang: Yes. Natasha Vecchiarelli: Okay. Perfect. Apologies, we're on the right line now. Yes, Mike. Thank you for the question. So I'll start and then I'll pass it over to Chris for some additional insight. So yes, you will see in the disclosure that we have a total commitment for this clearing arrangement of about $20 million. So as far as the financial impact for the quarter, we have funded a $14 million escrow for this agreement, and you will also see it in our disclosures. Out of which, only about $5.5 million have been so far expanded with about $8.5 million left, and we expect that likely this will be -- the Escrow should fund this for the rest of the year. There may be -- maybe a slight additional spend, but I will pass it over to Chris for the additional color. Christopher Guttman-McCabe: Yes, thanks. Thanks, Elena. Hey, Mike. So this is part of our clearing. This is the clearing of a complex system. It allows us to deliver for an existing customer, but it also unlocks a range of opportunities in that footprint, potentially for other broadband customers. So this is part of our anticipated, sort of clearing pathway and clearing costs and we're still in line and in budget for our clearing estimates that we made multiple years ago, and we're still on path for that. Michael Crawford: Okay. And in August, I think you spoke of being 80% through clearing. Is that... Christopher Guttman-McCabe: Yes. We're now north of that. We're closer to 85% of incumbents cleared. We could actually go to FCC licensing on 90% of the counties in the United States now. And as we've talked about in the past, we continue to clear both strategically and opportunistically. And we're still right in line. We're still delivering actually, not only on time but early our licenses to our existing customers, and this is all sort of part of that. Michael Crawford: Okay. Thank you. And then, just as these licenses get exchanged from narrowband to broadband. You have these kind of noncash -- well, noncash changes on your balance sheet and income statement. And in the past, the company has been reticent to try to put any kind of scale or scope on that are you able to do so now for the rest of this year or in the future altogether? Elena Marquez: No. No, Mike. Thanks for asking again. But again, right, we're not able to provide guidance simply because we work right partner with FCC, and it all depends on the timing of licensing and we will not guide on this. Michael Crawford: Okay. And then final question is in -- once -- the company in the past has reached contract negotiation stages for a complex system. Is there any time frame around when that process might conclude and lead to actual transaction? Christopher Guttman-McCabe: Yes, Mike, it's Chris again. So we've cleared 6 of the 11 complex systems. We're working on the seventh right now. We have a path for each of the remaining complex systems, and we'll move forward with them, again, sort of strategically and opportunistically. So not all 6 and even the seventh are always tied to a near-term spectrum contracting opportunity. It's not always a one-for-one, particularly with the complex systems, we are particularly strategic and opportunistic. And so it's not a one-to-one. So clearing one doesn't necessarily mean that there's a contract falling right behind it. And so we'll continue to tackle them that way. But the reality is it's how we tackle all of the incumbents, including the remaining 15-ish percent that are still in place. Operator: Our next question or comment comes from the line of George Sutton from Craig-Hallum. George Sutton: Scott, you kind of buried the lead at the end of your prepared comments. So -- and congratulations on moving at least a bit forward with two operator deals. I wondered if you could give us a better sense of where that stands and what kind of population is involved? Scott Lang: Good morning, George. Thank you for that. Well, it's a fairly large IOU. I can't give you the specifics on it at this time under NDA, but it's a fairly large utility. And as we mentioned, it has two large operating groups, one of which is taking the lead to select us, work with us, did that standing up, demonstrate the power of the broadband networks. And then we see that deploying across both operating companies, but it is a nice sizable contract opportunity. George Sutton: So you mentioned your asset value being 10x your current cost basis, and I'm not sure what you're referring to as your cost basis. Are you referring to the $325 million in your balance sheet? Are you referring to the initial cost of the spectrum. Could you just give us a little more clarity there? Scott Lang: Yes. I another -- Elena, you go first and then I'll weigh in. Elena Marquez: Thanks so much, Scott. Yes, so $325 million just refers to the balance sheet. But ultimately, within the balance sheet number, right, there's still some of that broadband conversion. So ultimately, our cost base is even lower than that. So ultimately, we're referring to our -- the market value of our assets being about 10x the balance sheet. George Sutton: 10x the balance sheet. Okay, great. Scott, the Edison Institute Conference was a bit of a buzz. You're basically talking about the utility market for the CEO there saying they're going to spend $1 trillion over the next 5 years. So we're really serving arguably the highest demand market in the country, and they don't have modernized systems. I wondered if you could just talk about having Tom as your CEO, former Edison, CEO and just the broad sort of interest that you're getting relative to these very, very busy utility systems. Scott Lang: Yes. Great question, George. So first of all, I've worked with Tom for 20 years. He's phenomenal. He's just a terrific chair of our company, and spokesperson. He certainly has made a huge impact on the back of his tenure at EEI, which is when I met him back 20 years ago. The connectivity platform, as we've talked about historically and something I've been focused on for a good part of most of my career, is the first and most strategic part of a utilities decision when they think about the long-term nature of the flexibility and the security of the number of devices and the scale of the devices to offer these services to their customers. And so while the utilities are making investments, large investments around data center builds, new generation. Underneath that are enormous amount of population that demands and will require connectivity and new devices that are coming into the system. So as those devices come into the system, there's a common theme with all of them. How do I get connected to the grid? How do I have real-time secure connectivity to the grid, which leads us right back to a foundational step of building the wireless network infrastructure underneath that. And so I think this has clearly become a board-level conversation, a strategic conversation that our partners and our utilities, and our clients, our existing clients and our prospective clients see that this is something that is critical to their future. So I think it is continuing to be one of the top of mind, which is why we even see this progress with a new utility progress with the existing customers and their deployment, which is the launch of TowerX and CatalyX and the interest in the strong demand and negotiations we're having with new prospects. Operator: [Operator Instructions]. I'm showing no additional questions in the queue. I would like to turn the conference back over to Mr. Scott Lang for any closing remarks. Scott Lang: I'd like to thank everyone for joining us today, and I'd especially like to call out to our existing customers who have been just absolutely terrific to work with as we've shaped these new initiatives. And I would especially like to call out appreciation of the team who's just working really hard and made the progress that we've made in these last few months, and we look forward to keeping you updated on our progress as we move forward. Have a great day, everyone, and we will be talking with you again soon. Thank you. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Hello, and thank you for joining us for i-80 Gold's 2025 Third Quarter Conference Call and Webcast. Today's company presenters include Richard Young, President and Chief Executive Officer of i-80 Gold; Paul Chawrun, COO; and Ryan Snow, CFO. Before we continue, please note that some of today's comments may contain forward-looking statements, which involve risks and uncertainties. Actual results could differ materially. I ask everyone to view Slide 2 of the presentation, which is available on i-80 Gold's website to view the cautionary notes regarding the forward-looking statements made on this call and the risk factors related to these statements. Following today's formal presentation, we will open up the call to your questions. I will now hand the call over to Richard. Richard Young: Ludy, thank you very much, and hello, everyone, and thank you for joining us today. Looking at Slide 3. The third quarter marked another solid quarter of execution with visible progress toward the key milestones within our development plan that we launched 1 year ago today. We continue to advance towards our goal of creating a Nevada-focused mid-tier gold producer. At Granite Creek Underground, project ramp-up continues. Mine grades and tonnages continue to reconcile well against the model. And groundwater is being managed with greater control, thanks to the newly improved infrastructure installed in Q3, while we make progress on a permanent disposal solution, which is on track for the end of Q1 2026. As a result, we expect to meet our 2025 consolidated guidance of 30,000 ounces to 40,000 ounces of gold. Importantly, gross profit continues to improve as we stabilize Granite Creek, moving from a loss a year ago to a small profit, still a long way to go. On the development front, in September, construction commenced at Archimedes as planned, which is an important milestone marking the start of our second underground mine. Start-up activities and decline development are tracking very well. The Lone Tree plant refurbishment study is substantially complete. At the same time, drilling programs, technical studies, and permitting activities also progressed across the portfolio during the quarter, keeping us on track towards our key project milestones. The prize here is to realize the net asset valuation of the 5 gold projects as outlined in the most recent PEAs, which indicate a total valuation of approximately $5 billion under a $3,000 gold price scenario. Looking at Slide 4. I believe that the company's success depends on its people and culture. In this quarter, we continue to strengthen both. Beyond geology, Nevada's skilled workforce is a key reason it remains one of the best mining jurisdictions in the world. We've hired quality talent over the past 3 months in key roles from engineering, geology, construction management to permitting and community engagement that will help drive project execution from the ground up. With our focus on long-term value creation, we continued with steps to further mature as a company. During the quarter, we advanced an initiative to refresh our mission, vision, and values and establish a sustainability strategy with ERM, one of the leading sustainability firms in the field based on our new development plan. In addition, we're in the process of expanding our focus on performance-based culture across the organization. All of these initiatives will be rolled out shortly, and they are very important as we look to attract and retain the best people in Nevada to execute on our development plan. As i-80 grows, we're building a company that reflects not only operational excellence, but the values that we stand for. We also continue to evaluate ways to accelerate value creation, such as the potential to bring forward a pre-feasibility or feasibility study on Mineral Point, our most valuable asset to enable earlier permitting. That leads me to the recapitalization plan. We're engaged with a number of groups and remain confident that we'll secure a financing package by mid-2026 to support Phase 1 and Phase 2 of our development plan as well as the engineering and permitting efforts required for Phase 3, which is Mineral Point. I'll now turn the call over to Paul to expand on the project updates. Paul? Paul Chawrun: Thank you, and hello, everybody. Turning to Slide 5. Operations at Granite Creek and Archimedes have made good advances over the quarter. There are many moving parts across the portfolio, but we continue to execute and derisk the plan with the necessary work underway. At Granite Creek Underground, mining activities continued to ramp up during the quarter with increased access to mineralized material from ongoing stope development, assisted by improvements to the dewatering infrastructure installed during the quarter. September was a particularly strong month for advancement of the main decline with record monthly development. Total mined ounces and tons continue to reconcile well on a level-by-level basis when compared to the current geological model. As we continue to ramp up operations, we continue to increase the drill density to improve ore control and the overall mining productivity. In the quarter, we mined approximately 15,000 tons of oxide mineralized material at a grade of about 9.8 grams per ton of gold. Note, we continue to encounter higher-than-anticipated high-grade oxide material at depth. We also mined approximately 20,000 tons of sulfide material at a grade of about 10.7 grams per ton, plus an additional 15,000 tons of incremental low-grade oxide material of just under 3 grams per ton of gold. Gold sold totaled 7,400 ounces and 16,400 ounces for the quarter and 9-month period, respectively. The stockpile of sulfide material, which is processed by a third-party autoclave was normalized by quarter end. Regarding the dewatering program, we've made significant progress and are now able to remove this from the underground workings as needed. A more reliable pumping system was commissioned during the quarter, enhancing operational efficiency and enabling more effective water management in the active mining areas. Of the 2 additional surface groundwater wells planned, one is now complete, and we are currently drilling the second. To support long-term groundwater management and future operating stability, installation of a second larger water treatment plant remains on track for completion at approximately the end of the first quarter of 2026. This plant is designed to enable the ultimate discharge of water to prevent it from re-entering into the underground workings. At Lone Tree and Ruby Hill, we continue recovering gold from the existing leach pads with a total of approximately 2,000 ounces recovered and sold in the third quarter. Moving to Slide 6. Drilling of the South Pacific Zone continues to progress well at Granite Creek underground. Just under 10,000 meters of core drilling was completed by the end of the quarter from 20 of the 40 planned holes. As of today, we have completed 35 holes, but have added an additional 7 holes to the program. As outlined in a press release in September, initial assay results from the first 6 holes confirm robust high-grade mineralization throughout the South Pacific Zone with several strong intercepts that confirm continuity and the potential for expansion to the north and at depth. The deepest and furthest step-out hole intersected primary fault structures where expected and returned standout grades, including 33.6 grams per ton over 2.9 meters and 29.7 grams per ton over 3.6 meters. And overall, this intercept was over 21 meters at just over 10 grams per ton. A summary of the assay results are outlined in the September 10 press release available on our website. Encouraged by these results, drilling advanced beyond the current structural boundary, opening a new untested area to potentially expand the known mineralized areas. The program remains on track for completion in December of this year, supporting a feasibility study with an updated mine plan targeted for completion late in the first quarter of 2026. Overall, we're very excited with the turnaround progress and longer-term potential at Granite Creek. Turning to Slide 7. Things are off to a great start at Archimedes underground. In early September, we received permits to the mine -- to mine the upper level above the 5,100-foot elevation to initiate construction. Underground development is advancing above expectations, reaching approximately 300 feet at the end of the third quarter and over 1,000 feet of drift advance as of early November. Work is underway on the geochemistry and hydrogeological technical studies required to secure permits below the 5,100-foot elevation. Beyond permitting and development, infill drilling commenced in the Upper 426 zone, the first week of November as planned. Initiation of drilling in the Lower Ruby Deep zone is scheduled for the second quarter of 2026. In total, the program comprises of over 175 holes and 55,000 meters of core, forming the basis of a feasibility study targeted for the first quarter of 2027. Next, let's turn to Slide 8 to discuss the progress at the remaining projects. At Cove, over 40,000 meters of infill drilling was completed on a 30-meter spacing across the Gap and Helen zones. The results of this work delivered meaningful advances for the Cove project, which significantly strengthened our geological understanding to improve confidence and continuity and grade, improved understanding of the metallurgical response to optimize feed and gold recovery in the autoclave and positions Cove for a strong resource conversion from inferred resources to higher confidence categories. The feasibility study is progressing as planned with completion expected in the first quarter of 2026. Major permit applications are also underway in anticipation of an EIS process. Moving to Slide 9. At Mineral Point, engineering work continues to progress to support permitting and define the timing of a pre-feasibility or feasibility level study. Given the project's strong economics and potential valuation uplift, a review of the completed technical work is underway to assess opportunities to accelerate drilling and the timing of studies subject to available capital. Moving to Slide 10. At Granite Creek Open Pit, the technical baseline work to advance the project towards pre-feasibility or feasibility study continues. An initial project narrative was provided to the regulatory authorities in the quarter to initiate field studies, and we anticipate an EIS process will be required. Geotechnical drilling and other field studies have been deferred into next year due to ongoing updates to the Granite Creek Underground operating permits, which are a priority. As a result, we are currently reviewing new timing for study completion with a lens to optimize future growth plans. Granite Creek Open Pit remains a Phase 2 opportunity with the potential to contribute to company-wide production towards the end of the decade. Turning to Slide 11, for an update on the refurbishment of our Lone Tree plant. Early works progress is on track and the updated Class III engineering study is substantially complete. The study updates an internal feasibility study that was completed in 2023 with design optimization and value engineering initiatives, includes a filter tail system, updates cost estimates with significant detail as there are approximately 14,000 lines for the project controls and a detailed execution plan completed jointly with our owners team leadership. Overall, the results are largely in line with our expectations. And once finalized, we expect to share these results in the coming weeks. In the meantime, the Board approved a limited notice to proceed in the third quarter, allowing detailed engineering to begin and enable the procurement of long lead equipment, which is progressing this quarter. The plant is permitted for the existing operational components in use. However, new and revised operating permits will be needed updating for the air, water, a new mercury abatement system, and revised closure plan that incorporates dry stack tails. The necessary environmental permit application are underway for the initiation of construction. A construction decision is anticipated in the second quarter of 2026 and a plant commissioning is targeting in the first gold pour for the end of 2027. Restarting the Lone Tree Autoclave is a cornerstone investment for the company, providing increased processing capacity and higher anticipated margins for the high-grade material feed from our underground operations. And with that, I'll now pass it over to Ryan for a financial overview. Ryan Snow: Thank you, Paul. Starting my review with Slide 12. Third quarter gold sales nearly doubled over the prior year period to approximately 9,400 ounces. In addition, the company had approximately 3,400 ounces of gold in finished goods inventory at quarter end due to the timing of sales. Total revenue from gold sales increased to approximately $32 million for the quarter, driven by higher ounces sold and a higher average realized gold price of $3,412 per ounce. Cost of sales for the quarter rose over the comparative prior year period, mainly due to higher processing fees from increased toll milling of sulfide material. As Richard highlighted, we have seen a swing in our year-to-date gross profit from a loss in 2024 to a gain in 2025, a roughly $24 million increase. And Q3 marks our fourth consecutive quarter of gross profit. For the quarter, the company reported a net loss of approximately $42 million or $0.05 per share, which is similar to the prior year period. This net loss reflects the development stage of the company and our current period of strategic investment. Also, under U.S. GAAP, which we transitioned to last year, predevelopment, evaluation, and exploration costs are expensed until we declare mineral reserves. Cash used in operating activities of approximately $15 million compared to about $24 million in the prior year as a result of higher gross profit and higher working capital, partially offset by increased predevelopment, evaluation, and exploration costs that were expensed. We closed the quarter with a cash balance of approximately $103 million, a decrease from the previous quarter due to development spending and continued investment in drilling programs to support our technical studies and development plan. This balance is in line with expectations in our recapitalization plan. Moving to Slide 13. We're actively moving our recapitalization strategy forward. During the first half of the year, we secured sufficient capital to fund just over $90 million in construction activities, drilling, permitting, and technical studies across all 5 gold projects as well as the Lone Tree plant from May 2025 through mid-2026. We continue to execute a strategy that is focused on funding Phase 1 and Phase 2 of our development plan, which could include a new senior debt facility in the range of $350 million to $400 million, a royalty sale, and the potential sale of our non-core FAD project. The positive response from lenders and capital providers to date reinforces the strength of our assets and the significant value creation opportunities we see ahead for i-80 Gold. With that, I will now turn the call back to Richard. Richard Young: Well, thank you, Ryan. Looking at Slide 14, you'll see a number of catalysts on the horizon. We're entering a transformational period with a clear line of sight to major milestones over the next 12 to 18 months. During this time, we expect to complete the recapitalization to fund Phase 1 and Phase 2 of our development plan, complete the engineering study for the Lone Tree plant and commence the refurbishment, achieve steady-state production at our first mine, commence production at our second mine Archimedes and ramp up, and lastly, complete feasibility studies for our 3 underground mines as well as the Granite Creek Open Pit and possibly Mineral Point. These efforts will run in parallel with permitting and ongoing drill programs. From a valuation perspective, i-80 Gold continues to trade at a deep discount to comparable developers despite a significant resource base with a growth profile that few can match, all within one of the world's best mining jurisdictions. And at today's valuation, we think the market is only beginning to recognize the potential. That concludes my remarks. We'll now turn it over to Q&A. Ludy, please, can you open the line for questions. Thank you very much. Operator: [Operator Instructions] With that, our first question comes from the line of Omeet Singh with SCP Retail. Omeet Singh: Thanks for the update on the question. Congrats. I had 2 questions around Granite Creek specifically. So the first was, where are you mining now? And when do you expect to be mining from some of the longer levels in the South Pacific zone? And then maybe the follow-on to that would be, it seems like you continue to be finding oxides even as you go deeper. So what is your thinking around that? And do you expect that to be, say, impacting plans for the autoclave at all? Paul Chawrun: Yes. These are great questions. So first off, we're mostly in what's called the OG zone now. We have started the upper zone to South Pacific. And then next year, we're probably around 60% -- 60-40 South Pacific and then 40% on the OG zone. And then as time goes on, we'll be more and more on the South Pacific zone in the longer-term plans. And then regarding the oxidation, so it's primarily in the OG zone. There's a little bit of oxidation in the South Pacific. But fundamentally, what's happening is you get the surface water, the meteoric water and then it can oxidize some of the sulfide into oxide ore. And longer term, that represents an opportunity for us, as you point out, in the autoclave. But for the moment, we're feeding that off to our third-party processors, and we get slightly lower margins depending on the grade as the sulfide. So that's where we're at. And then would we stockpile? I think your question was, would we stockpile this ahead of our autoclave? Perhaps, and that's something we're evaluating. Omeet Singh: Can you talk about the steps you're taking to put the oxide through the Lone Tree plant? Paul Chawrun: Yes. So the autoclave can be bypassed with oxide ore. And so we're evaluating, once we get close to commissioning of that plant, there's potential for us to feed that through. Operator: [Operator Instruction] The next question comes from Don DeMarco with National Bank. Don DeMarco: So looking at the recapitalization plan, you have a number of different options to increase liquidity. One of them is a potential disposition of the non-core FAD asset. And we saw recently that the research -- the high-grade resource that was published. But in light of this resource, are you reconsidering maybe not divesting this asset? Or has your expectations, in the event of monetizing it, has your expectations increased? Richard Young: Don, that's a great question. We've always been aware that it's a high-grade resource. Unfortunately, when we look at the development plan, we will not be able to get to that until probably the end of 2030s, early 2040s. And so if there is an opportunity where we can get fair value for it, we will look at it as part of the recapitalization. But again, if we don't get a fair price, we paid $88 million for it 2 years ago in shares. It is a high-grade resource, both the polymetallic and the oxide at surface. So we'd consider it, but we are evaluating all of our options with respect to the recapitalization, and that is one potential source of capital that minimizes dilution for shareholders. Don DeMarco: Then looking at the Lone Tree Autoclave engineering studies pending release later this quarter. Of course, we're looking forward to a decision in Q2. So I guess for the sake of our modeling, how should we think about CapEx for the refurbishment and also for Archimedes development in 2026? Richard Young: So looking at the autoclave refurbishment of $400 million, to use a round number, we believe that roughly $175 million will be spent in '26 and the balance in '27. And with respect to Archimedes, we would expect the development to be roughly about $40 million in line with the PEA, and then there will be some ongoing development. The way we see our communities today, Don, is very much in line with the PEA in terms of the spend. While we did commence construction later than as disclosed in the PEA, the team does appear to be making up that ground. Paul Chawrun: Yes, yes. So in fact, if we may spend a little more in 2027 because we're advancing the development quicker. But for your model, I would use the PEA numbers. We're -- even though we started a bit later, we're more or less on track. Operator: And I'm showing no further questions at this time. I would like to turn it back to Richard Young for closing remarks. Richard Young: I'd like to thank everyone. I know it's a busy morning for conference calls. But as we close out the quarter, it was another solid quarter for us. And a year ago, we announced the development plan, and we've made great progress over the last 12 months. And we're very confident that we can execute on this plan, which will require the recapitalization, which is well underway. So we do believe that as we move into '26 and '27, we will be able to unlock the value of this significant resource base. But thank you, everyone, for your time. And if you've got further questions as you digest the materials that we've published yesterday, please give us a call. Thank you. Operator: Thank you, presenters, and ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the NanoXplore First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pierre-Yves Terrisse, Vice President of Corporate Development. Please go ahead. Pierre-Yves Terrisse: [Foreign Language] Good morning, everyone, and thank you for joining this discussion of NanoXplore financial and operating results for the first quarter of fiscal 2026. The press release reporting these results was published yesterday after market close and can also be found on our website along with our financial statement and MD&A. These documents are also available on SEDAR+. Before we begin, I'd like to remind you that today's remarks, including management's outlook and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectation as of today, November 13, 2025, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risk factors that may affect future results is contained in NanoXplore Annual Information Form available on our corporate website and in our filings with the Canadian Securities Administrator on SEDAR+. On the call with me this morning, we have Soroush Nazarpour, CEO; Rocco Marinaccio, our COO and incoming CEO; and Pedro Azevedo, our CFO. After remarks from Soroush, Rocco and Pedro will open the call to questions from financial analysts. Let me turn the call over to Soroush. Soroush Nazarpour: Thank you, PY. As many of you already know, we announced back in September that I would be transitioning the leadership role to Rocco. This transition marks the next chapter in NanoXplore journey, one that builds on our strong foundation of innovation, operational excellence and disciplined growth. This strategic transition is nearly complete and being done with NanoXplore long-term growth and success firmly in mind. Over the past 15 years, I've had the privilege of founding and leading NanoXplore from a bold idea to the thriving company we are today. During this period, NanoXplore evolved from a small R&D venture into a publicly traded, vertically integrated materials company with around 400 employees, multiple production sites and global partnerships. We became the world's largest graphene producer, commercialized graphene-enhanced products at an industrial scale, achieved around $130 million in annual revenue and established a strong foothold in both transportation and industrial markets. A pivotal moment in our recent success came in September when we announced our largest ever graphene powder sales agreement with Chevron Phillips Chemical, a contract that's progressing very well. That brings me to the news I mentioned. After deep reflection and discussion with our Board, I have decided that it was the right time for me to step aside from my day-to-day role as CEO and transition to Vice Chair of the Board. Effective December 4, 2025, I will focus my energies on long-term strategic growth plan and closely work with current management to achieve our long-term objectives of organic growth and financial performance with a clear objective of creating shareholder value. I would like to extend my gratitude to the Board, management, employees and shareholders for all these years of dedicated collaborative work and support. I'm deeply proud of what we have achieved together and confident that NanoXplore is well positioned for its next phase of growth. With that, I will turn it over to Rocco. Rocco Marinaccio: Thank you, Soroush, and PY, and good morning to everyone joining us on the call. As Soroush mentioned, effective December 4, 2025, I will officially assume the role of Chief Executive Officer. I greatly value the continuity and strategic insight that Soroush's continued involvement as Vice Chair of the Board will bring to this next chapter for the company. Our company is stronger than ever, supported by a robust commercial pipeline, a growing and diversified revenue base, strong IP portfolio, industry-leading graphene manufacturing capabilities and a culture of innovation and excellence that's ready to accelerate. As I take on this new role, I bring the same energy and dedication that I've applied over the past 7 years as COO, driving scale-up efforts across North America and Europe. Since 2021, we've achieved significant operational efficiencies, improving gross margins by 11 percentage points while expanding our customer base. Looking ahead, my focus will remain on execution, innovation and growth, continuing to strengthen our position as a global leader in graphene materials, particularly in applications such as drilling fluids, insulating foams and plastics. As I step into the CEO role, my focus is clear; to build on our growing momentum, deliver sustained value for our shareholders and continue pushing the boundaries of what is possible with graphene. Looking at the first quarter, our graphene-enhanced solutions business was again impacted by softness in the transportation sector, particularly from our 2 largest customers. However, we're beginning to see early signs of stabilization, and we expect demand to gradually recover during the second half of fiscal year 2026. On the positive side, we have started supplying Chevron Phillips Chemical and all indicators point to significant growth opportunities as we work together to identify additional applications. In addition, yesterday, we announced Club Car as a new customer, which we are supporting from our new facility in Statesville, North Carolina. This long-term contract is expected to generate approximately $15 million in annualized revenues, and I'm pleased to report that production is already underway. This is a significant development for the company, clearly demonstrating our graphene-enabled differentiation translating into a major win. We look to build on this momentum as we pursue additional opportunities. We recently completed a $25.7 million equity financing, supported by new and existing shareholders, including a pro rata investment from Martinrea, our largest shareholder. This financing strengthens our balance sheet and provides us the ability to scale dry process graphene production, enabling us to pursue new and larger market opportunities. We remain on track to have our first fully commercial dry graphene module installed by March 2026, with initial revenues expected to begin by the end of our fiscal year 2026. This first module represents an important milestone for NanoXplore, adding between 500 to 1,000 tons per year of new capacity, depending on product grades. This positions us to meet growing customer demands in markets that were previously not addressable and further solidifies our leadership in high-quality, high-volume graphene production. Looking ahead to the full fiscal year, we anticipate 2 distinct phases of performance. In the first half, our graphene-enhanced solutions business faced volume reductions from our 2 largest customers, leading to softer Q1 results than expected. However, we are encouraged by early signs of market stabilization and expect sequential improvement in Q2 as new customer programs ramp up and underlying demand begins to recover. As we move into the second half of the year, we expect growth to accelerate, driven by increased graphene powder sales, the ramp-up of production at our Statesville facility and the recovery of volumes in our graphene-enhanced solutions business. Together, these catalysts position us for a strong finish to fiscal 2026 and set a solid foundation for sustained growth into fiscal 2027. In summary, while we experienced a temporary pause in growth over the past 3 quarters, we are entering a period of renewed momentum. We secured a major new customer in CPChem and are advancing additional opportunities within our highest margin business segment. At the same time, we are ramping up production for Club Car at our new Statesville facility and making meaningful progress on our dry graphene initiative. Overall, we expect both growth and profitability to be weighted toward the second half of the year. We are energized by our recent customer wins, which open new growth markets, and we remain focused on optimizing operations, building strong customer partnerships and converting top line progress into sustainable bottom-line performance. With that, I'll now turn the call over to Pedro to walk you through our financial performance. Pedro Azevedo: [Foreign Language]. Good morning, everyone. Today, I will begin with a review of our Q1 financial results, followed by an update on financial aspects of our 5-year plan and conclude with some commentary on near-term CapEx spending and revenue guidance for fiscal year 2026. But before jumping into the details, I wanted to highlight that the contract with Chevron Phillips Chemical is very important financially for NanoXplore. Selling price is in line with the previously stated range for graphene powder. And as volume ramps up over the year and into future years, this contract will produce strong cash flows and drive higher margins and operating leverage. We have already received and delivered orders and expect growth to be strong, but not yet easily predictable as CPChem is in its initial phase of product rollout and marketing strategy. Total revenues in Q1 were 30% lower than Q1 2025 at $23.4 million. This decrease was mainly due to a reduction in demand from our 2 largest customers as volumes have slowed to historically low levels after strong demand last year. Our 2 largest customers, along with others in medium-duty and heavy-duty transportation sector have reported layoffs and cadence reductions due to the current economic environment. Adjusted gross margins, which exclude depreciation as a percentage of sales was 17.3%, a decrease versus 21% last year. This was mainly driven by lower manufacturing overhead cost absorption resulting from lower volumes, partly offset by a favorable product mix effect resulting from higher graphene powder sales. This lower adjusted gross margin broke a multiyear quarterly improvement streak, but we expect that this is a temporary situation with a resumption of the streak by the second half of the year. Adjusted EBITDA was a loss of $1.4 million, a decrease of $2.5 million versus last year, and was comprised of a loss of $1.3 million in the Advanced Materials, Plastics and Composite Products segment, a decrease of $2.8 million versus last year and by a loss of $71,000 in the Battery Cells and Materials segment, an improvement of $320,000 versus last year. Regarding our balance sheet and cash flows, we ended the quarter with $10.1 million in cash and cash equivalents and $7.7 million in short-term and long-term debt. Our cash, along with the unused space in our revolving credit lines, resulted in total liquidity of $20.1 million at September 30. Our recent $25.7 million equity financing closed on October 30 is not included in these numbers. Operating cash flows were negative $6.2 million, mainly from changes in working capital items and is typical in the first quarter. Cash flows from financing activities were positive $1.4 million, resulting from equipment lease financing advances inflows of $3.2 million and debt and lease repayments of $1.6 million. Finally, cash flows from investing activities were negative $3.7 million, mainly due to capital expenditure payments. At the end of September, the company had used a cumulative cash amount of $7 million on capital expenditures for projects in progress that will be financed during Q2 with the RBC credit facility. Moving now to an update on financial aspects of our 5-year strategic plan. With regard to the expansion of graphene-enhanced solutions capacity in Sainte-Clotilde-de-Beauce, this expansion increased our capacity to produce parts for one customer by 50%. As a reminder, a large portion of this capacity expansion was paid by our customer. However, the capacity expansion currently remains underutilized due to reduced demand in the medium-duty transport sector. We expect capacity utilization to increase during the second half of our fiscal year 2026. Our U.S. expansion, which includes both graphene-enhanced SMC as well as additional capacity for the graphene-enhanced solutions business was completed during the quarter. Start of production for Club Car began in early October in our new plant in Statesville, North Carolina. Including Club Car, we currently have an incremental $40 million per year of awarded programs that will start production over the next 18 months. Turning now to our near-term CapEx spending and fiscal year 2026 guidance. CapEx spending during the quarter was as expected. We spent $3.7 million and expect to spend another $4 million in each of the next 2 quarters as we complete the spending on graphene-enhanced SMC initiative and the first module of the dry process grade graphene line. As previously mentioned, this will be financed through our RBC credit facility. Regarding our fiscal year 2026 guidance, the economic environment remains unclear and forecast from customers in the transportation sector remain volatile. While forecasts from our 2 largest customers indicate volume growth in the second half of our fiscal year, these could be delayed to later in 2026 as we experienced last year. New business starting in Q2 will partially offset the current volume reductions, but growth rate and order frequency from these customers are not yet established. We believe Q1 revenues will be the trough of the fiscal year with sequential quarterly revenue growth thereafter. As such, and based on the visibility we have today, we are cautious in our expectations and guide to full year revenues between $115 million and $125 million. PY? Pierre-Yves Terrisse: Thank you, Pedro. Operator, we can now open the lines for questions. Operator: [Operator Instructions] Our first question comes from the line of Amr Ezzat with Ventum Capital Markets. Amr Ezzat: Now that we're more than a month into the CPChem deliveries, can you walk us through whether early volumes are tracking to the commercialization curve you and CPChem envisioned? Then in the same vein, I'm wondering if you have any operational feedback from the first batch of wells that informs your scaling plan? Rocco Marinaccio: Sure. Good question, Amr. So we're a month into the contract. We signed it late September, started October 1. How we're tracking to initial projections, I'll tell you, we're tracking higher than what we believe we would be. The rollout has been quicker than anticipated, which is obviously positive. Feedback from customers that have trialed the material has all been positive, in line with expectations as to what the customer can expect. And again, all the feedback that we've received so far are positive. Marketing from CPChem is starting early December, so they haven't even started officially marketing the product, and that will occur in December. So we expect demand to continue to increase and in line with expectations. Amr Ezzat: Okay. That's great news. How is it that demand is tracking ahead of expectations if they're not marketing the product? Then like can you help us understand, is that contract structured in a way that allows accelerated volume pull forward if CPChem wants to move harder on their own commercialization? Or is it like a ramp that's strictly linear? Rocco Marinaccio: Yes. So how are they achieving greater than expected volumes? Well, word of mouth. When the initial trials were done with NanoSlide, they were done in the most stringent areas in the U.S. The community -- the oil drilling community understood the results, and that's how the demand has increased pretty quickly. Not uncommon in the industry for competitors to purchase competitor material and label it themselves. That is underway as well. Our competitors are trialing products. And if they feel a need, they're more than able to purchase the product and label it as their own. And we see that early signs of that occurring as well. Amr Ezzat: Fantastic. Maybe one on the guidance. The revenue range that you guys gave, like at least if I use the midpoint, implies an average of $32 million per quarter over the next 3 quarters. I'm assuming like you guys are saying Q2 is a bit of a recovery, but H2 stronger. But I'm wondering if you could unpack the building blocks here. How much of that sort of jumped to an average of $32 million a quarter versus the 20-ish you guys reported, is uplift driven by powder versus composites versus recovery, I guess, from your 2 largest customers? Pedro Azevedo: So if I can answer that. So the average is correct. That is the average for the rest of the 3 quarters. But as we said, it will be a ramp-up. So you should expect Q2 to build on Q1 and then Q3 and Q4 to build on each previous quarter. I think you can ramp it up that way to get to that $120 million, let's say, midpoint. Most of that revenue growth is going to come from the recovery from the volumes from the 2 largest customers. We expect some recovery. We just don't know to what extent, which is why the range is somewhat wide right now. The growth of CPChem will come, but the values that we're talking about are not going to be so material to be influencing that much the guidance. They're going to be there. They're going to be important and they're going to contribute more to the bottom line. But in terms of top line, the majority of that is going to be from the addition of Club Car from the recovery of the sales volumes to the 2 largest customers. Amr Ezzat: Okay. That's very clear. Then like on the Club Car, like how quickly do you expect that to scale towards steady state? And I just want a point of clarification. Is this additive to the $40 million composites target that you guys spoke to in the last conference call? You guys said in the next few years, you've got a few programs that sort of ramped you to like $40 million. I'm assuming that $15 million is included in that $40 million that you guys spoke to because you guys were already speaking about a new customer that you guys haven't announced or haven't announced. Rocco Marinaccio: Yes, Amr, you're correct. So the $15 million is inclusive of the $40 million. So it's not incremental to. We announced in the release yesterday that this was takeover work. So it's not a traditional business that you win and the launches in 2 years. We, essentially -- early October, we launched and the ramp-up went from 25% of the volume to 100% within a week. So there's been a ramp. We're already at full volume, I'll tell you that. The ramp has been quick, and we're very excited. I mean it's -- if you look at the volume of golf cars produced, everything coming out of Evans, Georgia, we're supplying every single one of them. So it's a great business for us. Operator: Our next question comes from the line of James McGarragle with RBC. James McGarragle: I just wanted to follow up on that question on the revenue guidance. You mentioned in the press release, the guidance is based on your customers' near-term forecast. So can you just kind of share what those forecasts are a little bit more specifically? And a quick follow-up. Is it the new module, is that in guidance? Or would that be upside to your guidance for fiscal 2026? Pedro Azevedo: James, so first to your first question, the volume is based on what we see from our customers without the expectation of significant recovery of volumes. It is based on what we believe is a more appropriate forecasting for the rest of the year of growth from these 2 main customers, right? So it can be upside, which is why the $125 million could be on the upper end. It could even be exceeded, but we're not ready to guide that, and we're guiding the $115 million to $125 million. When it comes to Club Car, the business is there. So we -- and as Rocco just explained, the business has hit its normal rate for the rest of the fiscal year. There is a seasonality to it. We know that it's going to be a little bit higher over the next 2 quarters -- our fiscal quarters and then kind of dip down a little bit after that. So we can predict those kinds of volumes to some extent. And finally, your question on dry process graphene. Right now, we expect dry process graphene to start generating some sales in the fourth quarter before the year-end, as we've talked about. And the volumes that we would expect to sell at first are going to be fairly small. They're not going to be material to the sales levels, but they're going to be important as a step stone, as a milestone for the company to start generating those revenues. So you could argue that they're not included in our numbers, so they could be upside, but they would not be material to influence $125 million to $128 million or $130 million or something like that. But to be honest, it is possible that it will contribute to the guidance that I provided. James McGarragle: And then in terms of the margin recovery, I guess, 2 things. One, you mentioned the gross margin streak, the improvement should resume in the back half. I guess the first part of my question is, does that mean Q2 margins should be lower versus Q1? And then in Q3 and Q4, as volumes start to recover, top line starts to recover, should we start anticipating margins more closely in line with last year? Or do you still expect margins to be down year-over-year, but just improving quarter-over-quarter? Pedro Azevedo: Yes. So the answer is that the growth into next quarter will be better than what we have. So the 17.5% that we had this quarter was really because of the volume levels. And in your initial report, you kind of commented that they were down versus expectations, but it really was mainly driven by the volume and nothing else. The recovery that's going to happen in Q2, you should -- it will start growing back. And the streak will resume, but only in the second half because my comment on the streak is that it relates to last year's Q1 or in this case, last year's Q2. So we expect Q2 to be a little bit lower than the Q2 of last year or very close to it. And then in Q3, resume that year-over-year quarterly improvement in margins. So that -- I don't know if that's clear, but we expect by the end of the year to be upwards of 24% again and resume that streak into fiscal year 2027, growing into the 25%, 26% as such as the proportion of graphene powder sales increases. Operator: Our next question comes from the line of Melissa Deane with National Bank Capital Markets. Melissa Deane: Could you provide some clarity on the CapEx expectation for the graphene and anode material initiative and namely on the dry graphene side of things? Is it the entire $25 million of equity financing that you issued? And with that, if you can kind of give us an estimated capital layout timeline, if possible? Pedro Azevedo: Yes. So you have a few questions in there. So first, the expectation for the next 2 quarters is that we're going to focus on completing our graphene-enhanced solutions investments, which is the investments in our Statesville site and SMC materials in the Beauce plant. So that's going to be the majority of the amounts in Q2 and Q3 as we finish those initiatives. That represents, give or take, $3 million or so out of the $4 million in each of the next 2 quarters. The extra amount to get to $4 million represents the dry process graphene, the first module line that we are putting in. We're about halfway in terms of cost, let's say, maybe a little bit less than halfway. We will complete that by the end of the third quarter, and that represents the 4 and 4 that I mentioned. After that, we plan to grow the CapEx mainly on the dry process graphene expansion, and that will be dictated by the demand that we see from our customers and the acceptance into the market of this new grade of product. So each module will be about $2 million. And each of these modules, as Rocco mentioned, is somewhere between 500 and 1,000 tons. So depending on the growth, we will be putting in the second and third and potentially fourth line over time. The time will be dictated by the demand. But the growth of that capacity will really be on a modular basis, and that's important for you to know. And the last question you were asking, the $25 million cash that we received from equity is going to be partially to support that growth. We earmarked about $20 million out of the $25 million that would be going into these modules. Now that's going to be over time. I can't say whether it's 18 months, 2 years, 3 years, but that's how we expected the equity financing to support that growth. Melissa Deane: Perfect. Understood. And with that, how is the testing and traction with this new dry process graphene going with customers and testing partners? Is it better than you expected or in line with expectations? Rocco Marinaccio: So I'll take that question. So the dry process really addresses markets that were not addressable to us previously or we didn't believe they were. So testing has been, I would say, very good in markets where previously were not achievable, if you will. So new grades of product address key markets, foams, for example. And we'll say that testing is in advanced stages with a lot of customers, and I would say it's extremely positive right now. Melissa Deane: That's great to hear. And just switching gears, can you give us an update on the insulation foam customer and the advancements you're making there? I saw you mentioned it in your press release, and you've previously noted this opportunity could be larger than the drilling solutions one, noting a minimum of $15 million per year in sales potential. So yes, just an update on that opportunity and if you're still maintaining those expectations. Rocco Marinaccio: So I don't know exactly what you're referring to in terms of that it could be bigger. We can certainly go back and review what we've said previously. I'll say that we're working with multiple customers in this space, big names, I'll tell you that. But disclosing who they are, we're not ready to do that yet. But we have multiple customers in various stages, some further along, some in advance. But it is a big, big market. Pedro Azevedo: If I may, I think what you're referring to, just to help the conversation along is I think you're talking about the addressable market is larger than what we think could be for drilling fluids. That is actually correct. The dry process graphene, as Rocco explained, addresses a market today that we can't really access. The performance of the wet process does not deliver the expectations to the level that the customer wants, but the dry process graphene is showing early signs that it does. And that's where we see a lot of possibilities down the road that could be, yes, indeed larger than the drilling fluids side, which we think is already going to be pretty big. But the $15 million that you mentioned, the only $15 million that we remember talking about either myself or Rocco is really the side related to the Club Car business. That's the only $15 million that we recall talking about. Melissa Deane: Okay. And when could we see this opportunity presenting itself in your results if you're able to kind of give any outlook there? Rocco Marinaccio: Yes. So as indicated, once the line is up and running in March of 2026, by the end of that fiscal year, so let's say, June, July time frame, we'll start initial revenues, right? So you'll see them in fiscal year 2027. Timing of that is still yet to be determined. Operator: Our next question comes from the line of Marvin Wolff with Paradigm Capital. Marvin Wolff: Congratulations on the Club Car mandate. I'm wondering with this win, is there any other potential recreational applications that are coming to your door, things like HEVs, other types of sports recreational equipment? Rocco Marinaccio: Good question. Thanks, Marvin. Yes. I mean, our team is working with many different potential customers, right? The key with Club Car has seen even with our current customers in PACCAR, they've seen the benefits of graphene-enhanced materials and they've tested, they've adopted it, right? So as we get our products into the market, it becomes much more commercial in the sense where there's more lineups of customers that want to try and understand the benefits as well. So we're in talks with multiple customers in different segments. We felt it was very important to diversify from just strictly transportation because obviously -- for obvious reasons. And I think with the Club Car win, we did that, right? And that's just a steppingstone into potential future business. Marvin Wolff: Now can you speak to in rough terms, are we talking about the front clip? Are we talking about the rear clip that covers the motor and all that kind of stuff? Or is it to the big belly pan? Rocco Marinaccio: We do front and rear underbody. So essentially, the backside where you put your golf clubs and the whole front side where you put your feet and the pedals and all that, we're doing both the whole thing. Operator: And I'm currently showing no further questions. At this time, I'd like to hand the call back over to Pierre-Yves Terrisse for closing remarks. Pierre-Yves Terrisse: Okay. Well, thank you, everyone, for participating on this call, and we wish you all a very good day. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to today's Investcorp Credit Management BDC's quarter ended September 30, 2025 Earnings Call. It is now my pleasure to turn the floor over to Andrew Muns, Chief Financial Officer. Andrew Muns: Thank you, operator. Welcome, everyone to Investcorp Credit Management BDC's earnings call for the quarter ended September 30, 2025. I'm joined today by Suhail Shaikh, President and Chief Executive Officer of the company. I would like to remind everyone that today's call is being recorded and that this call is the property of Investcorp Credit Management BDC. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on the Investor Relations page of our website at icmbdc.com. I would also like to call your attention to the safe harbor disclosure in our press release regarding forward-looking information and remind everyone that today's call may include forward-looking statements and projections. Actual results may differ materially from these projections. We will not update forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit the company's registration statement on the SEC's EDGAR platform or our Investor Relations page on our website. The format for today's call is as follows: Suhail will provide an overall business and portfolio summary, and then I'll provide an overview of our results, summarizing the financials. This will be followed by Q&A. At this time, I would like to turn the call over to Suhail. Suhail Shaikh: Good morning, everyone, and thank you for joining our third quarter earnings call. We'll start with an update followed by a review of our third quarter results, current market conditions, portfolio activity, and then Andrew will walk through our financials for the quarter. I'm pleased to announce that the managers parent Company continues to provide strong support for the BDC. Our Board of Directors has approved Investcorp Capital, an affiliate of Investcorp Group to provide a backstop commitment to refinance our [ 4.78% ] new notes due April 1, 2026. When this commitment enhances our flexibility proactively addresses the near-term maturity and strengthens our balance sheet. Turning to our third quarter results. We reported net investment income before taxes of $0.6 million or $0.04 per share, a decrease of $0.02 per share from the previous quarter. The sequential decline in NII was primarily driven by a decline in income earning assets due to the loss of PIK dividend income from Fusion's preferred equity position which was placed on nonaccrual status as well as portfolio repayments and our continued discipline and not chasing lower-yielding investments. Net assets declined by approximately 4% with net asset value per share increase -- decreasing to $5.04 per share from $5.27 last quarter. This was largely the result of fair value adjustments and 2 legacy borrowers and the payment of a dividend in excess of NII. Nonaccruals accounted for 4.4% of the portfolio for a fair value, up from 1.6% last quarter following the addition of Fusion's preferred equity position. Although modestly higher, sequentially, the level remains comparable to the 4.8% reported a year ago, underscoring the continued stability of the portfolio and our proactive management of underperforming credits especially legacy credits. Overall, the portfolio remains healthy. Approximately 82% of assets at fair value are rated in the top 2 risk rating categories. Our weighted average interest coverage ratio improved to 2.3x compared to 2x a year ago, reflecting enhanced portfolio strength. Weighted average LTV remains approximately 41%, while weighted average leverage declined to 4.6x in the current period from 4.8x in the prior quarter as weighted average EBITDA increase. The portfolio is broadly diversified across 18 industries with average exposure to any single company representing less than 3% of the portfolio's fair value. As we reflect on the quarter, we continue to operate in a backdrop of solid fundamentals but heightened caution. Deal flow and sponsor-led M&A remains slow with many transactions still working their way through the processes rather than closing. Refinancing and portfolio redeployment activity has also slowed compressing spreads and limiting opportunities for compelling new originations. We remain highly selective in evaluating opportunities that meet our targeted yield and credit quality criteria. Approximately 57% of sponsor-backed private credit deals were priced with spreads below 500 basis points in the current quarter. While we actively manage the portfolio, we're not rotating into lower-yielding assets simply for growth of all deals entering our pipeline this quarter, fewer than 10% advanced to deeper diligence. Instead, our focus remains on credit quality and structural protections. We're not chasing the lowest yielding deals. Approximately 73% of our investments are in covenanted to deals. Looking ahead, we expect NII to benefit from these -- from new fundings, and we remain committed to disciplined portfolio management to drive long-term shareholder value. I will now turn to a summary of our investment activity for the quarter. This was a lighter quarter for sure for investment activity. During the quarter ending September, we invested approximately 25,000 in the preferred equity of 4L Technologies, an existing portfolio company to support an incremental equity raise and our existing position. We also fully realized 2 portfolio company investments, generating total proceeds of $6.5 million with an IRR of approximately 12.7%. We realized our first lien term loan positions in PureStar listed on our SOI as AMCP Clean Acquisition Company and One Call Medical, both of which were refinanced during the quarter. Our realized IRRs from PureStar and One Call were 11.5% and 13.7%, respectively. I'll now turn the call back over to Andrew to review our financial results in more detail. Andrew Muns: Thanks, Suhail. Let me begin by providing you with highlights of our quarterly performance. For the quarter ended September 30, 2025, the fair value of our portfolio was $196.1 million compared to $204.1 million on March 31. Our net assets were $72.7 million, a decrease of $3.3 million from the prior quarter. Our portfolio's net decrease in net assets from operations this quarter was approximately $1.3 million, and the remaining $2 million was due to distribution of cash dividends to shareholders. The weighted average yield of our portfolio from debt was 10.9%, slight increase from 10.6% in the previous quarter ended June 30. As of September 30, our portfolio consisted of investments in 41 companies, approximately 78% of these investments was first lien debt and the remaining 22% was invested in equity warrants and other securities. 98.5% of our debt portfolio was invested in floating rate instruments and 1.5% in fixed rate investments. The weighted average spread on our floating rate debt investments was 4.6%, relatively unchanged from the prior quarter. The average size per portfolio company on a fair market value basis was approximately $4.7 million or approximately 2.5% of total and our largest portfolio company investment on a fair market value basis was Bioplan at $13.4 million. Our largest industry concentrations by fair market value were professional services at 13.7%, insurance at 10.4%, containers and packaging at 8.9%, IT services at 8.5% and trading companies and distributors at 8.4%. Overall, our portfolio companies are spread among 18 GICS industries as of the quarter end, including our equity and warrant positions. We're also pleased to announce that on November 10, 2025, the Board of Directors declared a distribution for the quarter ended December 31, 2025, of $0.12 per share and a supplemental distribution of $0.02 per share payable in cash on December 12, 2025 to stockholders of record as of December 1, 2025. Gross leverage was 1.75x and net leverage was 1.59x as of September 30, compared to 1.77x gross and 1.54x net, respectively, for the previous quarter. With respect to our liquidity as of September 30, we had approximately $11.6 million of cash, of which approximately $7.8 million was restricted cash with $36.5 million of capacity under our revolving credit facility with Capital One. Additional information regarding the composition of our portfolio and quarterly financial results are included in our Form 10-Q. With that, I would like to turn the call back over to Suhail. Suhail Shaikh: Thank you, Andrew. To close, we remain focused on executing our strategy and positioning the portfolio for long-term value creation. We believe we are well positioned for the current environment with a robust portfolio of strong capital backing and a disciplined investment posture that prioritizes credit quality and income stability over yield. As the broader backdrop remains uncertain, our emphasis continues to be on maintaining flexibility, protecting asset value and ensuring our dividend remains fully supported. The refinancing commitment from our parent affiliate, Investcorp Capital, underscores the confidence and ongoing support from our parent company. Further strengthening our balance sheet and providing additional financial flexibility as we navigate this environment, the $65 million commitment to refinance the [ 4.78% ] notes, coupled with approximately 3.6 million shares held by our parent are reflective of Investcorp's strong commitment to increasing shareholder value and aligning interest. While market activity remains subdued, we continue to see solid underlying portfolio performance with strong coverage metrics and healthy diversification across sectors. We remain patient and selective, ready to deploy capital when attractive opportunities arise. Thank you again for your time and continued support. We look forward to updating you on our progress next quarter. That concludes our prepared remarks. Operator, please open the line up for Q&A. Operator: [Operator Instructions] Our first question comes from Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: On the backstop, could you clarify whether or not that's to buy up the full refinance amount for the maturing $65 million bond? Or is that simply just to cover principal and coupon payments from the new bonds? Suhail Shaikh: No, it's the former. So the backstop, Christopher, is to refinance the notes in the event that we have not refinanced them prior to the April 1, 2026 maturity debt. Christopher Nolan: Right. And is there any sort of parameters in terms of the coupons... Suhail Shaikh: Yes, I believe the letter outlines it. We published and it's an exhibit to the 10-Q. We have agreed to SOFR plus 550 on a floating rate basis as the new coupon. Christopher Nolan: Great. Second question, I guess for Andrew, what was the spillover income in the quarter, please? Paul Johnson: Well, I think as we said last time, we don't give the specific spillover income, but I think you probably noticed in the past that our dividend has been above NII. And obviously, the amount that we've chosen to pay out is reflective of the spillback amount that's required so you could make a similar assumption for the declared dividend to be paid in December of this year. Christopher Nolan: Right. And the final question I had is for Klein Hersh. This is nonaccrual, but the cost basis is 0 and the fair value is 0. So why keep it on the investment portfolio at all? Suhail Shaikh: The sub notes? Andrew Muns: We're required to -- under accounting rules, you have to put everything on there that has any chance of being paid at any time. You see the CareerBuilder warrants are on there also marked at 0. Those were not expected to and now that, obviously, the restructuring of that is complete. It certainly will not in the future, pay anything. So that's just something we're required to do and we have had things market 0 before. Interestingly, the notes for client that are on nonaccrual actually have a 0 coupon to them. I think if they were on accrual status, we would theoretically have to amortize the 100% discount over time, which I think would distort the results pretty materially. Operator: [Operator Instructions] I don't see any other questions, sir. Suhail Shaikh: Great. Excellent. Well, thank you, everyone, and we appreciate your time, and we look forward to speaking again next quarter. Thank you, Luke. Operator: You're welcome, sir. And this concludes today's conference call. Thank you, everyone, for attending.
Operator: Good morning, ladies and gentlemen, and welcome to the FrontView REIT's Q3 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Mr. Pierre Revol, Chief Financial Officer. Please go ahead, sir. Pierre Revol: Thank you, operator, and thank you, everyone, for joining us for FrontView's third quarter 2025 earnings call. I will be joined on the call by Steve Preston, Chairman and CEO. Drew Ireland, our Chief Operating Officer, will be available for Q&A. Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although we believe these forward-looking statements are based on reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors. I refer you to the safe harbor statement in our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP financial metrics. Reconciliation of non-GAAP financial metrics to the most directly comparable GAAP metrics are included in the exhibits furnished to the SEC under Form 8-K, which include our earnings release, supplemental package and investor presentation. We have also furnished a press release and 8-K for the $75 million delayed-draw convertible preferred equity investment. These materials are available on the Investor Relations page of our company's website. With that, I'm now pleased to introduce Steve Preston. Steve? Stephen Preston: Great. Thank you, Pierre, and good morning, everyone. I'm very pleased to talk about our third quarter today as it marks a powerful, transformative quarter for the company. As a reminder, our portfolio is built around smaller, highly fungible net lease assets, typically located in front of major retail nodes across the country. This real estate positioning gives our tenants visibility, traffic and staying power, which is why we emphasize frontage. The format of these properties makes them easier to recycle, re-tenant or reposition quickly. And that flexibility is an important part of our strategy. Our tenant base is broad and generally necessity and service-oriented, allowing for consistent demand through the phases of economic cycles. Today we have 323 leases, with the top 10 contributing just 24% of ABR; our top 60 at 74% of ABR; and our largest tenant at only 3.6% of ABR. That diversification is a real strength. Just as important, this approach is unique in the public REIT market as few peers are focused on small format, necessity-driven retail and service tenancies. FrontView has now been public for just over 1 year. Over these last 12 months, we have experienced and worked through a number of circumstances that have made FrontView a stronger company today. To highlight, we have optimized our portfolio. We have an effective C-suite with industry-leading talent. We have been intelligent stewards of capital. We have kept a low-levered balance sheet with ample liquidity. We have demonstrated the value, fungibility and desirability of our frontage assets. We have focused on operational excellence to support increased AFFO per share guidance, all while recycling assets. We have thoroughly revamped our external materials, including our investor presentation, supplemental and website. We have shown through dispositions that there is currently a significant dislocation in our share price relative to NAV. We have maintained a conservative dividend payout ratio. And finally, we have carefully tailored a perpetual preferred equity investment to have capital in place to accretively grow throughout 2026. I am excited for what lies ahead for FrontView as a public company. During the third quarter, we acquired 3 properties for approximately $15.8 million at an average cap rate of 7.5% with a weighted average remaining lease term of approximately 11 years. From an industry perspective, we continue to add diversification, adding financial, fitness and discount retail uses. There were several acquisitions planned for the third quarter that shifted into the fourth quarter as reflected in our guidance. The acquisition market remains very open to FrontView with our competitive advantages in tow. So our timing in securing this accretive capital is particularly well suited to continue to take advantage of our buy-side opportunities within the marketplace. In terms of property dispositions, we sold 15 properties for $32.9 million during the quarter. 13 were occupied properties, generating proceeds of $30.1 million at an average cash cap rate of approximately 6.78%. These properties have an average weighted lease term of 8 years. Our current target dispositions are assets with lower walls and/or less optimal concepts. For example, through our recent dispositions, we have eliminated all portfolio exposure to the following concepts: Ruby Tuesday, Red Lobster, Bob Evans, Red Robin, Freddy's, Denny's, Dairy Queen, Hardee's, Cafe Rio and [ Rogers ]. Although these concepts are household names, national or regional tenants that were rent-paying, we are focused on optimizing the portfolio by disposing of concepts that we think are or could become under pressure in the future. These asset sales demonstrate the continued desirability and liquidity of our real estate assets and highlight the meaningful spread between our stock's implied cap rate of approximately 9% and where our assets are transacting in the market, where our peers' implied cap rates are, both of which approximately 6.75%. Looking at net investment levels, we were again net sellers this quarter and our debt to annualized adjusted EBITDAre fell to 5.3x with an LTV below 35%, leaving the company's balance sheet profile and liquidity in fantastic shape. Turning to the portfolio. We closed the quarter with occupancy north of 98% and just 6 vacant assets, an improvement from last quarter. We have resolved the 12 previous reported troubled assets with 10 either sold or leased and 1 under contract to sell, with an overall recovery rate of approximately 85% for these 11 assets. Additionally, as has been broadly highlighted in the media, Tricolor's alleged fraud impacted several large financial institutions with losses in the hundreds of millions. We had 1 Tricolor property, and we have already received multiple offers to buy and multiple offers to lease the property. And based upon these prospects, we are confident we will have an excellent outcome with minimal downtime and affirmation of our frontage-based strategy. Our assets are located in high-visibility, high-traffic corridors, properties that attract a diverse mix of users. That allows us when necessary to re-tenant, repurpose or sell efficiently to unlock value. As we've optimized the portfolio, what remains is a higher-quality, better-tenanted portfolio with stronger concepts. As a result, we don't see any material additions to our watch list at this point. And to be clear, we see bad debt in the approximately 50 basis point range for 2026, more in line with historical averages. Simply put, this is what disciplined capital allocation and active portfolio management look like: a stronger, higher-quality platform positioned for sustainable growth, resulting in us raising our earnings guidance for the year. On the capital side, last night, we announced a $75 million convertible preferred equity investment. This is a bespoke instrument that we spent a considerable amount of time negotiating over the last couple of months. Pierre will provide more of the details on specifics. But from a bigger picture strategy standpoint, this security is unique in its simplicity with generally superior terms to that of comparable instruments. One, we anticipate the pref will fund our 2026 net acquisitions. Two, the capital is accretive when deployed. Three, we can draw down capital in tranches over time as we acquire assets, without paying any penalties or expensive carrying costs. Four, the transaction costs are well below market. Five, after 2 years, we have the ability to force-convert the pref to equity at a $17 conversion rate if the shares are trading at a 17.5% premium. Six, the security is open for repayment after 3 years at par. Seven, there are no make-whole provisions. And finally, there are no onerous governance requirements. This capital raise was led by Maewyn Capital Partners and its founder, Charles Fitzgerald. Charles has nearly 3 decades of public markets investing experience, including founding V3 Capital and co-managing REIT portfolios at High Rise and JPMorgan. Charles is joining our Board as part of this investment. Maewyn also owns just under 1 million shares of common stock, roughly 3.4% of the fully diluted shares. That alignment with both common and preferred capital at work, at the level of discipline and capital allocation focus, that should benefit all shareholders. To wrap up, I believe that FrontView is stronger today than at any point since our IPO. We have a portfolio with flexibility, a top-tier management team with deep industry experience and a balance sheet that positions us for growth. Our goal is straightforward: to continue to build a best-in-class net lease REIT that can grow faster, allocate capital smarter and maximize shareholder returns. Today's valuation gives investors an opportunity to invest in our company at a price well below today's standalone asset values. And certainly, the valuation does not properly reflect the quality of what we've built or the growth and opportunity ahead. With that, I'll turn the call to Pierre to go through the quarterly numbers and guidance. Pierre? Pierre Revol: Thank you, Steve. As part of this quarter's release, we introduced several enhanced disclosures within our investor presentation designed to give investors deeper insight into the quality and productivity of our real estate. These include detailed disclosures of our assets across the top 100 MSAs, Placer.ai visitation rankings highlighting property productivity and historical recapture performance. We have also refreshed our company website to include a portfolio-level page to view 100% of the concepts by city and state, underscoring the visibility and quality of our footprint. Turning to the quarter. Annualized base rent was $61.3 million as of September 30, compared to $63.2 million at June 30. The decrease in ABR primarily reflects the company being a net seller of assets during the quarter with $32.9 million of dispositions and $15.7 million of acquisitions. Excluding the Tricolor property, which vacated post quarter, ABR would have been $60.7 million, which serves as a solid baseline for modeling the fourth quarter. Total cash rental income totaled $15.4 million, compared to $15.7 million last quarter, which included $73,000 of variable rent. Our nonreimbursed property cost or slippage was $405,000, slightly better than expectations of $500,000, helped by the dispositions in the quarter. On the expense side, cash G&A was $2.1 million and $6.3 million year-to-date, with no adjustment to our cash G&A guidance of approximately $8.9 million at the midpoint. Quarterly cash interest expense declined by $100,000 sequentially to $4.2 million, driven by a $21.2 million reduction in net debt to $288.9 million. In September and October, we also completed 2 amendments to our credit agreements with both the revolver and the term loan. These amendments removed the 10 basis point SOFR adjustment and improved our pricing grid for LTVs below 35%, producing an expected 15 basis point savings across all our debt upon submission of our Q3 covenant package this week. Additionally, in early September, we hedged an incremental $100 million of 1 month SOFR exposure through March of 2028, further reducing rate volatility. Turning to the balance sheet. Net debt to adjusted EBITDAre reduced by 0.2x to 5.3x. That's the lowest leverage since the IPO, LTV of 33% based on our bank covenants. Our fixed charge coverage ratio remained at 3.3x with 100% of our assets unencumbered. We ended the quarter with $161.1 million of liquidity, including $141.5 million of undrawn revolver capacity and $19.6 million of cash and equivalents. Including the recently closed delayed-draw convertible preferred equity, our total liquidity increases to $236.1 million. As a brief housekeeping note, having passed the 1-year mark since our IPO, FrontView is now shelf eligible. We will be filing the S-3 registration statement shortly, and once accepted, we'll request authorization for a $75 million ATM program. Additionally, we have received Board authorization to repurchase up to $75 million in shares, providing us with flexible tools for future capital markets activity. As Steve mentioned, our announced $75 million convertible preferred equity investment provides long-term growth capital with near-term accretion. This security carries a 6.75% dividend rate and a $17 conversion price, no make-whole penalties and no restricted governance features. This structure allows us to draw capital in tranches as acquisitions close, making each draw cash flow accretive. On a converted basis, the effective cost of equity net of fees is approximately 7.5%. And with modest leverage, our weighted average cost of capital is in the mid to high 6% range. We anticipate using the equity capital to acquire $100 million of assets net of dispositions. Currently, we are making conservative assumptions on the cash cap rates of acquisitions, 7.25%, versus our existing pipeline which ranges from 7.25% to 7.75%. Once the capital is deployed, it will drive 3% annualized AFFO per share accretion, utilizing modest leverage of 25%. This accretive equity positions us to capitalize on a compelling acquisition environment and to deliver sustained AFFO per share growth supported by our nimble scale, access to granular frontage assets and disciplined capital deployment in a fragmented market. Turning to 2025 guidance. For the full year, we expect acquisitions to range between $115 million to $125 million, and dispositions to range between $70 million to $80 million. For the fourth quarter, at the midpoint, this implies $37 million of acquisitions and $17 million dispositions. Our AFFO per share guidance range increased by $0.01 to $1.23 to $1.25. We expect approximately $0.30 in AFFO per share in the fourth quarter. That's primarily a function of timing as the dispositions were more heavily weighted towards September where the acquisitions are anticipated to close towards the end of the year. Looking ahead, when we exit December, our run rate AFFO per share will be slightly above $0.31, including the full impact of acquisitions and dispositions for the third and fourth quarter. And this includes no NOI for a Tricolor asset that Steve discussed earlier. Turning to 2026. With the preferred equity capital secured, we expect approximately $100 million in net acquisitions, driving AFFO per share range of $1.26 to $1.30. This represents 3.2% year-over-year growth at the midpoint compared to $1.24. We believe this acquisition pace is highly achievable and, once fully deployed, will expand our asset base by more than 10%. Our results reflect the power of disciplined execution. Over the past quarter, we've enhanced transparency across our disclosures, strengthened our balance sheet and secured long-term, accretive equity capital all to support sustained earnings and portfolio growth. With a high-quality real estate portfolio and a flexible capital structure, FrontView is positioned to compound AFFO per share growth faster than peers. Our smaller scale is a structural advantage as it allows us to move with precision and capitalize on opportunities in frontage retail real estate where we continue to see strong fundamentals and high demand. With that, I'll turn the call back over to the operator to open it up for Q&A. Operator? Operator: Thank you, Mr. Revol. [Operator Instructions] Your first question comes from Anthony Paolone with JPMorgan. Anthony Paolone: First question relates to 2026. Can you just give us a little bit more on -- you mentioned it sounds like Tricolor is kind of out and maybe it gets backfilled. But also just with 20 lease expirations next year, kind of what's on the organic sort of core portfolio side you have baked into the guide? Pierre Revol: Tony, thanks for the question. Good to hear from you. In terms of the guidance, it's pretty simple. As we exited this year at $0.31 roughly with all the asset dispositions, that annualizes to $1.24. And as mentioned, it doesn't include any income from Tricolor. We do expect to -- hopefully, we'll be able to provide an update, that will be a bit better depending on how the resolution ends up happening. We anticipate 0 equity. We are fully funded with this new capital deployment, and that's really what's primarily driving. In terms of expirations, we're ahead of all of that. And I can let Steve talk about our expirations. Stephen Preston: Yes, sure. Thanks, Pierre. And yes, Tony, we view the expirations historically as a positive. And just remember that we do have quality real estate, it's desirable, it's a fungible portfolio and we maintain excellent diversification. What I would say is that since 2016, some data points, we have had 49 lease expirations, with only 8 expiring, 41 of those renewed to the same tenant, 3 renewed to a different tenant. And that represented about 105% recovery rate, with 5 that have been sold or are working to be sold off. 2 sold, 1 under contract and 2 underway. So we look forward and we see that the renewals are an asset to bolster income based on historicals. Anthony Paolone: Okay. And then just a follow-up is if you can just describe kind of your deal pipeline and where cap rates are trending and just kind of how the pipeline is coming along now that you have the capital. Do you have a lot to spend it on? Stephen Preston: Sure. Great. Yes, good question. Thanks, Tony. Yes, I'd say that the market for us continues to be fluid. We expect cap rates for Q4 to come in similar to Q3, somewhere in that 7.5% cap rate range. I think we've all seen increased institutional interest in net lease, with abundant capital available for acquisitions. And that's really setting a tone for the marketplace. What I would say is, importantly, we typically do not compete against the institutions in our marketplace just due to our property size. So that gives us a bit of that competitive advantage. Now for those smaller buyers, leverage just has opened up a little bit. It is a little bit easier for some of the smaller buyers to obtain lending from community banks, et cetera. But we still see lots of opportunity. We've got a strong pipeline, similar assets that we've acquired along the way. And we certainly can increase the pace of acquisitions at any given time. And just remember, back in Q4, almost about a year ago, with the existing team that we had in place, we acquired a little over $100 million in acquisitions. So we do have that capacity, we do have the team in place, and we do have the relationships to turn on that faucet if we need to. Operator: Your next question comes from John Kilichowski with Wells Fargo. William John Kilichowski: Maybe if we could start back on the guide, you guys provided some helpful color around cap rates and credit loss. Could you talk to maybe what the high end and low end for the guide represents on each of those metrics. And if there's any other color you could give around what helps formulate your guide? Pierre Revol: Sure, John. Good to hear from you. So in terms of the low end at $1.26, it's really about the timing of the deployment of the capital. So we are -- we set an investment guidance of $100 million next year, and it really depends on how quickly we deploy it. We do have some dispositions as well in our guidance next year and so we'll continue to do some asset recycling. But on the low end, the way to think about a $0.31 run rate, $1.24, we do think that this is accretive at least $0.02. I feel very comfortable at $1.26 even if we deploy the capital a little bit later. On the high end, what will really drive that is a little bit of favorable resolutions on any sort of credit issues and earlier acquisitions, higher cap rates. And that would be the predominant drivers between the low and high end. William John Kilichowski: Okay. Very helpful. And then maybe if we could just jump to the preferred. It looks like great execution here. Just kind of curious if you can give some color on the relationship with Maewyn, how you got to this number? I think the Street would have guessed something a little bit higher, so great job on your part. But just curious how you got to these terms and what the relationship was that get you here? Pierre Revol: Sure. So we've known Maewyn and Charles Fitzgerald for a while. He's been an investor and a good partner since the beginning, since the IPO. I've worked with Charles prior when I was at Spirit so I knew him from that point as well. We sat with him, we met with them multiple times and we were discussing price and cap rates. And ultimately, just to steal a line from one of our colleagues, Shankh Mitra, he said "We're in early stages of a long journey of delivering compounding per share cash flow growth for our existing shareholders. And that's our North Star." Now I'd agree with this statement and I think that is what we're trying to do here. We're trying to create a vehicle to get us back to growth. This is accretive per share capital growth that we think will drive a higher valuation. He understood that. He thinks that with this portfolio, that he completely underwrote and he completely understood our business plan and was extremely supported of giving us this capital and understanding that, at $17, it was very attractive for him as an equity capital. And for us, it made sense to issue it, so we're fully funded and we can get back to growth. Because given our size, which I do believe is a structural advantage in net lease, especially when you consider that 98% of net lease market cap is trading above NAV, having a small size allows us to deliver faster growth than all of our peers. We just have to get there, and I believe this is the first key step to do it. Operator: Your next question comes from Jana Galan with Bank of America. Jana Galan: Congrats on a nice quarter. Thinking about the dispositions you made this year, you kind of leaned away from casual dining, just curious on that 50 bps of bad debt in 2026. Could it potentially be better than that given that the portfolio composition is different than the historical? Stephen Preston: Yes. No, I think that's a good question. And I think we feel like that's a conservative measure at this point. And selling off the concepts that we mentioned before really did help to optimize the portfolio. And we're going to continue to optimize the portfolio with select dispositions moving into 2026. Jana Galan: And then maybe just more color on what categories that you're looking to expand in. You mentioned kind of this quarter: financial, fitness and discount. Stephen Preston: Yes. No, I mean, it's -- we still like the same type of industries that we've been buying in. We like medical, we like financial, we like automotive service. We don't have any veterinarian. We look closely at acquiring or adding that as a concept. I think fitness seems to be strong. Fitness is back to COVID -- or pre-COVID levels. Class concepts getting added to some of the larger formats has been taken on well. And then certainly, QSR, we still like that. I mean Taco Bell still has -- their sales are up with traffic, notwithstanding the consumer. And just a little bit of fast casual. So similar industries as we continue to go. We're going to be careful with pharmacy, careful with car wash. And certainly certain restaurants, as you've noticed, and concepts that are a little bit tired. And certainly, of course, small franchisee credit. Operator: Your next question comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just a quick follow-up on the pipeline. Maybe just talk through sort of, whether it's WALT or escalators, how you're thinking about those assets? And then the 40 basis points escalator on the acquisition, which I know is small, just what happened there? Stephen Preston: Yes. No, I think the 40 basis points was just a timing. We had some assets that got pushed. The bulk of them got pushed into Q4. And I think when you see Q3 come together with Q4, you'll be a little bit more normalized with our typically 1% to 2% escalators, of course. When we're acquiring assets, having escalators built in is a key component. So focusing on longer-term WALT, we continue to build our weighted average lease term. And then also to continue to have those embedded rent bumps are, of course, critical to our acquisition criteria. Ronald Kamdem: And then my quick follow-up on the pref. Just can you remind us where that gets to in '26, just what that level of debt-to-EBITDA that ends up getting you to, if you include that? Pierre Revol: So as we ended this quarter, I thought one of the key priorities for us was to enter the end of this year at a very low leverage point. So at 5.3x, to me that's a very productive print, along with being able to increase our acquisition -- increase our AFFO per share guidance. When we think about using the pref, which I do view as equity, and it's 100% equity from how our accountants treat it, it's going to effectively lower our leverage because we're going to be funding it at a bit lower rate than the 60-40, and more like 25-75. Now we do have some acquisitions baked in, in the back half this year in terms of the guidance. So we do expect leverage to tick up into the fourth quarter. But after that, it will stay well below 6% all of next year. Operator: Your next question comes from Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: Although you've been in a bit of a holding pattern on acquisitions, I know you remain engaged with the brokers across the country. So over these past few quarters, which states or regions have you seen kind of these frontage outparcel properties that you focus on come up for sale? Is there anything of note there? Stephen Preston: Yes. No, I don't think there's anything state specific from the marketplace. I think we're going to continue to target strong-growth states. We're going to probably start to maybe reduce exposure just because we have a little bit more of that to Illinois. But the general marketplace, there's general opportunity really across the space and across states. I wouldn't think it's really anything state specific. I think it will generally follow, call it, that same progression of assets that we've acquired throughout the portfolio. Daniel Guglielmo: Great. And then you touched on it in an earlier question, but the portfolio occupancy has improved kind of sequentially over the last 3 quarters. Can you just talk about, are there any kind of industry mixes where you've seen something new this quarter? Maybe areas where Drew and team are spending more time with tenants to understand their needs and consumer patterns? Stephen Preston: Yes. I'd say that by optimizing the portfolio and taking out some of those concepts that we mentioned earlier, I think that certainly helped the way that we look at the portfolio going forward. And that 50 basis points isn't a ton of action at the end of the day. So the good news is, and we'll keep the fingers crossed, but we seem to be a little bit quiet there right now, and we hope that continues. Operator: There are no further questions on the phone lines. I will turn it back to Mr. Steve Preston for some closing remarks. Stephen Preston: Great. Thank you, and thank you all for joining. We look forward to continuing to add value for the shareholders. And we hope to see you all at NAREIT in December or at our upcoming NDR with BofA. Thank you again for your time, and please be safe. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines. Have a great day.
Operator: Good morning, and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the Investors section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or in part without the prior written permission of Tetra Tech is prohibited. With us today from management are Dan Batrack, Chairman and Chief Executive Officer; Steve Burdick, Chief Financial Officer; and Roger Argus, President. They will provide a brief overview of the results, and we'll then open the call for questions. I would like to direct your attention to the safe harbor statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from these projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the SEC. Except as required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the Investors section of Tetra Tech's website. At this time, I'd like to inform you all that participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack. Dan Batrack: Thank you very much, Melissa, and good morning, and welcome to our fourth quarter and fiscal year 2025 earnings conference call. And I'd like to start this morning with sharing with you that I'm very glad to report that we had an excellent fourth quarter and record financial performance for all of fiscal year 2025. But before I actually get to the numbers, I'd like to take just a moment here at the beginning to discuss how we successfully navigated this extraordinary year and ended up with these record results. By staying focused on our high-end consulting and our leadership in water, we've built an enduring competitive advantage and a long-term client base of trust with our end clients that we work with. Our leading with science approach has provided us with a significant competitive advantage and highly adaptive workforce, long-standing client relationships that have ended up resulting in sustained demand for our services over decades. It is this focus that has allowed us to successfully navigate the recent changes in the U.S. federal government's priorities and emerge with financial records and financial performance for fiscal year 2025. More importantly, as I look into fiscal year 2026 and beyond, I see our high-end water services in higher demand and more critical than ever, the fastest-growing markets in the United States and internationally. Today, Steve Burdick, our Chief Financial Officer, will provide additional details of our financial performance, both in the quarter and the year. And I'd also like to welcome today with us Roger Argus, our newly appointed President here at Tetra Tech who I personally have worked with for over 30 years here at Tetra Tech directly. Obviously, Roger goes back in the market and industry even farther than that. He brings a great understanding of our clients and our business worldwide and he's spearheading some of our highest opportunity growth initiatives that we have in the company today. Roger will provide an update of our water-focused growth markets during this presentation this morning. And now I would like to share with you an update of our financial performance and our business. We had record results for the fourth quarter and for the entirety of fiscal year 2025 with record highs across the board for net revenue, operating income and earnings per share. The fourth quarter results provided us with strong momentum as we exit the fiscal 2025 fiscal year and enter fiscal year 2026. These results are very broad-based, demonstrating the strength across all of our business sectors and our markets globally. We finished fiscal year 2025 with a strong fourth quarter, resulting in record net revenue, record operating income and significant operating margin expansion. We had record net revenue of $1.07 billion, which is up 10% from the prior year. We significantly expanded our margins to the highest level in more than 30 years, which results in our operating income being up 23%, more than double the rate of revenue growth and reaching $168 million for the first time. And finally, the growth rate for earnings per share was even higher, up 29%, reaching $0.44 for the quarter. I'd like to present our performance by our segment or our client segments. The Government Services Group had an excellent year and delivered an extraordinary fourth quarter. In the fourth quarter, our GSG segment revenue grew by 17%, rising to $396 million compared to $338 million last year. GSG segment also set a new record for margin performance at 22.9% or up 330 basis points from the prior year. This performance was driven by strong execution of our water infrastructure and our digital automation work for state and local clients, high utilization across our U.S. operations during the completion of our fire disaster response work, and the reduction in our low-margin USAID work. The Commercial/International Group also delivered a strong fourth quarter and a strong year. Our Commercial/International Group's fourth quarter revenue was up 7% to $676 million, and the CIG or Commercial/International Group's margin, excluding Australia, was up about 60 basis points in the quarter. Now I'd like to provide an overview of our performance by our end customers. In the fourth quarter, international work was about 45% of our overall business and growing at a 9% rate. International organic growth included increases in the United Kingdom's water business and strong growth in our Canadian clean energy practice. In the United States, our state and local markets continue to be very strong with a 19% growth rate driven by municipal water treatment and digital water modernization, especially in the water-stressed regions of Texas, Florida and California. Without the contribution of the disaster work in the quarter, our state and local work was up 13% year-over-year. The U.S. commercial work overall was down slightly. Driven by reductions in renewable energy work, but partially offset by growth in other sectors. Our U.S. commercial work includes some sectors that had extraordinary growth rates in the quarter. For example, our high-voltage transmission work in the United States is rapidly growing due to expanding energy demand, which is often associated with data centers. And finally, our U.S. federal work is now 21% of our business compared to 31% a year ago. This quarter, our federal work was up 22% from the prior year, primarily for work with the U.S. Army Corps of Engineers designing flood protection structures and providing disaster response services. I'd like now to discuss our backlog. We had a strong quarter of contract awards, ending the quarter with $4.14 billion in backlog during a record revenue quarter. As I've stated previously, we use a highly conservative approach to backlog reporting by including only work that is contracted, funded and authorized. The backlog we have today is of higher quality than ever before with higher embedded margins and with a higher portion of fixed price contracts, which gives us even more opportunity for margin expansion. This quarter, we were awarded over $1.2 billion in new contracts with U.S. defense agencies that cover both U.S. domestic and international operations. We announced another great win with United Kingdom for Portsmouth water with a $23 million contract that you can note on the webcast that we have here. And we won 2 new awards for high-voltage transmission work in the United States and Ireland both areas where data centers are driving investments in power generation and transmission. Our U.S. high-voltage transmission practice is now growing their backlog at 120% rate year-on-year here in the U.S. At this point, I'd like to turn the presentation over to our Chief Financial Officer, Steve Burdick to take us through the financials for fiscal year 2025. Steve? Steven Burdick: Thank you, Dan. I'd like to now provide an update of our fiscal 2025 results, working capital, cash flows and capital allocation. But before I dive into these results, I want to point out and remind us all where we started the year. We initiated our 2025 revenue and earnings guidance in line with our longer-term 2030 goals. Now despite having our largest single client cancel hundreds of contracts midway through 2025 and other headwinds that could have knocked out to anybody else, Tetra Tech delivered all-time high revenue in earnings. And because of our high-quality clients and talented project managers across the globe, we generated a record setting cash from operations that approached $0.5 billion. Not only am I proud of our team's ability to execute on our 2025 results, I'm even more positive on our team's ability to execute on our long-term strategy in 2026 and beyond where our market-leading services are focused either directly or as a first derivative to our clients' water investment opportunities. Now as Dan discussed earlier on this call, our market-leading focus on the front-end consulting and design for water and environmental projects are carrying higher margins across all of our end markets. As such, even as the fiscal 2025 revenue was up a solid 7% over last year, our operating income increased at a higher rate of 18% and EBITDA for the year increased 13%. These results for the year further support our long-term strategic goals to increase net revenues while improving EBITDA margins by 50 basis points annually. I do want to point out that, as you can see here, our 2025 EBITDA margins and net revenue came in at a better 14.3%, which is an increase of over 80 basis points for this year as compared to last year. As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase EPS by 24% over last year to $1.56. Now regarding our working capital. Cash flows generated from operations for fiscal 2025 were $458 million, which represents a 28% improvement over fiscal 2024. And consistent with the last 20 years, these operating cash flows have continued to exceed net income by more than 100%. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 55.7 days. This lower DSO metric provides significant insight into our core business as it reflects the outstanding work that our project managers lead relative to higher-quality projects and highly satisfied clients in our broad portfolio across all of our end markets and geographies. Our net debt amounted to about $600 million, and our net debt on EBITDA was at a leverage of 0.9x, which is lower than our leverage 1 year ago when it stood at 1.0x. As we continue to execute on high-quality operating results with increasing margins, operating cash flows in excess of net income and lower working capital KPIs, we will continue to provide higher returns for our shareholders. Both higher shareholder financial returns are reflected in an improving return on capital employed which stands at over 20%, which is among the best in the industry. For those following along in the presentation, I would like to now present our capital allocation overview. We have a very strong balance sheet, probably the strongest balance sheet in our history, with well over $1 billion in available liquidity as we have revised our capital structure in the last year to take advantage of the credit market to support our strategic growth opportunities. Now Roger will discuss our strategic growth areas later in this presentation, but I do want to point out that we have a significant amount of liquidity available to invest in organic and acquisitive growth opportunities in order to take advantage of these key business opportunities. These opportunities include the technology and automation, which continues to provide us a dominant position in the market and for acquisitions of technical leaders such as SAGE and Carron & Walsh. Regarding our dividend program, I want to announce that our Board of Directors approved the fourth quarter dividend, which is a 12% increase year-over-year to be paid in the first quarter. This is our 42nd consecutive quarterly dividend with annual double-digit increases in the amounts paid. Based on the lower leverage, we have contributed -- we have continued our stock buyback program this year. In 2025, we bought back a total of $250 million, which includes $50 million in stock buybacks in the fourth quarter. We do have about $598 million available in the stock buyback plan approved by our Board as part of our capital allocation strategy. I'm really pleased to share these financial results for fiscal '25, which has enabled us to increase shareholder returns as we pay -- we're paying increasing dividends, increasing our stock buybacks, engaging in accretive acquisitions, all the while deleveraging our balance sheet. So I want to thank you for your support. And I'll now hand the call over to Roger to discuss Tetra Tech's future opportunities in 2026 and beyond. Roger R. Argus: Thank you, Steve. I'd like to highlight today's major growth drivers that will fuel Tetra Tech's growth in FY '26 and beyond. For those of you following along on the webcast, I'd like to first draw your attention to the center of the slide. Greater than 85% of Tetra Tech's business is providing water services to our clients. Our high-end water services cover the full life cycle of water use from sourcing and management to reuse and treatment. These services also include coastal resilience for flood protection, expansion of ports and harbors, digital automation and control systems to optimize water management and efficient use as well as water for mining, power generation and manufacturing. The drivers shown here represent large global investments in water-reliant infrastructure and share a few common characteristics. These drivers represent a total addressable market for Tetra Tech services measured in hundreds of billions of dollars. Tetra Tech is already performing work in each of these markets, and is well positioned to benefit from these growing investments. In fact, Tetra Tech currently holds that contracts, master service agreements and frameworks with more than $30 billion in capacity to perform these services for our clients. Global investment in each of these markets supports the demand for Tetra Tech's high-end water services and is driving Tetra Tech's growth. In the next 2 slides, I'd like to highlight 2 of the fastest-growing areas and illustrate how Tetra Tech is capitalizing on these trends. First, I'd like to talk about the data center market. Their estimates as high as $1 trillion to be invested over the next 10 years to expand data center processing capacity to address the needs of AI. The water demand for these systems is enormous. A large data center, for example, consumes about 5 million gallons of water per day. This sector's growing water footprint is reshaping how and where communities invest in water-related infrastructure. This slide illustrates that the data center market is not just the building housing the chip stacks. In fact, many data center operators are using in-house template designs for these buildings. More importantly, the data center market includes resource management needs for water and power, which are geographically specific for each facility. Petrotech's high-end water expertise and geographic footprint allow us to address these requirements, which are unique for each data center. As we look at this figure from left to right, first, it's important to note that more than 97% of water used by major data center operators is currently purchased from municipal drinking water systems, many of which are already under stream. Let me provide you with just 1 example of how water demand for data centers is driving growth for Tetra Tech. Just last week, it was announced that Texas will make the largest investment in its water supply in the state's history. Voters approved a proposition authorizing $20 billion to be spent on water systems, including water supply projects to address the growing requirements of data centers. Tetra Tech currently holds more than 60 state and local contracts in Texas. We are already working with these clients, providing our full suite of water services, and we will directly benefit from this new funding. In addition, within the data center itself, Tetra Tech provides water handling, digital control system automation and commissioning services directly to the building operations. In fact, we currently hold contracts with more than a dozen of the major data center hyperscale and colocation operators to provide these services. And ultimately, these facilities require our expertise for water reconditioning for reuse or treatment for disposal. This work will be done through contracts with data center operators or with local municipalities to expand their wastewater management capacity. Defense budgets in each of our major geographic markets is up significantly. The U.S. is up $150 billion, the U.K. is up $4 billion, and Australia is up $4 billion on already large annual budgets. These funding increases will be used to expand defense facilities, including ports and harbors, strengths in coastal resiliency in flood protection and address water contaminants of concern such as PFOS. The expansion of naval facilities is included as a key focus of this funding. This will result in the growth of Tetra Tech's work in ports and harbors, including evaluation, planning and design of marine infrastructure. We currently provide these services to our defense clients in the U.S., U.K. and Australia through contracts with an aggregate available capacity of more than $10 billion of the $30 billion I referred to earlier. I'd like to provide 1 brief example of how Tetra Tech is benefiting from this increased funding. In fiscal year '25, the Australian Department of Defense awarded Tetra Tech a $67 million contract to support infrastructure upgrades to facilities along the Northern shore of Australia. The scope of this contract includes front-end studies, analytics and project management to support governmental, regulatory and community approvals for these critical upgrades, which will ensure safe, secure and resilient operation of these defense facilities. Coastal resiliency work, which includes flood protection to strengthen the facilities and safeguard the lives of military and civilian populations will also receive additional funding. Tetra Tech has long been a leader in flood protection. And in fact, in the fourth quarter, we've been awarded about $1 billion in new contract capacity from the U.S. Army Corps of Engineers. Additionally, these increased defense budgets will provide greater funding to Tetra Tech's ongoing defense contracts to eliminate sources and clean up water contamination related to PFAS and other persistent chemicals in the environment. In the fourth quarter, we were awarded a new $240 million contract with the Navy, which is intended to focus on assessment of contamination in water that enable installations, including PFAS. In summary, we are very excited about the opportunities these growth drivers present and the resulting growth that Tetra Tech can achieve. I will now turn the presentation over to Dan. Dan Batrack: Thank you, Roger. Thank you very much. I'd now like to provide an overview of our outlook for fiscal year 2026 by each of our end customers. Each of our customer sectors have growth drivers relevant to our business, as you've heard from Roger and myself, and I'll start with our international growth. International growth is forecasted to grow at a rate between 5% and 10% in fiscal year 2026, supported by $130 billion in AMP8 program in the United Kingdom. Programs like the $200 billion Canadian infrastructure program has just recently been passed. And in Australia, the spending in preparation for the Olympics that are going to take place in Brisbane. Our U.S. commercial work is forecasted to grow in fiscal year 2026 at a rate between 5% and 10%, supported by water demand for data centers and advanced manufacturing and power-related services to address the U.S. energy demand that is increasing so quickly. Our U.S. state local work is forecasted to grow at a 10% to 15% rate, which is very consistent to what we've seen over the past several years. That's being driven by strong and sustained budgets for municipal water supplies and digital water modernization. And finally, our U.S. federal work is forecasted to grow at a 5% to 10% rate and is expected to ramp up over this range throughout the year as the procurement processes align with the new priorities of the new administration and budget increases are implemented that are associated with the One Big Beautiful Bill Act that's passed just recently. Now I'd like to present our guidance for the first quarter and for the entirety of fiscal year 2026. Our guidance is as follows: for net revenue, for Q1, it's for a range of $950 million to $1 billion with an associated earnings per share of $0.30 to $0.33. For the entirety of fiscal year 2026, our net revenue range is $4.05 billion to $4.25 billion with an associated earnings per share of $1.40 to $1.55. Now if you're following along on the webcast, you can see these assumptions, and I'll highlight them very briefly. It is assumed within this guidance, a charge for intangible amortization of $27 million, we anticipate depreciation of approximately $25 million, interest expense of $30 million, an effective tax rate quite similar to this last year of 27.5%. And does assume that we have 264 million shares of Tetra Tech stock outstanding. And as in the past, these guidance numbers, both for revenue and earnings per share do not include any anticipated contributions for acquisitions, but they will be -- we do expect them to contribute to the year and we'll update our guidance accordingly as they join the company. In summary, we had a record fourth quarter and record fiscal year 2025, which most importantly, has positioned us for an excellent beginning to the 2026 fiscal year. Our focus on high-end consulting for water and environmental priorities is absolutely aligned with the long-term trends of supplying clean water to our communities, water supply for manufacturing and a healthy environment for our children, all of which are enduring drivers and are not measured in years but are measured in decades. The company has never been in a better financial position as Steve Burdick, our CFO, just outlined, and we're in an excellent position to support our organic growth and to invest in having the best partners out in the industry actually come join us here at Tetra Tech actually improving our growth rates, improving our margins and making Tetra Tech even more competitive in the future. And with that, Melissa, I'd like to open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Tim Mulrooney with William Blair. Benjamin Luke McFadden: This is Luke McFadden on for Tim. So it looks like your backlog was about flat year-over-year. Your guidance calls for organic growth of 8% at the midpoint for fiscal 2026. Both of these figures exclude USA, so it fuels apples-to-apples. So can you maybe just help us understand in a little more detail why you'd expect revenue growth to be so decoupled from backlog growth this year? Dan Batrack: That's a great question. That's actually a really good question. In fact, we began the foresight and expectation of that decoupling actually in our last investor call 90 days ago. I think in the call we had on the previous quarterly results, we actually indicated that expected backlog to be flat, in fact, even down. And with it coming out flat, in a certain extent, it actually was at the upper end or surpassed our expectations. And if you take a look at the backlog, there's a couple of things going on. Number one, the U.S. federal government's backlog or the funding of their tasks have become much shorter. So instead of being funded for a quarter or for 6 months or for a full year, we're being funded for almost like a book and burn 1 quarter at a time. So we're seeing the visibility actually shrink with the U.S. federal government, but not the actual spending of revenue. We're just getting the work in smaller pieces and more frequent quarterly task orders. I will say that if we actually tracked and reported our backlog similar to most others in this industry, our backlog would be up very, very significantly. It's been an amazing federal government quarter of new orders -- of new contracts that have been awarded. And so our contract capacity has gone up a lot. In fact, we've seen it grow by about 15%. And I think the comments I had earlier that we had well over $1 billion in new contract awards with the Corps of Engineers, although the task orders coming out are much smaller, shorter duration and a quicker burn. Now you think that if that was the case and the rest of our business was static, you'd actually see the backlog go down. But we've seen our state and local work and our U.S. commercial and international backlogs actually growing fast. In fact, they've grown enough to keep our backlog flat sequentially, which is what you've seen in the results, as you've just indicated. So that's why we're actually seeing growth in, as I've just indicated, 5% to 10% in U.S. commercial, in international, 10% to 15% in state and local, all with growing backlog. And in fact, that growing backlog has been enough to offset the reduction in the duration of the task orders we've been getting from the federal government. So that's where you see the decoupling. And it sounds like a lot of detail but it's something we've seen coming since this new administration has been in. We've been watching the backlog drop irrespective of international development with the federal government, but it doesn't mean less revenue. It just means that we're getting more smaller task orders on larger contracts that we've actually had. So I know that's a bit of detail. But I think that decoupling is going to be for a good portion of this fiscal year 2026. But I think as the U.S. federal government gets its sea legs under it with respect to our contracting officers in place, gets the cadence of task orders that actually come out a little bit longer duration, you're going to watch the federal government's task orders get larger through the year, and you'll actually watch that begin to climb, not driven so much by commercial, state and local and international because they're already very strong but actually returning a contract cadence with the U.S. federal government. I know there's probably a lot of detail, but there's a lot of pieces we're looking into that, that actually underpin how we're seeing very strong organic growth, but it's not being seen as directly correlated to the backlog, which we've seen the case for many, many decades here, but this new administration has really changed that because of the U.S. federal government's task order issuance. Benjamin Luke McFadden: That's really helpful color. Appreciate it. And maybe pivoting to performance in your international business for my follow-up, which came in stronger than we were expecting for the fourth quarter and had a nice pickup from the third quarter as well. Can you walk us through some of the puts and takes on each of your 3 business lines in a little more detail here, where you saw strength and how you're thinking about the 3 main geographies as you move through fiscal 2026? Dan Batrack: Yes, it's interesting. It's really that, that growth was really driven by a change in one geography, but I'll start with the strongest areas for us. The water programs, those have been the biggest underlying drivers for our United Kingdom and Europe, which is primarily Ireland and Netherlands operations. That's been growing at about a 10% rate has been the strongest. And in fact, the water component of our U.K. and Europe operations have been even at a higher rate than that. So that's continued. I would say there's been a little change in the previous quarters. So that's really been our top growth rate and top performer of our international geographies. Canada has been good, and I actually think it's going to get better for those that I've spoken with at different conferences and seminars. I think on a relative basis, Canada may be the biggest -- one of the biggest drivers. And I think that the short-term disruption of tariffs between the United States and Canada, have caused some disruption. I am totally convinced that Canada is going to remain a major trading partner with global economies. And if it can't come down south, it's going to go east and west and in fact, north to the Arctic trading routes that are now open. And you saw that Canada just passed its largest infrastructure and spending bills at USD 200 billion, Canadian of course, much larger numbers. And Canada is growing as it has been at about 5%, 6%. That's been very strong for us. But the item that's been -- that was a change this last quarter has really been Australia. And Australia had gone from shrinking or reducing its revenue contribution by 10% to 15%. I think we've seen it kind of bottom out. And so on a year-on-year comparison, it's getting closer to flat. We did have a couple of percent contributed by the SAGE acquisition that came in, in the fourth quarter. So it really didn't add much at all for fiscal year 2025 a little bit for the fourth quarter, but Australia actually hitting the bottom with respect to reductions as that is the big change. So if you go from a minus 10 or 15 in Australia and you move that to a 0, that largely accounted for that 9% increase. And I actually think that during the year, fiscal year 2026, is going to start ramping up, now one, in Australia specifically because that one, when you're at the bottom, there's not really too many directions to go from there, I hope. And two, as we're seeing more funding and actually infrastructure projects moving forward at the very front end for the Olympics that are going to take place in Brisbane. And so who's the firm that would be engaged in it very early on? That's upfront planning, permitting, geotech, all the initial design, technology selection for all the different venues, transportation and others. So I think that's going to be a good number for us. And it was Australia was the change in the quarter that drove that number. Operator: Our next question comes from the line of Sabahat Khan with RBC Capital Markets. Sabahat Khan: Great. Just kind of following on the same line of questions along the outlook. I guess, just given some of the moving pieces in the backdrop, how did you sort of build out that range for the fiscal '26 guidance, more thinking on the top line versus the EPS line. If you can just maybe walk through as it kind of relates to disaster relief, some of the other moving pieces, how should we think about the low end versus the high end? Or what needs to happen for you to come somewhere in the middle of that range? If you can just share some of the puts and takes that you consider as you build out that range for the top line? Dan Batrack: Yes. So top line or revenue growth. I'll start with what's sort of the midpoint. So I would say that the numbers I just ran through, 5% to 10%. So if you want to pick a midpoint of that 7.5% I'd say that's sort of the number we're looking at for international, U.S. commercial and for U.S. government. And the 10% to 15% for municipal, you pick a sort of 12.5%. If you took out disasters for this last quarter, they were at 13%, so right there. So we -- so the midpoint is actually the midpoint of those growth. And if you take those numbers from this last year, imply those growth rates, you'll find that we actually get to that midpoint or just over $4.1 billion for fiscal year 2026. Now what could cause us to deviate up and down from that? It's not going to be perfectly linear. I will say that the U.S. -- let me use an example of the U.S. commercial. You saw this last quarter, we were at minus 2%. I expect that it's going to remain very low. It's going to be below that 5% to 10% rate in the first quarter or to a fiscal year 2026. Because a year ago, we had a lot of renewable energy work. And some of the biggest projects were offshore wind. Now these areas have been significantly impacted by policy and executive orders and other items. And so the big headwind or the difficult year-on-year comparisons are Q1 and Q2. Now we've got a very fast-growing transmission, practice high voltage transmission other programs that we have here in the U.S. that I thought Roger did a great job of outlining with respect to water supply for different manufacturing, which includes data centers, chip fabs and other reshoring. So I think we'll be at the high end of that 5% to 10% in the latter quarter, so quarter 3 and 4. So look for that to ramp. I think the same is going to be true with the U.S. You've had, call it, some dysfunction. Obviously, a 6-week shutdown here with the U.S. government in Q1, which has already been included in our guidance for Q1. And some of the questions I've had are what's the impact of the shutdown and life got a little bit easier on that forecasting with the government opening up just last night. And so we had a small impact that's actually embedded in our guidance, both for the quarter and the year. For us, it was probably $15 million to $20 million, and most of it came in the latter part of that 6-week shutdown. We were really unaffected early on. So I think you'll watch a federal government ramp also during the year. So we've got our 5% to 10%, and I would say we're not going to start with a 0 like commercial up to 10%, but we'll start at 5% ,6%, and we'll end up at 10%. International, you've already seen, we're at the upper end and same is true with the midpoint on state and local. What would drive us to the high end of this, I would say actually a little bit more clarity on international. I think international could move to the high end, and I'd like to see the baseline be 8%, 9%, 10% and actually, the performance come out above that. And I think it will just be clarity with respect to tariffs and trading so that individuals can select what they're going to move forward with respect to their manufacturing. And I would say in case of Canada, how quickly they can actually deploy what's just been authorized with their infrastructure work. I would say what would also could take us to the high end. We've not included really any material dollars for the U.S. State Department. And we are still present, although I would say close to dormant in places like Ukraine specifically. But if that actually became more constructive or more funding came through it, that certainly could push it to the upper end. With respect to what could bring us to the low end? Well, they passed a continuing resolution to the end of January. And if we're right back here at the end of January and that they want to eclipse the new record they just set for the past 6 weeks is something we'd have to take a look at. And that's not really been much of a financial impact to us. This first 6 weeks of shutdown, but you have to take a look at each one of these as they come and what's impacted. So I think unusual things like recessions and unusual things like a prolonged shutdown could drive us to the low end. Things that could drive us to the high end is a little bit more clarity on tariffs, which will help both on acceleration of U.S. commercial for reshoring here in the U.S. And honestly, a lot of activity internationally with respect to what they're going to move forward with, with respect to their own manufacturing. And is it going to come to the U.S. irrespective of the price increases on the tariffs, or are they going to have other trading partners. So a little more clarity on that. I'm not saying that high or low tariffs make a big difference, just clarity of what the number is that actually make a very positive construct for moving us to the high end. Sabahat Khan: Great. And then sort of just continuing on that discussion kind of post this continuing resolution. Is it I guess based on your past experience with such government closures is a 2-part question. One, is it usually a smooth sort of turning on of all the functions that were stopped? And then secondly, we've been hearing some commentary about with the EPA just taking a while or just kind of shutting down on issuing permits, et cetera? Has that been a headwind? And where do we stand on that now on the EPA front? Dan Batrack: Yes, good question. I would say that when we're in what I would call discretionary revenues from the federal government, it ramps back up slowly. But most of our revenues now have actually transitioned because of what took place in fiscal year '25 to essential services. So we really didn't have that much of it put on hold for the federal government because a lot of our revenues being driven by Department of Defense. So you say, is it going to ramp back up? My comment would be it didn't ramp back down. So we didn't really see that as an impact. So I think the federal government is not going to see much of a disruption from having gone down and back up. Now with respect to permits coming out of EPA. We don't do a lot of work that is driven by petrol regulation that requires EPA or national U.S. federal either headquarters or region approval before it goes forward. There's a little bit of it where they're co-regulated to compliance, both at the federal and state level, and you need sort of 2 sign-offs, so that's actually affected some of the dollars. But for us, it's been pretty small. But I would say the one that's been -- it's going to be seen a little bit more interestingly enough is actually in our state and local. And you would think that a government shutdown would not impact state and local. What do they got to do with the federal government? There's a lot of projects that have co-funding with the federal government. And I would say Department of Transportation, where you have large grants or other funding incremental funding as part of projects to go forward. When those grants and other things are completely put on hold or you had to go back for sign-off or next milestones, you saw those projects put on pause that are on hold until the government workers were actually back in place. So I think the impact for us is going to be the federal government workers weren't there during the first half of our Q1 or the federal government's Q1 with respect to pushing out orders. And last I looked at the calendar, we're only a couple of weeks away from Thanksgiving here and then we're going into Christmas. So it's not like you did a 6-week shutdown and then you're moving into blue skies. You're moving into holiday time. So I think the optics of backlog or task order issuance could be impacted in Q1. And again, I think that's mostly optics because we've got plenty of backlog to drive revenue right through this. But if you'd ask what are you going to see from the impact of this slow comeback. I think you're going to see the optics on your backlog, and you may see some optics or short-term impact on funding through state and local for us. Permitting approvals for commercial clients and others, de minimis, de minimis. There just aren't that many programs, except for super fund that are driven by the federal government EPA approval process. So I think it sounds like it's a big driver, not so much. Sabahat Khan: And just one last quick one on sort of capital allocation and M&A you've highlighted M&A as a focus, firms call it, in the medium-sized range. But can you talk about the general pipeline of those opportunities that meet your criteria? And then does things like the government shutdown influenced that either up or down in terms of the opportunity set or seller willingness? Dan Batrack: Well, I'm going to -- I'll just say a few words on the -- from a 100,000 foot sort of on the landscape, and then Steve can talk about the financial dollar satisfied. But well, this -- the disruption and the volatility that's taken place in the markets because of the new administration have sent some shock waves through some firms have impacted them more than others. And I think for some, they've actually felt that through this volatility, a place that's safer is on a bigger ship. So if I'm in a small robot or middle-sized boat and the waters get really choppy. Maybe I want to get on a bigger vessel. So we've actually seen these small firms or even middle-sized firms actually come to market and be more transactable. So if they were not selling -- for sale before and all of a sudden, you don't know what's going to happen either on your federal government, state or commercial. Maybe I'm going to go join a bigger partner who has a bigger platform, has access to clients that are maybe outside the U.S. or that are more stable. And no doubt, Tetra Tech, if you're looking to join a technical leader and a market leader and you're in the fields that we're interested in, we're about as safe and as prosperous of a firm to join to progress where you're at and actually make your business even better and reduce your risk. So I'd say there's more opportunity today because of this. And the other thing is that there's more available and for those that are looking for the sale, not to be their last move but their next move to become better, Tetra Tech is the right home for them. So I think pricing has become more moderated, our valuations have come down a bit. I would say that the investment bankers are still asking for an unbelievable dizzying valuations if you're in power or if you're in data centers. But other than those 2, I think valuations have gotten quite more modest. And the number of firms that are small to midsize have actually grown quite a bit. So I think our pipelines actually look bigger than we've seen before. No doubt, with consolidation in the market, there are fewer large firms, the ones that, of course, the scarcity premium for these really large firms. But when those fit right for us, we'll look at those, we'll be opportunistic. If it fits right, we'll look at it. And maybe Steve can just say a word about -- is there anything outside our range or with respect to the ability that we could become constructive on? Steven Burdick: Yes. So I think as I talked about in my earlier comment, we've got a really strong balance sheet and we're going to be able to use our balance sheet to make acquisitions that we think are going to have a long-term benefit. When I look at the capital markets and how we want to finance that, we have a bank credit facility that has 100% dry powder on our revolver and it has options to increase it beyond what's in the facility now. So that's available. And outside of the bank market, you see that we -- 2 years ago, we entered into a convertible debt. That capital is available at probably better terms today than 2 years ago. And so there are various capital markets and funding vehicles for us to really address anything that makes sense for Tetra Tech either small, medium or even larger firms in terms of who can join Tetra Tech. Operator: Our next question comes from the line of Sangita Jain with KeyBanc Capital Markets. Sangita Jain: So one, I want to ask about GSG margins. Outside of the elimination of USAID, can you tell us if there are other factors contributing to that margin expansion? Maybe it's an evolution of the mix of projects or more fixed price work that is driving that? And how we should think about it for '26? Dan Batrack: Yes. It's -- well, no doubt, as you commented, we're finishing up a number of deliverables and items for the disaster response, which drove really high utilization in GSG. So that was, I would say, the single figures driver that drove it up near 23% in the quarter. But the other 2 are just what you said is, one, we have more fixed price work. One of our goals for a while has been to take our fixed price amount of the work that we have. It has historically been, if you follow Tetra Tech or investor reports that we have online and attached to our press release. Historically, we've been around 35%, a little more than 1/3 fixed price. It's been a really focus over the past 2, 3 years to move that to more fixed price as we've actually develop more tools that will make us more efficient. So we can get our clients a better price point with respect to performing the work and gives us higher margins. So we did hit essentially 50% of the revenue that we had this last quarter was fixed price. That's the highest we've seen in I don't know I want to say ever, but certainly in many decades. So that actually was a big contributor to it. And the other is mix. It is that we have time and materials contracts on where there's a very competitive rate structures. We do a bit of upfront design work. Actually, about 30% of it is very high-end upfront design but when we move into what I'll call a more detailed design, we end up being compared on a price point to some of these low-cost offshore design centers. And those carry lower margin, and we've been migrating out of doing that and moving our design work to earlier in the project execution cycle. And those that are already early, we're moving them into consulting or even advisory. So it is mix shift. We are moving to where it's higher margins for the work, more differentiated work. Work is not generally competed. It's sole sourced. It's we're under existing contracts and frameworks. And then the work that is closer to being commoditized, we're moving it more to the front end. So mix, number one. Number two, more fixed price. And then the third, of course, is when we do have very high utilization driving lower indirect cost, it then shows up in our margins, which was like the firework by this last quarter. So those are sort of the 3 big drivers. I will say we still have a lot more upside with respect to margins. One of it, I had aimed 50% for a target for fixed price work, even though we'd hit that this last quarter, I want to see us stay there for a few quarters in a row because some of that's individual project driven. But I think we're going to move our target from 50% up to 60% since that will be our next milestone we'll move. So we have more margin expansion there. And I think there's still a lot more margin contribution opportunity by using more of these digital tools. And yes, that includes AI and yes, it includes different SaaS products we have. But I think the next phase that will contribute is being much more efficient. And if we can apply more efficient execution to a fixed price contract, I think that means more margin expansion for the company and its shareholders. Sangita Jain: That's super helpful, Dan. And if I can follow up on the U.S. commercial business and the puts and takes that you talked about renewables kind of like becoming a little bit softer in data centers and power transmission picking up. Can you compare for us if the scope of what you're losing on the renewable side is similar to what you're picking up on the power and data center side and if also the margin profiles are similar? Dan Batrack: Yes. I will say of any of the areas that we have flex or change taking place. That's one of them that we're still -- we're sort of in the middle of this transition. So the -- we were doing much more full-scale permitting for siting, construction oversight, for permit compliance, for these renewable energy projects. And I'd say one of the examples, of course, is offshore wind, where we have marine vessels and many other items. I thought Roger did a really good job of identifying that the work that we're looking to grow our data center work, in particular, and I would say the high-voltage engineering is much less on environmental compliance, which was being driven by -- which was what we were doing for renewable energy and much more for design for the commercialization in getting these different facilities online. So I think that's the difference. So on high-voltage transmission, we're actually doing the high-voltage engineering. We're doing the actual design of the transformer stations and the interconnect. So we're actually doing what I would call very high end. It's limited in service availability in the marketplace. There just aren't that many people that can do this. We're one of them. And so that's what I would say is different margins. I think, are actually a little better because of the scarcity of people doing this type of work for the grid and for high-voltage transmission. And I would say that it's just emerging now with our engagement in the data centers, which is not in the building itself. I thought Roger made a good point. The gold rush to do detailed design for the data center buildings itself. There's a lot of people rushing to that gold strike. But a lot of that work is being done internal. And a lot of it has been standardized so that all of the data centers are similar. And maybe that there's more miners than there are gold in that area. But actually, those selling the products in order to go mine for that gold is how do you get 5 million gallons per day for a large data center where do you get that from? And as Roger commented right now, it's from the municipal -- municipalities. As water becomes more scarce, they're going to be looking for us to find other water -- dedicated water supplies. Groundwater, surface water, water reuse, water recycling. So I think it's going to carry higher margins. So what we're migrating into is higher margins and, frankly, less competition. Operator: Our next question comes from the line of Maxim Sytchev with National Bank Capital Markets. Maxim Sytchev: I was wondering if it's possible to get a bit of an update on your digital initiatives. And maybe if you can talk about the clients where the adoption rates or the velocity is a little bit higher? And why that potentially could be the case? Maybe any color there would be much appreciated. Dan Batrack: Well, the -- I can just clarify and define the question because if it's -- our digital products is in our recurring revenue or SaaS. If -- just to clarify. Maxim Sytchev: Yes. Dan Batrack: It's interesting. That's been the one area that I would say we have been stymied or that has -- it's the smallest area of revenue that was one of our growth areas. I will say that if you went back to May of 2024, our SaaS or recurring revenue or our software products for subscription by our end clients. We've reported was about $25 million a year at, I think, on an overall EBIT margin of about 50%. I regret to say that 1.5 years later, there's still about $25 million and where the margins are about the same. I will say what's been disruptive for us is our #1 strategy was to take the software products, which were developed for our U.S. government clients, primarily the government was the subscription, and I would say U.S. federal government. I would say the new administration has actually created more of a disruption there than anywhere else for us. The good news is it's $25 million out of our total revenues at well over $4 billion. So it's the smallest of small revenue numbers. But I will say our strategy to actually take it and to bring in unique products that would help the government in these areas dramatically has actually been put essentially on hold. There's been an essentially a moratorium on new software packages for being purchased or leased or subscribed to at the federal government. We are retooling very quickly our go-to-market strategy to go to what we had called Phase 2, which has now become -- so Plan B has now become Plan A, which is for things like OceansMap instead of having it placed with the U.S. Coast Guard and the Navy and other specialty agencies within the federal government. We're going to ports and harbors and individuals who actually have requirements to understand what's the impact of an oil spill or of builds discharge or anything else of man overboard actually in the local port and harbor environment. So there's a lot more of them. It is a different approach for us. And I'd say that's also true where we've been placing software packages with Department of Defense for our FusionMap. And I could go through FAA with respect to our Volans environmental air traffic approach lanes. So we are moving to what I would call secondary, which were originally our Phase 2 but we've been taking things like Volans for the FAA, and we're now actually having it deployed across Europe. And we're using it in places like Heathrow right now and other major cities across Europe. So I will say that just because it looks like this road has -- the federal government has slowed or not gone through right now. We've -- we are taking, I'd say, 2 steps back, 1 over and 3 or 4 steps forward. So I expect that to be much more productive and have some better growth rates here over the next year or 2. But I would say the good news is it's only a small part of our revenue. In fact, the smallest of small. But the bad news is it has pushed us back, I would say, at least a year from what we expected to be at this point. Maxim Sytchev: Sure. That's very helpful. And maybe one quick one if I can squeeze on for Steven. In terms of obviously, the balance sheet is extremely healthy and delevered. In terms of the desire to do anything more or of size relative to your history, do you mind maybe providing some guardrails in terms of how we should be thinking about that? Steven Burdick: Well, I think if you look over the Tetra Tech's history, we've -- our acquisitions have been kind of that medium size add 2%, 3%, 7% of revenue per year when you add them all up. But what you have noticed also over the last couple of years is we have acquired other public companies that were larger than normal. That took a bit more creative financing, regulatory approvals. And we brought them into Tetra Tech and turned them around and they're performing at much better rates than they ever were as their own public companies. And those were on the much larger size comparatively speaking. So I would say that our strategy and appetite is anywhere from the small to medium-sized companies to the larger public or private equity health companies that -- and I believe that both with our current balance sheet, our current bank credit facilities and the capital markets that are available to us. We have a lot of different choices with at significantly bigger sizes than even RPS, which was our largest acquisition in the history of the company just 3 years ago. Operator: Our next question comes from the line of Michael Dudas with Vertical Research Partners. Michael Dudas: I guess, 1.5 years ago, we had your Investor Day in New York, how much has happened since then and how much has happened since then. Just wanted -- maybe you can share a little reset. As you look out your 2030 targets, I'm more confident, less confident are you given all the disruption that you've witnessed and successfully overcoming during fiscal year 2025. And as we think about that, does because of where your balance sheet is and the opportunities, does acquisitions become a little bit more important to achieving those longer-term goals and maybe it would have been 18 months ago? Dan Batrack: That's a great question. So I've been asked that question in many different ways really since probably February of this year with the new administration coming in and with USA actually being eliminated as a federal agency and I bet even asked as directly as you regret having come out with those targets for 2030. And a nice reversion of that is, do you want to do a reset and actually put your number at different set of numbers up there. My comment is well, I don't know if I should put a bigger numbers quite yet. But I will tell you that there's no doubt that it's been an interesting year. And what's the old adage, the Chinese proverb, progress, "may you live in interesting times." This has been the most interesting of times. But what interesting times do get us, and I'll tell you one thing I'm so proud of the management team here at Tetra Tech and all of the employees that we've lived through in change, change represents opportunity. And for each door that's gotten closed and one has been completely closed with AID, we didn't close the door, someone closed it on us. I'll tell you, those same staff have actually been able to find new opportunities or new windows that have opened, and the windows are actually larger than the doors that were closed. For instance, the margins that we -- the doors that was closed in AID, has actually been opened. The windows that have been opened have new opportunities that have much higher embedded margin, in fact, double, even triple the number that we had. So there was 2 numbers on the 2030 plan. One was the total growth and no doubt that's been impacted, and I'll come back to that, which is top line. But the second was margin basis points. And Steve Burdick very eloquently presented how we were going to expand 50 basis points per year over the 5 years from that time of the presentation to 2030, I don't know, someone else closing out U.S. AID for us actually took us almost a 50 basis points jump on a baseline up. And then on top of that, we've said we now look like we're going to grow more like 60, 70, 80 basis points. So as far as the margin goes, I think it wasn't actually a headwind. It actually became a tailwind and somebody gave us a boost up on that. With respect to top line, no doubt, someone says if you just had $550 million subtract from you and the rule of compounding is going to make that even more difficult on you, my comment would be that the rule of compounding all is going to hurt me if I don't actually close that gap in the next couple of years. And we only had a 4% to 5% contribution from M&A for our mergers and acquisitions, and I'll focus on acquisitions, people joining us. Steve just went over, we have more this vernacular dry powder, which is access to capital. I'll comment that while you'd say, if you go to market right now and you have excellent credit rating, you'll get 4%, 5%, 6% interest rates thanks to Steve's foresight, Tetra Tech had a 2% interest rate because of the convert that we put in place 1.5 years ago. So we have the lowest cost of capital. We have -- we could actually do acquisitions at half again or double the 4% to 5% presented in the 2030 plan that we presented in May of 2024. So we could do double that number and not actually go outside the range of 1 to 2 leverage that we identified. So with respect to closing the gap that's just created, I don't see that as an issue. Yes, it means that we'll turn up our M&A a bit. But as my comments on an earlier question on this, this call is -- are there actually firms available that in as a price point? I think I answered that, I hope, in enough detail to say, absolutely, and even at a better multiple -- and by the way, someone who's going to join Tetra Tech isn't getting a lower multiple. They're getting a better home. And so I think that, yes, M&A will become a bigger part, and I think we can get to that number without having put any additional pressure on our organic growth targets, which is 6% to 10%. I think you've seen even in this period of great turmoil or may live in interesting times, we're coming right out of the gate, we're right at the middle of that range organically at 8%. So yes, M&A will have to be a bit larger. But I don't see financially or opportunity availability being an issue for that. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Batrack for closing comments. Dan Batrack: Great. Thank you very much, Melissa, and thank all of you for joining us on the call today. Thank you for being supporters of the company through all the fiscal year 2025. I'd like to reiterate that I could not be prouder of the performance of the Tetra Tech employees all around the world and really how we navigated 2025. And I can't see a better demonstration of how that performance actually was other than the all-time records, nearly every field. As I just indicated in this last question came, how is it looking with all the changes? I do think that there's more opportunities there for Tetra Tech, particularly in the market leadership positions we're in to make 2026 just a fantastic year. And I really look forward to reporting back to all of you in roughly 90 days from now or at the end of Q1 to report how we started out in fiscal year 2026. And with that, I hope you all have a safe and a successful day today. I will likely not talk to you collectively before the holidays. So I hope you have a great holiday wherever you happen to be located. Thank you very much, and have a great week. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the North American Construction Group conference call regarding the third quarter ended September 30, 2025. [Operator Instructions] They are free to quote any member of the management, but they are asked not to quote remarks from any other participant without that participant's permission. The company wishes to confirm that today's comments contain forward-looking information and that actual results could differ materially from a conclusion, forecast or projection contained in that forward-looking information. Certain material factors or assumptions were applied in drawing conclusions or in making forecasts or projections that are reflected in the forward-looking information. Additional information about those material factors is contained in the company's most recent management's discussion and analysis, which is available on SEDAR and EDGAR as well as on the company's website at nacg.ca. I will now turn the conference over to Jason Veenstra, CFO. Please go ahead. Jason Veenstra: Thanks, Joanna, and good morning, everyone. As we did last quarter, I'll start off with the financials and pass the call to Joe for the operational and forward-looking commentary. Starting on Slide 4. The headline EBITDA numbers of $99 million and 14.6% gross margin were generated by a strong operational quarter and were much improved from the second quarter of 2025. We will discuss the specifics of the margin performance later, but in general, the operational teams were able to execute their plans effectively given steady weather conditions and consistent customer demand. You can see from the graph that we continue to post continuous revenue growth as we posted $390 million of combined revenue, a 6% sequential increase from the second quarter, despite the seasonally lowest demand during the third quarter in the oil sands region. Australia continued its consistent growth trajectory with a 12% sequential increase and an impressive growth of 26% compared to Q3 of 2024. To put our top line performance in perspective, this quarter's $188 million in revenue we generated in Australia is nearly 2.5 times the 2022 run rate, an increase achieved in just 3 years. The MacKellar Group generated over $65 million in September alone and set another company record for monthly revenue as they continue to grow. September's strong top line bodes well heading into the fourth quarter, and this growth profile is indicative of the demand we see in Australia. The 26% year-over-year increase reflects 2 significant contracts secured in 2024: one expansion at an existing site; and one new project, as well as the growing production profile of our largest customer in Australia. Enabling and bolstering these increases are the units of fleet we transferred from Canada and are now operating in the region. Moving to Slide 5 and our combined revenue and gross profit. As mentioned, Australia's margin of 19.6% benefited from both productive weather conditions, but also strong operational performances across the sites. And specific to last quarter, we actively increased maintenance headcount in early Q3 and subsequently were able to rely less on higher cost external maintenance service providers. The oil sands region posted a solid quarter at 9.2%, up significantly from the challenging second quarter of 2025. Demand for our equipment was consistent through the quarter, which allowed our operators to properly plan and execute the scopes of work. Our share of revenue generated in the third quarter by the Fargo, Nuna and other joint ventures was $74 million in the quarter. Our Fargo team completed a strong quarter of work and progressed the project from 70% to approximately 80% at the end of the quarter. Stepping back, combined gross profit margin of 14.6% reflected steady weather conditions, consistent demand, increased internal maintenance headcount and reduced reliance on third-party heavy-duty mechanics. Of note, the 8.9% posted in Q2 was restated from the 10.6% reported as certain expenses in the Fargo joint ventures had been classified as administrative when, in fact, should be included in the determination of gross margin. Moving to Slide 6. Q3 EBITDA and EBIT were down from their 2024 comparables, as already indicated in our discussion, but importantly, in line with our guidance for the second half of 2025. The 25.3% margin we achieved is indicative of the commentary thus far and a significant improvement from the 21.6% posted in Q2. Included in EBITDA is direct general and administrative expenses of $13 million in the quarter and equivalent to 4.1% of reported revenue, which is essentially at the target we've set for ourselves. Going from EBITDA to EBIT, we again expensed depreciation equivalent to approximately 14% of combined revenue, which is consistent with the 14% posted in 2024 Q3, consistent with our expected run rate moving forward, given historically we've been between 13% and 15%. Adjusted earnings per share for the quarter of $0.67 reflects EBIT generated by the business, net of the expected interest and taxes. The average interest rate for Q3 remained consistent at 6.4%. Moving to Slide 7. I'll briefly summarize our cash flow. Net cash provided by operations prior to working capital of $72 million was generated by the business, reflecting EBITDA performance net of cash interest paid. Free cash flow of $46 million for the quarter was based on EBITDA and the disciplined sustaining capital maintenance spend in the quarter. Moving to Slide 8. Net debt levels ended the quarter at $904 million, a slight increase of $7 million in the quarter as free cash flow generation was used on growth capital, share purchases and dividends. Net debt and senior secured debt leverage ended at 2.3x and 1.6x, respectively. When taking into account the $125 million reopener we completed in October, senior secured leverage decreases to 1.3x with no change to net debt. Senior unsecured debt now accounts for approximately 40% of our overall net debt, and we've been pleased with the demand for that source of financing as it provides the ability to confidently grow our Australian and infrastructure businesses. With those comments, I'll pass the call to Joe. Joseph Lambert: Thanks, Jason, and good morning, everyone. I'll start on Slide 10, where our Q3 trailing 12-month recordable rate of 0.45 continues our almost decade-long trend of bettering our industry-leading target frequency of 0.50. It has been particularly pleasing to see our safety management systems and processes remain successful as we have expanded and diversified our business across multiple commodities and into the U.S. and Australia. The exposure hours now exceeding 7 million is about 7 times our 2016 low and demonstrates the scalability of our safety systems and consistency of our safety culture regardless of the country or the commodity. On Slide 11, I'd like to highlight the strong operational quarter and gross margin achieved about 15%. The continued high demand driven predominantly from the 30% year-over-year growth over 3 years in Australia and the result of $1.5 billion record top line over the last 12 months. The 100% renewal rate, average 5-year contract terms and scope expansion opportunities continue in Australia and the $2 billion add to our backlog, provides the stability and visibility for several years to come. We also added another $125 million in liquidity from senior unsecured notes and believe we are well set up for growth opportunities we see in Australia and in infrastructure. On Slide 12, we believe our H1 issues are truly behind us. We have a strong Q3 in the books, are in line with expectations and have a keen focus on delivering a safe and efficient end to the year. On Slide 13, our equipment utilization, which jumped in late 2023 with the MacKellar acquisition, is expected to lift into the target zone in Q4 as our rapidly growing Australian demand is offsetting reductions in our Canadian demand. Fleet utilization drives our return on capital and our asset management team is keenly focused on a clear execution plan for putting assets back to work, transferring assets to higher demand markets and extracting the highest value from the consumption and sale of excess assets. As we start to look forward, I would like to reiterate that similar to last year, we have a large amount of predominantly oil sands work scopes that remain in tender process, and we will await those results before providing our 2026 outlook, which we expect to provide in early to mid-December. On Slide 15, we move into looking at the macro tailwinds that we believe will be driving all of the markets we operate in for the next few years. In Australia, we expect to see the continued growth in demand driven by the resource richness of the country and the speed at which new projects are built or existing mines are expanded. We believe Queensland thermal metallurgical coal demand will remain strong with 5% to 10% annual growth potential and the biggest opportunities in Australia coming from gold and iron ore in Western Australia and copper opportunities in New South Wales. We likewise see growing civil opportunities in Australia with increasing new mine site development and expansions driving civil earthworks constructions, such as site access roads, tailing storage construction and facility expansions. Western Australia is also rich in resources like nickel and lithium and has many mines on care and maintenance status due to current commodity pricing. Should those prices increase, Western Australia will be booming even more. Altogether, Australia has become the strategic hub for Western allies seeking to secure their critical mineral supply chains with demand for large-scale moving -- earthmoving ever increasing. In the U.S., we see the biggest opportunities in the infrastructure markets with federal investments being streamlined for prompt construction of climate resiliency projects, like our Fargo-Moorhead flood diversion project. Energy transition projects like pump hydro and other major earthworks construction required for Western U.S. water conservation and transportation. Although mine development in the U.S. does not advance nearly as quickly as in Australia, we do expect to see increasing demand in U.S. mining and civil contracting, predominantly supporting the Western U.S. gold and copper markets. In Canada, we see increasing resource development, defense projects and infrastructure work with major works planned in the far north, providing what we think will be a competitive advantage to our Nuna partnership with the Kitikmeot Inuit Association. As mentioned in my letter to shareholders, we believe these type of nation-building project opportunities will come to market quickly with the support of government leadership, and we are positioned to execute at scale. Moving into Slide 16. We highlight our strategic priorities for closing out the year and heading into 2026. These priorities simply feed into the market assessments and opportunities we see by region, as discussed on the previous slide. In summary, these priorities are growth in Australia led by Western Australia opportunities, advancing teaming agreements and subcontracting opportunities in our infrastructure business, targeting the 25% revenue contribution by 2028, leveraging our Nuna experience and indigenous ownership for expected increases in Arctic opportunities, rightsizing our Canadian equipment fleet to meet current run rate and increasing development and application of low-cost purpose-built technology to provide better data for asset and project management. We believe executing on our priorities will drive revenue diversification and margins. Slide 17 simply provides more data and detail into what we see as fantastic opportunities for organic growth over the next couple of years, and Slide 18 identifies our top 10 infrastructure projects by name, location and proponent so we can track progress more specifically in what we believe will be an exciting next couple of years in the infrastructure market. Slide 19 shows our bid pipeline of over $12 billion, which is a $2 billion increase since Q2 and includes increases in both the active tenders and 2026 opportunities. This record bid pipeline puts the revenue numbers to the opportunities previously identified and positions us well for growth and stability with material expected wins over the next couple of years. Lastly, on Slide 20, we reiterate our H2 2025 outlook with nearly all metrics unchanged and strong free cash flow consistent with our historical profile. That ends the Q3 presentation. We'd be happy to take any questions you may have. Operator: [Operator Instructions] The first question comes from Aaron MacNeil at TD Cowen. Aaron MacNeil: In the prior quarter, you had said that you were confident in securing 2 memorandums of understanding by the end of this year. How should we think about the progress there? I know you mentioned on Slide 19 that you had prequalified for a mining infrastructure project in Arizona. I assume that's one of the 2, but maybe you could just give us an update there? Joseph Lambert: Yes. We -- there's different levels of agreements we seek with different partners. Obviously, some of these that, we may be looking at doing on our own, we won't have that. But I think our progress has gone well. I think our discussions with other potential partners we target for, especially some of the projects up north, have gone well. I'll probably provide that with our year-end exactly where we sit on those. It's really a first state step in the infrastructure side. And we're having the discussions with general contractors who have existing contracts to see if we can bring in some subcontracting opportunities sooner and hopefully in 2026, but certainly nothing inked on that right now. Aaron MacNeil: Fair enough. And then, can you just remind us of the timing of when Fargo-Moorhead will wind down? And how should we think about the sequencing of sort of other infrastructure projects backfilling that revenue? Joseph Lambert: We see it reaching substantial completion next fall. Operator: The next question comes from Adam Thalhimer at Thompson, Davis. Adam Thalhimer: Congrats on putting the Q2 issues behind you so quickly. I wanted to ask first on the U.S. infrastructure opportunity. Does that potentially include work for private sector customers as well, such as data centers? Or are you just looking at large civil projects? Joseph Lambert: The ones we have targeted in the deck are all public projects. We certainly look at private ones. It's just a matter of getting on those bid lists and spending more time with the customers there. Adam Thalhimer: And how near term -- you said you were positioning to support major GCs across North America who are at capacity. Just curious how near term that particular opportunity could be Joseph Lambert: That's pretty much the stuff we see in 2026 potentially being subcontracting work where there's -- yes, we -- there's -- the general contracting community is pretty full, and there's projects still rolling out. So we think that's going to open up some opportunities to support projects that are already in progress or soon to be. Adam Thalhimer: All right. And the last one for me on Australia, the mechanics situation, are you where you need to be on that now? Or do you still need to hire more folks to fill those slots? Joseph Lambert: We're where we need to be. We'd still like to keep bringing on more. I mean we kind of budget a certain level of subcontractors in the business, and we do the same thing here. But we're certainly looking at opportunities to reduce costs further, but we're at our -- what I would call our historical levels. It's just upside potential or improvements that we can continue to make. Operator: The next question comes from Maxim Sytchev at National Bank Capital Markets. Maxim Sytchev: I was wondering if we can circle back to Australia just for a second. I mean, obviously, you're highlighting coal and iron ore opportunities. But I was wondering in terms of precious metals, I mean it seems to be like a very active space right now. Is there anything brewing on that front? Anything you can share with us in terms of potential pipeline there? Joseph Lambert: Yes. There's actually a massive pipeline in the Western Australia gold market as well, Max. That's a big area. The lithium is actually still being mined in Western Australia. It's probably the higher grade stuff. But certainly, with the lift of lithium and nickel, we'd see those commodity markets open up. The biggest driver in Australia right now on the precious metal side is gold. And as you would expect with these gold prices, there's quite a few people that are doing expansions and opening up new mines there, which moves a lot faster than it does in North America. Maxim Sytchev: Right. And I guess, I mean, like in terms of equipment, et cetera, like I mean, it's still the same process, similar contractual structure, et cetera, for those brownfields, right? Joseph Lambert: Yes. I would say that what we find slightly different in Western Australia is that there's a lot more unit rate work, very little rental, a lot more unit rate work down there. And that's really where we brought our systems and processes over and been able to -- we won the first one last year with that copper project and taking that unit rate model into Western Australia is what we would look to be doing. Maxim Sytchev: Okay. That's good to hear. And then in terms of Canada, when we look at some of the critical mineral opportunity, the budget that just was released, I mean, it seems to be pretty constructive. I was wondering how do you think about potential timing of the inflection point here? And I don't know if you want to maybe attribute some stuff to Nuna, some to the core business, whichever way you think is -- makes the most sense? Joseph Lambert: I'd say we're a bit unclear on the timing. We've seen a lot of projects and there's a lot of talk of support. But yes, we're looking for once the shovel is going to be in the ground date. And I don't think we're expecting anything in 2026. I think it's probably more 2027, but I'd love to be wrong about that, and certainlyif they can speed these up and give us opportunity sooner. But right now, we don't -- we haven't heard a lot of definitive dates. And so we're -- I'd say, we're being a bit more conservative in believing they're going to kick off in 2027. Maxim Sytchev: Okay. Makes sense. And then lastly, in terms of Canada, in terms of the right sizing of the fleet, I mean, where are we in terms of that process? Are we kind of done or you're still waiting depending on the allocations on equipment for 2026 that you still have to make some adjustments? Or how do you feel from that perspective? Joseph Lambert: There's some of that fleet we know what we have to do with it. We're building strategies by each individual fleet. But yes, we're waiting to find out these last bids to figure out what the consumption of the remainder of the fleet is. And we'll have a much better idea of that come mid-December. But we're executing -- I can tell you that there's -- we've got 3 more dozers we're looking to send over to Australia because they haven't been in high demand here, and they've been crazy demand down there. So that kind of stuff is going on every day. And we'll have more of a, again, a wholesome picture of the whole -- of the fleet probably in that mid-December discussion. Operator: The next question comes from Sean Jack at Raymond James. Sean Jack: So just thinking about how Canada and Australia, are both seeing their own macro tailwinds split between nation building and critical minerals. Can you touch on the priorities for NOA and how we should expect the company to invest across either geography to get the best, most visible return? Joseph Lambert: Yes. For me, it's getting -- especially in the mining sector, it's getting the maximum out of the assets we have and creating the highest return. We think there's a lot of growth potential we can do in Western Australia, in particular, with very little growth capital. And that creates the highest returns for us. Those are our target markets. I think we can walk and chew gum at the same time, too, is there's -- these infrastructure jobs tend to be very low capital intensity and they free cash flow very quickly. So certainly, we'll be pursuing all aspects of those along with the critical minerals and the commodity opportunities we see in Western Australia. Sean Jack: Right. Perfect. And flipping to Australia, I know it's already been asked, but just thinking about the contractor usage in the period. There's been 2 quarters now where they've impacted margins. It sounds like they were actually on 2 different functions. Wondering what the strategy is going forward to mitigate just overall impact from contractor usage going forward? Joseph Lambert: We've been through this more than once in -- both in Canada and down there. It's just building up your skilled trades workforce through apprentice programs and bench hands. We've done this. We're at the levels we budget to be, but certainly, we see more opportunities for continuing to increase the skilled trades in areas that have high demand, which Australia has been the biggest one right now. So it's following our HR programs and bringing in apprentices and building them up quicker. Operator: This concludes the Q&A section of the call, and I will pass the call over to Joe Lambert, President and CEO, for closing comments. Joseph Lambert: Thanks, Joanna. Thanks again, everyone, for joining us today. We look forward to providing next update upon closing of our fourth quarter results. Operator: Thank you. This concludes the North American Construction Group conference call regarding the third quarter ended September 30, 2025. You may now disconnect.
Marc Spezialy: Okay. Good morning, everyone, and welcome to Pure Cycle's Year End Investor Presentation. If you please mute your line as Mark Harding goes through the present and then at the end, we'll -- we have a video, and then we'll open it up to Q&A. So with that, I'll hand it off to Mark Harding. Mark Harding: Thank you. Thank you, Marc. Welcome, everyone. We're delighted to share with you our fiscal 2025 earnings presentation this morning. With me today is our CFO, Marc Spezialy; and our Controller, Cyrena Finnegan. So if you have any tough questions, we'll have them help weigh in on the answers for all that. But we really are excited to give you kind of some insights as to how we were working through the fiscal year, and it's been an exciting year in a couple of fronts that we'll detail. First, I want to get the lawyers out of the room and remind everybody that this presentation includes forward-looking statements. I'm pretty sure you're all familiar with the forward-looking statement caveat in this. So with that, we'll get to highlighting the important thing. The most important thing is I get the privilege of working with just an outstanding team of professionals. Marc, together with Cyrena and then those folks that kind of grind out day in and day out to make sure that our -- we stay on track and really have a good customer experience in all three of our business segments. So great to work with them. And then just to remind everybody that we punch above our weight with our advisers and our Board of Directors. We've got a great team, highly experienced and specialized Boards of Directors that continue to really emphasize how best-in-class performance is for each of our business segments. So we're privileged to work with a great team. And you, from a shareholder standpoint, should get a lot of comfort as to the continuity and really the caliber of the company's Management and Directors. Let me start out with kind of some of the themes for this presentation. And I'd say continued profitability where you've got 25 straight quarters of profitability and this quarter and this year is no different. Really continued growth in each of the revenue segments, especially in the recurring revenue segments, and that's really one of the most important components of what it is that we're doing, building a stable earnings from both water and wastewater, our land development side, our rental income from our single-family homes. So terrific continued growth in that. Also, in our land development, resiliency, our business model. And when you see changing market dynamics as we've seen this year, you stress test your business model. And one of the things that we're going to highlight is kind of the flexibility of our business model to be able to risk on, risk off, turn the volume up, turn the volume down to really match our customers' needs in that segment. And that's the most -- that's the highest delivery segment for that. So that flexibility continues to demonstrate its use and its resiliency in our business model. And then our capital position and liquidity, continued strong stewardship of shareholder capital. So we'll continue to emphasize those positions and make sure that we have a solid foundation for delivering results year-over-year. Okay. With that, let's dive right into the Q4 results. And as all of you know, our Q4 is typically our strongest quarter, and that has a lot to do with seasonality and really how we deliver because of the -- our weather conditions here in Colorado, concrete and asphalt paving really do cycle themselves into making sure that you get that down before our winter season. Our perfect cycling would be kind of Q1, end of November, but our year-end happens to be end of August. So sometimes that works to our advantage. Sometimes things spill over from year-over-year. So revenue for Q4, again, it was our highest quarter, slightly down, mostly due to the housing headwinds and pushing some of that revenue recognition from our percent completion into Q1 2026. So both revenue and gross profit up, but slightly off from what we saw in 2024. Taking a look at net income and earnings per share, again, profit margins are still remaining. And really, that is some of the diversity to the company's revenue streams, and we'll talk a little bit more about that. But Q-over-Q in Q4, again, our highest quarter and solid performance on both our net income and earnings for the quarter. So let's take a look at kind of how that normalizes itself for the overall year-end performance. Year-end, slightly below expectations. And again, that was mostly due to the headwinds of housing pushing some of the percent complete. And so as most of you know, we operate on a percent complete because we develop lots over about a year's delivery schedule. Sometimes that works within our fiscal year, sometimes that carries over. And last summer, I think what we look to do is really dial up some of those deliveries. So we had as many as three different phases of our land development going on at the same time, delivering what we were looking for in 2024 and then having two phases in 2025 and spilling over into 2026, delivering at the same time. So strong results again, but slightly below expectations on revenue and gross profit. But then moving into kind of the thing that matters the most is our net income and earnings per share, which actually exceeded our expectations. So again, the most important metric is earnings per share, slightly above what our forecast was. And that's largely due to oil and gas royalty income coming in much stronger than projected. And the reason for that was we had the completion of an additional 7 -- 6 or 7 wells into the largest portion of our royalty estate and those wells came online and started producing in 2025. And that really did exceed that expectation. We knew that those were there, but you never have clear visibility as to the price of oil and then how that's going to result in. And so one of the things that we continue to show is that diversity of revenues to the company where we have multiple shots on goal here and are able to drive revenue and earnings from our assets in a number of different ways. Let me go over kind of the earnings bridge of where that -- where the headwinds and tailwinds came in from each of the revenue sources. So our forecasted net income was right around $12.5 million, slightly lower revenue from our land development segment, and that wasn't that we lost that revenue. It was really more that it was pushing into 2026. Some of that was Q1 2026, but some of that's going to be in the first half of 2026. Slightly higher costs of revenue, and that's really driven by a little bit by tariffs, a little bit by inflation. So we saw a little bit of slightly higher costs on that, but then lower G&A expenses. So those things that we can control, particularly when we have a headwind type environment, we pay a lot of attention to SG&A. And then we're given a little bit of tailwind from royalties on the oil and gas to allow us to bring that net income -- even not only above -- slightly above that forecast but continuing to drive earnings to the company. I want to move into kind of taking the view up a few feet and really highlight each of the business segments so that you get a flavor for not only where our investments are going, but how each of these segments are performing. So in our Water Utility segment, really the main drivers there are where we get our revenue from. And so the recurring revenue side of it, we have a little over 1,600 commercial connection points on there out of a total of 60,000 potential given our water portfolio. So we're just getting started on that. Industrial water sales, water sales to oil and gas customers and then connections, and that's largely driven by our land development business, and we get tap fee revenue that's attributable to that and delivering high margins there as we continue to invest year-over-year into our water system and really deploy that capital that we're receiving from maybe some of the one-time sales to oil and gas to make sure that we get high margins and continued profitability into our tap fee connections. If you look at kind of how that portfolio -- our water portfolio performs. We've talked about this a number of times. We believe we can serve 60,000 connections, probably can be a little bit stronger than that given the trending in the amount in water consumption per single-family equivalent, but we continue to really pace our guidance on this at 60,000 connections. And as most of you know who are familiar with the company, we get two fee incomes from that. We get a large [ whomp ] upfront capital fee component and our tap fees now, our combined water and wastewater tap fees are right around that $40,000 mark. So those continue to grow and appreciate based on the scarcity value of water and the cost of incrementally delivering those supplies, which are farther and farther out and harder and harder to bring on board. And then annual revenues. And our annual revenues are pretty consistent. We're probably growing that a bit. That's about $1,600 per connection per year. And so when you take a look at that, the connection of 60,000, that's about $2.5 billion worth of top line revenue, cost us about $1 billion to build that full system over time and then our connections year-over-year revenue. So overall, we're still a very small fraction of our total capacity, close -- a little over 2.5% of what we're really deploying depending -- compared to our capital and our capacity. And then the production year-over-year. We continue to invest in that system. We had a pretty light year, which we knew that was a forecastable gap in oil and gas deliveries. So we still have plenty of pedal on what we've developed in our production capacity to deliver that water as that water increases. And we look to see a bit of increase in that in 2026. As that applies to kind of fiscal year-end year-over-year, really, the interesting thing about the water side is some of the diversity in the mix of customers. When you take a look at that, we're sort of looking at the domestic customers, which is that dark blue, and that will be what we're delivering to that 1,600 connections year-over-year, some of the oil and gas deliveries and then the tap fee deliveries, which are attributable to our land development segment. And so while our overall revenues stay in line, the mix of that, as you can see, between year-over-year is variable. And so you're going to see a diversity there that allows us to kind of continue to grow that asset base, not only from the recurring standpoint, but also in capitalizing on other business segments and being able to put some of that idle capacity to use either through oil and gas or in the development side. And then good customer growth. Again, we've got about a 22% CAGR on our customer growth. So we continue to really leverage out building that recurring and perpetual customer growth in the recurring revenue side. Just a small snapshot of the oil and gas side. We did have a forecastable decline for oil and gas deliveries in 2025, and that was largely due to a strong push of permitting oil and gas wells on the Lowry Ranch in our service area. And oil and gas operators have close to 200 permits now that they're actually drilling. So we have a drill rig that is, for the time being, committed to drilling nothing but pad sites on the Lowry Ranch. And so we do see for 2026, a significant increase in oil and gas deliveries for that segment. So you'll look forward to seeing some of that action in 2026. Let me move over to the Land Development segment. Taking a look at each of the phases of that, one of the carryovers on Phase 2C. So we did deliver the 228 lots of Phase 2C that we had forecasted for 2025. And we had a small about $800,000 of deferred revenues that spilled over into Q1, and that was a function of sort of the regulatory climate in permitting and getting some lot templates on some of the lots that we had for one of our builders, but that did come in, in Q1. Overall, sales in Land Development were off then from our expectations, and that was largely attributable to some of the headwinds that we're seeing in housing and really trying to provide that customer service to our homebuilders and making sure that we're pairing inventories at appropriate levels where we're not overinvesting in roads, curbs and gutters, and they're not inventorying finished lots beyond sort of those annual increments that we like to deliver them to and they like to receive in. Taking a look at 2026, we're working on completing Phase 2D. And so we'll see -- we're about 43% on that. So that was some of the rev rec in 2025, but you'll see the completion of that rolling into 2026 and then visibility from there, taking a look at not only 2D, but 2E, which is going to be the next phase. On the land development side, this is kind of a breakout of which phase is contributing to the revenue streams. As we had this Phase 2, we subphased that out. We initially had that sub phased into four sub phases, but we were able to add a fifth one with that with this 2E. But it really does show you that bulk of '25 deliveries was from Phase 2C and some of those forecastable revenues that we had that we were able to dial down just a bit because of the housing headwinds will push into the first half of Phase 2D on that. And so it gives you kind of the total land development revenues and how those occurring for the trailing three fiscal years. So it kind of gives you a profile of some of the developments and really how that's maturing, and you're seeing this slide where we're carrying it forward on not only the land development side, but then kind of how that vertically integrates ourselves into the water side from the tap fees. We haven't fully received all the tap fees from Phase 2b. So we still have some contribution on those -- from those deliveries, which were in 2024, that will come in, in '26 and then taking a look at 2C and 2D on the tap fees for that and then also single-family rentals. And last year was a bit of a struggle for us on single-family rentals. Again, another regulatory issue for us as the county, which is our jurisdiction, updated their building codes and really had difficult time processing homebuilder permits on that. And so we're through that phase. Most of our homebuilders have got what we call Masters approved. So each housing plan will be approved and then they can build that same house, different elevations so that they change the look of that, but the building department's approval of that Master allows them to build that on any number of different lots. And so each of our builders have got their Masters approved, which still accelerate into our single-family rentals. So you'll see a substantial increase in the number of single-family rentals in 2026 and into 2027. I'll highlight a little bit more of that later. What I wanted to do is this will help illustrate kind of how our percent completion works. And most of our builder contracts are structured in a [ Flow ] Funding Agreement where we get paid in three installments. We get paid once we do the Plat, which is a recordable property interest to an individual lot. It's a paper lot, but it is that they own that address lot. And then we use those funds to be able to really do the land development side. So we're really working in a partnership with our homebuilder partners to be able to deliver these on a real-time basis. As we complete the wet utilities, which includes the overlot grading and the overexavation for the soils, then we make that second payment. And then as we deliver the roads, curbs and gutters, we get that finished lot payment. And so this kind of shows you some of the timing of how those payments go and really that work product over the POC. And sometimes those will span quarters, sometimes those spans year-end. And when you take a look at delivering each of these individual increments of lots, it's not always clean enough to deliver in one fiscal year, but it does deliver in a year, and that year may be 12-month period as opposed to matching with our fiscal year. But that kind of gives you an illustration of how some of that -- how we can dial up and dial down to the market depending on how the strength of that market goes. This is kind of the location of where our next phase is going to be. So it's going to be directly across that Phase 2E, and that's about another 150 lots that will be directly across from the high school. The important component of this is we're really almost complete with most of the major infrastructure on that. The roadways were complete pursuant to some of the other phases. So this should be a high-margin area because most of the off-sites and arterials are all completed and the roadways are completed, the water, sewer, all that system expansions are already to this property. So that will be a nice phase for us. One of the key milestones for 2025 was really groundbreaking for high school. And as you can see from that aerial drone shot, it's right adjacent to our primary school. So it's a full campus. It's a full K-12 campus and really excited to continue to work with National Heritage Academy. There, our charter partner and really -- that's one of the high-value commodities for our development here is that we've got a full walkable K-12 campus right on site for the development and outstanding delivery of education here at Sky Ranch. So we're very grateful for that. We're very grateful for our charter, which is the Bennett School District and our partnership with Bennet School District on bringing this education system to Sky Ranch. I continue to want to kind of illustrate our service area and kind of where Sky Ranch is in the metropolitan area. And so the map on the right here, the black line at the top of that really is the I-70 corridor. And Sky Ranch is the development in the blue there, and that kind of illustrates really where we are. We talked often about the fact that Denver really situates itself on kind of an ocean-like framework because we can't grow West. And so all the growth is concentrated to the Eastern Plains area. And really, our assets, whether it's our land development assets or our service area are located in the most ideal section of the Denver metropolitan area. And the aerial to the right really kind of shows the encroachment of development on our service area. This is owned by the State of Colorado and its development and its revenue opportunities really benefit the education system here in Colorado, the K through 12 education system, but you can continue to see all of the development that surrounds the surface area for that. So our assets are ideally positioned in the right location, and we continue to really look forward to how these will grow and monetize over time, both for the State Land Board as well as to expand our systems. As I mentioned, we want to talk a little bit about single-family rentals. And so this kind of illustrates where that portfolio of single-family rentals are. A, that 2 Phase -- sorry, Phase 2a really was where we had the 14 units. We have about 4 units in filing 1, but then 10 units in A and really the acceleration of how B, C, D and E are going to add to the portfolio. And so with that bit of a delay because of the building code upgrade, we have about 40 homes under contract now that are delivering from several of our homebuilders. And what we've tried to do is pace that out so that they can deliver those on 5 units a month. We had 5 units delivered in Q1 of 2026. And of the deliveries, those delivered in late October, I think we've got three of those leased. Two of them are on the market, but we're continuing to show strength in the rental market on single-family rentals. And then those will pace out and deliver those units through fiscal 2026. Steady rental income stream from that. We really like that asset-light appreciation model where we can lever up the vertical cost of that and continue to keep our balance sheet clean and strong. So this is what you're going to see in 2026 and the real story for performance on 2026 is continued pacing with our land -- our homebuilder partners and our land segment and then acceleration of growth in the single-family rental segment. It's a bit of the fiscal year performance year-over-year. So we're seeing a slight increase in growth on the rents. But for the most part, our occupancy is very, very low. I think we've got a 97% occupancy for the portfolio to-date and then continued asset appreciation. The nice thing about this segment is -- we carry forward the equity of the lots as well as the water utility side and then are leveraging up the vertical cost of that and really have a nice relationship on that because we have a high loan-to-value ratio there and then that asset continues to appreciate together with the market. We're seeing continued growth in that, not only just because of housing growth, but also because of the continued investment that we have in the community. This will kind of show you the growth of each of the phases and how we do that. And so that Phase 2b, where we were looking for a stronger growth in 2025, really pushed over into 2026. So we'll have a bit more than the 31 homes. We'll probably have 40 homes accelerate in that area. And then how it continues to grow from Phase 2b and C. So those are where we're looking for, for '26. And then continuing on through the second phase. And if you take a look at this whole portfolio as it relates to the overall development, we're looking at being in that 8% to 10% of the total homes. And so if we have about 3,000 single-family equivalent units out there, somewhere in that 250 to 300 homes would be our target for this portfolio. Talk a little bit about stewardship of shareholder capital and our balance sheet. We continue to invest into these assets. So you'll see continued asset growth and strength to the company. Water segment is around $68 million, land development segment. That continues to mature. So as we're bringing assets into the portfolio, we're also taking them off our balance sheet because we're selling them. But we continue to make sure that we maintain liquidity. And as our capital stack goes, we want to make sure that we're investing into monetizing these legacy assets that we acquired over the years and really generate the high-margin incomes from each of the segments and then continuing to build into our single-family rental and continuing to maintain a strong liquidity portfolio, really balanced out between our cash, which is inclusive of restricted and unrestricted. And the restricted cash is really just letters of credit that we have for performance to the local municipality on the roads, curbs and gutters. It's how we warranty out those during our 1-year warranty period. And then the note receivable that we get as that comes in periodically in sort of increments as we build assessed value within the community, more homes, more assessed value, more tax revenue that's available for us to issue bonds through the local municipality and reimburse us for all of those receivables. And then a small amount of debt, our debt is really attributable to most of the single-family home rental side of the business. So continued strong balance sheet. Capital allocation, if you take a look at how that composite makes itself up, cash and investments and the note receivable and then just growth in the infrastructure, making sure that our water systems continue to grow so that we can continue to add those recurring customers. And then we continue to reinvest in ourselves, probably a little more conservative in 2025, mostly because of the housing headwinds and wanting to make sure that we're pacing. We had a lot of chips on the table last summer, really dialing up the absorption of our lots. And we wanted to make sure that we weren't pushing our homebuilder customers into a risk profile that really shifted most of that from our risk to their risk. So we wanted to balance that out. So we were a little bit more conservative than I think we would have otherwise been, but we continue to reinvest in the share repurchase program. Give you kind of a profile of how we were performing quarter-over-quarter in that. And then the diversity, I think one of the things that we want to continue to emphasize is the number of ways that we generate revenue from these assets, whether that's on the Utility segment, where we have a number of segments, subsegments in there, whether that's the domestic side of the business or the industrial side of the business, rental income revenue from our single-family homes, and you're going to see a strong acceleration of that, land development and the synergies that we get on doing just a fantastic job of the Master Planned Community and adding value to the community and really partnering with our homebuilder customers and then making sure that we are good stewards of your capital. Taking a look at kind of how we see things rolling out not only this year, but then how it's going to roll out through a midyear forecast as well as a builder forecast. I think we tried to foreshadow some of this last year, but 2026, if you take a look at the recurring, we do have an expectation of continued recurring revenue growth, not only from our water customers, but also some of our single-family rental. And that's going to become a better -- a bigger component of our recurring revenue. You're going to see that continue to accelerate where we're going up to 100 units in Phase 2 and then maybe up as many as 250 to 300 units through build-out. And so that will continue to add to the asset growth. So when you take a look at how that translates, that asset growth is a tremendous opportunity for the company and particularly compared to the percent of each of these assets that we're currently developing. And so as we can accelerate that development, we do that, and we try and pace that with making sure that our inventories are appropriate. This is a little bit more highlight on kind of how the profitability trends from each of our business segments, the Water, the Land Development and then also kind of continued emphasis on recurring revenues. So you'll see that continued growth. We're looking at 2026, depending on sort of these housing headwinds, that might be slightly down from 2025. We do believe we have some pedal in the oil and gas deliveries this year. So we'll see how that goes. We didn't want to be overly optimistic just because of the visibility of the price of oil, but we're really optimistic about continued monetization and continued growth in this segment. And really, the transition going up to this -- what would be a tantamount change to the monetization of these assets are we continue to pace our growth on the residential side. But moving into 2028 with the delivery of our interchange, which we're working through in the permit process, but we're fairly close to getting that finalized. And we'll work through the financing of that through the Metro District. So we reserved some bonding capacity in that to make sure that we have the funds that are available to bond that out in 2026, start construction of that in 2027 and then really layer in and almost double the deliveries of our Land Development revenues maintaining the same pace with our residential development, but then also delivering a like amount of equivalent lots for our commercial development. And then the valuation on those commercial lots, we're forecasting that to be about 2x the valuation of our residential lots. So that's the real delta in how we look to change the composition of the land development and how we're almost doubling that land development -- a little more than doubling that land development revenue is because of the bringing online that commercial lots. And that's a function of two things. One is going to be rooftops. Most of the commercial players are going to want a certain number of rooftops to be able to generate revenues from what their investments are going to be, but then also access and making sure that we have a large volume of transportation access and really capitalizing on our location being right on the Interstate with an interchange, an exit ramp right where our project is. So that's kind of how we gain some leverageability and some scalability to the Land Development and the Water Development side of the businesses. Valuation sensitivity. So 2026, our gross revenue, we're going to show a range there of 26% to 30%, and that's going to be a function of some of that sensitivities on lot deliveries as well as some of the industrial water sales activities. So a range of earnings per share that corresponds to that. Upside and the timing of the acceleration is really going to be how we look to deliver and maintain those inventories of lots so that we're not investing into that -- the capital cost of delivering those in advance of having those deliveries for our homebuilder customers. And really, we started out with delivering this project with -- started out with 3 builders, 4 builders, and now our portfolio is closer to 7 builders. And so each of the builders would like to maintain a year's worth of inventory, which allow us to have a bit more of an acceleration to our Land Development side that serves more diversity of product mix. And so as the community continues to mature, we look forward to continuing to serve the whole portfolio of our builders. Short-term outlook, I won't spend a lot of time. I think we've covered a lot of what this is. But our Water segment growth, we're going to take a look at the 3- to 5-year period where we're going to get up to about half of our total water recurring customers. Sky Ranch in total will be about 5,000 total connections. So we look to see that come into about that 2,500 units. Land Development side, we should get to -- we're right around that 18% of complete. So we'll probably get closer to 30%. So we're looking at doubling of that. And then once we've got that commercial in play, you'll see that accelerate through the longer term. So build-out of Sky Ranch is in that 7- to 10-year window. But in the short-term, we look at kind of getting up to about that 30% and then having a faster acceleration once we're layering into the commercial component. And then single-family rental, we see up to about 100 units in this short-term outlook. Longer term, this kind of gives you a perspective of the total build-out. And then when you take a look at our build-out potential, really monetizing our net revenues from land development get close to $700 million. And the recurring revenue is going to be around that $15 million, $16 million. And that's really a function of kind of the -- you take a look at a $250 million market cap and really what we've got in production of our assets it really is the story for us. We've got a tremendous asset here. We're very aggressive about making sure that we're building this thing out and monetizing it and making sure we can do that as quickly and as profitably as we can. So one of the things we're going to do is give you kind of a video tour here. And really, this will kind of give you a view. I'll probably try and stop and kind of highlight a couple of the areas on there. So if we want to get that started, this will be an aerial representation. As you can see, this is our first phase. And so this was the more mature side of the community. It really kind of gives you -- stop it right here. It gives you kind of a profile of where we're at relative to the metropolitan area and the growth of the metropolitan area. You see the mountains there in the background, and that's what we get to wake up to every day, which is wonderful. But the other key aspect here is if you see kind of at the top of the development there, hard to illustrate, I don't know if you can see the cursor where our wastewater treatment plant is right there. And really, that's a unique asset in and of itself because 100% of the water that comes from our community is treated and reused. And so you don't see any stream that's discharged to that. We bring that back. We reuse 100% of that water supply either through irrigating our open space, which you can see our beautiful open space here for our community or taking that back and selling that to our individual customers. So if you continue on, on that, you'll see panoramic view of kind of the continued growth. We'll stop it right here. And this kind of gives you a perspective of really the deliveries of the phases of the land development segment. Right to the left there, where the cursor is, that was Phase 2A, and that delivered in 2023. And then to that, the next slide, that's 2B. And then what we delivered in 2026 was 2C. You can see the roads, finished lots. You can see some vertical homes just starting in that from one of our new builders. I think those are Taylor Morrison lots in there. And then you can kind of see 2D under construction where we're really starting -- we're finishing up the wet utilities there, and we'll be moving into roads, curbs and gutters on that. Continuing on, we'll see kind of that -- all the land you can see that's farmed there, that continues to be our portfolio. So that's the continued growth of the project. And so that will be our build-out, plenty of inventory of land that we have on the residential side. So that will continue to grow on the residential side. And then you can kind of get a perspective of how our infrastructure is there. We've got most of the main roadways developed. That's the Boulevard area. Stop where the cursor is, that's kind of the oil and gas and that we bring all our water, our treated water back to that reservoir there at the top, and that maintains the flow for our irrigation system. And those are kind of some of our oil and gas wells that we have in the site. So Colorado has a rich history of coexisting with oil and gas and residential and commercial development. We can see kind of rolling into Phase 2E there right next to 2E rolling right there, roll right into there. That's our water tank, but that Phase 2E will be between our water tank and the school. That gives you kind of a sense of -- there's our primary school and then the construction of the high school. And it kind of shows you we've got most of the road network developed for that. We'll have a little bit of extension on the road up through the high school and continuation of one of the Boulevards. And so this kind of gives you a good feel for that campus is right in the middle of where we're looking to go, right in the middle of all of Sky Ranch. There you go. So really accessible for all the students to be able to walk there. This is kind of a view of the commercial area, right? So we're really flying into that 150 acres, which is adjacent to the Interstate. It gives you a strong profile of what the transportation access is and the value of that transportation access. Up in the top of that is the airport. So it kind of gives you a feel for how close we are to the airport. We're 4 miles directly south of the airport. And then kind of where that Interchange is going to go, it's going to go straight along the alignment of the Boulevard there, where the -- yeah, so where the existing Interchange is, we'll keep that up and operating. We'll build the other Interchange and then we'll ultimately remove the existing Interchange, but it gives you kind of a flavor for really all of the physical features of the Sky Ranch development. So with that, what I'm going to do is kind of turn it over and see if there's any questions. We'll open up everybody's mic. And I guess if you have a question, just shout it out. We can't mute them. Yeah, you have to unmute. So the technology here is just unmute your mic and then shout it out and we'll drill down on some of the details or raise a hand and you can type it in the comment section. Marc Spezialy: [Operator Instructions] But yeah, this concludes obviously, our slides. So we'd like to provide this opportunity to anybody who has questions. [Operator Instructions] I see that you're on mute. Are you able to talk just so we know everything is working. Mark Harding: Greg, can you unmute and see if your mic works [indiscernible]. Greg Vennett: I'm testing this out. Does it work? Mark Harding: There you go. Okay. At least I know we're working. Greg Vennett: Yeah. Anyway, this is Greg Vennett. I'm one of your long-time shareholders. I just wanted to test it to see if people are having problems with the technology. I came in late in the call, so I'll have to relisten to the replay in order to call you back and ask questions. One quick question. Has -- and maybe you said this in the beginning, but with -- has housing sales in your areas slowed down due to affordability or -- I guess my sense is the builders are still building. So if you could answer that, that would be great. Mark Harding: That's a good question because really, you have two variables in the housing industry. And I think Denver is probably on the high side of unaffordability. When you take a look at most housing markets and Denver is in probably the top 10 cities of housing markets, people generally take a look at Denver is pretty high in affordability. And that has been a challenge for us. I would say that's also one of our strengths because we have that entry-level price point and of all of the markets that the builders are looking to serve, when you have an interest rate-sensitive market and when you're looking to buy down interest rates on higher mortgages, the incentive packages that they can offer really have more impact on an entry-level house than they do at kind of a move-up house. And so I would say the resiliency of our builders and our project is strengthened by the fact that we are in that affordable market segment. And that's not saying much when you have to say affordability is anything less than $500,000. That's still a high, high number for an entry-level house, but we are one of -- probably in that 4% of homes that are delivered on an annual basis are in that affordable price segment. So that's why I think we're performing slightly better than maybe some of the other master planned communities and then also our business model being able to time that out. So yes, housing has some headwinds. We've probably managed that a little bit better just because of how we can deliver lots on an incremental basis. Marc Spezialy: I also want to point out sorry, Greg. Greg Vennett: No, sorry, go ahead and point it out. Marc Spezialy: [Operator Instructions] Unknown Analyst: On acquisitions and land acquisitions and where you are on those? And any progress throughout the quarter? I know it's hard to time when you're going to have the ability to acquire land and at what price you're willing to pay for it. And then additionally, on the commercial side, I know you have a big hockey stick in '28, but is there anything that's materialized with any commercial players throughout the last couple of quarters? Mark Harding: [ Craig Weinert, ringing an E ]. Good questions. As you take a look at these acquisitions, as we have commented, we really do have our nets out, and we're saving a bit of liquidity just for that. And I'd love to be very detailed about that, but I would say our conversations continue to strengthen with our target areas of acquisitions. It's an interesting profile. If you had the nation as potential acquisitions, your sandbox is much, much bigger. Our sandbox is very small and very targeted. And that's on purpose because we think that that's where we can provide the best leverage on that. And yes, we would like to be as aggressive. We do have the ability to probably pay more for land than any other developer just because of our ability to bring value to that land from our water portfolio, but we also like to make sure that we're paying for that on land acquisitions that we find to be appropriate for the timing of development. And so we're balancing that out to give you that flavor for it. And I'd say I'm more optimistic this year than I was last year, but I say that every year. So we hope that we can see some movement in that area. To your second question in terms of the commercial, we are in the market. We do have listings with the commercial folks that really represent 70%, 80% of the transactions that are in the Denver area. We are seeing interest from a lot of those. Our interest in the commercial is to go directly to the end user. There are a lot of folks that like to get between us and the end user. And really, those aren't as interesting to us as really going strictly to the end user on that just because of value propositions. And our balance sheet is strong, but we want to make sure that we maintain some flexibility to participate in some of that on the commercial side. So whether we sell the land, whether we partner and participate in some of those horizontal improvements are the types of structures that we're looking at for some of those commercial transactions. Understanding, Craig, that those are going to take some lead times. And so there may be transactions that we're pursuing that would be in 2026, 2027 that would really start to monetize and show that scale of revenue growth in 2028. Marc Spezialy: I would just add to that, though, the growth you're seeing that we're projecting in 2028 is mostly a factor of being able to open up Phase 3 with the interchange and less to do necessarily with some of the timing. So we still have a strong portfolio of commercial lots that aren't really showing up in the projections yet. Unknown Analyst: It's interesting because the near-term weakness that you're seeing from some of the homebuilders may be a long-term benefit for you guys in that the land may not be as expensive as it was when things were so hot. Mark Harding: I think that's true. And as much as I'd like to say, we're very disciplined in what we pay. And it's also a function of having people -- all of the folks that we talk to usually come back with -- and it's an appropriate retort to a land acquisition is, look, it's going to be worth more tomorrow than it is today. And when you get cycles and a lot of these folks have seen cycles in the past and some of these cycles are short-lived in months. Some of these can be long-lived in terms of several years. And so if they're close to looking at selling and they see a cycle, regardless of price, I think that that's a psychological determination for is to say, listen, it's time, we need to move on. And that's really, I think, what we're seeing more than a function of, oh, we can capitalize on a weak market and benefit there. I want to be disciplined, but I also want to make sure that this is a transaction that works for both them and us. And sometimes that's more timing than it is [ amount ]. Greg Vennett: Mark, let me ask you a question. This is Greg Vennett again. For land acquisitions, you're basically -- it's dirt. And are you looking at acquisitions where they don't have any access to water and you're the value creator or would you guys consider buying dirt that already has access to water? Mark Harding: I would say we would probably wait those acquisitions where we can bring added value for water. I feel very confident about our land development segment and really building that value in the land development. So if we were, for example, buying a piece of property that we're in an incorporated area where we were getting water service -- water and wastewater service from another provider, we would still do well in that scenario, but it wouldn't give us the vertical integration of leverage on accelerating not only that segment and monetizing investments in land, but also monetizing investments in water. Not to say that we wouldn't consider that, but I think that there's plenty of opportunity for us to be more aggressive on acquisitions where we can bring water to the table. Greg Vennett: So the person who owns that dirt now, are you the only logical provider of water or can they get water from somebody else? Is there competition? Are you the only provider? Is that your moat? Mark Harding: I would say we're the best provider, but we're not the only, right? I mean they come out -- they can go out and find water themselves and do the heavy lift of building a water utility. That's probably not any of the land interest that we're seeing. It isn't a picnic. And it's -- as you've seen through what we've done over the last 30 years, it's a difficult and expensive proposition to build your own utility. But there's competition from the neighboring city, City of Aurora. That's probably our only competition. So if they don't look to value our providing water service to them, they would have to consider an annexation. And that carries with it its own risks and its own costs, which then weigh into kind of the cost of land. And so we can deliver lots much cheaper in unincorporated Arapahoe County than any developer could deliver in the City of Aurora just because of our structure. And I think that continues to emphasize the price of a home and the affordability of that home. So when other people look at it, they have to look at it through the full development cycle and sort of say, am I competing for developing $800,000 homes or am I competing for developing $400,000 homes, which is what we're looking at. And so we have a competitive advantage to doing that, which then translates into being the best choice. Greg Vennett: So a new home in the Aurora area is $300,000 or $200,000 more than Sky Ranch. Is that the way? Mark Harding: It will vary. But I would -- some of the newer projects that are getting started in Aurora are getting started at that much, much higher price point. Some of the homes that are directly adjacent to us might only be $60,000 or $70,000 more. So you'll run that -- you'll run a gamut on that. But we certainly have the better location. We have better cost basis. We have better utility rates. Overall structure is much cheaper and much more efficient in unincorporated than it is in the incorporated area. Greg Vennett: The future for commercial development, along I-70 where you're going to build the interchange, is there other commercial development that you see in the future that could be competition for you or are you the bull's eye? Do you have the bull's eye -- commercial property? Mark Harding: So interchanges benefit all land in the area, and we have kind of a strong footprint in there, but there are other lands that are adjacent to us that we don't own that are looking to develop, and they will have to pay their pro rata share of the cost of that interchange, too. We might be advancing that. But ultimately, as they come online, they'll have to reimburse us for our covering that cost upfront. And so that was our structure is that we wanted to make sure our timing was our timing and that we would be advantaged in there and then somebody else coming in there would have that cost component as well. That would -- they would have that off-site investment, which would accelerate some of the reimbursable repayments to us as that competition came online. So we wanted to equalize that to say we weren't carrying them. But at the end of the day, as they come online, I think we have the competitive advantage. Unknown Analyst: Mark, can you hear me? [ It's Matt Reiner at Aranda ]. A question on Slide 34, the profitability trend slide. When I look at 2026, I mean, it seems like every category, the revenue is up a little bit, but yet the earnings forecast is down a little bit. And I'm just trying to -- is it the margin differences between the different segments? Is it -- I mean, it seems like you're buying back some shares. So I don't think it's a share count thing. So just curious as to what I'm kind of missing there. Mark Harding: Yeah. And so the -- you're right. What we're sort of looking at is the 2025 had a high profitability because of kind of the oil and gas, and that's almost 100% margin. And even though we're increasing the revenues in both land development and water, it's not -- we're not likely to see the same earnings per share bump that we saw in 2025 because of that profitability of the oil and gas royalties. That's the real differentiator. I think the comparison -- yeah, the comparison from '24 to '26 will be pretty analogous in it. '25, we were delighted that we exceeded our forecast because you never want to put a forecast out there and not meet it on the earnings per share. And so we were excited to do that. And that really came through the diversity of the revenue streams of the company. [Operator Instructions] Okay. Well, if we have no other questions here, I know we'll post the presentation for those of you that are going to hear this on a rebroadcast or listen to it again and inspire a question. Certainly don't hesitate to give me a call and we can drill down on any of the questions. Again, really want to emphasize the value of our leadership team, our management team and really all the employees in the company. We have a great group of professionals that bring their A game each and every day and allow us to really fine-tune the delivery of this. The businesses that we're in, all three of these businesses are about as capital intensive as you can be in a business segment. And you're investing into hard assets, you're investing into inflation-resistant assets that really continue to monetize. And sometimes you have a little bit of excess capacity in a water or sewer system that then you can help monetize that through delivery to your industrial customers. Some of those investments that we have in big infrastructure, whether that's going to be Boulevards or whether it's going to be land horizontal developments of grading or even an Interchange, those do come back to us. And so we're very cautious about how we make sure that we can finance those and carry those forward so that we can really deliver these lots on an on-demand basis. And while that development cycle can take a year from the time you break ground to the time you get a building permit, that's pretty quick in this world of land development, and we're pleased to be able to kind of match those inventory deliveries with our homebuilder customers. So the resiliencies and really the timing have really tested and really shined in kind of what -- when you get these markets that have headwinds, can you not only deliver -- continue to deliver your product, but also match those deliveries to what your customers are looking for. So we see a lot of that performance this year, and we're thrilled to continue to advance on monetizing each of these segments. So with that, I'm going to close out and wish you all happy holidays as we close out the year.
Operator: Ladies and gentlemen, welcome to the analyst and investor presentation quarterly statement January to September 2025. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Kaveh Rouhi, CFO. Please go ahead, sir. Kaveh Rouhi: Thank you, operator, and welcome, everyone. I very much appreciate that you are taking the time for this investor and analyst call on our 9 months 2025 results. This conference call is scheduled for up to 60 minutes and will be recorded. After my management presentation, I will be happy to answer your questions. Today's presentation is available on our Investor Relations website. The replay will also be available on this website shortly. Our agenda for today, first, I will give a review of our 9 months [indiscernible] our presence in the home segment in the U.S. is currently being evaluated. Excellent service will be our USP in the future, enabled by cost-efficient operations via our [ multi-shared ] service center in Poland. In general, it means that we will use our global footprint even stronger going forward while strategically focusing more on our core market -- on our core home market in Europe. In total, the program will mean a reduction of about 300 FTEs in Germany and another 50 in noncore markets, while building up about 200 FTEs, mainly in Poland and India. Now let's talk about large scale. Our large scale and project solutions continues to operate in a highly dynamic global market that is driven by a growing demand for grid stability solutions. SMA is a recognized expert and leader in this field, which puts us in an excellent position to seize this momentum. One example for the successful inauguration of the first utility-scale battery energy storage system with grid forming technology in continental Europe, in [indiscernible] Germany. We are proud to have delivered 7 medium voltage power stations with our Sunny Central Storage [ UP ] battery inverters and the SMA Power Plant Manager. Altenso also continues to grow and realize challenging projects, as you can see in our second example here. In September, Altenso commissioned a hydrogen plant conversion unit, Hydrogen Dune, a pioneering green hydrogen plant located on the coast of Namibia. The special feature here, this plant is the first ever to operate 100% off the grid and an intelligent energy management system coordinates the optimal time for hydrogen production. Large scale has delivered the first Sunny Central FLEX and a Power Plant Manager in the U.S. at the end of July, manifesting our position as a global player in this field. The Sunny Central FLEX is an innovative modular power plant solution that was just last year recognized by pv magazine with Top Innovation Award. The award recognizes the ability of the Sunny Central FLEX to facilitate the integration of PV, battery, and hydrogen applications into large-scale projects, making it possible to design, build, and adapt for new and exciting power plant use cases. Now let's turn to the last page, our guidance for 2025. As said several times, the market environment for HBS is still very difficult due to macroeconomic deterioration and the declining expansion rates in the residential and commercial sectors in most key markets. Thus 2025 sales are expected to be well below the previous year's level for this division. The large scale and project solutions division is planning sales slightly above the high level of the previous year. Group EBITDA and EBIT will be negatively impacted by lower sales and the resulting lower fixed cost integration in HBS as well as one-offs described earlier. Due to the significant further deterioration in Q3 of the anticipated sales performance for '25 and the following years in HBS, we had to lower our guidance range on September 1st to EUR 1.45 million to EUR 1.5 million for sales and minus EUR 80 million to minus EUR 30 million of EBITDA. Of the expected total one-offs of about EUR 250 million to EUR 265 million, EUR 45 million were recognized in Q2 and EUR 159 million in Q3. Please note that further provisions for restructuring measures will be added in Q4. Last but not least, a note on our upcoming events. Full year 2025 financial results will be published on March 26 next year, combined with an analyst and investor call. With this, I conclude the presentation. And of course, I'm happy to take your questions. Operator: [Operator Instructions] Our first question comes from Lasse Stueben from Berenberg. Lasse Stueben: Just a question on guidance for this year. In terms of revenues, it looks pretty conservative for the fourth quarter. So I'm just wondering how do we square that performance, particularly in large scale in what's usually a stronger Q4 than Q3? So I'm just wondering what the effects are there. And then the second question would be, you're profitable on EBIT in C&I in Q3. Is that something we should expect going forward as well? Or is there more one-offs that we should be expecting in Q4 and also maybe in 2026? Kaveh Rouhi: Thank you for the question, Lasse. Let's start with the Q4 revenue. So you're right, in the last 2 years, Q4 was always the strongest quarter in terms of revenues. This year, we don't expect that, to be honest. I think Q3 was very, very good. And hence, Q4 will be a bit lower. And that's why we were confident with the range that we kind of laid out, to answer that question. And it's depending on when the projects are commissioned, you always have the topic that if a large project at the end of December, is commissioned end of December, then it's in year, and if it floats to the next year, it can be a change of, let's say, EUR 20 million, EUR 30 million, EUR 40 million. That's why it's always a bit tricky to land, let's say, the large scale revenues exactly. But in general terms, Q4 will be a bit lower than Q3 and the numbers will add up. First question. Second question, I'm not sure I got it. I think you mentioned that C&I has a positive EBIT. I'm not so sure about that. Even including -- excluding one-offs, EBIT is negative of that division. So not sure if I got your question right. What if I've answered it? Lasse Stueben: Yes. I mean, if I look into the Q3 report this year and I go into EBIT, sort of in operating profit terms at least, you had, I think, EUR 10 million positive, unless I'm reading it wrong. Kaveh Rouhi: Yes. Let's double check. So we had -- I mean, as shown on Page 6 of the presentation, we had a minus EUR 322 million, thereof EUR 200 million one-offs and the other 100 -- minus EUR 112 million along the 9 months. So even operationally, they were loss-making. So maybe you have to check the report, how you read it. But no, they were not operationally profitable. Operator: The next question comes from Constantin Hesse from Jefferies. Constantin Hesse: All right. Just on my side, I'd like to start with order intake because clearly blowout quarter in Q4 in terms of large scale. What I -- I do apologize if you had commented on it because I was at a separate call because I have 2 results at the same time. So I would like to just understand, in terms of the momentum that you saw in large scale in Q3, how much of that was related to delays that you saw in Q2? And how should we think about this going forward? I mean, is this something that you think is sustainable? Or how should we think about the Q4 level of orders and into next year? Kaveh Rouhi: Thanks, Constantin, and glad you made it to the right call. On the Q3 order intakes, they were higher than what we expect in Q4, to start with that. We had a really good Q3. We had one spike in EMEA, but this will not -- which is a huge project. This will not come again in Q4. As I mentioned, U.S. is getting back to normal levels. I think that's important. And the rest will be good. So we think the order intake will be, yes, something -- at least more than EUR 300 million up to EUR 400 million, depending again on timing of the project. So hence, it will be lower than Q3, but it will be on a good level in Q4. Constantin Hesse: Is that group or is that large scale only? Kaveh Rouhi: Basically, that's the same these days, right? So that's -- because if you see at our order backlog of HBS, it's pretty much stable because what comes in, we basically convert to revenue. So how you want to read it, but this is mostly large scale. Constantin Hesse: So going into '26, this U.S. momentum, you expect that to continue. Yes. Kaveh Rouhi: Yes. Constantin Hesse: I mean, what -- I mean, just trying to figure out, what's the key driver here? Because if I look at the current outlook for U.S., it looks relatively -- I mean, it looks obviously less positive around permitting, there are some issues. In Europe, you clearly have a lot more competition. So what's driving this in both regions? Kaveh Rouhi: I think the market is there. Let's start with that. As you know, we are operating in batteries and in PV markets, right? It's nearly 50-50 in the regions. And we see that the market is there. We have the right products. We have a good market positioning. We have good sales. So I think we are not planning to gain market shares or strongly outperform competition. It's more around keeping the momentum. And with all the USPs we have, which is the grid forming capabilities, the lifetime of our products, the quality that we have out there, I think we can be proud of what the team is doing there. And so this is giving us confidence going forward. Constantin Hesse: You said something interesting. I think you said storage versus solar, it's 50-50 now. So is that the level of storage that you're getting in, in terms of order intake? Kaveh Rouhi: Yes. Yes, roughly. Constantin Hesse: Going into -- Kaveh, so one thing I'm going to ask again, same question that I asked in Q2. Around the building blocks, or should I rather say, how should we think about the development of the bottom line for HBS into next year? Because I think it's been relatively tough to get a clear cut view. I mean, if I add back the one-offs this year and I assume no growth, I'm assuming a loss of about EUR 100 million. But then you obviously have some savings initiatives in place. You said EUR 150 million to EUR 200 million into the end of '26. So if I look at a potential breakeven level for HBS, would that be below EUR 250 million or below EUR 300 million? How should we think about this potential new breakeven level? Kaveh Rouhi: Yes. Yes, that's a good one. I think we have -- we have lots of things in movement, right? And I talked about the value chain and all the adaptations that we make. And I think the breakeven that we need depends a bit, obviously, on the product mix and the margins of the product. So EUR 300 million sales can be very, very profitable. It can also be [indiscernible] with the same profitability of, let's say, EUR 350 million or EUR 360 million revenues, right? So depending on what you assume there in terms of product mix and profitability, the breakeven will never be below EUR 300 million. We will at least need a EUR 300 million to get to breakeven and also even higher depending on how much price deterioration and pressure remains in the market. So I would say, currently looking, and it's a wide range, I know that, forgive me for this, but it's between EUR 300 million to EUR 400 million actually. Constantin Hesse: Okay. EUR 300 million and EUR 400 million in order to -- okay, fine -- to get... Kaveh Rouhi: To get to breakeven. And we will not be breakeven next year, obviously not, because there's still much going on. Constantin Hesse: So -- and if I look at the profitability for large scale, you're probably going to close this year above 20%. Is that a level that you'd expect going forward? Or do you anticipate to start investing a bit more in R&D or whatever? And could there potentially be any headwinds on profitability there on the margin, right? Kaveh Rouhi: Yes, yes. I think there will be 2 trends that will impact the profitability going forward. The one trend is, as you just mentioned, we will need to invest a bit more into this business. We've been a bit prudent last year and also, let's say, until Q2 this year to basically keep the money together and to help with all the other topics. We will now spend more next year for large scale to increase our competitiveness, right? So this will impact profitability to a certain extent. And the other thing, and I know it's always a bit tricky, but it's the FX rates. So we see that expectations next year for the U.S. dollar and euro rate that they will impact our profitability as well. And as we produce in Germany mostly and export it to the U.S., we will get a hit. And then we will say, well, why don't you produce there? So if you do that there, we will have the tariffs and everything coming in. And then things are again more expensive and then you pass it on, so you have a similar effect. So we've done different scenarios. And overall, we will not be able to keep the 20%. Constantin Hesse: So we should be thinking about something right around high double digit, high-teens? Kaveh Rouhi: Yes. I mean, we're not talking about the EBIT margin for next year right now, right? So I think we will give the guidance for next year. It will be lower than 20%, but the group will be positive, so all good. Constantin Hesse: And then just lastly, just wondering if Florian said anything around large scale in the U.S. I mean, I think it's interesting to see what could potentially be a very bullish market for you, right? Because if we assume that FEOC comes out in a rather stringent way, that would, of course, potentially limit some gross business in the U.S. So are you seeing any increased interest, I guess, from U.S. developers for SMA? And then I'm not sure if you've seen that Nextracker, or now they're called Nextpower, they just launched a utility inverter as well. So just wondering if you had some feedback on that yet. Kaveh Rouhi: Yes. The last one just came in this morning. To be honest, I didn't have time to build an opinion myself, so I will not comment on that one. Sorry for that. When it comes to upsides due to the FEOC regulations in the U.S., I think it's fair to say that if you are in this regulated markets, you can have huge swings built on new incentives, tariffs in, tariffs out, protection here, new rules there. And then when you, let's say, build your business around that, you're very prone to be dependent on what actually happens in the end. And you can never be sure that the next guy or even the same guy changes the regulation again. And hence, we are kind of ignoring that. As long as it's not harming us, we are not planning with any upsides. But of course, we will welcome every customer that decides not to go ahead with Chinese and once a European and a premium German venture -- producer, and we will, of course, serve them, right? But for our planning, we are not considering that as a realistic case. It could be an upside, but that's not what we will put in our budget. Operator: The next question comes from Guido Hoymann from Metzler. Guido Hoymann: I've got 3 or 4 questions, and maybe we can go through them one by one. The first one would be, again, on large scale. Am I right, or maybe is that a reasonable assumption that the deadline for switching from the 5% safe harbor rule to the so-called physical work test, I think that was the 2nd of September? So that triggered a lot of prebuying there. So did you observe particularly high orders before that, early September? And how did the, yes, order development then -- yes, develop over the rest of the quarter in the U.S.? And do you think that given that there are other deadlines like July '26 for those projects, which passed this physical work test and then year-end '27 for those projects, which did not meet any deadlines. So do you expect all these deadlines to continue to trigger high demand in the U.S. until then in your large scale business? That would be the first one. Kaveh Rouhi: Okay. Let's do this one first. Hello, Guido. So the safe harbor rule. So no, we don't see an impact, to be honest, in our business. Neither has there been an increase or a decrease. As mentioned, our order intake was good, a little bit of catch-up because Q2 was very low. And we have lots of discussions with customers. And the question is how do they safe harbor. And they don't have to safe harbor buying inverters. They can also, as you said, do the safe harboring by the start of physical work. And hence, many of them are doing that, and we will -- we don't see a drop in our pipeline at a certain point going forward because they have now safe harbor and then there's nothing else after that. Plus, what's also important, let's not forget, these rules apply only for PV only, not for batteries, which is again half of the U.S. business. So it's basically a half of a half of our business that's impacted by those rules anyway. And hence, I think we are pretty prudent here with how we plan going forward. Guido Hoymann: And the second one would be on your status to increase the local content in the U.S. and to avoid or to reduce less tariffs. Can you maybe give me a brief update on the status there? Kaveh Rouhi: Sure. I think the short answer is we're on track. The longer answer would be that, as you know, the MVPS stations, which have the transformers included, they are going to be produced in the U.S. by end of this year, and the integration will start in January. And the whole integration and the ramp-up of the MVPS stations is scheduled for the second half. We do those 2 things with our partners, and they report they're well on track. Guido Hoymann: Then maybe also 2 quick ones. The restructuring costs you're planning for Q4, did you quantify them or can you do that, please? Kaveh Rouhi: Yes, sure. I think the biggest chunk of the still to be booked one-offs for Q4 is the amount of severance payments that we will need to put aside for the labor topics, and we estimate something between EUR 30 million and EUR 40 million. And that is roughly what we had put into the guidance. Guido Hoymann: And the last one, again, on HBS. Obviously, we're coming now a relatively small player. It is a highly price-sensitive segment. So do you see it to be viable or maybe to get an exit for this question? Do you want to focus on specific niches? EV charger, could be something else. Or do you still want to address? Or do you just want to, let's say, focus in a geographical perspective, but not in the range of products you're selling? Kaveh Rouhi: Yes. I think we do focus, but it doesn't mean that we will just sell one product. And I think I tried to lay it out, but let me recap a bit. So we will reduce the global footprint. And as I've learned, these -- the time since I'm with SMA that an inverter is not the same product depending on the countries that is operated due to grid regulations and all these kind of things, cable width, and whatnot. So the variety of our products will be lower because we will have less countries to serve. So here, we will reduce the amount of complexity, right? That's one topic. The second topic is that also the, let's say, the product variety in terms of how many different PV only we have, or hybrid inverters will also be reduced. But -- and this is very important for the core markets that we will target, we will make sure that we will deliver the full solution. And the full solution these days is in hybrid inverter together with batteries, together with energy management, and together with the right software. And so -- and an EV charger, of course, if you have a car. So what we make sure for the home market is we can give to these core markets a complete portfolio, but not having varieties of it in many regions, which will then [indiscernible] to serve. That's kind of making sense? Guido Hoymann: Yes. Okay. Very helpful. Operator: The next question comes from Jeff Osborne from TD Cowen. Jeffrey Osborne: Just a couple of questions on my side. I was wondering if you could articulate what the pricing changes were either sequentially or year-on-year. I think you had alluded to immense pricing pressure in your statement for the restructuring a few weeks ago. Kaveh Rouhi: Yes. I think that's a tough one, right, because it depends product by product. I know that's an easy answer. I think, if you just look at -- and we did the analysis just recently. When you look, what happened H1 '24 between this point of time and H1 '25 in the home market, especially, I think we see price declines between 5% to 15% on average. And of course, this hits your profitability if you can't be flexible with your production. So that's what we call immense in 1 year. Jeffrey Osborne: And I'm just curious, after the Chinese policy changed June 30, if things got worse in the third quarter as it relates to home and small commercial? Kaveh Rouhi: Not really, no. Jeffrey Osborne: Good to hear. And then I just wanted to understand the factory realignment with HBS. It sounds like the majority of the design work will be done in India and manufactured in Poland, if I heard you right. What was the trade-off of possibly using contract manufacturing in eastern Europe or other locations relative to leveraging your own facility, which I think historically made subassemblies and equipment for the utility scale product, if I'm not mistaken? Kaveh Rouhi: I think, for us, it's important that we own the product, that we own the development, and that the software where the heart of the product is compared to maybe 20 years ago where the hardware was a key differentiator. So we want to make sure that this is owned by us and owned by our own development. And we go to India where we have -- we already have established a hub, very good developers and a strong access to the local market, local universities. So that's, I think, the key driver here for the software part. And when it comes to assembly, obviously, there is -- yes, labor arbitrage is one topic. The flexibility is the second topic, and we have experience there. So I think, overall, the -- let's say, the Polish entity is used to do manufacturing, and hence, we will leverage that. Otherwise, it would be a waste of capabilities and good people. Jeffrey Osborne: Maybe just my last question is, if I heard you right, you're reevaluating the U.S. and Australia home market, but you have a sizable presence in the U.S. commercial market historically. I know you're working with Create Energy on the utility scale side. But what's your plans in defending market share as it relates to the commercial segment? It would seem you're poised to lose share given that Chint is likely booted out given FEOC. I think they're the market leader, you're #2 historically. Most of the commercial folks are going to want a U.S.-manufactured product. So do you have plans for manufacturing commercial inverters in America? Or are you willing to seed that market share? Kaveh Rouhi: I mean, currently, the setup is, as you said, we are for the commercial part, right? We produce in SMA in Kassel and we ship it over there. And we have no indications that this is going to deteriorate. When I talked about removing ourselves from potential U.S. and Australia, that's more the home part, not exactly the commercial. So no -- so yes, no concrete plans now to do a localization of that, but could come later. Operator: The next question comes from Peter Testa from One Investments. Peter Testa: I was wondering, on the large scale side, could you just give a sense as to whether the value-added margin is particularly different between battery and PV, whether you see a particular difference in value-add margin? I'll go one at a time. Stop there. Kaveh Rouhi: I mean, I'm not a technical guy, but to be honest, my understanding is in terms of production costs, they are pretty similar. And so I don't recall a big difference in the margins. Peter Testa: So margin mix isn't a factor. Okay. Fine. Kaveh Rouhi: Yes. Peter Testa: And then on the Chinese side in terms of competition, you said there had not been any particular difference in pricing at this stage, I guess, in the HBS part. Would you have any particular concerns about pricing in Europe and APAC, in particular, from the changes in Chinese market situation becoming exporter going forward? Or are you not seeing that? Kaveh Rouhi: No, I think, when we were at Intersolar, I heard a person from Sungrow saying that all the low-tier Chinese players are ruining the market with their pricing, right? And this was referring to China itself, which was, for me, an astonishing statement, to be honest, coming from Sungrow. So overall, I think the price pressure will mostly hit the Chinese market because it's big and they are cannibalizing themselves a lot. And I don't see an additional pressure on Europe due to that at this stage. Peter Testa: And you gave a number between EUR 300 million and EUR 400 million for breakeven on the HBS business revenue. Is that for 2026 or post all the restructuring? Kaveh Rouhi: No, that's post restructuring. That's post restructuring. So as I said, we will not be breakeven next year. Peter Testa: Yes. I'm just wondering what -- whether that sales level is after all the savings or midway? Kaveh Rouhi: No. Peter Testa: And then the last thing is just on -- with the write-offs that have happened in various different levels, both in projects, depreciation, also inventory. When you think about the impact of that on the 2026 profit, i.e., lower depreciation, lower amortization and maybe what happens to the written-off inventory, is there any sense on how that changes the, say, profit base just from the impact of all the write-offs? I don't mean by having no write-offs, I mean, the run rate. Kaveh Rouhi: Yes, yes. So no, it should not impact the run rate because the rules are we can only write off things that we're not going to use next year. So I can't plan now that we will have better margins because I'm going to use them again. So the write-offs are real write-offs. Obviously, we have still the material. We don't plan in the next years, so to say, to use it. However, we need to come up with a plan in terms of how to deal with this amount of materials. And then it might be that at one point, we find good solutions for that, and this could be an uplift, but it will be a onetime uplift and not a run rate [indiscernible]. Peter Testa: So you'd highlight that related to the inventory. But I guess you have lower depreciation, lower amortization because of the write-offs next year. Kaveh Rouhi: Yes, but it's not material in that sense. Peter Testa: Material? Fine. Okay. Operator: The next question comes from Constantin Hesse from Jefferies. Constantin Hesse: Kaveh, a quick follow-up. Just on cash, I mean, your balance sheet is looking quite good again. And I'm just wondering, is there any M&A potential here that you could be keen or focused on, be it a segment M&A, be it a regional M&A, anything interesting? Or is this even a focus potentially? Or will you just continue to focus on making sure that you continue building up the balance sheet? Kaveh Rouhi: No. I think, even if we had an M&A plan, we would not talk about it here, right, to be honest. Operator: [Operator Instructions] We have a follow-up question from Peter Testa from One Investments. Peter Testa: Just on the large scale side, could you talk a bit about 2 things on the backlog and the pipeline? On the backlog, if you look at phasing in terms of how that phases in time, the EUR 900 million -- EUR 902 million, how does that phase out in time by either quarter or years, just to give a sense? I'll ask about the pipeline. Kaveh Rouhi: Sure. So the -- it depends a bit where you have your backlog. So if you have projects in Europe, usually, they materialize up to 6 months -- around 6 months, I would say, 6 to 9 months, depending a bit. And if you have projects in the U.S., they can take up to 12 months because you have to produce here, bring it to Italy, ship it over, bring it then from the coast to the -- so it's usually the, let's say, transport times and it's the time that you need for supply for the MVPS station itself, the medium voltage part. So these are basically the 2 things that are hindering a faster turnaround. And hence, you have something between 6 to 12 months depending on the project. Peter Testa: And I guess, in Australia, it would be more like U.S.? Kaveh Rouhi: Exactly. Peter Testa: And then on the pipeline, can you give a sense, please, in terms of what you're seeing in project behavior -- tendering behavior, i.e., speed at which decisions are made, the speed at which permitting is granted? And just so we can kind of understand what you think about pipeline flow and what it means, therefore, for orders coming to delivery, arriving, and booking of revenue? Kaveh Rouhi: I think, in Q2, if you had asked me this, we were very -- yes, we were very cautiously looking at that because we saw that the turnaround times were a bit slower. I would say we have gone to normal levels. So when I remember our business discussions with the teams, nothing specific, to be honest. So it looks normal. Peter Testa: And the scale of the pipeline, any different geographic message? Kaveh Rouhi: No, all good. As I said, so I think we will end the year with a similar backlog as last year. That's at least what we expect now to happen in the next months. And we will go with a good backlog into next year. And the pipeline itself is on a similar level. So we are -- actually, I'm cautious here given the recent quarters, but I'm actually quite optimistic. So that looks good from our side. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Kaveh Rouhi for his closing remarks. Kaveh Rouhi: Yes. Thank you, everyone, again, for your interest. And of course, please do not hesitate to contact us in case you have any further questions. So goodbye, and have a great day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Manulife Financial Corporation Third Quarter 2025 Results Conference Call. [Operator Instructions]. And the conference call is being recorded. [Operator Instructions]. I'd now like to turn the conference over to Mr. Hung Ko, Global Head of Treasury and Investor Relations. Please go ahead. Hung Ko: Thank you. Welcome to Manulife's earnings conference call to discuss our third quarter 2025 financial and operating results as well as our refreshed strategy that was announced yesterday afternoon. Our earnings materials, including webcast slides for today's call are available in the Investor Relations section of our website at manulife.com. In addition, I would like to note that a video recording of our refresh strategy presentation and the related materials are also available in the same section of our website. Before we start, please refer to Slide 2 for a caution on forward-looking statements and Slide 33 for a note on the non-GAAP and other financial measures used in this presentation. Please note that certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from what is stated. Turning to Slide 4. We'll begin today's presentation with Phil Witherington, our President and Chief Executive Officer, who will provide a highlight of our third quarter 2025 results and a strategic update, including an overview of our refresh strategy. Following Phil, Colin Simpson, our Chief Financial Officer, will discuss the company's financial and operating results in more detail. After their prepared remarks, we will move to the live Q&A portion of the call. With that, I'd like to turn the call over to Phil. Philip Witherington: Thanks, Hung, and thank you, everyone, for joining us today. Before I start, I'd like to thank Marc Costantini, who's with us on the call today for his outstanding contributions to Manulife throughout his career at the company and wish him well in the next chapter of his career. Marc's 2 stints with Manulife total more than 25 years. And in his most recent role as Global Head of Inforce Management, he had an immense impact in a short period of time, including the completion of several monumental reinsurance transactions, which unlocked significant value for shareholders. While we're sad to see him go, we know he will flourish as a CEO, and we wish him nothing but the best. Inforce Management has been embedded as a capability in our organization and it will remain an important enabler of our commercial success. Naveed Irshad President and CEO of Manulife Canada has taken on an expanded role and assumed responsibility for Inforce Management and reinsurance globally while continuing to lead the Canada segment. Shifting back to the purpose of today's call. Yesterday, we announced our third quarter 2025 financial results. At the same time, we unveiled our refreshed enterprise strategy, which builds on our strengths, is growth focused and is anchored in our ambition to be the #1 choice for customers. Materials related to our refreshed strategy, including a video, are available in the Investor Relations section of our website, but I want to highlight a few key takeaways: to deliver on our ambition, drive sustainable growth for the long term and build on our total shareholder return momentum, we're pleased to introduce new and elevated strategic priorities. Maintaining a diversified and balanced portfolio is important to us as it provides resilience and access to multiple sources of growth without overreliance on any single market. We continue to be well positioned to capture the exceptional growth opportunities across Asia and global WAM, and I'm pleased to share that we have reached an agreement with Mahindra. A leading conglomerate and consumer brand in India to form a joint venture to enter the India insurance market subject to regulatory approvals. Mahindra is an incredibly strong and trusted partner with whom we have an existing asset management relationship, and I'm excited about expanding our partnership further. Our continued focus on Asia and global WAM will be accompanied by deliberate investments to enhance and strengthen our leadership position in our home market and maintain a scaled presence in the U.S., which remains the largest insurance market and the largest economy in the world. We will also leverage our early leadership in AI to become a truly AI-powered organization, and we will utilize our strengths in product, digital innovation and partnerships to become the most trusted partner for our customers' health, wealth and financial well-being. These efforts will be further enabled through superior distribution, making it easier for customers, agents and partners to engage with us and of course, through our winning team and culture, which is critical to every aspect of the execution of our strategy. At our Investor Day in 2024, we announced various key performance indicators and targets including total shareholder return, employee engagement and Net Promoter Score, which we remain focused on delivering. I am incredibly excited about this next chapter for Manulife, and I'm confident that executing on our strategy will further strengthen our ability to deliver on both our 2027 financial targets and sustain our growth for the next decade and beyond. Moving on to our quarterly results on Slide 7, which reflects our continued focus on execution and demonstrate the strength and diversity of our businesses. We generated strong insurance new business performance this quarter, with each insurance segment delivering growth of 15% or greater in new business CSM, providing clear evidence of our future earnings potential. While Global WAM experienced net outflows of $6.2 billion, which Colin will discuss in more detail shortly, it continued to generate positive operating leverage with margin expansion year-over-year. From a profitability standpoint, core EPS grew 16% from the prior year supported by a record level of core earnings, reflecting strong underlying business growth in Asia, Global WAM and Canada segments, along with other factors, which Colin will talk about further. Our strong core earnings generation contributed to third quarter core ROE of 18.1%, demonstrating that our core ROE target of 18% plus by 2027 is within reach, and we remain confident that we'll deliver on it. Our balance sheet remains strong with a LICAT ratio of 138% and a leverage ratio of 22.7% and we generated another quarter of book value per share growth with an increase of 7% from the prior year while continuing to return a significant amount of capital to shareholders. On to Slide 8, I'd like to dive a little deeper into the recent performance of our high-potential businesses, particularly Asia and Global WAM as they remain critical elements of our refreshed enterprise strategy. Over the past several years, both segments demonstrated strong track records of generating consistent growth and resilience through a volatile operating environment. The performance from both Asia and Global WAM has meant that on a year-to-date basis, our highest potential businesses are contributing 76% of core earnings exceeding our 2025 target of 75%. Asia had another outstanding quarter of growth, delivering a 29% year-on-year increase in core earnings to a record level. Our NBV margin also remained resilient, improving year-on-year to 39% backed by the solid growth in new business during the quarter. In Global WAM, we also delivered a record level of core earnings, maintaining another quarter of strong growth and this was our eighth consecutive quarter of double-digit pre-tax growth from the prior year and our focus on disciplined growth with proactive expense management enabled us to continue to generate positive operating leverage and steadily increase our core EBITDA margin, which expanded by 310 basis points year-on-year to 30.9% this quarter. These are great results. And as I reflect on the future and what comes next, I'm confident that our refreshed strategy supported by clear priorities will position us to deliver sustainable growth and achieve our new ambition to be the #1 choice for customers. With that, I'll hand it over to Colin to discuss our quarterly results in more detail. Colin? Colin Simpson: Thanks, Phil. The third quarter was indeed a strong quarter for Manulife, where we continue to demonstrate the ongoing strength, quality and resilience of our business. Let's begin on Slide 10, where we talk about our growth in the quarter. The momentum in our insurance new business performance continued in the third quarter. Our APE sales increased 8% from the prior year, with strong contributions from our North American businesses. This resulted in continued growth in our value metrics with 25% and 11% growth in new business CSM and new business value, respectively. Growth in new business CSM was strong, with each insurance segment delivering growth of 15% or greater compared to the prior year quarter. In fact, our total new business CSM increased over 20% year-over-year for the fifth consecutive quarter, further highlighting the strength of our diversified franchise and providing an encouraging read-through to the future earnings potential of each business. Headwinds in North American Retail and our U.S. retirement channel led to net outflows of $6.2 billion for Global WAM following 6 consecutive quarters of positive net flows. In our retail business, this was primarily due to continued pressure in the intermediary and wealth channels, while the headwinds in our U.S. retirement business were anticipated as elevated markets resulted in higher absolute level of participant withdrawals. Moving on to Slide 11, which summarizes the main earnings drivers when compared to the same period last year. We continue to see growth in our insurance businesses in Asia and Canada, which contributed to a higher insurance service results. We also saw a net favorable impact from the annual actuarial review of methods and assumptions or basis change during the quarter. Although this was partially offset by unfavorable claims experience in the U.S. I would note that U.S. insurance experience improved from the previous quarter, even though claims severity remains somewhat elevated on a small number of policies in contrast with last year's favorable experience. Moving down on the DOE table, you'll note a year-over-year improvement in our net investment results, mainly due to a release in the expected credit loss or ECL provision driven by updates to our parameters and models compared with an increase in the provision in the prior year. Note that we continue to expect an ECL charge of $30 million to $50 million per quarter on average, and year-to-date, the increase in ECL is $86 million post tax. Excluding the impact of the ECL, our core earnings growth would have been 6% compared with the prior year. Global WAM continues to be a significant contributor to our core earnings and reported a 19% growth in pre-tax core earnings this quarter. You'll notice the lower income tax amount despite the growth in our core earnings. This is mainly driven by an adjustment to our year-to-date withholding tax accrual, reflecting the use of our internal funding for the Comvest acquisition. Finally, I would also add that the most recent U.S. reinsurance transaction with RGA reduced our core earnings by $12 million across multiple lines of the DOE. Turning to Slide 12. Core EPS increased 16% from the prior year, reflecting the strong double-digit growth in core earnings as well as the impact of share buybacks. In fact, even after adjusting for ECL, we saw strong growth of 11%. We reported $1.8 billion of net income this quarter, which reflects neutral market experience where a $291 million gain from higher-than-expected public equity returns was offset by a charge of $289 million in our ALDA portfolio from lower-than-expected returns. Our ALDA performance was primarily impacted by lower-than-expected returns on private equity and commercial real estate investments as well as our timber assets, reflecting a recent decline in commodity prices. During the quarter, we also completed our annual basis change, which included our comprehensive triennial review of our U.S. long-term care business, or LTC. The basis change resulted in a net favorable impact of a $605 million decrease in overall pre-tax fulfill and cash flows, which comprised a $1.1 billion increase in CSM partially offset by a modest decrease in net income of $216 million post tax as well as a small impact to OCI. I would also note that the overall impact of the LTC study was slightly favorable, largely driven by favorable re-rate experience and assumed future premium rate increases as well as updates to reflect higher terminations, partially offset by higher utilization of benefits given the higher cost of care. The premium increases included amounts tied to future asks as well as approvals in excess of our prior assumptions, illustrating our conservatism in embedding these into our reserves. It is important to note the favorable net impact from the basis change further validates the prudence of our reserves. We reported a modest favorable impact on core earnings this quarter, and we also expect a similarly modest positive impact on core earnings going forward. More information on the basis change is available in the appendix of this presentation. Moving to the segment results. We'll start with Asia on Slide 13, where we generated solid growth across all new business metrics despite a very strong prior year comparable. APE sales increased 5% from the prior year, led by strong growth in Asia Other. While Hong Kong sales declined year-on-year compared to a very strong prior year quarter, we generated sequential growth of 4%. The overall increase in sales contributed to solid growth and value metrics, with new business CSM and new business value increasing 18% and 7%, respectively. All of this together with improved product mix drove NBV margin expansion from the prior year of 2.5 percentage points to 39%. Asia core earnings also delivered another strong quarter of strong year-on-year growth, increasing 29% as we benefited from continued business growth momentum. The net favorable impact of basis change and improved insurance experience as well as a release in the ECL provision compared with an increase in the prior year quarter. Over to Global WAM on Slide 14. Global WAM continued to build on its growth momentum, delivering record-level core earnings with a solid 9% increase year-on-year. This was again supported by higher average AUMA and higher performance fees, as well as continued expense discipline, partially offset by lower favorable tax true-ups and tax benefits. On a pre-tax basis, we achieved our eighth consecutive quarter of double-digit year-over-year growth, delivering a 19% increase in the third quarter. Net flows were challenged this quarter, resulting in net outflows of $6.2 billion. Our retail business saw net outflows of $3.9 billion related to our North American intermediary and wealth channels, followed by net outflows of $1.6 billion in our retirement business. Here, we saw higher outflows due to market appreciation as people generally had higher account balances, which resulted in ordinary course withdrawals also being higher. Our institutional business also saw modest net outflows of $0.7 billion and with the close of our third infrastructure fund in the quarter, we expect this to be a positive contributor to flows as money is deployed over the course of next year. Despite the challenges in our net flows, we delivered another quarter of positive operating leverage with core EBITDA margin of 30.9%, which expanded 310 basis points from the prior year, or 80 basis points sequentially, backed by our continued proactive expense management. With regards to eMPF, I can confirm we officially commenced our onboarding to the new platform in Hong Kong on November 6 and thus expect to reflect an impact to core earnings in our Retirement business starting in the fourth quarter. Next, let's hand over to Canada on Slide 15, where we delivered another quarter of solid results. APE sales increased 9% from the prior year, reflecting continued double-digit growth in our individual insurance business, primarily due to higher par sales. Our individual insurance business was the key contributor to a strong new business CSM growth of 15% year-on-year as our group insurance business does not generate CSM. We also delivered a solid 4% year-over-year growth in core earnings, driven by higher investment spreads as well as continued growth in our group insurance business and favorable insurance experience and individual insurance. The basis change provided additional uplift, but these drivers were partially offset by less favorable insurance experience in group insurance. Lastly, our U.S. segment's results on Slide 16. In the U.S., we delivered another quarter of strong APE sales growth of 51%, fueled by higher broad-based demand for our suite of products. This momentum led to more than doubling of our new business CSM and a 53% increase in new business value. Core earnings decreased 20% year-on-year, primarily due to unfavorable life insurance claims experience this quarter compared with favorable experience a year ago, along with lower expected investment earnings. These impacts were partially offset by a release in the ECL provision compared with an increase in the prior year as well as favorable lapse experience in our life business. While large claims variability presented challenges, the fundamentals of our U.S. business remains strong and position us well for steady earnings in the long term. Our confidence is reinforced by the sequential improvement in core earnings and the continued strong growth in our new business metrics this quarter, which bodes well for our future earnings in the segment. Looking beyond our earnings, it's worth noting our overall LTC insurance experience was once again modestly positive, including favorable incidents reported in the CSM. Bringing you to our book value on Slide 17. Even after returning nearly $4 billion of capital to shareholders year-to-date through dividends and share buybacks, we continue to grow our adjusted book value per share which was up 12% from the prior year quarter to $38.22. On a stand-alone quarter basis, we continue to demonstrate our strong cash generation capability and returned over $1.3 billion of capital to shareholders, including both dividends and share buybacks during the period. And as Phil mentioned in our refreshed strategy update, we expect our remittances for 2025 to be approximately $6 billion, putting us well on our way to achieving our cumulative 2027 target of at least $22 billion. Let's now move to our balance sheet on Slide 18. Our LICAT ratio remained strong at 138%, providing a $26 billion buffer above the supervisory target ratio. Our financial leverage ratio improved sequentially as well as year-on-year, standing at 22.7% and remaining well below our medium-term target of 25%. Together, these metrics highlight the strength and stability of our robust capital position and balance sheet, which provide ample financial flexibility to drive future growth. And finally, moving to Slide 19, which summarizes the progress against our 2027 and medium-term targets. I'm pleased with our overall financial performance this quarter. In particular, with record core earnings supported by our continued top line momentum despite some headwinds that impacted our net flows and ALDA performance. This quarter, we also generated core ROE of 18.1%, with a meaningful expansion of 1.5 percentage points year-on-year. As Phil highlighted in our refreshed strategy update, we have a clear path to achieving our 2027 core ROE target of 18% plus, and I'm confident in our ability to do so. Overall, our third quarter results reflect the ongoing strength of our underlying business performance and the quality of our portfolio. And when combined with our focused execution against refreshed strategic priorities I'm excited for the future and the opportunities that lie ahead. This concludes our prepared remarks. Before we move to the Q&A session, I would like to remind each participant to adhere to a limit of two questions, including follow-ups and to requeue if they have additional questions. Operator, we will now open the call to questions. Operator: [Operator Instructions]. The first question comes from John Aiken with Jefferies. John Aiken: Phil, I'm very intrigued about the venture that you announced in India. I was hoping you might be able to give us a couple of more details in terms of what type of products you think you're going to be offering? What you bring to the table in what I believe is a very competitive marketplace. And then finally, the regulatory approval process, how long do you think that will take before you can actually open shop the business? Philip Witherington: John, this is Phil. Thanks for the question and the first question today. Certainly, the announcement we made yesterday of our intention to enter the India market through a JV with Mahindra is very exciting. We've been looking at an India market entry from an insurance perspective for many years and have been really observing the environment to wait for the right moment. And what we've seen in recent years is that the regulatory environment has moved favorably, the digital infrastructure within India has moved very favorably. There's been consistent economic growth and market maturity within the insurance sector, as well as that, there has been a notable increase in wealth across the India population and that creates insurance needs and provides an ability to purchase insurance products. And I think a really important component of our entry strategy here is really moving with the right partner and Mahindra, who's been our partner on the asset management side since 2020 is a fantastic partner and has not only substantial local knowledge, but a strong brand as well as a distribution infrastructure. So in terms of some of the specific questions that you ask on what we bring to the table, we bring our global expertise in the insurance sector to this partnership. And it's not only about product development, but it's also an aspect such as risk management, which is so important to managing insurance businesses. It's too early to get into a topic such as which product will -- what the products will look like. I expect it would take in the order of 12 to 18 months to get this operation off the ground and up and running, including the regulatory approval process that you referenced, and I look forward to providing updates along the way. Operator: And the next question comes from Alex Scott with Barclays. Taylor Scott: Wanted to see if you could talk a little bit more about what you're seeing in some of your Asian markets and the growth has been pretty good. What's your outlook for contingent strength of sales over the next couple of years? Steven Finch: Yes. Thanks, Alex. It's Steve Finch here. I can take that. Yes, as you noted, we've had some strong momentum in results in Asia as Colin covered, we saw continued solid momentum in sales growth in the quarter with our new business value metrics up 7% on NBV, 18% up on CSM, new business CSM, which bodes well for our future earnings. And we've seen broad-based success across multiple markets, continued strength in the value metrics in Hong Kong. And then in Asia Other, we had a strong result in our China business as well as continued momentum in Singapore, our Indonesia agency and as well as our bank partner in the Philippines. So we've continued to see broad-based success. And what we see is the market fundamentals and customer demand remain strong and aligned with the strategy that Phil updated on, we're continuing to make the investments for growth, and we're well positioned to capitalize in markets across the region. Taylor Scott: That's helpful. So the next question I wanted to ask about your private credit exposure. See if you could put numbers around some of the different forms of private credit you have. And also just ask if you have any comments, just on some of the comments that have been made by industry participants out there that have been a little more critical of private credit recently. Trevor Kreel: Alex, it's Trevor. Thanks for the question. So yes, in terms of private credits, just for context, our below investment-grade private credit portfolio is around CAD 4 billion. It's a little bit less than about 1% of our general account assets. It is -- the strategy is largely focused on middle market lending to private equity-sponsored companies. It's pretty diverse by issuer, sector and sponsor. And we do manage and underwrite these assets in-house. I would say we see our participation as kind of being on the low end of the risk spectrum. Our performance has actually been quite strong even with COVID, even with the rate increases. And the credit expense has actually been I think well within our loss assumptions. So we are actually quite happy with the strategy. In terms of use of private credit, I would say we're always looking at new asset classes to diversify the balance sheet. I think given the nature of private credit, the ratings, the term and the fact that it's floating rate. The most natural home for us on the balance sheet is probably our par and adjustable liabilities where investment experience is passed back to the policyholders. So I think we might look to add a little bit more there where we thought it was sort of appropriate for the balance sheet. Operator: And next question comes from Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: First question is for the -- yes, the GWAM business, the Mandatory Provident Fund fee changes that are -- they're going to start having an effect in Q4. So we all are aware of this, but you alluded to some actions you would take and you contemplated this regulatory change when you laid out your 2027 vision. Maybe you can shed a bit more light on what some of these offsets are, how impactful it could be when they could become effective, I guess? Paul Lorentz: Yes. Thank. It's Paul Lorentz here. Yes. Just on that, the guidance we provided around about USD 25 million a quarter remains intact once we get through the entire transition. So we did transition earlier this month. It will take us some time to decommission systems, obviously, reduce our FTE footprint there because we're no longer servicing the business. So you'd expect to see some of that come through those costs continue into Q1, and then we would expect most of those to disappear into Q2. In terms of outlook for Q4, we did end the quarter with higher AUMA versus the average. So there is a little bit of upside there in terms of revenue, but that would be offset by the eMPF coming in for 2 months of the quarter. And then in Q1, we would obviously get the full run rate coming through. Gabriel Dechaine: So just to put a finer point, are you expecting to fully offset at some point in the future or not? Paul Lorentz: Yes. So most of the expense actions we took were upfront to try and get ahead of it. That's why we've seen such an improvement in our margin, frankly, leading up to the transition. So we are very proactive in terms of not waiting for the transition to happen. So we feel we've taken most of the costs out, except for those that are remaining, which will disappear in Q1. Gabriel Dechaine: Okay. Then a question on the actuarial review, which I always am hesitant to ask about because it could get a little bit technical. But in the LTC components, specifically, there's a familiar pattern you increase your morbidity reserves, essentially and then offset that with future premium increases expected. But on the medical cost inflation that you're observing, you talked about higher utilization because of rising health care costs. Is that just another way of saying the utilization is -- well, is it actually higher or it's the same utilization and it's just costing you more because it's kind of a nuanced message there. And what kind of I guess, inflation, are you factoring into this updated assumption up to 10% a year or something like that, I don't know. Stephanie Fadous: Gabe, it's Stephanie. Thank you for the question. So for the for the LTC triennial review, what we saw is a modest favorable impact that's in line that with the experience that we would have seen since the last review. But as you point out, there were different parts. And if we dive in a little deeper, we have been seeing utilization losses for a number of quarters. And to your question, that is a result of higher medical inflation. So this is something we were focused on. And we fully address what we've observed, and we are also reflecting elevated inflation for a little longer period of time. There were also, as you point out, other parts that led to positives, we had absorbed consistent termination gains, which led to a favorable impact to reserve, and we have also reviewed our premium rate increase assumption, which we remain very conservative and embedded less than 30% of the total outstanding ask. Gabriel Dechaine: Got it. And any sense of what medical cost inflation you're assuming? Stephanie Fadous: So as I mentioned, we did reflect that it would -- like the medical cost inflation has come down since its peak, but it's still slightly elevated we would -- we reflected that, that would persist a little longer before returning to our longer-term view. And I think I would leave it with our longer-term view is higher than general inflation expectations. Operator: And the next question comes from Tom MacKinnon with BMO Capital. Tom MacKinnon: Yes. A question maybe for Phil here. Just the thinking behind this refreshed strategy. I mean you came out with these 2027 targets about 16 months ago, you're standing by them. Is it really a new team, you wanted to kind of refresh it because you've got a new kind of leadership team. And I noticed that now you're talking about kind of more balanced growth across the portfolio. I'm just interpreting it, I leave it up to you to here to paraphrase. But investing to grow in Canada and the U.S. How should we be thinking about that in terms of outlook for share buybacks, they still look like that's going to be fairly robust. But yes, maybe you can address some of those points I've raised. Philip Witherington: Thanks, Tom. This is Phil. And there's quite a lot in there to unpack. So if I miss something out, please do call me out on it, and I'll provide a supplement. But the logic for the refreshed strategy update, I do acknowledge that the strategy we've had for the past 8 years has served the company tremendously well we've been through a period of hugely successful transformation. And we felt having achieved what we wanted to achieve with the last strategy as a leadership team, we felt that this was the right time to take a fresh look. And something that I've said before is that given that the external environment continues to evolve, it's really important that the strategy is never static that we always look at what's changing externally and how do we position the company? Yes, of course, to deliver on our 2027 targets but have a much longer time horizon beyond that when we think about setting the company up for long-term success. So Tom, you picked up on something that's really important and that is balanced growth. And having a diversified organization is something that we truly value. It's something that provides resilience. One of the things that is not changing as part of this strategy is that Asia and global wealth and asset management remain compelling growth opportunities, and we will do everything within our means to fulfill that opportunity. But at the same time, given the transformation that has been delivered over the course of the past 8 years, our new business footprint in both Canada and the U.S. is attractive. We're generating attractive margins, and we see an opportunity to invest to grow our new business in the U.S. and Canada and in particular, in the U.S., to grow new business so that it sustains our scale. And that, therefore, is the relevance, I think, to our overall portfolio diversification, we sustain a level of diversification within the overall organization. On this topic as well, our strategy clarifies that we do believe that it's important to be in the mega economies of the future, and we have a hugely successful business in the U.S., both on the GWAM side and on the insurance side with John Hancock. We have a successful scale business in China and where we saw a strategic gap was the scale of our presence in India. And that was really the logic for us taking decisive action to enter the India insurance market. There are other elements of our strategy that I won't go into, but I'd just call out that being a leader in AI and an AI-powered organization is important to us. And I think that's very important to our overall competitive position and future success. But Tom, you referenced the importance of capital generation. And I do want to emphasize that, we expect to continue the strong capital generation that the company has seen in recent years. Colin referenced our expectations for remittances for 2025. I think that's a good example, $6 billion. And when it comes to capital deployment and share buybacks, our highest priority is unchanged, and that's to organically invest in our business as well as sustaining and growing our shareholder dividend. And then for what's left over, buybacks and strategic M&A are possibilities. But I will emphasize, when it comes to strategic M&A, the bar is high, and that means that buybacks, we expect to continue to be an important form of capital deployment for us. I hope that covers all the points you raised, Tom. Tom MacKinnon: No, that's fulsome. And congratulations to Marc Constantini as he kind of moves on to his next role here. So all the best. Operator: The next question comes from Doug Young with Desjardins Capital Markets. Doug Young: I'm going to go back to the actuarial review. And there was, I think, a change in methodology in Asia. Correct me if I'm wrong, from the PPA to the GMM and I think this had a decent positive impact on the CSM. And so I'm just trying to understand why the shift and what impact did that shift have on core earnings in the quarter and with all the moving parts and the core earnings going forward, Colin, I think you talked a bit about it will have a positive impact. Can you put a point on what that positive impact might be. Stephanie Fadous: Doug. It's Stephanie. I'll start and see if Colin wants to add. But you're right. So the -- in terms of the impact of the annual review, which was favorable and led to a reserve reduction of $605 million. A large part of this was driven by a change in how we account for some health insurance contract in Hong Kong. We're moving from the PAA approach or what you would call short-term insurance contract to reserving for the lifetime. I'd add that since we implemented our IFRS 17, we've been studying industry practice, and we found that most payers accounted for these products over the lifetime, so we're now aligning with this practice. What this does is we've capitalized our cash flows in the reserve, and we've set up a CSM to offset it. No impact to total insurance contract liability in terms of the impact to core earnings for this item and there are small timing differences. So there will be a modest favorable impact, and then you asked about the impact of the annual review overall on core earnings. Due to the favorable impact we saw an increase in CSM which will lead to an increase in CSM amortization of approximately $30 million per quarter. Doug Young: Per quarter, okay. And is there any other changes being contemplated? Stephanie Fadous: At this time, with no other changes of the type being contemplated. Doug Young: Okay. And then just second, on the credit side, thanks for the detail on private credit. But what got my eye is, it seems like the parameter movements caused a reversal of credit provisions this quarter, and it was kind of tied into the positive moves in equity markets, and I kind of -- everyone can see the positive move in equity markets. But I was a bit surprised that positive move in equity market has an impact on the ECL or as significant impact on ECL. So I just wanted to kind of understand the mechanics there a little bit. Trevor Kreel: Doug, it's Trevor. Thanks for the question. So yes, in terms of the ECL, as you noted, there was a $44 million release, which was better than the charge than we saw in Q2. And just to remind people, the ECL charge is broadly two main components. The first one is basically the impact of defaults and rating changes, which you would expect. And then there is, secondly, this modeled impact reflecting changes in the broader economic environment. And we include both of those components in our definition of core earnings. As you said, for Q3 specifically, the majority of the benefit was driven by this positive impact from the market movement impact or the market environment impact driven by strong equity markets. So just to your -- I guess to your question, so we use a third-party model, and that third-party model basically generates this market environment impact. And it includes a variety of metrics. So equity markets is one, volatility, interest rates et cetera, and how those have actually been correlated to credit experience in the past. So that's what the model is basically doing. It's not a linear impact, but given the strength of equity markets and our consistency of that strength. The model obviously picked it up and felt that the environment was obviously much less risky than it had been in prior quarters, and that leads to the release. Doug Young: And I guess the point is, I mean, this obviously was favorable this quarter, but this is another area where if equity markets were to decline, you could see the reverse happen, I guess that's kind of obvious, but... Trevor Kreel: Yes, exactly. Operator: And the next question comes from Paul Holden with CIBC. Paul Holden: First question, I want to ask about the Hong Kong APE sales. Obviously, they were quite strong over the prior 4 quarters and now a little bit of a decline year-over-year. So really, I guess what I want to understand is what should we expect over the next few quarters as you continue to lap some pretty good comps. Do you think you can produce positive growth in sales. Or is it going to be similar to this quarter or maybe there's a bit of a, I don't know if you call it, a normalization in growth? Steven Finch: Yes. Thanks, Paul. It's Steve here. And as you noted, the Hong Kong, the APE was down modestly year-over-year. And that was off, as Colin noted earlier, a very strong base, the prior year. And your point about growth, we've seen year-to-date, the APE has increased 46% year-over-year. So that demonstrates the growth that we've had. In addition, while the APE declined in the quarter, our value metrics performed strongly. So in Hong Kong, we are happy with these results and NBV and NB CSM were up 10% and 12% year-over-year, respectively. And that was due to some favorable mix, some additional health and protection that we saw in the quarter. In terms of outlook in Hong Kong, Q4 was another strong year last year. We typically see seasonal variability, so we'd expect some drop off in Q4 and picking up again in Q1. But if I back up to look at the underlying fundamentals and look a bit further out than that, the market fundamentals do remain very strong, and demand is high from our customers. We also see that in Hong Kong and in Singapore as well, an international financial center, and there's a strong flow of funds. So the underlying drivers are favorable, and we're making significant investments in our capabilities to support customers and distributors. So as we look out over the medium term, we remain very optimistic about the Hong Kong market. Paul Holden: Okay. Second question is going back to the strategy refresh. So I want to get a better sense of how we should think about the earnings trajectory for Canada and U.S. When I hear investments in those markets, I think about maybe in the short term, higher expenses as a result of those investments, but longer-term growth rates. Is that the right interpretation? Philip Witherington: Paul, this is Phil. Thanks for the drill-down question there on the strategy. The way I see this, I mean, we only have one target when it comes to medium-term earnings growth and that's the 10% to 12% core EPS. But my expectation, and this is the leadership team's expectation is that each of our segments contribute to that growth. And the lens that we've applied in resetting the strategy is really to make it clear that growth will not only come from Asia and Global WAM, the U.S. and Canada will be important contributors to that. And so this is about investing to sustain scale, investing to sustain capital generation, investing to sustain growth rates. And I don't want to get too precise or issue any formal guidance. But I think what's reasonable are the sort of -- we're not looking double digits for Canada and the U.S., but it's sort of low to mid-single digits for the U.S. and a little higher for Canada. But I think we have great businesses in North America, and this strategy really clarifies that we see those businesses being an ongoing and important part of the overall portfolio. Operator: The next question comes from Mario Mendonca with TD Securities. Mario Mendonca: Phil, a related question. So when I reflect back on what the U.S. business was in the past and what it's become. I remember, as I suspect many people on the call do, that the U.S. business was a much broader business, long-term care, universal life, variable annuities, variable universal life. There was a lot going on, but it was a really messy business as well. So as you think about this refresh in the U.S., is the point that -- is the goal to drive higher sales levels in your existing product mix? Or will you return Manulife to its former self with just a much broader product suite in the U.S. Philip Witherington: Thank you, Mario, for the question. And let me be really clear up front. There is no intention in the U.S. or John Hancock to go back to the days of variable annuities and that higher market risk types of products. What we have -- there are really two elements to our strategy and I'll come on to this. What we're really thinking about is when we reflect on the transformation that we've delivered in the U.S. over the course of the past 7 to 8 years, is we've created differentiation through our focus on behavioral insurance that promotes health and wellness. And that creates differentiation in the market that has enabled us to be successful in what I would say is quite a niche footprint in the high net worth, focusing on the high net worth customer segment. It's profitable. The business we write is profitable, the margins are now at a similar level to the margins that we generate on average in Asia. So the question for us is twofold. One is how do we potentially broaden the scope of solutions that we provide to customers, but within our risk appetite. So not going back to where we were 10, 15, 20 years ago. And secondly, how do we take the solutions that we have and enable those solutions to be accessed not only by high net worth individuals, but affluent individuals and families and emerging high net worth individuals. So that's really an expansion of the relevant customer segments that we focus on. And I feel with some of the strategic changes that we're making in the U.S. and the team that we have we're very well positioned to be able to deliver on that opportunity and sustain our scale, earnings and capital generation from what is the largest economy and the largest insurance market in the world. Mario Mendonca: So Phil, does that mean that you stick with your existing product suite? I couldn't quite figure that out. Philip Witherington: In the near term, we're sticking with our existing product suite and scaling that or moving that into additional customer segments. We are also looking to be fully transparent, Mario, also looking at opportunities in adjacent products that help fulfill a wider range of customer needs, but within our risk appetite, and we have robust risk disciplines that apply not only in the U.S. but around the world. Mario Mendonca: Okay. A quick follow-up question. Look none of this is free. I see that the efficiency target is no longer formally part of your strategic refresh, but I appreciate that it's still a priority. Would it be fair to say that the sub-45% efficiency ratio that's something you could sacrifice in the near term in pursuit of this refreshed strategy in Canada and the U.S. Philip Witherington: Actually, Mario, we're not withdrawing our sub-45% targets when it comes to efficiency ratio. I expect that to be maintained. And going in the other direction on this, yes, we'll be investing in our businesses, but part of our investments at an enterprise level include becoming an AI-powered organization. And we're already seeing the benefits of our investments and leadership position in AI pay off when it comes to mitigating expense growth and providing an ability for the organization to do more with less. And so I think there are forces moving in both directions that will enable us to continue to be efficient. Mario Mendonca: And Marc, congratulations on a great career there and hope to see you in your new role. Philip Witherington: He's smiling. Thanks Mario. Operator: The next question is from Darko Mihelic with RBC Capital Markets. Darko Mihelic: Just a real quick question on corporate. There's a bit of noise in there. You actually have a negative CSM. Colin, how should I think about this business unit on a go-forward basis from a modeling perspective? Colin Simpson: Good to hear from you. Corporate was a little bit more -- was different to the trend, actually, and a large part of that was the withholding tax accrual release that we made in respect of the Comvest acquisition. But I think going forward, you would expect us to have a result of $300 million to $400 million in this line, and that reflects further investments in central products. You mentioned the CSM, the negative CSM, that is related to our COLI product that we've owned for many years. It's really just an intercompany settlement and nothing to really focus on. It will be steady for the next few quarters. Darko Mihelic: Okay. And a question for Steve Finch. Steve, the question is really twofold. One is your agent count still declining. Maybe you can talk a little bit about what it is you're doing there? And when does it -- if does it affect sales power? And then on top of that, just quickly, is there -- how should we think about the build-out of India in terms of the earnings drag for the next couple of years? Steven Finch: Thanks, Darko. And on the agency side, our focus there, our strategy is building out a high-quality and professional agency. And which it's not really driven by that metric in terms of number of agents. So we -- if we look at other metrics in terms of top-tier agency, our APE per active agent is growing significantly. Our NBV per agent is also growing materially. And we've seen growth in our agency sales this year as a result of this. One of the other objective measures there is a measure of top-tier agents is $1 million roundtable. Manulife was third globally in terms of number of MDRT qualifiers in '24, and the run rate is in the 20s, 20% for growth tracking through 2025 as well. And what we're continuing to do to drive this is we're making investments. And broadly speaking, those investments are training and development, really investing in our people to be able to recruit high-quality agents, train them very well, develop them into leaders, and create highly professional agents, along with investments in technology and tools, AI tools that are making the agents more efficient providing better service to our customers, identifying from all the data that we've got on customer interactions, what the next best need for the agent would be. And we're seeing benefits from these investments. So we are pleased with the -- what we're seeing come out of these investments in the agency strategy. It's one of the core -- it is the core distribution engine of the franchisee representing a little over 1/3 of the sales. Philip Witherington: And Steve, did you want to cover the India -- the India earnings question? Okay. You go ahead, Steve. Steven Finch: Yes. Thanks. As Phil said earlier, we're -- we still have a ways to go to get the entity set up. We're not giving those forward projections at this time in terms of financial metrics, but we look forward to updating on that in the future. Philip Witherington: Yes, that makes sense. And just to supplement, in terms of one financial metric we can provide is we expect the capital cost of India over the course of the next decade to be around USD 400 million capital injection. In the first 5 years, that's around USD 140 million to USD 150 million. And I think that helps really to put some parameters around what the overall financial dynamics are, but a hugely exciting move for Manulife. Operator: Thank you. And this concludes the question-and-answer session. I would like to turn the conference back over to Mr. Hung Ko for any closing remarks. Hung Ko: Thank you, operator. We'll be available after the call if there are any follow-up questions. Have a good day, everyone. Operator: Thank you. This brings to a close of today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
József Váradi: Welcome to this event. So this is reporting the first half results of fiscal '26. Could we move to the next slide, please? So I would say that we start seeing some sunshine and certainly good decisions for the future waiting to see the impacts coming through. So with regard to the sunshine, I think what the first half results demonstrate is that under circumstances when we are near efficient, actually, the business produces very strong results in terms of operating KPIs, in terms of financial output. We are still not fully efficient given the groundings of aircraft, some of the inherent inefficiencies in the system, but we did a lot better than in previous years. As a result, you can see a significant increase on capacity, passengers, revenue and profit. In terms of decisions made, we're seeing that we have affected the major challenges of the business for a structural reset. We have communicated the closing of Wizz Air Abu Dhabi that effectively has been happening. It is pretty much a done deal. Then we communicated that we would be seeking a reset with regard to the aircraft delivery stream with Airbus, that deal is now in place. It has been decided, and I think it's a good deal. It is appropriate to addressing a number of things. One is the deliverable growth rate of the business, taking some risks out of the profile of the setting, reducing the growth rate to around 10% to 12%. And let's not forget that 10% to 12% still makes Wizz Air the fastest-growing airline in Europe and which we are proud of. But it is a more manageable magnitude of growth than previously set. And very importantly, it takes into account the cycle of the Pratt & Whitney groundings and ungroundings because that created a significant hiccup to the fleet count of the airline, which we had to reset. Also, we addressed the XLR exposure. That program is descaled very significantly, I would even say that exited to a large extent, and now this is narrowed to the U.K. AOC. So the XLR is seen as a Wizz Air U.K. initiative no longer as a corporate initiative for the airline. Also, we have made commitments on aircraft finance. This is one of the significant differences to our competitors, and you will start seeing a more balanced way of financing our aircraft delivery program going forward. Now with regard to growth, I think this is important, and you have a prime interest in that. We are looking at capacity growth of around 10% to 12% to be delivered through the recovery of the GTF engines, the new aircraft delivery streams and the way we are managing capacity. Now what it really means is that we will still have some short-term challenges in front of us arising from capacity because effectively, the choice we have on hand is either being fully efficient and fully deployed capacity, but that would create an excessive growth rate, which would become highly dilutive to revenue production or carry on some inefficiencies on the fleet, but set the growth in accordance with what actually we can deliver. We opted for the second. So you're going to be seeing a moderated growth level from here on, but it will take a little time to suck up the inefficiency created. We have been shifting a lot of focus in terms of markets. We have been talking about this to Central and Eastern Europe. If you look at Central and Eastern Europe, it is now kind of bearing fruits in terms of market share. We are expecting our market share to be around 29% going into the first half of calendar '26. This is up from 25%. Of course, we have been adding significant capacity by opening new operating bases and also enhancing our incumbent footprint. With all this, we are expecting a stabilized, more resilient revenue production and a longer-term lower cost production of the business and also the strengthening of the balance sheet. Maybe with that kickoff, I would hand it over to Ian, and I will take it back after that. Ian Malin: Thank you, Jozsef. Next slide, please. Right. So in terms of H1, I would say that pleased with the outcome. And so we don't want to dwell on it too long, but at least we're here to report on it, so I'll talk about it, but then we want to make sure we look forward into H2 and beyond that. So revenue, up 9%, nominal off of 8.9% ASK growth. RASK was roughly flat year-on-year, EUR 0.0498. So a strong RASK production, flat load factor. So that was -- and yield was up around 0.9%. So ultimately, I think a good top line number, helped also by fuel. Fuel was down 2.1% despite the 8.9% volume increase, benefiting from the fuel efficiency and the fuel price and the impact of our hedging. EBITDA was nicely up 19% with a 29% EBITDA margin and operating profit was up 25% with a 13% EBIT margin. So across the board, I think a strong result. We did see some things below the line that eroded some of the net profit, even though we still generated a positive year-on-year net profit production. And none of this was unexpected. So we have the tax charge with regards to the deferred tax asset that we created last year and the unwind that happens as the aircraft start delivering into that entity in Malta, which we restructured and set up last year. Ultimately, I think where we're looking at is a satisfying result. And as Joe says, as we continue to build operational performance and operational resilience into the business, you can start to see the benefits of those flow through into the P&L. These are structural. These are things that we've invested a lot of time and effort into. And so last summer was a rather disruptive summer, and that's where you see the benefit coming into this year. You'll see less of that benefit in Q3 and Q4 just because we had better performance. But we can expect, as we're continuing to grow that operational performance to deliver a more robust cost position and ultimately, a more beneficial revenue environment because you'll start to deliver operational performance, which drives better revenue quality. So we're excited about the structural changes and the resilience coming into the business. So into the winter and into the cost base, if you could just go to the next slide, please, we will see transitional inefficiencies. Now on the cost side, I would say we're pleased with the results. The cost picture really improved in Q2. And you can see that, that was driven by fuel. So fuel was a tailwind there. The disruption costs, as I mentioned, the operational efficiencies generated roughly EUR 29 million of savings in terms of disruption costs. So that was helpful. We also managed to shed some of the structural wet lease costs. So we were down EUR 76 million in terms of wet lease costs. Still have -- we still do incur wet leases, but these are not structural. These are one-offs. And actually embedded within those wet leases is also some of the short-term engine leasing that we do in order to make sure that we can operate the fleet efficiently and reliably to be able to support that better on-time performance and the avoidance of disruption costs. We also managed to deliver strong results even with lower sale-leaseback volumes. You can see that we actually were EUR 27.5 million short on sale-leaseback gains year-on-year. So had we had that, that would have been an even better picture. So those were the tailwinds. We continue to see elements of cost creep through the business. And like I said, none of this is a surprise. So there's nothing new based upon what we were expecting at the full year when we said that this year was going to be a challenging cost year. This is just simply the translation of some of our actions into the results, which will then wash through and move on going forward. So you can see that, for example, airport and on-route are up. Actually, handling came down, but where the biggest pressure came from was on on-route, where we saw an increase in the tariffs year-on-year. And for example, places like Germany on recharges were up 29% year-on-year. So those really hard to unwind some of those. Maintenance is an area that we see a lot of cost pressure. But as we explained at the full year, there's a number of things happening there. So we are seeing the retirement of ceos now in that period. We think there were 9 ceos that went back. And so as you put those into return conditions, you have to incur incremental costs, not normal operating costs. And so you see some of that flow through. You also are seeing pressure in terms of the vendor base. So component support contracts are increasing. And so some of that is inflationary coming through the cost line. There is an element of Abu Dhabi wind-up costs coming through the entire cost structure. In terms of Abu Dhabi costs, we remain comfortable that there won't be an adverse impact on the full year to winding up Abu Dhabi. So while you will see cost increases across all the cost lines associated with the wind up, the benefit of not operating Abu Dhabi from September onwards will offset that so that it should be at least breakeven, if not maybe slightly better, but we'll know that when the entire business is wrapped up. We thank the team for all their efforts in terms of that operation as well as what's happening to shut that down. Distribution was up slightly, but that was consistent with the Q1 results in that we have a return to growth. And so as you do push more volume through the business, you are incurring more costs associated with that. And so that was expected. And like I said, there are -- there's a bunch of cost increases happening in the others line associated with the return to growth. So there's things like crew training, crew accommodation, recruitment, things like that. Abu Dhabi costs flow through that to some extent as well. And there was also a reduction, if not even an elimination in some limited cargo revenue that we had in prior year that we didn't have this year. So that's what explains the others line within the other cost and income line. I will ask to go to the next slide. Just quickly touching on Q2. So again, operating margin of 21.5%, 35% higher year-on-year. We saw less benefit on FX in the quarter versus prior year due to the now continued ramp-up of our overall lease liability hedging profile and risk management profile. And we saw a very strong disruption cost reduction, again. So most of that disruption improvement came through in the second quarter, and that's despite some of the challenges we have in Q2, such as the suspension of Israel operations, which resumed in August. We also had the overfly challenges around Iran, and then we had actually a lot of volatility around Abu Dhabi as we worked to come to the end of that operation at the end of August, early September, beginning of September. There were some tapering off of the operations there, and that caused some additional disruption and costs. So notwithstanding all those things, a very strong Q2 and something that we're proud of, but we're not going to rest there. So in terms of where we're going, we have obviously some guidance numbers that Joe will share at the end. And that puts us in a position where I think we're comfortable with where consensus is currently. And so we do expect there to be a higher cost position in Q3 and Q4. Like I said, nothing that's a surprise. And that's driven by a number of factors. If you look at things like the maintenance line, we're going to see older aircraft costing more to maintain. There's going to be continued retirement of ceos in that period, which drive the costs up. Depreciation is going to see some pressure because in H2, we should be 35 more neos this year versus last year H2, and that translates to roughly 20% fleet growth, whereby in that period, we should only be growing around 10% in terms of ASKs. And so our nominal depreciation will grow faster than our volume growth, and that is why you'll start to see some pressure on that. We also have in the second half a distortion when it comes to the year-on-year comparable in maintenance. In fiscal year '25, we had a one-off maintenance accrual release, which was rather material, close to EUR 80 million, and we're not going to see that again. And so that's why you see some of the cost pressure flowing through. But Joe will comment on why that is necessary and why the actions that we take and the costs that come with those actions set us up for not just the performance that we're delivering next year, but also the overall reprofiling of the business. I'll ask to go to the next slide, please. In terms of cash flow, I would say, consistent at the end of the day, consistent with what we've been seeing. So we ended the year right -- sorry, ended the half around EUR 2 billion in cash. And that puts us in a strong position going into the winter. We managed to generate a reduction in net leverage ratio, so down from 4 to 3.6. We maintain our target of 30% to 35% liquidity, actually made it to go up, which is good. And that's also in anticipation of our January bond repayment, which we plan on at this point, treating the same way we have the previous repayment. We are pleased with the Airbus developments and that comes with pros and cons. Obviously, as you defer aircraft, you generate fewer sale leaseback gains, but you also generate fewer lease liabilities as you defer CapEx, which means that, that should be benign in terms of leverage at the end of the day, but it also releases -- has a benefit of releasing PDP obligations as we now no longer need to fund the development of those aircraft. And as I'm sure some of you have noticed, we've managed to sell a few aircraft as part of a deal with one of our related party airlines, and that also takes further pressure off the CapEx side of things. But overall, nothing to be -- nothing jumping out in terms of this chart. And as we move into Christmas period into the Easter into March, we'll see that unfunded liability line start to build again as we've seen in prior periods. And so we're comfortable with the liquidity position of the company. We -- I will note that we rolled over our ETS facility. We had a EUR 279 million facility that rolled over like we did in the prior year. And due to the changing prices of the emissions credits, we were able to slightly upsize that. Next slide, please, and I'll hand the floor back over to Joe. József Váradi: Okay. Thank you. Well, this is, I guess, a very important chart that kind of gives you a picture on fleet growth and this translation into capacity growth. So you recall that we are having 334 aircraft on hand to be delivered, originally set for a stream ending in 2030. Now this is extended to 2033. So effectively, that affects a 91 aircraft reduction in the original delivery period and put that across into the extended period. Of the 91, 3 aircraft are sold outright and 88 are deferred into '31, '33 deliveries. Now what it does is it creates a more predictable picture for future growth. In terms of volume of growth, we are targeting around 10% to 12% annual growth. This is taking into account some of the issues of recent experience that given the -- some of the inefficiencies associated with the Pratt & Whitney groundings. We want to make sure that we are derisking the profile of the business, not only in terms of market footprint, but also in terms of challenges arising from growth. And we think that the 10% to 12% growth is a more derisked profile for the company than 15% originally targeted. And taking into account the Pratt & Whitney GTF cycle of grounding and ungrounding, you appreciate that the new fleet delivery program has to take that kind of a recovery cycle into account and recovery cost into account. So if you look at it in nominal terms, effectively short term, we don't take new aircraft deliveries representing 10% to 12% growth. It's a lot less than that because we are taking into account the recovery of the current grounded aircraft engines. We think that this is a fairly well outlined model mathematically to program the growth or deprogram the growth against a lower risk profile of execution. I'm very pleased with that. And it was a long negotiation. So you can imagine that this is very thorough, not only in terms of setting or resetting the delivery stream, but also in terms of protecting the commercial terms of the deal. Again, just for recalling it, this deal was actually put in place in 2017 in Dubai under very different supply chain circumstances, very different commercial and financial needs of the OEM. And obviously, that gives continuously a structural benefit for Wizz Air versus the rest of the market. But we're seeing that now it is not going to become a burden when it comes to executing the aircraft order. In 2029, effectively, we are becoming an all-neo operator. That's good because by the time, I think you should be reasonably expecting technological maturity coming through. By the time the GTF advantage will be delivered. I mean that's a significant technological step-up and an industrial step-up on durability and reliability on the engines. And the other important issue here is the XLR program, which is now taken down -- rescaled and allotted to Wizz Air U.K. no longer to the European AOCs. Next slide, please. So decisions have been made, are being made and now we are expecting the impacts coming through. So the critical decisions, as I said before, the closure of Abu Dhabi. You heard from Ian that we expect that decision to be executed against a fairly benign financial platform. So we are not expecting any adverse impact in the current financial year. As a result of that and as of the next financial year, we are expecting significant upsides coming through. Just discussed the Airbus order reset, again, this is very important for longer-term predictability of the business and also discussed the XLR program, which we effectively exited other than Wizz U.K. Now there are next to this ongoing work streams. Network improvement, churning the network for profit. That's probably the most important ongoing priority of the company. We are shifting capacity into Central and Eastern Europe against high brand awareness, against a very solid financial performance and against a backdrop of disproportionately higher GDP growth in that region relative to Western Europe. And we are already seeing some of the early results by opening new bases, deploying more aircraft, how quickly the market is picking up on Wizz Air. We are optimizing the technological platform. Maybe it's a small equation we have been discussing, but I think you should understand that when we are talking about the GTF or any new technology is the same for the CFM LEAP. There is a trade-off. And the trade-off is you get fuel burn benefit from heat in the core of the engine. So basically, the way fuel burn benefits are derived is through the higher temperature in the core of the engine. What it means is that higher temperature is more sensitive to durability of the core engine of the whole engine. So that may result in more maintenance costs. So this trade between fuel burn versus maintenance. So it's not like that you just get fuel burn as a gift. And of course, there is another element of technology improvement and that comes from the capital cost. It is simply more expensive than previous technologies. So please just understand this trade because when you look at ex-fuel cost and fuel cost, you're going to be seeing that, okay, we are delivering a lot of improvements on fuel cost, but not as much on ex-fuel cost. But there is a trade here. So what you see coming through the fuel cost, you're going to get some of it as a penalty on non-fuel cost. So you really have to look at the 2 combined. I mean, of course, we do the breakdown and we act on the breakdown. But intellectually, I think you need to integrate those 2 if you want to fully capture that. But we're seeing that the technological benefit is important because once the GTF is matured, the industry has no doubt that this is going to become the best engine available in the marketplace. It is kind of painful at the moment going through this cycle, but we are hopeful that one day, actually, we're going to be pacing the day when we decided to offer this engine. And unparking the aircraft, that's a critical priority for the company. We have been discussing this. We are targeting to on ground the entire fleet by the end of '27. We are working with Pratt & Whitney. We have an understanding. We have a deal with that regard that covers induction slots that covers spare engine purchases and that covers OEMs capacity in terms of parts and in terms of shops and engineering to support that recovery program. And this is aligned at the highest level at the company, not even at Pratt & Whitney level, but at Raytheon level over there. So a lot of ongoing issues happening, but I think all for the better. So next slide, please. I think Ian has started alluding to this that if you look at fiscal '26, it is almost like 2 halves for 1 year. So a somewhat shining first half and somewhat challenging second half. So in terms of capacity, we are looking at mid-single-digit seat capacity growth, somewhat less on ASK. You recall that we eliminated quite a number of long routes operated too hot and harsh. So that's why the ASK numbers are somewhat different from the seat numbers. So mid-single-digit capacity growth. This is in line with our ongoing growth ambitions of the company. Really, the option we had available to us here was we are growing 30% with efficiency in terms of unit cost. Or we are going 15% with efficiency for revenue, but with some compromise on unit cost. These were the 2 choices to make. And we opted for the second one because we think that we should be allotting capacity against demand in the marketplace as opposed to allotting capacity and trying to find demand for that capacity. But that will bear some kind of a challenge in terms of short-term cost to the unit cost to the business. Load factors, I think we are trending well on load factors. The performance is strengthening. We are expecting some upsides on load factors coming through. So with regard to RASK, again, I mean, we are too early into the winter to really make a firm position here, but we are expecting some pressure. I mean, 15% is still significant growth in the business. It's a lot ahead of the growth of other airlines. And this is the off-peak period, the kind of the weaker half of the financial year from a demand perspective. So we might be expecting some pressure on RASK capacity, although we are also seeing some good positive signs on that. So we shall see, but this is our kind of early indication. So how would that translate into CASK performance of the business? Obviously, fuel will continue to do well, given the current fuel price in the marketplace and given the transition to neo technology and the benefit of fuel burn coming through the GTF engines. Ex-fuel cost, will be temporary on the rise as a result of this kind of capacity inefficiency we carry in this period. But over time, this is going to be sucked up. If you look at fiscal '27 when we are taking down the new aircraft deliveries and contemplating some recoveries of GTF engines in that period, this kind of inefficiency is going to be sucked up. So all in, so it is a challenging first half -- sorry, second half, what we are into, although some of the good things, good decisions we carry through this period. And certainly, you're going to be seeing more benefits materializing in the next financial year. I think with that, I would turn it over to questions, please. Jaime Rowbotham: Jaime Rowbotham from Deutsche Bank. Two for me to kick off. Maybe first one for Jozsef. On-time performance was, I think, 60%-ish, up from 50%. So a good improvement, clearly helping your disruption costs, but that's still very low versus, I think, your pre-COVID standards and industry standards. So why is that? And where do you think you can get that to 1 year out, please? And then secondly, maybe for Ian, the situation you find yourself in, as you described on the cash flow bridge, saw the net CapEx positive EUR 190 million in H1. Now you've got the Airbus deal done. Is there more clarity you can give us on what the full-year equivalent of that number might look like? Or is it still very contingent on engine sale and leasebacks, et cetera? József Váradi: All right, maybe I'll start with on-time performance. So yes, it is a significant improvement. I think the difference is that we are just up against a very different supply chain context. ATC remains to be a challenge. It was less so this summer than in previous years. So we have to admit the progress what they have made, but that doesn't mean that they are virgin. So there are still lots of issues coming through ATC. Our performance relative to industry completion, we are the best airline in Europe. On-time performance, we are right in the middle of the pack. So is this good? Yes, relative to the industry's performance, I think it is good. Relative to our expectations and historical performance, we want to see improvement coming through. But I think we need to see more improvements coming through the supply chain as well. Now the issue what you have, and you probably appreciate this. So you are in the summer period when demand is almost unconstrained. The more compromises you make on your operating model, what compromises do you make? I mean you may compromise on sparing more capacity. So that will take down utilization. I mean you are running the airline at low utilization rate in the middle of the peak demand period. This is going to be defeating your financial performance. So you have to kind of strike the balance here and find that kind of a sweet spot that benefits your operating program against the revenue and demand upside of the business without really screwing it up completely operationally. And I think previous years in previous summers, we might have booked it overly for trying to get more commercial upsides from the business and on the mining operational resilience. So I think we put more efforts into the balance now that we're going to have commercial upside, but at the same time, we want to protect operational resilience as well. I mean that's how well we could have done, but we need to see some improvements in the supply chain, to be honest, to have significant upside here. But we are not underperforming versus the industry. Ian Malin: Thanks, Jamie. With regards to cash flow, so the Airbus news is new, right? We announced it this week. And we are in the process of trying to identify when the right time is to do a Capital Markets Day to walk you through the longer-term strategic direction on all these exciting topics, particularly with regards to aircraft financing, engine financing and things like that. As I mentioned earlier, we should be 35 A321neos in higher count this second half versus last second half. And then there's also going to be an element of engine sale leasebacks that happen in there. These are the contractual obligations that we have. So we're not doing anything above and beyond at this point other than upholding our contractual obligations. And so other than the 3 aircraft that were sold, I believe there's only 1 aircraft that was deferred out of fiscal year '26. So the Airbus impact is very limited to fiscal year '26 and in fact, fiscal year '27 because there's not much you can do. So that's why we're having to manage the capacity through, as Joe said, utilization and things like that, which come with its drawbacks, which we're very utilization focused. So we need to balance the revenue dilution with regards to the capacity, management. But in terms of the cash flow for the full year, so you will see cash flow benefits coming from the delivery of those aircraft. You will see cash flow benefits coming from the delivery of those engines because we still do a form of sale leaseback, whether it's an operating lease, where you get the upfront gains that go into the sale leaseback line or whether you do a JOLCO or a finance lease where you also do a sale leaseback where you don't get the same P&L impact. You get the cash benefit but a different P&L impact. Roughly 20% of our deliveries right now are being financed through a form of ownership like JOLCO or finance lease. That's effectively an ownership structure, even though there is a lease structure behind it. We plan on taking the next step, as we mentioned before, into looking at an acquisition-based -- more sort of conventional acquisition-based approach. We're running the numbers now based on the order book to optimize where we think the earnings profile we'll get to over the next -- over the rest of the decade, and that will then calculate how many incremental aircraft we need to buy, and then we'll look at the financing sources, whether it's a lease like a JOLCO or whether it's some sort of acquisition either with cash or some sort of other kinds of financing. That's part of the Capital Markets Day exercise. But what that will do and what these acquisitions do is take away sale leaseback gains, which are very chunky upfront and it will spread it out in line with the depreciation and interest costs you take over the life of the asset. And there's trade-offs to that. But ultimately, we've determined that over the long term, it is beneficial from a shareholder perspective, but it comes with a near-term impact, and that's what we're trying to balance is that we continue to do a bit of both to smooth out the earnings profile of the business ultimately towards something that's beneficial and giving a better shareholder return. Alexander Irving: Alex Irving from Bernstein. Two from me, please. First of all, on your revised CASK ex-guidance for the year. So full year results, you said up slightly. Now we're saying up mid-single digit. Can you help me understand how much of that is the mechanical impact of taking your expected capacity growth from 20% to 10%? And how much of that is, say, an underlying variance versus your prior expectations and planning? Second, you've launched a euro-based product recently. Is this sort of a no regret move that if it doesn't work, we can just sell the middle seat anyway? Or is there a real revenue opportunity that you're expecting to get from this? And if so, could you quantify that, please? Ian Malin: Sure. You want me to take the first one on the CASK? József Váradi: Yes, please. Ian Malin: So the answer is, as I said before, there's no surprises this year in terms of the CASK number. So it's really more a matter of the capacity impact, where we're basically growing half of what we expected. We had sized the business and budgeted the business for a bigger business and the business that involved Abu Dhabi and things like that, we've now changed it dramatically. But still trying to manage through these costs. And so there's nothing that's caused any sort of variation on that. We do need to maintain cost discipline, and that's our focus. But it goes -- as I mentioned earlier, there's distortions and all sorts of other things that are putting pressure on that. So there's no surprises on that front. József Váradi: So I think the middle seat is surely a revenue opportunity. I mean, at the moment, effectively, we don't get the middle seat occupied. So if you look at the numbers, it's almost like no one is paying for that. Now, we want people to pay for that. Harry Gowers: It's Harry Gowers from JPMorgan. First question, maybe just how to think about growth into next year in March 2027. I think you said or mentioned that obviously, the deferral of deliveries is quite back-end loaded. So how much you're expecting to grow next year? And anything you can say directionally on costs yet for March '27? Second question, with the Abu Dhabi exit, Vienna base closure as well, is this the end of quite major airport or market movements? Or do you have any more exits or big exits in the pipeline? And then last one, just on the medium-term growth. I mean, when you were negotiating down on the deliveries, how did you settle on like the 10% to 12% is the right number? So just kind of what's the thinking mathematically or strategically behind that? Why not 7% to 8%, for example? József Váradi: All right. So maybe I'll start with the last one, the 10% to 12%. So we always saw this business is structurally designed to deliver 15% growth at 15% margin. You remember that was sort of the model what we promoted. Now given all the issues and hiccups, we broke down on the delivery of the model, and we try to reinstate that model. But we're seeing that short term -- short-, medium-term, we need to ease the delivery of that model. So that's why we're seeing that addressing around 10% growth rate versus 15% is taking some of the risks out of the equation when it comes to capacity. Why not 7% or 8%? Because if you look at our focus markets, especially Central and Eastern Europe, Central Eastern Europe will demand more than that. So we have been modeling this. We have been looking at GDP growth expectations in the region and how that would translate over to airline demand and how we can translate it into our own capacity versus the competitive games we are into and our ambition to lead the market in -- continues to lead the market in Central East Europe. And we think that this is kind of the sweet spot. So the 10% to 12% is a bit of a sweet spot analysis from the perspective of demand in our core markets versus the deliverability of the program from an operational standpoint, how much financial distress we are putting on the system to ramp operations up against that target. With regard to Abu Dhabi, Vienna and others, I think the way I would see this is that while Abu Dhabi is a very structural decision, Vienna is less so. I think Vienna is seen as pretty much business as usual. Maybe the magnitude is reaching a bit higher than usually. But what happened in Austria, I mean, the Austrian government decided to put excessive taxes on the aviation system, effectively making Vienna prohibitive from a cost perspective for us certainly. But we are not the only guy acting. So clearly, this is not a Wizz Air issue. This is a bigger industry issue. But I would say that this is fairly exceptional in terms of magnitude. Now with regard to Vienna, I think what is easing the situation is the availability of Bratislava, which is pretty much next door. So this is kind of fairly easy. But churning the network for profit, I mean, that you should be expecting us to do on an ongoing basis. And of course, same thing goes for airport cost. So if an airport becomes excessively expensive, then we would be churning that capacity for lower cost execution. So I would say that these are ongoing priorities. But if you ask the question whether we have made the big decisions, I would say, yes, the rest would be pretty much refinement and business as usual. Do you want to take the growth? Ian Malin: Sure. So just on the growth side, right, like what we've done with the Airbus deal and what these other deals that we're looking at is give ourselves optionality at the end of the day. So we -- we're going to bring things down in the medium term, the 10% to 12%, but it doesn't mean that we're limited at 12%. We're still a growth stock. We're still a growth company. We're not afraid of growth. And we have 58 aircraft or so redelivering between fiscal year '27 and fiscal year '29. Most of those aircraft have extension options in them. And so if we see that there's more demand, we can exercise those extension options and capture that demand. So I want to make sure that we're not somehow thinking that we're constrained. We have optionality. That's what we've effectively negotiated for ourselves versus before we were committed to delivering -- deploying that growth. But in terms of fiscal year ' 27, I think it's still going to be a very challenging ASK and seat growth environment, closer to 20% still as we -- at least in the near term. And that's something that we're going to have to manage through in terms of the deployment of all that. It's -- it will probably end up having an impact on utilization. It will also force us to be more measured. But I think with the changes that we're doing around the network and the market share that we want to develop, it is, again, an investment. But I don't think it will have as adverse of an impact on costs as you might be thinking in terms of where you're going with this question. So looking at the cost side in fiscal year '27, we're not guiding. It's far too early to say. But I would say that the worst is behind us because we're still -- that growth will help us at the end of the day in terms of the costs. We think that the changes that we're making to the airport side, in particular, right, hard real changes will bring down the cost side of that. So I think that -- so looking at our cost structure, you'll see depreciation probably be the biggest benefit because we start to flush out some of these ceos if we don't extend them. And you're going to start to see -- you'll see maintenance still be one of the ones that see the most pressure because of the heightened activity associated with redelivering and the aging of the fleet. Everything else, I would not expect there to be any challenge in terms of bringing costs -- keeping costs flat or down, okay? So I think that overall, the cost creep is where we are now and you start to see improvement after that in fiscal year '27. József Váradi: I would just add one more perspective. I mean, none of our plans at the moment contemplate Ukraine. So Ukraine is kind of an outside chance for the business. If things turn in Ukraine, all of a sudden, discussion will be a change fairly fundamentally from our perspective. Because we would be looking at ourselves as a genuine kind of first mover to the Ukrainian market, and we would definitely go to market as a hometown airline for Ukraine. Don't forget that we were the largest non-Ukrainian airline in Ukraine prior to the Board with operating basis. So we would be looking at reinstating that presence. I mean, obviously, that would be through a transitionary period. But in terms of ambition, we would certainly go to Ukraine for market leadership. James Hollins: It's James Hollins from BNP Paribas. A couple of strategic ones, Jozsef. Maybe just run us through a bit more on the Western European strategy. Are we back to where we were when you listed 10 years ago? It's all about CEE? Obviously, Vienna was very specific on taxes. Or if it's easier, maybe sort of quantify how you're apportioning the 10% to 12% growth, how much is CEE, how much is Western Europe? Which leads us on to Abu Dhabi, which obviously you've closed as a base. Are you still going to fly quite a bit into Abu Dhabi? Was the demand actually there that you still see it as not a base, but somewhere you still want, so you still see enough demand? And then, Ian, I hate to be that person in the room, but maybe just help us on the other costs for the full year on sale and leasebacks and compensation, which we should be thinking about to get us or get you to around where consensus currently is? József Váradi: Okay. So with regard to CEE versus Western Europe, I mean, if I look at the picture today, what changed over 10 years is that we added Italy and London to our Central and Eastern European footprint. So it was more before. So we had Vienna, we had Abu Dhabi. You all understand the changes with that regard. But we are very upbeat on both London and Italy. As a matter of fact, looking into market shares next year, early next year, we're going to be the second airline in Italy. And that's quite an achievement given that we are a bit of a latecomer to the market. Nevertheless, if I take those 2 segments, we are still talking about like 70%-75% of the business being in Central and Eastern Europe, 25%-30% being in Western Europe. So with regard to focus, there is no change on focus. So focus will remain on Central and Eastern Europe. And you see that all these new base openings, adding aircraft on an ongoing basis to our key Central and Eastern European markets will just continue to fuel that strategy. And I don't think that you should be expecting much of a change with that regard. You may guide that we burned our fingers in Abu Dhabi, you're not going to do it again. Now with regard to flying to Abu Dhabi or the UAE, I think we maintain a few operations there. So where we think it makes commercial sense from a perspective of profitability, we continue to operate to Abu Dhabi. We continue to operate Dubai. We continue to operate Jeddah. That's a U.K. operation. We operate Marina in Saudi. So where it makes commercial sense, where we can make real money, we would continue to operate. But we are not planning on setting up basis or AOCs or anything like that. So I think we will remain somewhat opportunistic with that regard. Ian Malin: So in terms of H2 others performance, I would expect -- you could expect that to increase. So if we were at EUR 0.27 in unit cost benefit in this fiscal half, I would expect that to probably go up like 40%. So there's quite a lot of deliveries happening in that period. And until we inform you otherwise in terms of our financing strategy, our approach is to take advantage of the sale-leaseback market, we think that that's a very efficient way to translate the benefit of our purchase contract into shareholder return. And so there's no change there. That's simply part of how we approach this. Ruairi Cullinane: It's Ruairi Cullinane from RBC. Firstly, could you quantify the Abu Dhabi exit costs in the financial year? And secondly, it sounds like H2 RASK is perhaps resilient given the share of immature capacity and the capacity growth. Would you be able to talk about that at all, how that's performing across different markets or on new routes versus existing routes? Ian Malin: So I'll take the first one. On the exit costs, like I said, we don't expect there to be net a detriment in terms of exiting Abu Dhabi, both in terms of a P&L perspective, but also from a cash perspective due to the arrangements that we've concluded with the joint venture partner down there. But I can't specify exactly what those costs are or we're not in a position to. József Váradi: With regard to H2, RASK, I mean, we have been making a lot of new market investments in Central and Eastern Europe. I mean it still takes time to mature. It's a quicker and faster maturity curve than in Western Europe, let's say, but it still has to mature. So I think the RASK challenge in the current half of the financial year is mainly down to the maturity of new routes. But at the same time, you're going to take the benefit of that in next financial year. Andrew Lobbenberg: It's Andrew from Barclays. Can I ask around the fleet? Well done on getting down to 11 XLRs. That's a start. What do you do with [indiscernible] Europe, they're only with U.K., but I think you own with U.K., don't you? Then can I ask a question, I know you're not going to answer, but I'll ask anyway. What's going to be the financial impact of deferring the aircraft? What should we be thinking about the relation pricing? So how will that impact how we should be modeling the CapEx going forward? And then if I can be greedy and ask a third one, staying on fleet. You seem in a hurry to get rid of the ceos. But whilst you gave us a lot to the neos, the current fuel price, the maintenance burden against the fuel price makes ceos better aircraft than neos at this fuel price. And when you get rid of the ceo, you take a big penalty on the lease return costs. So why did you not go for more aggressive deferrals of new deliveries and keep hold of the ceos for longer? Ian Malin: I will point out, Joe, that Andrew did ask me the second question this morning directly, which I refused to answer. So just to... József Váradi: Okay. So you put the burden on me. All right. Okay. So let's go through this because I think these are all very important questions. I mean you probably -- I take the second question, which is going to be unanswered probably, but I just want to give perspective to that. You probably appreciate that when negotiations drag for 6 to 9 months, there is essentially one reason for that, and this is commercial. And what does commercial mean for aircraft procurement? This is pricing escalation, nothing more really. I mean that's the essence of the whole thing. So given that drag, that long-term settlement on that, you should be expecting that it is very favorable to Wizz Air. I cannot tell you more than that, but it is very favorable to Wizz Air. So I'm not sure I would be too much into CapEx with B2B that regard, just kind of take the linear line on what you are seeing at this point in time. So that's a good deal. So with regard to the XLRs, yes, I see the 11 is not going to be the final number, 11 is what we are taking deliveries of. But for a portion of that, we would be looking at market solutions. So we are not going to put 11 aircraft into Wizz Air U.K. It's going to be less than that. And we will see how we can kind of reconcile the gap with the market with that regard. But please don't ask more questions on this because I'm not going to be able to answer at this stage of the game because there are things happening in the background, but not yet at final closure. So there is still some kind of flexibility when it comes to the XLR matters. So ceo versus neo, that's a good question, Andrew. And I think the way to think about this, so that this is the way I think about this is that there is a distinct difference between the A320ceo and the A321ceo. So if you take the A321ceo versus the A321neo, given the current fuel price, you can argue that it's a wash. When you look at the economics of the 2 aircraft, it's pretty much a wash. So you have the fuel burn benefit on the neo, but that's offset by the higher capital cost and higher maintenance cost on the ceo. But this is something which can change. I mean, if fuel price comes down significantly, then the ceo start prevailing as an economic concept. If it goes back up again, then the neo becomes a better aircraft. But this is given the current maturity of the technology. The moment we get to advantage, we think the equation flips structurally. So there is no more debate on fuel price and who is better, which aircraft is better, ceo or neo, neo at that point will prevail. At the moment, you can argue that actually there is a way to compare the 2. And as we speak today, I would say that the economics of the 2 aircraft are pretty much the same. Now the A320ceo is a different animal. The A320ceo is 180 seats versus the 239 seats. So no way that we could come to the economics of the A321neo operation with an A320ceo. So if you take the redeliveries of aircraft, I think the right strategy for us is to preserve A321ceos as much as it makes sense, but still continue to get rid of the A320ceo. So we have no appetite for extending A320ceos. I think we will continue to evaluate the A321ceo versus the A321neo. So I don't know if that kind of gives you the answer, but I would definitely make a distinct difference within the ceo line between the A321 and the A320. Gerald Khoo: Gerald Khoo from Panmure Liberum. Can you talk a bit about how trading is going in the U.K.? Obviously, in base terms, you're losing at Gatwick. I think over the past 6-12 months, there have been some slots that have become available at those relatively slot-constrained airports. And I don't know whether it was an active decision on your part to not go for those slot opportunities or whether you lost out to new entrants. But what's your thoughts in terms of taking opportunities to put more aircraft into the London market, for example? József Váradi: Yes. Good question. And I think we have an increasingly nuanced view on how best to allocate capacity in London. So first of all, we remain very upbeat of the London market. We are very supportive of the growth and development of Wizz Air U.K. And Wizz Air U.K. is an ever-improving platform. So I mean we are seeing some very impressive financial improvements coming through the operation of the airline. So we remain highly committed and very supportive to the London market. Having said all of that, I think we have to look at differences between Luton and Gatwick. So the issues we are facing at Luton at the moment is capacity constrained structurally by passenger numbers. I mean that's a policy decision of the shareholders. And secondly, they have some short-term runway improvements that affect the short-term capacity we can put through the system in Luton. But I would say that in Luton, we are very interested in pretty much sucking up everything that becomes available. Gatwick, I think we have been overly focused on slots, as opposed to performance in the past. And we ended up operating also a slot portfolio that didn't make much sense from a commercial perspective. The slot portfolio became a burden as opposed to an opportunity on the business. Now certain parts of the slot portfolio are very favorable, not only operationally but also commercially. And we remain very committed to operate that portfolio. That's why we are rationalizing capacity allocation between the 2 airports. We focus on proper slots that translate into proper commercial opportunities at Gatwick, and we are pretty much sucking up everything at Luton, which becomes available. Conroy Gaynor: It's Conroy Gaynor from Bloomberg Intelligence. So I just want to touch on labor costs. Ian, you sort of alluded to the fact that maybe we shouldn't expect more cost creep in some of those type of items. And so the way I'm reading that is basically as you increase your capacity, you start to -- GTF issue starts to soften, there's some sort of productivity gain to be had that will offset things like wage inflation. Now -- but how do you -- given that there are so many moving parts, you're coming out of Abu Dhabi, putting capacity in different places, you're still going to have high capacity growth. How do you actually manage that transition and dynamic? József Váradi: Yes. So I think when it comes to labor cost, I would think of 2 fundamental issues. I would think of nominal inflationary pressure on pay. And I would think of productivity, how much productivity we are able to get out of the labor force what we have. Now if you look at the current situation, we are compromised on productivity. We are compromised because of the volatilities, the operational volatilities we are managing against the backdrop of the GTF groundings. I mean, simply, you cannot refine your model as such as we used to in the past that you really mathematically kind of figured out how to deliver the highest level of productivity against plannable foreseeable external factors. You are broken on that because we don't know how many engines we will have operationally available. So you have to have a slack. You have to have a slack with that regard. And also because you are losing engines and aircraft today, but you will recover tomorrow, you want to make sure that you actually have a crew, you have the pilot, also you have the cabin crew to operate that engine. So as a result of that, basically, our productivity has been somewhat dented versus where you would want to be ideally. Now with more predictability and more recovery of the GTF issues, the better we can plan on productivity and the more we can improve on productivity. So I think when it comes to labor cost, the improvements will come through productivity, not nominal inflationary resistance. Whatever the inflationary pressure is, whatever the market does, we have to do it. I mean we don't have a choice. I mean we pay according to market. If the market goes 3%, we go 3%. If the market goes 0%, we go 0%, if it's 10%, it's 10%. So we don't have much choice on that. But I think we have an opportunity to do better on productivity once we are putting more credibility and more predictability across the system when it comes to input issues like GTF and those sort of things. Operator: [Operator Instructions] The first question is from Jarrod Castle at UBS. Jarrod Castle: Three from me. Just want to get an idea, Jozsef, Ian, how you see capacity growth in the markets you're growing in over the next 2 to 3 years, if you exclude your capacity growth. So I guess, how do you see competition? Secondly, I don't think you answered it outright, but you've obviously sold 3 planes outright. It sounds like you might try sell some further 321 XLRs. But how many potentially could we see in terms of deliveries being recycled in outright sales? And then just lastly, on your net debt to EBITDA, nice to see the ratio falling. When do you think we could get back to 2x if you -- when you look at your kind of growth profile and budgeting? József Váradi: So with regard to the overall market growth and growth of competition, I think in Central and Eastern Europe, the fundamental question is not -- and I know that people like entertaining this tension in the market that to what extent do you think Wizz Air can grow in light of what the other guys are doing, et cetera. But that's not the question. The question is that you can assume reasonably that both of these carriers will continue to grow. But the question is what happens to the rest of the market. And you see very clear trends. So if you look at our market positions, as I said, now we are moving from 25% to 29% market share. The other guys are at 20%-21%. So basically, every second passenger flying in and out of Central and Eastern Europe is taking either us or the other guys, us more. And that number used to be like 30% a few years back. And I can tell you this number is going to be probably 60%, 70% in a few years down the line. So these 2 airlines will continue to take market shares in Central and Eastern Europe. And you're going to be seeing a lot of the incumbent national carriers or small-scale private carriers diminish in the marketplace. I think this is what you should be expecting. Will the overall market grow in Central and Eastern Europe? Definitely. I mean Central and Eastern Europe is a lot better place with that regard than Western Europe in terms of GDP development and standard of living is rising relatively higher in Central and Eastern Europe [indiscernible] economic convergence and standard conversions are taking place. And that will produce more discretionary spendings in those markets. So we think that is going to be increasing market demand, and that is going to be diminishing kind of small-scale competition in the marketplace. And I don't really care how much the other guy is growing because I think this is just going to affect more the rest of the marketplace. And to be honest that phenomenon has been the case over the last 10, 15 years. So there is nothing new here. You can go back to the history of Central and Eastern Europe. You can look at market share evolution. I mean this trend is not new. It's been happening and it's continued to unfold. So with regard to fleet, to what extent we would be pushing for more outright sales. I think I would consider this as a short-term phenomenon, not as a structural matter. So we don't have plans to sell the aircraft. I mean these aircraft are extremely well-priced aircraft, source of competitive advantage versus other airlines. We need to put that aircraft into work, and we need to make money on the aircraft by operating the aircraft, not by selling the aircraft. But as said, short term, we are under capacity pressure. So this is only a short-term phenomenon. And yes, I mean, you spotted that the XLR might be a candidate or some of the XLRs might be a candidate. And indeed, when we have news to spread, we will do that. But please don't look at outright aircraft dispossession as a strategy on a structural basis. This is only short term. Ian Malin: Yes. If I could just add to that. I mean, don't forget the inherent value of that order book and what it does for Wizz in terms of the company. That is something that we want to capture. We will capture. And we have different ways to translate that. And so that's not something that we want to impact. So that's still something that I think that the market doesn't quite properly give us credit for. In terms of your question, Jarrod, in terms of net debt, I'm not going to tell you when we're going to hit 2x. All I can tell you is that that's something that I'm extremely focused on. I think it's extremely good discipline in the business. We want to build a business that we want to work for, other people want to work for, you want to invest in. And to do so, we know that we need to bring the balance sheet into a certain condition. We see a path to get there. The #1 way to do so is to generate operating profits -- that will generate EBITDA. That will then help us offset the -- bring down the ratio, and that's our focus. So it's a target. It will be something that we talk about at the Capital Markets Day. It ties into our fleet plan. But ultimately, profitability is what will drive that ratio, and that's what we're focused on. Operator: The next question is from Stephen Furlong at Davy. Stephen Furlong: I was wondering, Jozsef, what's the North Star here? Would you think that FY '28 is the more normalized year? Or is it FY '29? And what would you see as the execution risks? I mean, is it the suppliers? Would you describe your relationship with your suppliers, meaning Airbus and particularly Pratt & Whitney, are they good now? I mean, obviously, the challenge of Pratt & Whitney has just been huge for the company. József Váradi: Look, I mean, it's a good question. I still think that the single biggest risk is around the supply chain, probably more around the OEM side than the immediate airline execution. I think they are improving. But at the same time, I mean, you kind of look at the bigger picture, you see that it is not only Pratt & Whitney customers that are out there with grounded aircraft, but CFM customers are also grounding aircraft. So this is not like one guy is broken and everyone else is doing great. Everyone is broken, if you want to put it that way. You can debate the magnitude of that, how bad is this guy versus the other one, but there are structural issues. I think there are structural issues with probably too quickly shortcutting technological developments. It was too much of a regulatory ease. So I'm pretty sure that the regulator will kind of toughen up with that regard. You can argue that the industrialization production have not been properly executed, and that will continue to pose risks to the operators, et cetera. So I don't think that this is going to turn any time quickly. I don't know how long this is going to take, but I personally -- what I would expect is that with the introduction of the advantage and kind of the rollout of that at industrial scale, probably we are still seeing a somewhat risky supply chain environment over the course of the next 2 to 3 years. And you recall when we started grounding at that time, everyone believed that all this powder metal issue is going to hit the industry for up to 18 months. Now this is more like a 5-year cycle. And now this is all compounded with kind of the childhood diseases coming through with premature technology. So this is going to take time. I think what it really means in the industry is that innovation will slow down. The investment cycle for OEMs will lengthen as a result of all these hiccups. I mean just look at how much money Pratt & Whitney has to spend on this recovery. I mean this is going to put burden on the recovery of the investment. So it will just extend that investment cycle. So I would say that long term, I'm confident that the supply chain is going to fix itself. OEMs will fix themselves. But short term, even I would say, maybe medium term, there are some risks associated with the operation of the OEMs. Operator: The next question is from Alex Paterson at Peel Hunt. Alexander Paterson: Two questions from me, please. Firstly, the GTF engine, what's your confidence that maintenance costs will be, what you think they will be? Have we actually had enough flying hours to establish, how these behave after the inspections? Is there a risk that actually it turns out to be a bit worse? And then just in terms of your RASK guidance for the second half, again, what's your degree of confidence that you can deploy the 35 deliveries, obviously, net of anything going back? And not -- because you're concentrating the deployments into Central Eastern Europe, Italy and London, is there a risk that actually you diluted a bit worse, a bit more than you're suggesting? József Váradi: Look, I mean, I will start with the second one first. All these aircraft have been deployed. So they are up for sale. Some of them have started operating. Some of them will start operating during the period. I think we, of course, still have uncertainty around how exactly revenue is going to play out. But I think we are fairly confident in what we are saying. So we are not optimistic in terms of the numbers or the perspective that we are presenting to you. Is there a potential upside to that? Maybe. But we're going to be on the kind of conservative realistic side of the equation. So I don't think you should be expecting a huge variability to our assumptions at this point in time. Ian Malin: If I could just also add to that, Alex. The number is not 35 deliveries in H2. That 35 is the year-on-year increase in number of neos at the end of Q4 this year versus Q4 last year. So just to make sure that it's that we're using the right data points. József Váradi: So with regard to the GTF, so the beauty, if there is such, in our case with regard to Pratt & Whitney is that we have a flight hour agreement. So effectively, we put the burden on Pratt & Whitney. Now of course, if there is no engine, there is no engine. So then you have to share the burden. But in terms of maintenance cost, the burden is on Pratt & Whitney. And that's a major difference between how CFM goes to market versus Pratt & Whitney goes to market. CFM doesn't stand behind the product. So basically, they say, look, we are 75% of the short-haul engine market, we have a very, very established market for purposes of engine maintenance, use the market for our own benefit. Pratt & Whitney is underwriting the performance of the engine. So effectively, we have outsourced the risks, the economic risk on engine maintenance. Now that sounds simple, and this is not as simple as that. But in essence, that's what it is. So if the maintenance costs on the engines turn to be higher than expected or assumed, the burden is going to be on Pratt & Whitney, not on us. But of course, we still need to have the engine available to us to operate and fly. Operator: And the final question is from Gabor Bukta at Concorde. Gabor Bukta: You may have heard that there are some rumors on the market that Lot may buy Smartwings, which has a significant exposure in the Czech Republic. And you may always see LOT as an efficient company like TAROM in Romania. And if such an acquisition were to happen, would you see any chance to increase your exposure in the Czech Republic? Or how would you look at this kind of transaction? József Váradi: I think it's a bad idea, but that's not my goal. Look, I mean, in my mind, LOT is an airline losing on the home ground and Smartwings have ever been losing in their homeland. So when you put those 2 together, I mean, what do you expect? I think the competitive environment in Poland is pretty tough for a national carrier. Maybe it's a little more benign in the Czech Republic that can change, especially given these dynamics. But look, I mean, this is really not our business. But I think strategically, probably both airlines will get weaker as a result of this because you are putting weaknesses together, not strengths together. All right. I think we are done. Well, ladies and gentlemen, thanks for coming. Thank you for your questions. I appreciate your interest. Thank you. Have a good day. Ian Malin: Thank you.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Third Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead. Sumit Kundu: Thank you, operator, and good morning. Welcome to Ballard's Third Quarter Financial and Operating Results Conference Call. Joining me today is Marty Neese, Ballard's President and Chief Executive Officer; and Kate Igbalode, our Senior Vice President and Chief Financial Officer. Before we begin, please note that we will be making forward-looking statements that are based on management's current expectations, beliefs and assumptions concerning future events. Actual results could be materially different. Please refer to our most recent annual information form and other public filings for our complete disclaimer and related information. I'll now turn the call over to Marty. Marty Neese: Thank you, Sumit, and welcome, everyone, to our third quarter earnings call. Today, alongside our quarterly financial and operational highlights and updates on our market verticals, I'll share progress on our recent restructuring and strategic alignment, discuss our path toward becoming cash flow positive and provide updates on key developments across our global organization. I'll begin with an overview of our business and markets. Overall, I'm pleased with our performance in the quarter. We continue to progress on pace with order delivery resulting in a 120% year-over-year revenue increase, largely from our deliveries to the bus and rail segments, representing more than 70% of this quarter's revenue. Net order intake was approximately $19 million, and we achieved a positive gross margin of 15%, reflecting meaningful progress in reducing product costs and a net reduction in onerous contract provisions. While this margin result may not represent a new ratable baseline, it demonstrates the progress of our product cost improvements and overall profitability trajectory. Our revenue makeup highlights the importance of the bus market, a market we expect to continue growing in the coming years. I recently had the opportunity to attend Busworld and meet with bus OEMs and transit operators. What was truly eye-opening was the interest in electrification for buses has grown substantially with combustion engines largely absent from the show and an almost exclusive focus being on electric alternatives, including fuel cells. This is not surprising when considering that nearly 60% of new bus sales are now zero emission. In this electrified space, the advantages of fuel cells to serve a wide variety of routes, short refueling times and the increasing infrastructure costs in face of grid constraints is becoming ever clearer. As the market attractiveness and technical and competitive merits of fuel cell buses grow, so too is the competition in the fuel cell bus engine space. With new entrants coming in, it is more important than ever for us to continue to differentiate ourselves as the fuel cell industry leader. Here, we believe that our decades of innovation and hundreds of millions of delivered kilometers positions us well. Having the most experienced and most durable, reliable products with the lowest demonstrated total cost of ownership sets us apart. We are also ready for the next generation of buses. At Busworld, we launched the FCmove-SC, and initial feedback from OEMs has been very positive. Customers recognize the potential benefits of higher power density, simpler and more integrated functionality, a smaller, lighter footprint and higher operating temperatures. These are all features that lower their total cost of ownership. Further, we continue to improve our core stack lifetime and industry-leading durability. Taken together, our customers are excited with these innovations. In terms of timing, product availability is expected to line up well with OEM timing for homologation into their next generation of vehicles. Additionally, we are enhancing our product cost leadership and long product life with a more comprehensive focus on delivering best-in-class service. We are complementing our products with additional services, including digital operations and maintenance services, extended warranties, spares management and on-site and virtual technician training and support. Our strong balance sheet and commitment to long-term service and support sets us apart, and our customers are eager to engage with us further to enhance these offerings. Moving briefly to our rail and marine segments. We continue to see momentum for freight and passenger rail locomotives. Recently in a milestone for sustainable transportation, Stadler's FLIRT H2 hydrogen-powered train officially entered service in San Bernardino, California, another important step towards carbon-free public transit. The train sets a new benchmark for clean, efficient and passenger-friendly rail travel in the region that we are proud to be powering. In the marine segment, during the quarter, we recorded our largest order ever to the marine market with our order totaling 6.4 megawatts to eCAP and Samskip. These are both interesting markets for Ballard, though I would add that both these markets remain at early stage of development and customer adoption. For the stationary power market, let me address the topic that is particularly hot at this time, AI data centers. It is clear that the rapid growth and the need for data centers and related infrastructure is creating challenges for local grids, and there is a shift to evaluate potential sources of off-grid power as well as address CO2 emissions rules and noise requirements in many jurisdictions. This applies for both backup and primary power sources. Ballard's stationary solutions to date have demonstrated that we can supply kilowatts to megawatts of power. Our near-term product offering for this market is focused on backup power solutions to replace diesel generators. Unit volumes in our forecast continue to increase as does our product evolution from hundreds of kilowatts to multi megawatts. We are leveraging these factors to innovate further with our stationary power and data center customers. Our FCmove-XD product enables us to increase power densities today to 500 kilowatts and up to 2 to 3 megawatts in a small form factor module in the near future. This leading power density in a compact footprint opens the door to potential additional use cases. Hydrogen supply partnerships are essential, and we are actively working on collaboration opportunities in this area. This is an exciting area of product innovation. We will continue to provide updates as customer engagements develop further. Turning to our strategic realignment. We are making meaningful progress as we work toward cash flow positivity. On the cost side, our recent restructuring actions are delivering tangible benefits with significant reductions in cash operating costs and total operating expenses, excluding restructuring charges. On margin and revenue, we remain focused on driving down product costs and expanding our order book and total order back -- excuse me, backlog. Building out our order pipeline is taking additional time as we work with current customers to secure more sustainable contract terms, and some orders have shifted to Q4 2025 or Q1 2026. We believe this extra time is well invested to ensure long-term sustainability and appropriately balanced commercial agreements. Looking ahead to 2026 and '27, we anticipate further improvement in gross margins, supported by ongoing pricing and growth initiatives, additional product cost reductions and the initial sales of our FCmove-SC product. In addition, we expect further growth as we reenter the material handling market. We are seeing interest in our extended durability stack offering, which more than doubles current material handling stack lifetimes available in the market today. Customers see this product as an excellent way to increase their delivered value and lower their overall costs, especially related to stack service and maintenance. As mentioned, as we further refine our product offering for the stationary power market, we expect growth in this market as well. For both material handling and stationary power, we will provide more details on pipeline and order book conversion efforts as these potential opportunities mature. Taken together, these efforts are critical in moving us towards our goal of cash flow positivity. While there is still work to be done to achieve long-term sustainability, we are taking the right steps to grow our business in areas that make strategic sense, all while maintaining a strong balance sheet for our long-term resilience and in support of our customers. Moving to 2 other items of note for Ballard's global operations. First, due to changes in funding options and updated capacity outlook, we have decided not to pursue the Texas gigafactory development. Our analysis shows our existing global manufacturing capacity with minor adjustments will meet forecasted volumes. This decision underscores our commitment to capital discipline and focus on efficient execution. And second, as part of our strategic focus, we are further reducing our involvement in the Weichai Ballard joint venture in China, allowing us to concentrate resources on North America and Europe. Before I pass the call to Kate to review our financials, I would summarize this quarter as showing progress on our turnaround efforts. Year-over-year growth in shipments and revenue, progress on margin expansion, executing disciplined capital spending and launching compelling new products and services that deliver lower costs and more value to our customers is a really good start. There is much more to do to further transform the company and get to cash flow positivity, and we are committed to this overarching goal. With that, I'll turn the call over to Kate for a detailed review of our financial results. Kate Igbalode: Thanks, Marty, and good morning, everyone. For the third quarter of 2025, Ballard delivered revenue of $32.5 million, an increase of 120% year-over-year, driven primarily by the bus and rail deliveries. Gross margin improved to 15% compared to negative 56% in Q3 2024, a 71 point improvement. This reflects lower manufacturing overhead, continued product cost reductions and a net reduction in onerous contract provisions. This reduction in onerous contract provisions, coupled with a higher margin onetime off-road sales transaction contributed to the outsized gross margin performance in the quarter. Without these onetime benefits, our gross margin would be slightly negative, still illustrating a market year-on-year and quarter-on-quarter improvement. As Marty highlighted, we continue to make measured progress towards gross margin expansion and expect this to be reflected in our 2026 outlook. Total operating expenses were $34.9 million, down 36% year-over-year or 55% lower when excluding restructuring costs. Cash operating costs declined 40% year-over-year as the benefits of restructuring actions flowed through to our results. The rightsizing of our corporate cost structure, while never easy, was critical for our long-term sustainability and financial health. Adjusted EBITDA improved to negative $31.2 million compared to negative $60.1 million in the prior year. Cash used by operating activities was $22.9 million, an improvement from $28.6 million in Q3 of 2024. We ended the quarter with $525.7 million in cash and cash equivalents, no bank debt and no near-term financing requirements. Our strong balance sheet and firm hand on prudent capital allocation is a key differentiator amongst peers and provides us with business flexibility and resilience in this dynamic macro environment. Looking ahead, consistent with prior practice, we are not providing specific revenue, net income or margin guidance given the early stage of market development. We continue to expect revenue to be back half weighted for the year and total operating expenses, excluding restructuring charges, are expected to be below the low end of our $100 million to $120 million guidance range. Including restructuring costs, expenses are expected to be towards the high end of the guidance range. We now expect capital expenditures of $8 million to $12 million, down from our prior guidance of $15 million to $25 million, reflecting disciplined capital allocation and deferred facility investments. Looking to 2026, you can expect us to maintain our lean organizational cost structure and continue to demonstrate capital discipline. Maintaining a healthy balance sheet and accelerating our pathway to profitability is critical for our success and to deliver value to our shareholders. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] The first question comes from Rob Brown with Lake Street Capital Markets. Robert Brown: Just wanted to get your thoughts on the growth kind of rates in the bus market. Are there additional kind of growth [ order ] activity that you're pursuing and get a successful [ conference ] activity? But just wanted to get your sense on the growth rate in the bus market going forward. Marty Neese: Yes. I would answer that, Rob, by saying that the reception at Busworld was tremendous. The new product is being very well received, and that's by both existing OEMs and some OEMs in development, if you will. Further, the constraints I mentioned around infrastructure pinch points for battery electric charging infrastructure, if you will, is starting to change the dynamics for fuel cells where we look much more compelling than previously outlined, if you will, relative to battery electric. So I would say that that's a good news for fuel cells story and starts pointing towards a larger fleet size adoption, especially where the infrastructure constraints can be overcome by adopting fuel cell buses. So in general, I would say Europe is making steady and improving progress and adoption rates for fuel cells. North America is essentially flattish year-over-year. And that's -- yes, that's where I'd leave it. Robert Brown: Okay. And then quickly on gross margin. I think you talked about a slightly negative sort of adjusted out. Is that the baseline you expect to grow from or improve from going forward? Marty Neese: The short answer is yes. But Kate, maybe you could provide some more details on the gross margin bridge for Q3 and then kind of what you're outlooking from there. Kate Igbalode: Yes, absolutely. So you're spot on, Rob, in that in our remarks, we did highlight that without this kind of onetime pieces in the quarter, it would be slightly negative. I think that's kind of where we expect to close out in Q4 as well. And looking into 2026, again, I think you can expect low to mid-single digits on our gross margin. We don't provide margin guidance, but I think you do expect us to see incremental progress going forward from here on out. Operator: The next question comes from Jeff Osborne with TD Cowen. Jeffrey Osborne: I was going to ask on the former Project Forge and the Texas facility, some of the targets that were laid out for the restructuring there. Are those still achievable without the Texas facility? Can you remind me how important that was as it relates to getting gross margins higher than what Kate just mentioned? Marty Neese: Yes. I would say Project Forge is primarily automation and materials efficiency. And that is, in fact, still in flight, yielding well, heading in the right direction and not dependent on Texas in any way, shape or form. Texas was more of an integrated view for complete stacks and modules with Project Forge and the automation being a core attribute. But that's being done in Canada as we speak. So we're good on that front. Jeffrey Osborne: Good to hear. And then, Marty, you mentioned reentering the material handling space. I think from memory years ago, you were just in the liquid-cooled side for sort of the [ ride-on ] units versus, I think, the smaller pallet jack lifters were air-cooled. Are you doing both? Or are you just doing the liquid-cooled? Can you just further detail what specifically the strategy is on material handling? Marty Neese: Yes. The near-term interest we're seeing is for air-cooled. And so air-cooled with additional durability is resonating well with a handful of new customers. And when I say additional durability, I mentioned at least 2x the state-of-the-art as we see the market today. That really is attractive when you think about the service obligations for customers over the long run. And so different customers are really valuing that in a more thoughtful way as they get more and more experienced servicing and managing a long lifetime fleet. And so that durability equation is starting to show economic clarity for them. Operator: [Operator Instructions] The next question comes from Craig Irwin with ROTH Capital. Andrew Scutt: It's Andrew on for Craig. One quick one for me. Congrats on signing your largest marine order to date with the Samskip vessels. I know you've been working with this partner for a couple of years now, I think, since 2021. So can you kind of talk about the -- just evolution of this agreement, how it came about and maybe what you can take away from it and learn from -- for other customers? Marty Neese: Yes. I might pass that to Kate for additional clarity. But the headline is we have been developing this opportunity for a couple of years. And the product, FCwave product is DNV certified for a marine application. And so that took a good bit of time on certifications and standards bodies, but we were the first ones to do that. And after that heavy lift was complete on the certs, then we started seeing an adoption rate like the Samskip order. Noteworthy is that FCwave product has additional use cases beyond marine, and that certification of DNV, if you will, for the marine application, provided a lot of comfort to other customers in using that product and the approach that we use relative to that product. So that's kind of what I know from a background or context standpoint. If there's more relative to the contract evolution, Kate, that you want to add, feel free. Kate Igbalode: No, I think those are excellent points, Marty. And I think I'm glad you asked about this, Andrew, because I think there's a number of key learnings, not only on a technical basis, but also commercial and contractual and how we work with customers. I mean these are large projects. They take years to develop and form. And I think for me, one of my big takeaways was how are we listening to our customers in terms of what's important to them from a technological point of view and how we're using that to inform our next generation of product development. And then I think the other piece, too, is understanding their entire ecosystem around how they're getting hydrogen supply at a cost that is affordable to them. So it's kind of looking at the whole holistic view of what it really takes to get these projects across the goal line. And it's a very collaborative effort for us with our technical teams, our commercial teams and also on the aftercare and service piece is incredibly important in these types of applications, which really require very high reliability and ease of maintenance. So I was really happy to be involved on this across the last number of years, and I'm thrilled to see it come to fruition. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Marty Neese for any closing remarks. Please go ahead. Marty Neese: Thank you, everyone, for participating in today's call. Really appreciate it, and we look forward to providing additional updates in the future. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, ladies and gentlemen, and welcome to the KBC Group's Earnings Release Third Quarter 2025. [Operator Instructions] I would now like to turn the floor over to Kurt De Baenst, Head of Investor Relations. Please go ahead. Kurt De Baenst: Thank you, operator. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the third quarter conference call. Today is Thursday, November 13, 2025, and we are hosting the conference call on the third quarter results of KBC. As usual, we have the group CEO, Johan Thijs as well as group CFO, Bartel Puelinckx with us, and they will both elaborate on the results and add some additional insight. As such, it's my pleasure to give the floor to our CEO, Johan Thijs, who will quickly run you through the presentation. Johan Thijs: Thank you very much, Kurt. And also from my side, a warm welcome to the announcement of the third quarter results 2025. And as always, we start with the net results, which stands at a very excellent EUR 1.02 billion. So once again, the KBC bancassurance machine has been firing on all its cylinders, which also means that all entities in our group have been contributing positively to this result. As a matter of fact, it's once again perfectly balanced income, 50-50 split over net interest income versus the non-interest income bearing results, which once again shows that we keep up the pace with our, let's call it, ancillary business in compensating the growth on the net interest income side. If you look at the different lines, well, then it's very straightforward. Once again, strong performance on the net interest income side, which has been growing despite the fact that there was a significantly lower net interest income on inflation-linked bonds. Consequently, we also increased our guidance from what it was at least EUR 5.85 billion to now at least EUR 5.95 billion. This income growth on the net interest income side has been triggered, amongst others, by a strong loan growth, but also again on a strong performance on the transformation results, so our replicating portfolio. Coming back to the diversification, well, both the fee business, which is generated through the asset management and bank services have been growing significantly as did the insurance business, the bit latter was also driven by good quality with a combined ratio of -- not of 8.7%, that would be ridiculously lower, but at 87%, which is indeed still excellent. If you take all those income lines in consideration, you come to the conclusion that indeed we can further increase our guidance of our income side as well we now stayed at least 7.5%. And if you then know that we stick to our guidance for the cost side, which means at least -- sorry, maximum 2.5%, we know can also conclude that the jaws will be superior to 5%, which is indeed a very strong number. Coming back to that cost side, they are perfectly under control and perfectly within our guidance. And on the credit quality side, we posted a very excellent credit cost ratio of 12 basis points, which is significantly lower than the long-term average and also consequently lower than the guidance which we provided. No big surprise that our solvency position stands solid at 14.9%. And then on the liquidity side, as usual, we are performing very well with numbers 158%, respectively, 134% for NSFR -- for the LCR and the NSFR. And then also, last but not least, we also issued the interim dividend of EUR 1 per share, which is paid on the 7th of November. And we also announced that do things. First of all, the acquisition of Business Lease in Slovakia and Czech Republic, but also our inaugural SRT, which is freeing up 23 basis points of capital, hereby fulfilling the promise which we made a more active management of our risk-weighted assets. When we go to the more digital side of our story, we go to Page 4, you can clearly see that Kate continues to grow. As a matter of fact, 5.8 million customers of ours in the meanwhile clicked on Kate and continue to use her in the further business, which we are doing with KBC. We also see clearly that the number of interactions with our customers continue to increase, and not only the number of transactions increase, but also the fact that Kate can autonomously, which means without any help of a human being that Kate can deal with those questions and provide the customer solutions in an autonomous way, 7 out of 10 times. In that perspective, it's also important to understand that since October, we start launching Kate 2.0, which is actually a fully enabled LLM, so large language model Kate, which allows us 2 things. First of all, to better anticipate the questions in the context by which they are asked, so therefore, allowing us to provide more and better answers to our customers, which intrinsically means that more customers can be helped. And secondly, that the autonomy, which now stands at 70% will further increase. So both will have a positive effect on the 2 sides of the cost-to-income ratio. First of all, it allows us to sell more via Kate, Kate 1.0, so the old version generated actually sales, which allows us to do 400,000 sales over the period of 12 months. And then on the cost side, as I already said, the autonomy actually creates solutions without human being interfering, which means that Kate today is -- Kate 1.0 today is doing the work of roughly 360 FTEs, which is already a quite a significant number, which is going to improve going forward. Let me go into the different P&L lines because there were no exceptional items this quarter, which means that on the net interest income side, we do see overall an increase of 1% on the quarter and 10% on the year. But what is far more important that is actually, if you look at the underlying building blocks, then actually the net interest income on the banking side increases with 2%. Why? Because there is a very negative impact of -- I mean, it has a positive impact on other things, but inflation was coming down. And therefore, the income, which is generated through inflation-linked bonds, was significantly down as well, EUR 20 million difference on the quarter, and that obviously has some impact on the growth. Big chunk of that is booked on the insurance side. And therefore, if you purely look at the banking side, a 2% increase. Now that is triggered by, in essence, 2 things. First of all, a further increase of our transformation results, which went significantly up due to the way how we replicate our portfolios. And the second one is a very strong performance on the lending side. As you know, there is still some competition on margins in the markets where we are present, but this is more than compensated by the loan growth. The loan growth, which stands at 1.6% in the quarter, 8% on the year, and that is indeed a very strong number. Also, when you compare that with the guidance, which we previously gave, then we also came to the conclusion that we increased our guidance to approximately 7% going forward. Year-to-date -- so after 9 months, of 2025, the loan growth stands at 6.3%. If you would include the FX effect, even at 7.3%, which is indeed a very strong number. All the other elements are mentioned on the slides, have far less impact. We are talking about better income on the dealing room side, cash management, the number of days, but let me not go into that detail. Let me go back to the margin, which now stands at 205 basis points, which is slightly down compared to previous quarter, but I have to make a caveat here. First of all, the impact here is quite clear of the inflation-linked bonds. If you -- that itself already explains a big chunk of that difference, but also the strong loan growth, which is done at margins, which is slightly below the back book. It depends a little bit on the country. And last but not least, also on the fact that we do generate net interest income by investing liquidities in bonds, so using the higher spreads. This generates normally net interest income, but at margins which are obviously lower than the 208 basis points of previous quarter. And that has a positive effect on one side, but a slightly negative impact on the margin. Just to give you some insight how it worked. What about the other drivers of that net interest income, volume on the lending side already dwelled upon. What about the deposit side? Once again, we do see an increase of our core monies with our customers of EUR 1.1 billion in the quarter. That is a bit -- that is an obvious effect that we start to see the first moves of the monies which came in, in Belgium as a recuperation of the state monies invested in 2023. Well, that money is coming to maturity, as you know, partially in the first part of this year, and the big chunk is going to mature in quarter 4. But you clearly also can see that you see some effects already in the third quarter by the savings certificates, which were entirely freed up and not reinvested again in those savings certificates. In essence, it comes down to the story that what we do see in practice is one moneys, which were recuperated on the state mature that the vast majority returns in either current accounts, saving accounts or in mutual funds, only roughly 25% is reinvested back in term deposits. And that has translated in this slide. The evolution of the current accounts here is very specific seasonal effect in corporate deposits in Belgium. This is temporary, and this will be corrected in -- by the natural flows in quarter 4 of this year. If you look at the total picture, that is even more substantial, EUR 8.5 billion of monies flowing in into our different pockets for our core customer monies. And this is translated in a fundamental increase on the current account, savings account side and the fundamental decrease on the term deposit side, which in translation of margin is good news. Last but not least, but I'll come back to that in one second, that is the inflow of those monies, which are maturing into the fee business generated through asset management and life insurance, while that has clearly also happened in quarter 3, which brings me immediately to that fee and commission business. Here, once again, a very strong result, up 6% on the quarter. Let's face it, after already high quarter 1, 2, we now have a very strong quarter 3. And also if you look at the different contributor parts here, the asset management services or the banking services, both are up significantly, 7% up on the Asset Management Services and 5% up on the banking services. Starting with the former, well, that is driven by 2 things. First of all, the fact that obviously, the management services had the fees or the management services has a positive impact on the performance of the financial markets. But also clearly, there was a strong net inflow again on the asset management product side. As a matter of fact, we have seen a growth of net inflow of EUR 1.8 billion in the quarter, which is for the third quarter, a very strong number, and it tops up the first half of the year to a total of EUR 5.3 billion of net sales. That is an all-time high after 9 months. In terms of the buildup of those monies, we were also able to do it at a stronger management fee, but also at a stronger entry fee. In terms of the split up of responsible investments, be aware that our book now -- our total book stands at roughly 50% under the umbrella of Responsible Investments, whereas the inflow on the new monies is roughly 58% Responsible Investments. The other -- so perhaps something on the assets under management, the consequence of all of what I said, obviously, are positive for those assets under management. We now stand at EUR 292 billion of assets under management, which is a strong EUR 12 billion on 1 quarter up. If you compare it with previous year, it is an increase of 8%, which is perfectly split 50-50 between inflows and so -- fees -- sorry, and performance also 50% being 4% in this case. Let me then go to the insurance side. Well, also here, very good results to use an understatement, once again, up 8% on the quarter. On the non-life side, this is due to strong performance in Belgium and our Central European countries, split up there is Belgium a bit more on the lower side, so 5%, 6%, whereas Central Europe in essence is growing more than 10%, depending on the country. The quality of that book is -- stands at 87% combined ratio, which means excellent results again and also a bit better than the period of 9 months of last year. On the life side, the story holds as well. Again, the strong performance on the total life insurance book. We went up 29% on the quarter. And if you would make the comparison with the same period last year, 7% up significantly. Now in both quarters, '24, '25, quarter 3, we did commercial campaigns. So the commercial campaigns this year was even more successful than it was last year, and this is amongst others due to the fact that we have monies maturing on the previous state note. Split up between unit-linked and interest guaranteed is roughly 50% versus 43%. Small detail, if you compare the number after 9 months with the same period last year, it's 15% up and that is indeed something which is quite remarkable after the record of last year. Going into smaller P&L impact lines, you have the more volatile financial instruments at fair value. Well, they are EUR 28 million lower than previous quarter. I can be very brief about this. This is mainly driven by the evolution of the mark-to-market derivatives in essence. And on the net other income side, we are perfectly in line with the run rate being roughly EUR 50 million. We now stand at EUR 47 million. But if you look at the underlying building blocks, when they are perfectly spot on compared to what it was before. So the leasing and the assistance company have the same outcome as what it was last year and more or less the same outcome of this year. What about the more serious stuff that is the OpEx evolution? Well, let me bring it to its essence. The costs are under control. As you remember on previous call, we always highlighted the difference, if you make the comparison of, for instance, 2025 with '24, which was the trigger for the guidance, that you need to be careful that the distribution of the costs in over the quarters is completely different comparison '24, '25. But it was more back loaded in '24, it was more equally spread in '25. In that perspective, you now start to see the effect of what we always highlighted on previous quarter announcement, that is costs evolution over the quarter 3 with quarter 3 of last year is now coming -- if you exclude bank tax, it is below 1%. And that makes it quite clear that if you look at the number over 9 months, that we're coming close to our range, our guidance. That is we are now standing at -- if you exclude bank tax at EUR 315 million, which is more or less 50 basis points higher than what it was previous quarter, but it starts to come into that range. Actually, as a matter of fact, if you look at our costs compared to the budget, which we had internally, we are better than our budget foreseen for 9 months of 2025. So we are perfectly online to make our guidance -- perfectly on track, sorry, to make our guidance less than 2.5% cost increase true. Cost-to-income ratio is obviously translated, if your income is growing more than roughly 8% and your costs are only growing 3%, then your jaws are significantly up. We are talking about 5% jaw translated in a cost-income ratio, which goes down for 43% in '24 to 41% now, which I think is indeed an excellent performance. There are always uncertainties in life, and that is bank taxes, which are always reviewed -- most of them reviewed for the upward. We do expect on the full year to pay EUR 668 million of bank taxes. Currently, we stand at EUR 615 million. In the third quarter, the back taxes were pushed up because of additional national bank taxes and deposit guarantee scheme contributions mainly in Hungary. That has translated to more detail on what is that Page 13, where you can see the split up over the different business units, but I suggest that we further continue with the credit cost ratio, where other strong performance can be mentioned. We now stand at EUR 51 million, all things combined, which is built up, in essence, about in 3 parts. The first one is the loan book with an impairment of EUR 55 million. But be aware that we deliberately took EUR 26 million to cut down the shortfall, the backstop shortfall, the tool, which is imposed upon us by the ECB. So we lowered that with EUR 26 million, which actually generates a positive capital impact on the CET1 ratio of 2 basis points. If you take that into account, then the impairments on our loan book are very, very low. If you look also at the evolution of the macro parameters, which are used in our model to calculate the geopolitical and macroeconomic buffer, well, then we came to the conclusion that there is a release to be booked for EUR 9 million, which makes the buffer now stand at EUR 103 million. There were some EUR 5 million in asset software impairments. And if you bring that all into account, then you see that our credit cost ratio now stands at 12 basis points if you include the ECL buffer. If you would exclude that, we are at 13 basis points, which is significantly lower than the long-term average, which is perfectly in line with the guidance where we said it would be indeed better than that. In terms of quality, well, it's very simple, 1.8% NPL ratio, which is substantially lower than, for instance, the European average. If we would look at the EBA definition, it would even come to 140 bps, which is 40 bps lower than the European average. For good understanding, if you look at the migration metrics of our PD classes, then we do see a positive shift towards an improvement of the portfolio overall, and that is some reassuring news given the circumstances we're all in. What about capital? Well, also there, a strong performance. We now stand at 14.9% at the end of the third quarter. This is mainly triggered by an increase of our risk-weighted assets, EUR 1.6 billion. I mean, in essence, due to the growth of our lending book, EUR 1.4 billion is entirely due to that growth. And it's also triggered by, obviously, the booking of our net interest -- sorry, not net interest income, but net result and, of course, the accrual of our dividend. Now going forward, what do we expect for the fourth quarter? So we do still see some positive effect due to the liquidation of KBC Bank Ireland. You remember that we booked deferred tax assets. Those deferred tax assets contributed positively to the quarter 3 capital position. In total, EUR 166 million, bringing it to 13 basis points. We do expect the further balance to come mainly in quarter 4, a little bit in '26, depends on the profitability in the quarter. And that brings the positive impact. We do expect further upstream of our Belgian GAAP insurance profit in -- to KBC Group. And then obviously, we do also still hope that we do get the approval in our 365 Bank that is in its process and that will generate roughly max 50 basis points on the capital side. Also, in that perspective, it has nothing to do with the fourth quarter because we think that will be cleared by the first quarter next year, that the leasing side, it has only an immaterial impact on our CET1 ratio next year of roughly 4 basis points. Now if you bring all those numbers into account, also taking into account the SREP, which was issued a couple of weeks ago, well, the MDA now stands at the same level as the OCR ratio, both at 10.85%, and that generates a buffer of 4.1%., which is indeed quite solid. In the meanwhile, also the National Bank Belgium has made statements about the review, which they are going to put into motion as of what is it the 1st of July next year. That is, I mean, some of 2 parts, the countercyclical buffer and the systemic buffer that play around a little bit with those numbers, which has for us, given the composition of our book and given the way how it is supplied, a negative impact of 2 basis points on our CET1 ratio, starting with the current number of risk-weighted assets. So to be remembered, strong performance and strong MDA buffer going forward. So that is then also translated into the solvency of the insurance side, which has increased to 216%, and then the leverage ratio, which is also 5.8% over the quarter. In terms of liquidity ratio, already mentioned that it is managed, as you know, in a very specific way. And therefore, we do see the same solid performance on the liquidity side with -- around the numbers, 160% and 130%, respectively, on the short term and on the long term. Going forward, we do expect that the economy is going to slightly pick up a little bit in 2026. That is definitely true for the Western European markets, for the Central European markets where we are present, we do see a more fundamental growth, at least double of the amount of Western Europe. Western Europe is estimated at roughly 1%. In terms of inflation, the European inflation hovering around 2% in certain Central European countries like Hungary. It can be a little bit higher, but it is at least in such a way that ECB, we do not expect further rate cuts to happen in 2025, neither in 2026. And in the Central European side, we expected Hungarian National Bank to further bring down their 6.5% policy rate. But in essence, we do expect a slightly positive view on the economic side, which also gives us the certainty to adapt our guidances for 2025 upward. I already mentioned the 7.5% at least for total income and the at least EUR 5.95 billion for the net interest income side. As you remember from previous call, as always, KBC includes a certain margin of conservatism to -- I mean, eliminates the uncertainty in certain parameters given that, that uncertainty has gone away, we have actually translated to that conservatism into a more stricter guidance, but we will -- let me say it, as follows, be sure that we will make that number happen. I would not say fingers in the nose, but with a certain margin. The insurance revenues are solid, and I already dwelled upon the 2.5% cost side. No changes on the forward looking for '27. This is something which we're going to provide to as always on the back of the fourth quarter results, which are published in February. I will wrap it up here, and I will give back the floor to Kurt, who will guide us through the questions. Kurt De Baenst: Thank you, Johan. The floor is open for questions now. [Operator Instructions]. Thank you. Operator: [Operator Instructions] We'll now take our first question from Tarik El Mejjad of Bank of America. Tarik El Mejjad: I'll stick to 2. The first one on net interest income. If we take the Q4 implied exit rates and then we adjust for all the inflation-linked bonds and so on, clearly, the run rate is quite attractive versus consensus. Could you give us some indication in terms of '26? I know you updated with the full year, but given where you see consensus and I think I see quite a lot of upside there, if you can help on seeing the upside, it would be very helpful, indication for '25, but '26 is important. And then the second question is on M&A, specifically on Ethias. This is clearly very important for your investment case and you've been always helpful giving us the latest on what government thinks and so on. Can you maybe refresh us on where we are in the process? And what do you think are your odds to run successfully that bid? Johan Thijs: Thank you very much, Tarik, for your questions. And let me provide you answers to both. So first of all, obviously, I mean, what you asked in your question and where you were making reference to the interest rate evolution, the yield curve evolution, you're 100% spot on. They are indeed better than what it was, for instance, a year ago. We do also see that translated for sure in our results of 2025. And that is also something which is indeed true for 2026 as well. Obviously, taking into account that -- I mean, there are a couple of drivers in the economic environment, which are crucial. For instance, the situation of the war in Ukraine, if that would escalate that we have completely different picture. But all those parameters taken into account being stable, then you're right in your analysis that certain of those drivers of the net interest income are evolving positively compared to a year ago. So indeed, you can expect that on the net interest income side, there is a positive effect and I can only confirm. To provide you already the detail of what 2026 is going to be, well, we are going to do this on the back of our quarter 4 results. As a matter of fact, we will have discussions on the budget. We had a preliminary discussion on the budget of '26, '27 and '28 earlier this week, but the fundamental discussions and also the approval by the Board is going to happen in the next week and the week to come. So it would be a bit preliminary to already elaborate that in an analyst call. But the first part of your question, I can only confirm as having a positive impact on the evolution of our net interest income, which, as I said, for 2025 is at least EUR 5.95 billion with a certain degree of conservatism. You could say easily EUR 6 billion that you can start to add up. Regarding your second question, the M&A, more specifically about Ethias, well, today, and that is something which I already indicated in, I think, previous call or 2 calls ago, my expectation was that Ethias would not come to the table in 2025, but it would be prepared by the government in 2026 because the urgency, Belgium is not having a favorable budget situation nor the debt GDP situation that, that is not imminently on the table for pushing 1, 2 assets out of the portfolio of the Belgian state. And I can only confirm that today. So my guess is that Ethias -- as far as Ethias is concerned that the preparation will be done by the government in the course of 2026 and then bringing it to the market by the end of the year potentially even early '27, we'll see. It depends a little bit on where the budget discussions end. On other assets, for instance, Belgium, it might be going a little bit faster, at least for a small part of it. Where are we? So we are indeed fully prepared for the file. We have a clear business case for that. And when you were asking about the ops, what we will do our utmost without doing stupid things on pricing. As always, for us, it needs to tick a couple of boxes on the strategic side. It makes a lot of sense for KBC to go for an acquisition of Ethias. It is a core market for sure. And it is delivering added values, I think, for both sides. And then last but not least, it obviously needs also to tick the boxes on the return on investment, return on equity. That is something which triggers me to say we will not pay stupid prices. I recommend everybody not to pay stupid prices. But for sure, we will not do so. So we are prepared and will be further continued. Tarik El Mejjad: So just to understand on the timing for TS from the government perspective. So you think there will not be any decision to sell it before the next budget discussions, basically, right? So with the conclusion in the second part of the year. Is that what you said? Johan Thijs: That is indeed my reading of what is happening today. Operator: Our next question comes from Giulia Miotto of Morgan Stanley. . Giulia Miotto: I'm afraid I will follow up on NII and ask about Q4 and the exit rate. So the guidance of EUR 5.95 billion is extremely conservative in my view because it would imply NII to go down in Q4, whereas I think it should increase quarter-on-quarter given the tailwind. And from that into next year, can you help us understand or quantify at least the benefit you see from the hedges? Some of your peers give a slide with some quite clear disclosure on benefit from hedges over the next couple of years, and also how you expect loan growth to evolve? Because it's very strong. And from here, perhaps it could only accelerate, I guess, with the German fiscal stimulus, hopefully helping see countries indirectly. So yes, I would love your thoughts on these moving parts. And then secondly, Kate 2.0, historically, you said that Kate helps with 1% of efficiency each year. So essentially, you managed to grow costs less than revenues. Do you already have an estimate of how much efficiency will Kate 2.0 help you with? I would expect a higher efficiency. Bartel Puelinckx: Thank you, and good morning to you all. I will tackle the NII question and Q4. So the -- indeed, the guidance that we've given is EUR 5.95 billion at least. So this is a floor. So it will be most likely higher. Also, as Johan was indicating, I mean, the difference indeed, if you just simply add the third quarter, once again to the fourth quarter, you more or less come to your -- the analyst consensus level. So there is indeed still some conservatism included in that guidance. Now as far as your question is concerned related to the hedges. So as you know, we are not fully disclosing the -- how we hedge that portfolio. Part of it is, of course, considered as being noncore money and noncore money is being replicated overnight whilst the core money is replicated, obviously, at longer terms. These are cyclical reinvestments. The average duration, as indicated before, on the current accounts is 4 to 4.5 years. On the saving accounts, it's 2.5 years. And then, of course, on the excess equity, it's about 5 years. Now basically, that is, if you have then a kind of sensitivity, what you can indicate is that we can use is that for a parallel shift of 25 basis points, you can take into account roughly EUR 50 million. Now coming back also to the recent developments with respect to the repayment or the maturity of the term deposits that were issued back at the maturity of the state bond, you remember that we lost EUR 5.7 billion with the state bonds, we recovered actually EUR 6.5 billion. Out of that EUR 6.5 billion, EUR 6 billion was reinvested in term deposits. At that time, as you will recall, negative margins. Now we issued at that time, 2 types of term deposits. There was a term deposit at 6 months and a term deposit at 12, 13 months. And so that means that the 6-month term deposit came to maturity in March. And there, what we have seen, we have seen a shift back into term deposits of only 38%. 40% went into CASA and the remainder went to in mutual funds and some outflow. Now in October this year, so a couple of weeks ago, we had the maturity of the most substantial part of the term deposits of 13 months. And there, we have some positive news in the sense that it clearly demonstrated that the market has become rational again, as we expected in the sense that out of the maturing deposits 50%, 5-0, went into CASA. Only 25% went into term deposits and then in term deposits, obviously at positive margins and 25% went either into maturity -- mutual funds or some part, small part exit. So that's a bit what you can take into account for next year for the head start that we will see next year. Johan Thijs: Giulia, I will answer your second question. So Kate 2.0 is indeed giving us productivity gain. As you rightfully pointed out in the past, Kate 1.0, I mean, generated roughly between 1% and 1.5% of productivity gains. We launched Kate 2.0 actually in October. So it's in very early days to make already conclusions what it will be and definitely make those conclusions public in an analyst call. What I can say -- so it's too early to judge. But what I can say is that given the fact that Kate 2.0, which is actually Kate 1.0 retrained in a full LLM environment. So previously, Kate was already using some LLM, but not extensively. That is -- that we do see in the trials, which we have been running over the first 5, 6 months that we had indeed an increase of our autonomy of roughly 15%, which is quite strong. If that will be translated in full of -- for a productivity gain, that needs to be further fine-tuned. But what is also important to see and that is the second element, which we tend to forget that is the fact that customers are using Kate more and more because they find solutions via Kate and don't have to queue anymore in branches or whatever, don't have to take the car anymore looking for parking places, makes them use Kate more and more, which actually means also that they are not only using it more for -- and therefore, generating cost side, but also allow us to address the more specifically, more tailor-made solutions on the back of the traces, which they leave with us, so the data analysis. And that is obviously triggering us more sales, which is the combined effect. So when we speak about productivity gain, ultimately, it is translated in the cost-income ratio. So the outlook is positive, and the outlook is if I use the floor to play at least what we guided before. Operator: And we'll now take our next question from Namita Samtani of Barclays. Namita Samtani: My first question, you flagged in your forward-looking guidance that you include no speculation on potential measures of any government. Could you please give some color on anything you're watching there that might positively or negatively impact earnings next year? And secondly, just on Ethias, if it's not coming to the market until 2027, would you consider to pay back some of the excess capital that you have as a special dividend in 2026? Otherwise, I just struggle to see how this isn't trapped capital. Bartel Puelinckx: Okay. Thank you, Namita. So as far as the potential measures of the government are concerned, it might have an impact on the earnings going forward. You're mainly referring obviously to the banking taxes and how we see the evolution of the banking taxes. First of all, as far as Belgium is concerned, we still do not see and do not expect any significant increase in banking taxes. They are already had a quite high level. Of course, also the question is going to be and remains still because there's still no clarity what the government is going to announce because basically, normally, the banking taxes to somehow drop as a result of the fact that, of course, the deposit guarantee fund in Belgium has now been replenished and actually only contribution should be limited to the increase, of course, in eligible deposits. Were it not for that one sentence, of course, in the government agreement that indicates that banking sector should at least remain at the same level. But due to the political situation currently in Belgium and the fact that the budget discussions have been postponed, there is no clarity yet on this side. Where there is some more clarity is the decision of the European Court of Justice compared with respect to the loyalty premium and, of course, also the tax benefit that you get for the first part of the savings and the saving accounts, which have been considered as indeed discriminatory. We will see what the impact of that is going to be. And we are looking now at what the impact is going to be on the loyalty premium. Most likely an alternative version of the loyalty premium will be foreseen, but we do not expect any major impact of that for the very simple reason that actually, first of all, the loyalty premium with KBC is already low, 20 basis points. But next to that, also already 95% of our deposits are eligible for loyalty premium. So the impact of that is going to be very small. Last for Belgium then at least is also the added value tax that is under discussion, but also that has been postponed as a result of the postponement of the budget discussions because it still requires, of course, the adoption of a former loan law to actually charge the taxes. And as long as you don't have that law, you cannot charge taxes. We already as KBC, so we will implement that, but it will depend, of course, at the initiatives that are being taken by the government. Then as far as Belgium is concerned, for the Czech Republic, we have some good news in the sense that basically we do not expect, and it's not part of the government agreement of the new established government under Babiš. So Basically, there is no sign of a further increase of banking taxes in the Czech Republic. And as you know, for the banking industry, the windfall tax in the Czech Republic is actually having no impact. So that's good news. Also in Bulgaria, as you know, the government for the time being is not considering implementing any banking taxes whatsoever, apart from the fact that they have established an alternative version, which is more a kind of a prefinancing of the taxes going forward. Slovakia, there basically also, there is no sign of a further increase of the banking taxes. There, the government sticks to the agreement that they made with the banking sector in the sense that it will be gradually decreasing to '27. There are also some alternative measures that are being taken, such as also having a tax-free benefit on the state bonds because they're also issuing some state bonds in Slovakia, but the impact of that is also limited. And then, of course, we come to cherry on the cake, which is Hungary, where indeed there -- that they already -- the bank -- the windfall tax that was supposed to be temporary is far from temporary that has been extended and the indication of -- is that basically they consider windfall as long as the policy rate is above 3%. And as they are today at 6.5%, this is still likely to last for a while. There are, however, some rumors, and there was indeed an announcement or at least some indication by the Minister of Finance, Mr. Nudge, that there might be going forward, again, an increase in the banking tax -- in the windfall tax and also a limitation of the mitigating measures, but that so far has not yet been confirmed, but there is a risk that, that would have a negative impact going forward on Hungary. Johan Thijs: Good morning, Namita, and also, I will take the second question. So regarding the capital position and your reference to potential trapped capital beyond 2027, well, I would use the dividend policy, which probably as good as I know is quite explicit in that perspective. So first of all, we have a couple of priorities now and that is straightforward. First, we want to grow our book in an autonomous way. And it sounds perhaps fluffy, but it is definitely not. Just look at our track record. Over the last 5 years, we have grown a company like Czech Republic, Chairs of Bay, in terms of the loan and in terms of the deposit side, autonomously, so organically. And if you then look very specifically of what we're doing this year, which is not included in those 5 years I was referring to, it's even better. So the guidance now, we're approximately 7.5%, let's round the number, 8% growth on the year. Well, that is something which we will continue to strive for going forward. The other element is, of course, that next to that organic growth, which consumes risk-weighted assets, as we all know, we will have a further eye on the market in terms of M&A. So Ethias is the one we are focusing on because that is the bigger one, which we can do, by the way, by a Danish compromise solution by our insurance company. But let's not forget that we recently also and that this approval still happening as we speak, as we did an acquisition of a bank in Slovakia and a smaller leasing company in Czech Republic and in Slovakia. Well, these are things which were officially not on the radar, but it doesn't mean that they were not becoming available. And that is something which we are going to look into going forward. So capital is used for those 2 priorities, growth autonomously and growth by M&A going forward. Let's not forget that given the strong profitability, dividend will have a very strong position given our payout ratios, which has the range between 50% and 65% without preempting now already on what the final dividend over 2025 is going to be, I mean, look at our track record over the last years, well, it is more towards the higher end of that range. So all in all, given what I should have said, there are 3 components and then the fact that we want to be amongst the better capitalized financial banks, financial institutions in Europe, we have a very solid position and not necessarily will have what you call trapped capital. And in the event, you know that our minimum is 13%. And in the event that it becomes clear that, for instance, an acquisition we have in our mind is not going to happen. Well, then the policy is quite straightforward. The Board will take that decision then as a definition of capital, which we no longer need because the availability of M&A is not there. The position is solid. So let's bring that capital back to shareholders because we cannot make it work within KBC. That's straightforward. So the risk of having trapped capital in our company is nonexistent given our policy and given how the way we are executing our business as we speak. Operator: I will now take our next question from Benoit Petrarque of Kepler Cheuvreux. Benoit Petrarque: So the first question is on the Belgium deposit market. We see a lot of discipline also in September, by the way. So it's a very attractive market currently. Looking at previous cycles where we have a bit of steepening and the curve is quite attractive. And also, yes, there's a ramp-up of the transformation results expected for next year. In such a market, would you expect discipline to be maintained? Or what is your kind of view on the deposit market into '26? Do you expect discipline to be retained like this? That's number one. And number two is on the lending NII in Belgium. It's clearly turning around, let's say, more positive in the latest quarter, especially driven by a very strong loan growth, 6% year-on-year. And I was wondering what -- where it comes from, basically. We've seen actually the competition not at that level, and you seem to be gaining market share. So I wanted to get a bit more underlying reason for that very strong performance. And just maybe also thinking about NII on '26, you have been very conservative on your guidance. You have been too conservative in '25. And I just hope that there will be a bit less conservatism in a way and more accuracy in the guidance, but that's just on a separate note. Bartel Puelinckx: So as far as your question is concerned on the Belgium deposit market, which indeed, I concur is -- remains very attractive. Also the steepening of the curve is indeed going to ramp up the deposits. Now in terms of potential further developments going forward, it looks like we are quite confident that we will be able to continue to move into that part and to, of course, raise additional deposits going forward. The only thing that is popping up somewhat more. You know that we've been reducing and all markets has been reducing the external rates on the saving accounts. We moved them from 90 basis points at the beginning of the year, 45 basis points -- loyalty program and 45 basis points base rate dropped now to 60 basis points being 40 basis points base rate and 20 basis points loyalty premium. All others -- all banks have been following on this side, apart from some smaller banks. And this has raised some attention also from the government. So the Ministry of Finance has indicated and has publicly stated that he will be looking into the further development of the external rates on the saving accounts. So we might see some drawback from that going forward. But for the time being, there is nothing specific. Johan Thijs: And then perhaps on the guidance, the side note which you made, I obviously understand where you come from. You said too conservative, make it a bit sharper going forward. But I would like to comment in 2 ways on this. First of all, to a certain degree, you're just purely looking -- I agree with what you say. On the other hand, I would like to add that given also the question about the discipline in as we speak, the biggest markets for us in terms of deposits is Belgium. The 2 combined actually triggered us to put the guidance where it was. So there was a big, big, big amount of money being freed up, as you know, EUR 6 billion. And if things would repeat what happened in 2023 or in 2024, then obviously, you would have completely different picture. We had those term deposits at a negative margin. Unfortunately, this did not materialize. And I think the main trigger for that is to be found in the results of our peers, which have been involved in that deposit war in 2024. That is quite straightforward that, that discipline is there. So it allows us indeed now to take that uncertainty out of our guidance. And as of the moment, that uncertainty is gone, you can make more accurate predictions. I would actually say, in that perspective, we will continue to make our guidances because KBC has a track record of underpromising and overdelivering. It's better than the other way around. But we take your side note or your side remark for granted. Thank you. Sorry, sorry -- in my excitement -- Sorry, I forgot about the margins on lending. Well, yes, in that perspective, so there are 2 reasons. So first of all, I think there's a bit more discipline in the market. So let's also not forget that all the banks being pushed by the ECB on risk-weighted assets. You remember what happened to KBC 2 years ago. But this is also happening to other banks, which you can clearly see in the announcements which they all make either via the mother ship, either via the local entities. So if you want to keep your capital ratios intact, then you need to achieve a return on risk or a risk-adjusted return on capital, and therefore, your margins cannot be lowered anymore. That is something which we see next to that and that is what we are striving for. KBC obviously has had a very strong loan growth in the first 9 months of the year, which allows us also to be more -- to be a bit more selective in terms of the margins. You can clearly see in the detail, which is provided in Belgium that is on Page 25. I do not make a mistake that indeed, we are pushing now for several quarters already to bring that margin to a more sound level given the capital consumption. And that is something which is also possible, given the fact of the strong performance of the loan volumes, which we have year-to-date. So yes, we are working on the margins. Yes, there is more discipline. And yes, we are comfortable giving the loan growth, which we have already realized in the first 9 months and the pipeline, which we have for the quarters to come. Operator: And we will now take our next question from Sharath Kumar of Deutsche Bank. Sharath Ramanathan: A couple of follow-ups. Most of my questions have been answered. Firstly, on loan growth, can you comment on the sustainability of the double-digit levels in most international markets? Also, is it a fair conclusion to say that the level of loan growth in 2026, 2025 level would be the floor? And if you can comment on the type of areas that you're getting this loan growth from, so it will be useful. Secondly, on M&A, can you confirm that there are any other active files rather than Ethias? Also if you could confirm there is no interest to get back into Ireland? Bartel Puelinckx: So I will take the first question on the double-digit growth. And I presume that what you're mainly referring to is the double-digit growth that we see basically in Central Europe. And there, of course, you have a particularly strong growth in -- first off, to start with in Bulgaria, where we see a year-on-year growth of 18%, which is mainly driven by the very strong growth on the mortgage side. And the mortgage side is actually due to the fact that you have the euro adoption, as you know, in Central Europe in Bulgaria and people are more or less concerned about the potential inflation after the euro adoption. So from that perspective, that explains why we see significant growth currently. We, however, expect that to continue, however, at a somewhat lower pace after the euro because, obviously, in Bulgaria, the disposable income has increased quite significantly and also the quality of housing in Bulgaria is not at the same level, of course, as the level that we see in Western Europe. So that is as far as Bulgaria is concerned. The Czech Republic there, obviously, we also continue to see a very strong year-on-year growth on -- of the loans of 11%. There, what we see is that also the mortgage business is doing and continues to do very well. There is somewhat a small impact on the margins, but the margins are well above the back book. So that continues to generate quite some nice growth. So year-on-year growth on the model portfolio is almost 7%, but also in the Czech Republic, we continue to expect some further loan growth due to the fact that also GDP growth continues to be quite significant. They recently increased actually their projections for GDP growth from 2.5% to 2.7%. And typically, as a rule of thumb, what we use within KBC is that you can see a loan growth, which is equal at the GDP growth plus inflation. Also in Slovakia, and Slovakia continues to perform quite nicely, particularly on the mortgage side, also there at quite stable margins and nice margins. On the corporate side, they have been performing quite well as well, and we expect that to continue. You know that they are in the market. The growth today in Slovakia is somewhat subdued at 0.5%, but this is expected to pick up again in the next year, particularly also because Slovakia being an open economy with also more benefit from the German initiatives in spending. And then last is Hungary. Hungary also, despite the fact that Hungarian economy is not growing significantly either, we continue to see quite some strong growth, particularly in the mortgage business. And also the recently announced new government initiative with the Home Start program, increasing the services should help further also the mortgage growth, together with also at quite attractive margins. On the corporate side, there is somewhat more competition, somewhat more pressure going forward. So basically, that as far as the expected loan growth is concerned going forward. Johan Thijs: I will take your question regarding the M&A. So first of all, we are constantly monitoring the markets. Otherwise, we would never ever have detected 365, nor the leasing activity acquisitions. But do we have interest in other files? Well, I cannot answer those questions concretely because then it would make very obvious what we are looking into and what competition perhaps should be finding interesting as well. But to be very concrete, your question on Ireland, we are not going to go back to Ireland, no. Operator: Any further questions? We now will take the line of Chris Hallam from Goldman Sachs. Chris Hallam: I just have 2, one on SRTs and then one on capital. So regarding the inaugural SRT on the corporate loans, I guess that comes back to the EUR 8.2 billion RWA add-on that was imposed on KBC back in 2023. Is that the right way to think about it, that the risk weights on those corporate and SME loans was artificially high? And then if so, how much more is there to go on those high-risk weight loans, either in terms of the amount of relevant loans you could still SRT or the amount of that EUR 8.2 billion add-on you might look to recover via future SRTs? And then secondly, on capital. You said earlier that the risk of there being trapped capital in KBC is nonexistent. Should we interpret that as a commitment that the CET1 capital ratio at the end of 2026 will be as close as possible to the target for a 13% pro forma for any announced acquisitions or distributions? Bartel Puelinckx: Thank you for your questions. I will take your first question related to the SRTs. As indeed, we announced this morning the -- our inaugural issuance of EUR 4.2 billion SRT leading to EUR 2 billion of risk-weighted assets relief and having a 23 basis points impact on our positive impact of scores on the common equity Tier 1. Your assessment is indeed correct. Basically, the higher risk-weighted asset density created is due to the add-on of 2 years ago, indeed, is impacting that. Now we always stated that we consider SRTs as a means to an end and not as a strategic development. So basically, that means it is one of the tools that we will use to further optimize the portfolio management. So if your question is, are we going to continue to do SRTs? Yes, we are continuing to launch SRTs, but this is -- we do not want to become dependent on the SRT market as some of our peers are. So from that perspective, there is going to be further SRTs. These SRTs will remain focused indeed on those portfolios that have the highest risk-weighted asset density in view of the efficiency of those SRTs. And -- but it is not going to be a major significant increase for the years to come. Johan Thijs: Thank you, Chris, for your questions. And let me come back to the very concrete topic if that by the end of, let me say, 2027, it should be somewhere in the neighborhood of 13%. Well, the -- what I said on the previous question, the previous -- and I don't remember who asked it. Actually, the dividend policy is pretty straightforward. And the dividend policy in that perspective allows us to distribute capital. There is one constraint you need to take into account as well, and that is the constraint of to be amongst the better capitalized financial institutions in Europe. We have more freedom there to decide are we -- yes or no than we did previously because previously, it was mechanically so there is more possibility to have in that perspective, a discretionary decision by our Board, but that's a trigger. So if the entire sector would go to 13%, 12.5%, whatever, and there are no M&A opportunities, there is clearly a possibility to finance our economic growth, which -- autonomous growth, which is quite significant in terms of percentages, which you know, but then the Board will take a decision in all discretion. All those elements into account, can I make a hard commitment on the execution of the policy? Yes. Can I take a hard commitment that it's going to be 13%? For obvious reasons, I can't. Operator: And we'll now take our next question from Shrey of Citi. Shrey Srivastava: Just changing tack a little bit. On fee development, you've actually managed to keep margins sort of broadly stable. And I know the very strong inflows and higher margin direct client money. Looking forward, how do you see net inflows in sort of this component versus the others? And I suppose in turn, what do you see as the outlook for margins in the asset management business specifically? Bartel Puelinckx: Thank you, Shrey, for your question. Indeed, we've seen a 3.4% growth on our direct client money. And basically, this is, on the one hand, of course, driven by the very strong net sales that we see of EUR 1.8 billion for this quarter, bringing it already to EUR 5.3 billion for the 9 months. And what is important here is that this is true for more than 1/3 driven actually by what we call our RIPs. This has nothing to do with rest in peace, but these are the regular investment plans, whereby households continue to regularly invest on a monthly basis, a relatively small amount, but this is a sustainable amount. And we actually see the number of those RIPs increasing continuously. Today, we have 2.3 million of those RIPs with an average contribution in Belgium of roughly EUR 120 per month; in the Czech Republic, roughly EUR 40 million per month; and in the other countries, slightly higher than the EUR 40 million -- EUR 40, of course, a month. So that gives you an insight into the relatively sustainable growth of that portfolio going forward. The remainder, obviously, is going to depend on the market performance. And as you know, we are not guiding on that part of the portfolio. Operator: There are no further questions in queue. I will now hand it back to Kurt De Baenst for closing remarks. Kurt De Baenst: Thank you, operator. This sums it up for this call then. Thank you very much for your attendance, and enjoy the rest of the day. Bye-bye. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AtkinsRéalis Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Denis Jasmin. Please go ahead. Denis Jasmin: Thank you, Kevin. Good morning, everyone, and thank you for joining us today. For those dialing in, we invite you to view the slide presentation that we have posted in the Investors section of our website, which we will refer to during this call. Today's call is also webcast. With me today are Ian Edwards, Chief Executive Officer; and Jeff Bell, Chief Financial Officer. Before we begin, I would like to ask everyone to limit themselves to 1 or 2 questions to ensure that all analysts have an opportunity to participate. You are welcome to return to the queue for any follow-up questions. I would like to draw your attention to Slide 2. Comments made on today's call may contain forward-looking information. This information, by its nature, is subject to assumptions, risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these assumptions, risks and uncertainties, please consult the company's relevant filings on SEDAR+. These documents are also available on our website. Also during the call, we may refer to certain non-IFRS financial measures. Reconciliation of these amounts to the corresponding IFRS financial measures are reflected in our earnings release and MD&A, which can be found on SEDAR+ and our website. And now I'll pass the call over to Ian Edwards. Ian? Ian Edwards: Thank you, Denis. Good morning, everyone, and thank you for joining us today. I'm going to begin today's call by providing an overview of our company performance in the third quarter, including our record backlog and margin as well as performance highlights across the Engineering Services regions and Nuclear businesses. I'll then pass it back to Jeff to provide more detail on our financial results and our updated 2025 outlook before we open it up for questions. Let's get started on Slide 3. Our third quarter performance highlights our ability to both grow and operate more efficiently across the business. We delivered another strong quarter of services revenue growth, up 17% year-over-year or 11% on an organic basis. Engineering Services regions revenue reached a record high of $1.9 billion, while nuclear revenue organically grew 60% to a quarterly record high of $596 million. Linxon continues to perform well and organically grew 15% -- we also had a strong increase in adjusted EBITDA from PS&PM of 21%, a record high adjusted EBITDA from PS&PM margin of 10%, highlighting the work that we have done across the business to improve margins. Our total backlog reached a new record high this quarter as our expertise across Engineering Services and Nuclear continues to be in demand. AtkinsRéalis Services backlog recorded a 24% growth versus the backlog as at September 30, 2024. The continued revenue growth and increasing backlog in our Nuclear business has led us to increase our Nuclear revenue outlook to $2.2 billion to $2.3 billion for 2025. On the other hand, due to lower year-to-date revenue growth in our USLA and EMEA regions, we've decreased our 2025 organic revenue growth outlook in our Engineering Services regions business to a low single-digit year-over-year percentage increase. We expect the full year impact of these changes on profitability to be neutral. Jeff will provide more details of this later. Subsequent to quarter close, we announced the acquisition of C2AE, which advances our land and expand strategy in the U.S. and is in line with our stated capital allocation priorities. Our pipeline of potential bolt-on acquisitions remains robust, and we would expect to announce further acquisitions in the coming quarters. We're extremely proud of our accomplishments this quarter, generating record revenues, backlog and margins while utilizing strong operating cash flow to invest in M&A opportunities to expand our footprint in geographical white spaces. Our Delivering Excellence, Driving Growth strategy is creating value for shareholders. Turning to Slide 4. Revenue in our Engineering Services regions business increased 8% year-over-year. But if we exclude David Evans, revenues and positive FX impacts, organic revenue was basically flat. Segment adjusted EBITDA over net revenue margin was 17% for the third quarter, up 30 basis points versus the prior year period as operating margin improvement initiatives are bearing fruit. specifically through optimized cost, enhanced bidding discipline, artificial intelligence and continued leveraging of digital tools for more efficient project delivery. Notably, we continue to increase our backlog, which now stands at a new record high of $13 billion, representing an 8% increase versus our backlog as at September 30, 2024. Beginning on Slide 5, we provide an overview of each of our 4 regions and their performance this quarter. In Canada, revenue organically grew 1%, while segment adjusted EBITDA grew $36 million with a 17% margin, 180 basis points increase, highlighting our continued efforts on our margin improvement plan. Backlog grew 5% year-over-year and now stands at $7.8 billion. Given market dynamics, we are focusing on growing our presence in the buildings and places, transportation, industrials, power renewables and defense end markets as we believe these areas offer good opportunities in the near future. We saw growth this quarter in Transportation and Power and Renewables, while softness in the Industrial end markets remain. Separately, recent NATO commitments by the Canadian government are likely to yield further opportunities for our defense expertise. And looking out, the opportunities that will come from Building Canada Act are set to have a positive impact on AtkinsRéalis. The government's focus on accelerating domestic funding for large-scale projects is exciting and due to our well-established foothold in the market and our historical success across the entire infrastructure life cycle, we remain bullish about the near-term opportunities that may present themselves from this bill. In U.K. and Ireland, revenue grew 10% and organically grew 5% year-over-year, primarily driven by strong demand in aviation, water and defense. Segment adjusted EBITDA grew $102 million in the quarter, representing an 18.6% EBITDA margin as the business continues to improve the efficiency of project delivery. Our concentration and flexibility in the region enable us to consistently position our people in areas with the highest demand, which helps underpin strong operating margin delivery. Backlog grew 15% year-on-year to approximately $1.9 billion, driven mainly by wins in the defense and transportation markets. Our expertise in water is creating significant opportunities with the AMP8 investment program as evidenced by our recent win with the Anglian Water Services, representing a more than $1.5 billion opportunity over the next 15 years. As mentioned on prior calls, there have been several commitments by the U.K. government to increase funding for defense and infrastructure spending over the next decade. Demand in power and renewables is rising with early-stage activity in grid investments, while the established long-term U.K. industrial investment strategy will yield enhanced opportunities in the industrial end market. We have a strong and growing presence in U.K. and Ireland, and we are focusing our efforts on enhancing our capabilities across the transportation, defense, buildings and places, water, power and renewables and industrial end markets as they present the most opportunity over the next several years. Turning to Slide 7. Our U.S. Land and Expand strategy continues to make strides, and we recently announced the acquisition of C2AE, which strengthens our presence in the Upper Midwest and expands capabilities in key growth end markets such as water. During the third quarter, revenue increased 36%. However, excluding David Evans acquisition and favorable FX impacts, organic revenue was flat year-over-year as softness within our global Minerals & Metals sector weighed on the results. If we exclude that, our global -- if we exclude our global Minerals & Metals business, our underlying engineering services business in the U.S. organically grew about 4%. We experienced slower framework agreement conversion to projects and procurement disruptions which were primary growth detractors in the quarter. But that being said, we believe these headwinds are temporary, and we remain confident in the near-term and long-term growth opportunities in the U.S. for our services. Segment adjusted EBITDA was $66 million, which translates to a 15.8% operating margin, an improvement of 30 basis points on the previous year. Margin improvement was driven by sustained project execution and overhead control. The backlog increased 11% year-over-year to nearly $1.8 billion as we continue to prioritize client engagement and leverage our unique end-to-end capabilities. We continue to build our backlog in the U.S., particularly with the departments of transportation. We have continued to deepen our collaboration with David Evans team to win incremental new work, which the pipeline of opportunities continues to increase. Financially and operationally, the business is performing in line or ahead of our expectations. While we are not directly affected by the recent U.S. government shutdown, federal funding to states has slowed, impacting some of our client at state level. As a result, we're experiencing some delays in receiving contract awards and commencing projects. In the meantime, our pipeline is growing, and we are actively investing organically and inorganically to expand our position in the marketplace. And regardless of the macro dynamics, our conviction in the long-term growth of our USLA business in end markets remain strong. We are strategically positioning ourselves to win new business in the Transportation, Buildings & Places, Industrials, Minerals & Metals and Water end markets given the new opportunities we see. In EMEA, revenue declined 9%, while segment adjusted EBITDA declined to $34 million, representing a 16% EBITDA margin over net revenue. Revenue declined primarily due to lower volumes on large-scale Building & Places projects in the Middle East, where our involvement has reduced compared to this time last year. The total backlog in EMEA was approximately $1.5 billion, up 15% versus the third quarter of 2024, mainly driven by new bookings in the Buildings & Places and Industrials end market. In the Middle East, while opportunities still present themselves in Buildings & Places, we're seeing increased demand for our services in large-scale transportation projects, such as our focus is on transportation projects in the near term, but we will continue to closely monitor substantial building opportunities, such as preparing for the 2034 World Cup in Saudi Arabia. In Asia, we're seeing sustained investments in infrastructure and transportation, mainly fueled by Hong Kong's Northern Metropolis. In Australia, we are focused on expanding our presence through opportunities that leverage our global expertise in transportation, power and defense. I'd like to now move to Slide 9 and discuss our third quarter results for our nuclear business. The business continues to demonstrate exceptional growth, achieving organic revenue increase of 60% compared to the third quarter of 2024. Our Nuclear backlog totaled $5.4 billion, 68% higher than our backlog as at September 30, 2024. Segment adjusted EBIT grew 44% to $66 million and segment adjusted EBIT margin was approximately 11%. Segment adjusted EBITDA grew 40% year-over-year, and the margin now stands at 26%, almost 300 basis points higher than this time last year. On Slide 10, we highlight the achievements across our nuclear CANDU and services portfolios. In our CANDU business, we have several projects ramping up that give us excitement about the near-term revenues. We renewed a 10-year master service agreement with Bruce Power. We are continuing to work on C3, C4 at Cernavoda in Romania, and we're making excellent progress on the Pickering life extension. Our optimism in the continued advancement of CANDU projects is further underpinned by the recent issuance of more than $2 billion in purchase orders by AtkinsRéalis to over 548 companies in the CANDU supply chain during the last 18 months, with 90% of these orders to Canadian suppliers. CANDU is a world-class homegrown nuclear technology, fueling high-paying jobs and economic growth for Canadian workers and businesses. We are in ongoing discussions with several countries across the globe regarding potential new builds. While they are taking place, we remain focused on the development of the CANDU Monark. For services, we continue to offer new build support at Hinkley Point C and Sizewell C. Also in the U.K., we're driving growth in the region through our decommissioning waste management services at Sellafield, for which we've just recently renewed our framework agreement. Lastly, we extended our global strategic partnership with robotic developer, Kinova, for 3 years. Our collaboration is showcasing cutting-edge robotic innovation to perform high-performance remote operations at nuclear facilities. This technology will enable cost-effective operations at reactors and more importantly, enhance the safety of this work. 2025 has been an exceptional year for our Nuclear business. The revised revenue guidance for the year I mentioned earlier, exceeds our original estimate at the beginning of the year by more than 30%, further highlighting the opportunities in front of us to generate real revenue today across the Nuclear sector. Turning to Slide 11. You can see our pictorial reminder of these near-term CANDU revenue opportunities within our nuclear business. The potential CANDU contracts you see on this slide showcase a massive opportunity for AtkinsRéalis and could deliver significant growth for the foreseeable future. Our $5.4 billion nuclear backlog achievement is just the start as customers are continuing to recognize our nuclear expertise. We've been working hard to bolster our backlog with high-quality wins. Total backlog does not include follow-on phases for our recent wins and a very small amount of CANDU new builds. We cannot overstate the massive opportunity in front of AtkinsRéalis in the Nuclear sector. Now moving to Slide 12 and our Linxon LSTK projects and capital businesses. In our Linxon segment, revenue organically grew 15% year-over-year. Linxon realized 230 basis points of EBIT margin expansion year-over-year as operational improvements continue to positively flow through the business. Backlog increased 50% to a record $2.4 billion at the end of the quarter. We are seeing backlog improvement across the Americas, Europe and Middle East. On LSTK Projects segment adjusted EBIT was in line with expectations. And with that, I'll now turn it over to Jeff to discuss our financial results and our 2025 outlook. Jeffrey Bell: Thank you, Ian, and good morning, everyone. Turning to Slide 14. Total IFRS revenues increased 15% year-over-year, totaling $2.8 billion, which included revenue increases of 8% in Engineering Services, 62% in Nuclear and 19% in Linxon. Total segment adjusted EBIT for the quarter increased 9% to $269 million as the decrease in Capital segment adjusted EBIT was more than offset by a $41 million increase in AtkinsRéalis Services. Corporate SG&A expenses from PS&PM totaled $26 million in the quarter, in line with the previous year. We continue to anticipate these expenses should be between $120 million and $130 million for the full year 2025. Note that following the sale of our interest in the Highway 407 ETR, corporate SG&A expenses from capital decreased to $1.5 million this quarter and are expected to remain at this level. Net financial expenses for the quarter were $22 million compared to $41 million in Q3 2024, mainly due to the repayment of all outstanding borrowings under the La Caisse loan and the company's term loan in the second quarter. We believe Q4 will be a similar amount. The income tax expense was lower than Q3 2024, mainly due to revised estimates on certain tax liabilities and geographic mix. The tax rate for adjusted PS&PM net income was approximately 16% in the quarter and 17% year-to-date. And therefore, we now expect the tax rate for the full year 2025 on our adjusted PS&PM net income to be approximately 20%. The IFRS diluted EPS this quarter increased by 49% to $0.88 compared to $0.59 in Q3 2024, while the adjusted EPS from PS&PM increased 68% to $1.06 per diluted share compared to $0.63 in the third quarter last year. And as Ian mentioned, our backlog ended the quarter at a record high of $21 billion, 23% higher than at the end of September 2024, with strong increases across all our businesses, Engineering Services, Nuclear and Linxon. Let's now move on to Slide 15 and free cash flow. Net cash generated from operating activities totaled $123 million for the quarter. This was mainly driven by a stronger AtkinsRéalis Services EBITDA delivery, partially offset by the timing of working capital usage and an LSTK project's cash usage. We continue to expect operating cash flow to be in excess of $300 million for the full year 2025. After CapEx of $45 million, which included $15 million for the development of MONARK and the payment of lease liabilities of $22 million, our free cash flow stood at $56 million for the quarter. I'd like to now turn to my final slide, Slide 16. As you've heard Ian say on Nuclear, the demand for our services continues to grow, and our backlog is at a new record high. Therefore, we are again increasing our Nuclear revenue outlook to between $2.2 billion and $2.3 billion for the full year 2025 from the previous range of $2 billion and $2.1 billion that we outlined last quarter. On the other hand, we are decreasing the Engineering Services region's 2025 organic revenue growth outlook over 2024 to a low single-digit percentage from the previous range of mid-single-digit percentage, reflecting lower-than-expected revenue growth in the USA and EMEA segments. Note that we continue to expect David Evans revenues, which is excluded from this organic revenue growth to be around $300 million for 2025. We remain confident in our medium-term target of 8% plus revenue growth for Engineering Services as outlined in our Delivering Excellence, Driving Growth strategy and see the lower growth rate in 2025 as temporary in nature. All other financial outlook metrics for full year 2025 are maintained. And with that, I'll now hand the presentation back to Ian. Ian Edwards: Yes. Thank you, Jeff. We're extremely proud of our success in the third quarter, achieving several record results on the top line and on the margin front across our Engineering Services and Nuclear businesses. The combination of these 2 businesses provides us with a unique competitive mix. Also, the improvement on margin stems from the operational plan we put in place at our June [indiscernible] real tangible results. No matter the geopolitical tension that may exist or arise in the future, global energy transition and infrastructure redevelopment are fueling growth in our markets, where we have built a strong foundation or are landing and expanding. Our balance sheet and appetite for growth puts us in a distinct position to capitalize on M&A opportunities that may arise in this current macroeconomic landscape. Our team is working tirelessly to continue executing our delivering excellence and driving growth strategy. And I want to thank our 40,000 employees for their hard work and dedication. We are proud of our performance to date in 2025 and are actively positioning the company to capture real revenue across our engineering services business in '26 and beyond. So with that, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from Chris Murray with ATB Capital Markets. Chris Murray: Maybe starting with the organic growth profile. So a couple of questions around this. One, you talked about it slowing a little bit in Q3. And I'm just wondering a couple of things. So one, as we go into Q4, you called out a couple of different spaces. But just kind of curious to see, are you seeing in Q4 an extension of the same trends? Or is there something different? Just wondering maybe if there's anything around the U.S. government shutdown that's maybe slowing things and leading to your view? And then more importantly, I think you described this as sort of a temporary slowdown. Can you maybe give us some more color on why you have the confidence that as we enter 2026 that you think it should maybe revert back to what we've talked about kind of those historic mid-single-digit levels for the Engineering Services business? Ian Edwards: Yes, for sure. And this is presumably the questions relate to Engineering Services, right? Chris Murray: It does, yes, please. Ian Edwards: Yes. So look, I mean, obviously, through the kind of journey of 2025, we've had some challenges to overcome. But they are specific challenges. They're not underlying issues that are going to take us through into the future. And those specific regions, as we've said in previous quarters, we've had some pretty hard year-over-year comps because of really 3 large projects in our Canada region, in our Middle East region and in our Mining and Metals. But we've worked our way through that. So those are behind us now. And then there's clearly been some kind of disruption to the U.S. market, which I'll come back with. So the quarter, we've actually seen a continuation in Q3 of disruptions in the U.S. And as we think about those disruptions going forward, which have really been about states sitting on project releases and sitting on project awards. It's the volatility connected to tariffs that shut down The Big Beautiful Bill. But what we're seeing now is that actually being overcome. And we're seeing definitely in Q4, a return to wins, a return to orders coming through. And you got to remember that the fundamentals in the U.S. that drive our markets in energy and in replacement of infrastructure resilience work are all really good. And also, we've got to remember the IIJA is only actually about 40% expended so far. So -- and that bill has still got support. So that's specifically in the USLA region. And in EMEA, we've actually kind of started reprioritizing the way we look at EMEA because we were heavily dependent on some very big jobs in KSA in Saudi Arabia. And one of those jobs, we've closed out Phase 1, and we're seeing a lot more diversified opportunity, both in the UAE and both in transportation. So we're pretty confident going forward in that region as well. So looking at our backlog and particularly looking at the backlog, I won't counter through each region because I'm sure there'll be another kind of question on that. But if you look at our backlog, it's 8% up. That's a leading indicator for me. And as we look at performance in Q4, we're getting back to growth. And obviously, our revised guidance isn't 0, but we are -- we will end with positive growth. And that will take quite a bounce back in Q4 to get there, which we're confident we're going to do. And then moving into '26, obviously, we're looking at development of pipeline and our kind of preparation for the Q4 outlook already. And we're seeing pretty good growth, and we're fairly confident going forward that we're going to return to some good growth numbers. So it's a few specific challenges this year, but very confident going forward that we're going to return to growth in ES. Chris Murray: All right. That's helpful. And then maybe turning to nuclear. A couple of pieces of this question. So first of all, I wonder if you can maybe add your take. There's been a lot of discussion around nuclear services more broadly, particularly in the U.S. with some of the SMRs. But you've also got, I think, lots of opportunity even with the CANDU technology and other things that you've been able to work on. Can you maybe walk through maybe high level, your thoughts around the nuclear industry and penetration of nuclear and how you think Atkins maybe fits into this whole ecosystem from the perspective of either supporting some of these newer proponents with smaller technologies or having the Monark able to address different segments of the market. So just thoughts about like how we should think about where Atkins can go in the Nuclear business over and above where it is today would be helpful. So I'll leave it there. Ian Edwards: All right. This is probably going to be a fairly long answer, but that's fine. It's a good start. Look, I mean, we're in a super cycle. The two world conferences were in Q3 in Nuclear. Where one in London called the Symposium and one in Paris called the Exhibition. And what's really clear to me, having attended and spoke at those conferences is AtkinsRéalis and the CANDU technology operates on the world stage as a leader. And I think that's the first thing I would say. And when we look at our business, as I've said before, we're not just a nuclear OEM of CANDU. We are a full-service nuclear business in addition to being an OEM in CANDU. And this puts us at a very differentiated place in the nuclear market. And I'll call out a couple of our differentiators because these are really important. And I'm not sure that they're fully understood by everybody. The first thing is that capacity for nuclear companies is going to be everything. There's clearly a strong demand. All countries that signed up to the tripling are looking for new nuclear. Hyperscalers are looking for nuclear -- it's very, very real. We have got 40,000 professional people in our company, 6,000 to 7,000 of those are nuclear professionals because we build capacity through the life extension program here in Canada. That's not unique because the French and the Chinese clearly have a big nuclear program, too, but it puts us up there at the top with capacity. We have a supply chain in Canada. There's got 90,000 people in it doing manufacturing and actually professional skilled labor in the nuclear industry. That, again, it's not unique, but it's up there with some of the best countries in the world that can deploy nuclear technology. We have a world-class technology in CANDU. And it's differentiated because it uses natural uranium, which gives countries energy security because an abundance of natural uranium. There is not an abundance of processed uranium. In fact, there's a shortage. And we can produce medical isotopes, which countries and customers are very interested in. And Canada has a unique advantage in the way that it operates with countries around the world because where we've built CANDU in India, Korea, China, Romania, Argentina, we've left behind decades of relationships between Canada and those countries and decades of relationships between AtkinsRéalis and the utilities, which is well renowned and it's recognized by new countries that are coming into the technology. So I guess the last point, I would say, I mean -- and just to remind everybody on Slide 11, this growth that we're experiencing right now is no new build in it. And we're all over the map now trying to sell the CANDU technology. And we're getting very good traction. Clearly, there's nothing to announce, but in the coming years, there will be. And our services business is a full services business that supports SMRs in U.K., in U.S. and here in Canada. We have a business in services, which supports EDF, Hinkley and Sizewell with hundreds and hundreds of engineers deployed on those jobs. We do processing of waste and we're even in infusion. So all in all, what I'm trying to explain here is we've got a really differentiated business here. And I'm glad you asked the question at the beginning. I know that was a long answer, but that is what is the reality of where we're at. Operator: Our next question. Our next question comes from Krista Friesen with CIBC. Krista Friesen: Maybe just going back to the first question and looking at EMEA. Can you provide a little bit more color just on the margins in that segment and how you're expecting those to trend over the next year and maybe what you've put in place to kind of help those margins? Ian Edwards: Yes. So let me do the market and how we're repositioning the business. And Jeff will comment on the margin front and how we see that kind of in our margin expansion program. So I mean, basically, our EMEA business historically has been heavily focused on Saudi Arabia. Now Saudi Arabia itself has done some reprioritization of spend and of projects they're going to focus on. They want to focus on Riyadh. They're focusing on the World Cup '34 and Expo '30. So it's not that the place has gone flat from a market potential. It's actually just reprioritized. And we're really well positioned. But we have finished out a huge project that has given us the kind of decline in that KSA business this year. Now the UAE is also really interesting because they are actually seeing themselves compete with Saudi Arabia, and they're putting investment back into the UAE, both in buildings and places, but interestingly in transportation. And we're bidding numerous kind of rail jobs there right now. And obviously, we've got that global capability. So it's easy for us to be agile and kind of exploit those opportunities as the market kind of pivots and the opportunities change. But as far as the EMEA region is concerned and its growth plan in the future, we're really opening up Australia and the Asia region. And Australia is really important to us in terms of our energy capability and our defense capability, where a lot of the funds are going now from government, where historically it was all about transportation. So we feel we've got a really good opportunity there. And then in Asia, Hong Kong, we've always had a good business. They are developing a new city on the border with China called the Northern Metropolis, and we're winning work there now. So we're pretty optimistic about the region of EMEA -- but obviously, we've had a bit of a reprioritization and challenges to work through this year. So we're pretty confident going forward. And Jeff, maybe you could just talk to the kind of margin expansion. Jeffrey Bell: Yes. So I think what we'll see, and as Ian has said, we're transitioning the business, particularly in the Middle East. There have been some very large, very profitable projects there. And so as we head into next year, we'll have to see the business transition away from those. So we may see a bit of headwind margin-wise in the Middle East. But as Ian said, as we grow other parts of the EMEA region in Australia, in Asia, those are good margin geographies. And as they start to take a larger proportion of that region, that will help underpin margin delivery in EMEA there. So over the longer term, we don't see any reason why EMEA wouldn't be part of our 17% to 18% target in the long term. Krista Friesen: Okay. That's great color. And then maybe just -- just one last one for me, maybe a higher level one on nuclear. Obviously, you've increased your guidance significantly throughout the year, I think roughly 36% from what you started with. Has the mix evolved as you have expected it to evolve for your nuclear business? And does it change how you think about the margins at all over the medium term? Ian Edwards: Yes, that's a very good question. I mean I think as the year has evolved, what we've been awarded in terms of life extension and services businesses is not different from what we expected, but it has come sooner. And even the progress on the Pickering life extension, we're getting better progress than we thought. And also at the beginning of these life extension projects or any kind of nuclear power project, there's a lot of procurement you've got to put in place for long lead items where the margins on that work are not as good as the actual engineering and execution work that we do ourselves. So I think that's probably where we've evolved through the year, and you're seeing that in our results. But that's good news. I mean things are happening quicker than we thought they would happen. Operator: Our next question comes from Yuri Lynk with Canaccord Genuity. Yuri Lynk: Maybe one for Jeff. It looks like to get to the midpoint of your Engineering Services region's EBITDA margin guidance for the year, 16%, 17%, it's going to require 80-ish basis point step-up in margin in the fourth quarter, which is not the typical seasonal pattern that we've seen in the past. So just wondering if there's anything unique in play in the fourth quarter that would drive the margin sequentially higher? Jeffrey Bell: Yes. Thanks. As you say, I'll take that, Yuri. So we do typically see stronger margins in the second half of the year than the first half of the year. You saw that in Q3. And we are -- we remain very confident in delivering that 16% to 17% for the full year. And as you say, that does mean strong fourth quarter operating margins. But with all the work we've done on our initiatives through the year and that you've seen coming through in Q3, we see an absolute continuation of that in the fourth quarter. And that's everything from continued better and more sophisticated pricing with our clients. It's better productivity and utilization. It's higher utilization of our global technology center in India and the continued work on our overhead cost base. So the work that we've delivered through the year and in the third quarter, we see that absolutely continuing in the fourth quarter and remain very confident in delivering that uplift in Q4. Yuri Lynk: Okay. Second one is just on the U.S. region within Engineering Services, USLA. Can you talk about -- a little bit about when you've done your portfolio reviews, including Linxon and Capital and stuff like that, why the mining business, the mining and minerals business never didn't come up in those -- I'm sure they did, but you decided to keep it. And I guess, why keep that business? Is it scaled properly to compete with the bigger mining-focused engineering houses? And is having it in the U.S. segment appropriate, I guess? Ian Edwards: Yes. All our businesses, we review regularly. I mean we review the whole mix of portfolio to make sure that the long-term strategy of the company has got the right portfolio of businesses going forward. And absolutely, the Minerals and Metals business, we've reviewed a couple of times, and we will continue to do that to make sure that it can get to the profitability and the growth that makes it meaningful and at scale. It was a business that we had to repurposed from an EPC business a long time ago into a pure-play services business. And that's taken time, frankly. But I think we're getting some good traction now, and I think we're getting some better profitability. We are winning some work. In actual fact, we've been picking work up recently in the sector. Whether it belongs in USA, it's just a question of putting it with one of the presidents. And it is a global business because the business has to be client focused. There are a handful of large mining operators around the world. So you can't really regionalize the business. It's got to be a global business that follows clients basically. So -- we're happy with it right now. It's in the business right now. We do see this need around the world for critical minerals. We don't really do coal. We do the specialized critical mineral kind of mining projects supporting customers. And we're happy with it where it is right now. Operator: Our next question comes from Sabahat Khan with RBC Capital Markets. Sabahat Khan: Just, I guess, looking ahead to '26 a little bit just on the broader setup. You obviously indicated that the IIJA, a good chunk of it hasn't been spent and/or even allocated. Can you maybe just talk about the outlook for rest of that larger infrastructure bill to be rolled out and sort of your early thoughts on that region on a potential new infrastructure bill at some point? Just trying to gauge the demand drivers for the U.S. market for next year. Ian Edwards: Yes, yes. So look, there's a couple of things that are specific to ourselves, which I'll probably say at the beginning. Our business has got 6,500 people in it. Some of our peers have got over 20,000 people in their businesses. So the way I think about our strategy in the U.S. is that we've got a long way to go and a long runway to go. Our ambition in the near term once 2 years is to get the business in the top 10, which would require us to have 10,000 people or more. And obviously, beyond that, in the longer term, we want to be in the top 5. We want to be a serious player in the U.S. The fundamentals of the U.S. market are really, really strong. The need for energy security, they've got an aging infrastructure problem in the U.S. with actually a $3.7 trillion gap in infrastructure investment, which ultimately will play through to a deterioration of roads, water, rail infrastructure, which they will have to spend on to bring it back to operable state. resilience work in the U.S. for flooding, flood defense and hurricanes, unfortunately, present an opportunity, obviously, at the expense of disasters, which is not great, but it's an opportunity for us. So the IIJA is 40% allocated and spend. That will continue to fund states. For ourselves, I don't think The One Big Beautiful Bill will have a specific impact on us. I mean I think it will have an impact on industrials perhaps and maybe the energy sector, which will have less impact for us, I think. But we're really confident in our strategy, and we will continue to invest in M&A, and we'll continue to land and expand across the states. As I said before, the issues, we really do see them as temporary, and we are actually seeing an increase of flow-through now, particularly as we're getting into the fourth quarter, and we're picking up work. So all in all, it's probably been a bit of a disruptive time this last year, but I think we're going to get back to some good growth opportunities. Sabahat Khan: Great. And then just on the sort of the last comment around M&A, just given where the balance sheet is, you were active on the buyback this year. How do you think about potentially reactivating that buyback just given the number of M&A opportunities out there? Just how are you going to balance the two at this point in cycle? Jeffrey Bell: Yes. It's Jeff. Why don't I take that? I think as we've said earlier and to what you've referenced, we have taken advantage of that share buyback significantly over the course of the year. And as we said in the last quarter, our focus really from a capital allocation perspective is around growing and investing in the business, primarily through M&A and inorganic activity. And as Ian has said, we see real opportunity to continue to land and expand in the U.S. We see opportunity in other geographies or areas of capability where we have white space. And the pipeline of opportunities is really strong. We're seeing lots of good potential organizations that we're in discussions with, we're in processes with. And therefore, we're very confident in our ability to continue to deploy capital in a value-creating way and a strongly value-creating way like that going forward. So that will continue to be our area of focus. Operator: Our next question comes from Benoit Porier with Desjardins. Benoit Poirier: Just on the nuclear, it seems like your main Canadian nuclear reactor competitor has signed an MOU agreement with 4 potential large-scale Alberta nuclear project you were previously involved in. So can you give us an update on the current competitive dynamics in the Canadian nuclear market? Ian Edwards: I actually thought that announcement that came out was American. But -- so I understand exactly what you mean. You're talking about our competitors' announcement to partner with the U.S. government to deploy reactors in the U.S. And I think this is a good thing. I mean I think it just shows the momentum in the nuclear industry. I mean, clearly, the U.S. government is highly committed to new nuclear. There are executive orders that are signed. And I think that partnership is a really smart partnership for the deployment of new nuclear in the U.S. And as I've said in the past, I mean, capacity is everything and initiatives like that to enable capacity to be built and meet the demands of the new nuclear market is very good. But for ourselves, we are Canadian. Our business is Canadian supply chain, Canadian jobs. and the technology is Canadian. It's actually owned by the Canadian government, but we have the sole rights to deploy it. And all the reactors in Canada right now are Canadian and CANDU. So the way that I would see this from a competitive perspective in Canada is I would hope that our utilities and our provinces here in Canada choose a technology, which is Canadian, which will supply jobs to Canadians because no other technology will do that. The jobs will go down south with the company that you're referring to for manufacturing and for engineering. So from a competitive edge, we kind of hope that sense will prevail and we'll support our own technology here in Canada, if that's at the heart of the question. Benoit Poirier: Yes. Okay. That's great color, Jeff. And obviously, you have ongoing discussion with several countries on new builds with CANDU. There's a big potential, obviously. I'm just wondering if the -- is it dependent on your ability to secure first the MONARK in Canada? Or any color about the potential timing for new builds, what we should expect in terms of timing for announcing new builds? Ian Edwards: Yes. So outside of Canada, I mean, obviously, we're working hard in Canada. We are in competition. I mean that's a fact. But we're working hard in Canada for deployment of the MONARK. Outside of Canada, we're seeing numerous opportunities in Eastern Europe and potentially Asia. Actually, the technology that is wanted is actually our EC6 existing technology, which is a 700-megawatt reactor. And the grids in the countries that we're discussing are more suited to a small reactor, which is a different situation than it is in Canada. And the other advantage of the EC6 is deployable now. It's existing technology. It's the technology that we're delivering in Romania for the 2 new builds in Romania. So I mean, there's nothing to announce today. We're working very hard. We've got very detailed technical and commercial meetings ongoing with several countries. The first stage of anything would be an MOU announcement, and then there would be a development through to what we would call a feed contract or an initial contract, which, again, it would probably be certainly back end of next year, if that was to happen, but we're working hard on these things. And there are numerous opportunities to be clear, for the EC6 out there. Operator: Our next question comes from Michael Tupholme with TD Cowen. Michael Tupholme: Ian, you spoke earlier in the call on several occasions about your capabilities in the defense arena and some of the opportunities you see there. I'm wondering if you can add on to that and speak in a little bit more detail about exactly where you see AtkinsRéalis as having strong capabilities in defense. And to what extent you think we could see defense be a growth area that really contributes in 2026 and beyond? Ian Edwards: Yes. Yes. No, for sure. I mean our current real strength in defense is in the U.K. And where we play is in the facilities to operate, maintain and house assets. So assets being aircraft, submarines, ships, even people, barracks and the like. And what we've experienced in the U.K. over the last few years is a fairly significant upgrade of existing dockyards, existing air fields to take on the new evolution of assets. A good example of that and how we will move from the U.K. to other countries would be the AUKUS submarine program, where we are the engineer of physical infrastructure assets to support that program in the U.K. And having got that experience, we are in a very good place, I think, in Australia, where the AUKUS submarine is being deployed also. And they're going through a big program to build ports actually to support ours and maintain their first nuclear submarine in Australia. And the same in Canada. I mean, new aircraft in Canada, new ships in Canada, new potential submarines in Canada, all of the physical infrastructure will need upgrading to be able to operate and maintain those assets. And probably the fact that really isn't well known is that when you buy a bunch of assets in the capital -- sorry, in the overall cost of deploying those assets, well over half of it is in the physical infrastructure and the operations and OpEx to operate that over its life. So there is quite an investment that goes into the kind of non-equipment asset when defense programs are being put through. So clearly, with the U.K., Australia and Canada having increased commitments, those are the countries that we see the best opportunity for ourselves. Michael Tupholme: Okay. That's perfect. And then as a follow-up, you had a number of questions earlier about the organic growth in the ESR segment. Wondering if you can talk a little bit about David Evans. I know at the moment, it's contributing to acquisition growth. But within its underlying operations, what have you seen in the third quarter in terms of its own underlying organic growth? Ian Edwards: Yes. I mean, good growth. They continue to perform in line with our expectations. the integration piece and the cooperation between our U.S. business and David Evans is going well. And probably going forward, the most important thing is that we've developed a pipeline of opportunities that actually David Evans wouldn't have been able to bid them because of scale, and we wouldn't have been able to bid them because of a lack of local connectivity and presence and people. So that pipeline now goes well into 2026 and it's being executed together. So we're actually putting teams on those bids. -- which are joint teams at this stage. And we would hope to start winning work, which is beyond kind of the ability that David Evans would have had on their own. And those revenue synergies were part of the whole thesis of buying David Evans in the first place. Operator: Our next question comes from Jonathan Goldman with Scotiabank. Jonathan Goldman: You revised the organic growth guidance in Engineering Services to low single digit. That does seem to imply a pretty significant growth in Q4, double-digit growth. I know part of that is just an easy comp last year. But what visibility do you have as we sit here today on getting to that sort of level of growth in Q4? Jeffrey Bell: Yes, Jeff, why don't I take that? We have really good visibility, Jonathan. And you are right. We are lapping a less strong quarter in the previous year. So that clearly underpins some of that growth increase quarter-over-quarter that we'd expect in Q4. But as you heard from Ian earlier, we are finished off some of the projects that were creating some of that headwind. But we are seeing real increase in activity in the markets that we're in. We're seeing higher levels of backlog. We are seeing contracts and framework agreements that we've now won -- that we have won that had some delay is particularly true in the U.S., now actually turning into revenue. So now that we're the better part of 6 weeks halfway through the quarter, we are definitely seeing an uptick in contracts into revenue, higher utilization and productivity. And so we, therefore, are very confident in that return to that underpins our overall full year guidance of growth. Jonathan Goldman: Okay. That's helpful. And maybe, I guess, talking about the backlog, Engineering services kind of flat quarter-on-quarter. Is some of that maybe timing related and kind of near the cadence that you're seeing on the top line organic growth guide, but on the backlog side as well? Jeffrey Bell: Yes, a bit of that. But I think it's fine we've seen this over the last 2 or 3 quarters, just this lengthening of clients taking pieces of work that we've won and just taking disproportionately longer to turn that into actual purchase orders or statements of work that we execute against. Now we're seeing that starting to flow a lot more like we had seen previously. Jonathan Goldman: Okay. That's really helpful. Makes a lot of sense. And I guess maybe a higher level one for you, Ian. The 40% of IIJA money that's only been spent so far does seem to set up well for the next few years. But is there a risk that the balance of the money does not get deployed given all the uncertainty in the market and kind of things that are happening with the U.S. administration? Ian Edwards: Well, there's always a risk. But what we're hearing and what we understand is that the bill has got support and that the bill is necessary to try and fill this infrastructure investment gap that is across the country. Operator: Our next question comes from Devin Dodge with BMO Capital Markets. Devin Dodge: I was going to ask a question on Nuclear. So the 2027 revenue target, $2.2 billion, $2.5 billion, and you're in the low end of that range in 2025. So I'm just wondering if we should be expecting revenue growth to be, we'll say, relatively more muted in '26 and '27 off of a pretty high pace in 2025? Or should we be assuming there's some conservatism still baked into the 2027 target? Ian Edwards: So obviously, we've seen phenomenal growth year-over-year, '24, '25. And we will continue to grow revenues even with the backlog we already have. And on Slide 11, you can see that sort of visibility of the follow-on phases that will fuel our revenues and backlog into -- through to 2027. But we're not going to see the kind of growth that we've seen year-over-year '24 to '25 because we're obviously comparing next year against very good growth in '25. You will see growth, but it will be very different than you've seen this year. I mean -- and also, I would say that repeat what I said before that on the Slide 11, the backlog and the near-term revenues are really about the new build that and about the life extension projects. If and when we start winning further new builds, the revenues at the beginning will be quite low because the engineering phase and the feasibility phase of these projects are not going to bring significant revenues until towards the end of this decade, where they really will bring significant revenues. So the way we see it is we've got great growth potential for the medium term in this business through into the next decade, but it's not going to be what you've seen recently. Devin Dodge: Yes. I mean, fair enough. I mean -- but do you see maybe a mix shift more towards, we'll say, services versus procurement as you think about '26 and '27. Ian Edwards: Well, I see both actually. I mean the CANDU technology, obviously, as I said, we're in discussions in Canada, we're in discussions around the world for new builds. But the services business, which supports other technologies and decommissioning and waste management and even fusion programs is also winning work. And so the whole industry is really going through this super cycle, and we're seeing good opportunities all around. And our U.S. business is relatively small right now, but with a very strong commitment in the U.S., we're taking the CANDU technology through the licensing process to ensure that we are able, if utilities and clients want the Canadian CANDU technology in the U.S., we're able to deploy it there as well. So I think it's the whole industry is pretty buoyant. Devin Dodge: Okay. Fair enough. And then switching over to maybe Engineering Services. Obviously, it seems like a pretty active M&A market there. What do you see as the drivers for sellers coming to the market now? And what's your pitch to them to select Atkins to be the buyer of choice? Ian Edwards: Yes. I mean at the scale of deals that we're doing at the moment, I think owners of privately owned companies at the 1,000-ish size, they get to a point where they've got to do something different to continue to grow, either get investment from private equity or join a strategic such as ourselves. And I think the advantage, particularly in the U.S. for ourselves is that we've got a lot of white space geographically. So they're not going to get absorbed into a machine that gives them no unity and gives them no kind of identification of what they have become and what they are. So for our strategy, it's a matter of stitching together geographic targets to give us a complete picture across the U.S. And something like David Evans, there was high competition for that acquisition, but we managed to work together to ensure that what they wanted for their future and what we wanted for our future became aligned. Now it doesn't always work. I mean -- but the good news in the U.S. is there's numerous targets that are in that situation like numerous and that are continually coming on to the market. And then, of course, you've got the recycled assets from private equity that come on to the market at the end of that investment cycle. So it's a very buoyant and quite exciting market for us at the moment, but that's our strategy. Devin Dodge: Okay. Good color. And then maybe just one quick clarification, and apologies if I missed it, but are you still expecting to reach the targeted 1 to 2 turns for net debt to EBITDA by the end of 2026? Jeffrey Bell: Yes. We didn't comment on it, but I would say our comments remain the same that we laid out at Q2 and that I commented to then is that largely, we expect to be -- to deploy capital in line with the capital allocation framework we laid out such that by the end of 2026, we at least be at the -- around the bottom end of the range of our 1 to 2x leverage. Operator: I'm not showing any further questions at this time. I'd like to turn the call back to Denis Jasmin for any further remarks. Denis Jasmin: Thank you very much, everybody, for joining us today. If you have further questions, please do not hesitate to contact me. Thank you very much, very. Bye-bye. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to Orbit Garant Drilling's Fiscal 2025 First 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 company'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 company's latest MD&A and annual information form, which are available on SEDAR+. Management may also refer to certain non-IFRS financial measures. Although Orbit Garant 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 company's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on Thursday, November 13, 2025. I would now like to turn the conference over to Mr. Daniel Maheu, President and CEO of Orbit Garant Drilling. Please go ahead, sir. Daniel Maheu: Thank you, Julian, and good morning, ladies and gentlemen. With me on the call is Pier-Luc Laplante, Chief Financial Officer. Following my opening remarks Pier-Luc will review our financial results in greater detail, and I will conclude with comments on our outlook. We will then welcome questions. Our financial results for the fiscal first quarter reflect the impact of a few short-term issues. In Canada, we completed drilling activities on certain projects earlier in the quarter, and we gradually ramped up activity on new projects, which typically yield lower gross margin at this early stage of operation. In addition, customers temporarily delayed certain drilling project in Canada and South America during the quarter. These were company-specific decision that had nothing to do with our performance. For instance, one of our project in Chile was delayed due to an earthquake in the area. Fortunately, no personnel of Orbit Garant was injured, and this project resumed after a couple of weeks. Revenue for our first quarter declined by 3.7% compared to Q1 last year, reflecting the short-term impact. Adjusted gross margin was 17% compared to 20.2% in Q1 last year. We expect to benefit from the resumption of delayed projects in Canada and South America and the continued advancement of our ramp-up activities on newer projects in Canada in our fiscal second and third quarter. Demand for drilling services in both Canada and South America is increasing, supported by near record gold prices and elevated copper prices. Our bidding activities on new projects has increased significantly in the recent weeks. In addition, many current customers are informed us that the intent to increase drilling activities over the next 12 months. We have the operational capacity to accommodate this higher customer demand with minimal CapEx. Accordingly, we have an opportunity to expand profitability as demand pickups despite a highly competitive environment. I will now turn the call over to Pier-Luc to review our financial results for the first quarter in greater detail. Pier-Luc? Pier-Luc Laplante: Thank you, Daniel, and good morning, everyone. Revenue for the quarter totaled $46.7 million compared to $48.4 million in Q1 last year. Canada revenue was $33.7 million in the quarter compared to $35.4 million last year, reflecting lower drilling activity due to drilling project completions, client-initiated project delays and the gradual ramp-up of new projects. International revenue totaled $13.0 million, similar to Q1 a year ago as higher revenue in Chile was offset by lower revenue in Guyana. Growth in South America was constrained by client decisions to temporarily delay certain projects, as Daniel noted. Gross profit was $5.7 million or 12.1% of revenue compared to $7.6 million or 15.8% of revenue in Q1 2025. Adjusted gross margin, excluding depreciation expenses, was 17.0% in the quarter, compared to 20.2% in Q1 last year. The decreases in gross profit and adjusted gross margin were primarily attributable to drilling project completions and the gradual ramp-up of new projects in Canada and client-initiated project delays in both Canada and South America. Adjusted EBITDA totaled $3.7 million, down from $6.2 million in Q1 last year. The decrease was primarily attributable to lower operating earnings in our Canada and International segments for the reasons I just noted. Net earnings for the quarter were $0.3 million or $0.01 per share diluted compared to $2.9 million or $0.08 per share and diluted in Q1 last year. The reduction was due to lower operating earnings in both segments as discussed. Turning to our balance sheet. We withdrew a net amount of $5.3 million on our credit facility in the quarter compared to a net repayment of $0.5 million in Q1 a year ago. Our long-term debt under the credit facility, including an undrawn USD 5.0 million revolving credit facility, and the current portion was $19.3 million as at September 30, 2025, compared to $14.0 million as at June 30, 2025, our fiscal 2025 year-end. Our increased debt was primarily the result of our yearly shipments of equipment and inventory for our operations in Nunavut and Nunavik. We expect to be active in paying down debt on a net basis throughout the remainder of the year. On October 28, we announced that the Toronto Stock Exchange approved our renewed normal course issuer bid, which allows us to repurchase up to 500,000 shares over a 12-month period that began on October 31, 2025. Under our previous NCIB, which expired on October 30 of this year, we repurchased and canceled 68,916 of our common shares at a weighted average price of $0.82 per share. We continue to view the NCIB as a useful tool to enhance shareholder value when the underlying value of Orbit Garant is not reflected in our share price. Our working capital was $55.1 million as at September 30, 2025, compared to $50.4 million at the end of fiscal 2025. I'll now turn the call back to Daniel for closing comments. Daniel? Daniel Maheu: Thank you, Pier-Luc. We are confident in our business outlook for the remainder of fiscal 2026. The temporary issue that impact our first quarter results are rapidly being resolved. As delay projects resume and newer projects continue to ramp up, we are getting back on track, and we are well positioned to accommodate increasing customer demand. The current metal price environment provides strong support for the demand. Gold prices reach all-time highs last month, above USD 400 an ounce. The gold mining industry is generating very attractive margin and current prices, which remain above $4,000. Miners have a strong motivation to spend more on exploration and development to expand their reserve as much of their low-grade material has now become profitable to extract. Copper prices also hit record level earlier this year and are currently above USD 5 per pound. The supply-demand outlook for copper is favorable and support elevated prices going forward, which is positive for our Chilean operations. Demand for both senior and intermediate mining customers is increasing as we are encouraged by the recent increase in financing activities in the junior mining sector. While it has not immediately result in higher demand for our drilling services, we are optimistic that juniors will eventually deploy more capital on exploration. We plan to selectively pursue more businesses with juniors as demand rises. Our priority going forward remain the same: First, a strategic focus on senior and well-financed intermediate customers in Canada and South America. Second, our disciplined business strategy and finally, our continuous operational improvement program. By focusing on these 3 priorities, we intend to capitalize on opportunities in this period of elevated customer demand to deliver enhanced profitability on a sustainable basis and stronger returns for our shareholders. That concludes our formal remarks this morning. We will now welcome any questions. Julian, please begin the question period. Operator: [Operator Instructions] Our first question comes from [indiscernible] from Glacier Pass. Unknown Analyst: I was wondering if you could just follow up a little bit on some of the prepared remarks you had in terms of the overall market outlook. You talked about bidding activity increasing and your clients looking to increase their activity. Maybe I'd just be interested versus the first half of the year, how many tender opportunities are you seeing now? And then it would also be great to get some color on what your existing customers are saying. In the beginning of the year, there were estimates that exploration budgets could be increased by up to 20% year-over-year. That obviously kind of has not come to fruition, but do you think we might see that with the delay? So yes, I'd appreciate your thoughts. I had 2 other questions afterwards as well. Daniel Maheu: Okay. Thank you for the question. Actually, what we saw, our customers are in processing of doing their exploration budget for calendar 2026. So there are requests directly for increasing on some contracts that we have with major and intermediate customer here in Canada to increase by 1, 2 drill in 2026 calendar. Is that possible for us? And we -- for sure, we have a great opportunity because we have rate of activity of roughly 56% of our drills. So for sure, we have -- it's easy for us to increase our activity with these actual customer. For your second question, yes, we saw since a few -- let's say, in the last 6, 8 weeks, more request for bid for -- from major customer in Chile, in Canada and also intermediate customer. And recently, in the last few weeks, smaller junior request for bid. So that's something positive for us. Unknown Analyst: Okay. I appreciate that. And then maybe just 2 more technical questions. During the quarter, you talked about the negative change in working capital for moving equipment. Just for the full year, I was curious, do you expect the working capital to be a source or a use of cash? Pier-Luc Laplante: Well, for the year, yes, we expect -- but we think that the -- for us, the main -- one of the main courses that we have about that is in summer, we have to send equipment to our northern projects, equipment and inventory. And that's because the barges have to leave before the -- and come back before the ice forms. So we have to send most of the equipment needs for the next year and most of the inventory needs for the next fiscal -- well, this fiscal year, fiscal year 2026. Unknown Analyst: I appreciate it. It's just... Pier-Luc Laplante: It should stabilize in the next coming months and the rest of the quarters. Yes. Unknown Analyst: So for full year, working capital will be kind of flat? Pier-Luc Laplante: Yes. Unknown Analyst: That's helpful. And then just kind of a last question. Just looking at Q2, you mentioned that you're seeing benefit of a ramp-up in new activity. I was just wondering, do you think the issues of Q1, like have they fully played out? Or do you think they might leak into Q2 as well? Or should Q2 be more of a normalized quarter? Pier-Luc Laplante: We expect some of them to remain in Q2, and we anticipate that some of them we have resolved. We think that some of the client delays, most of them have resolved right now, but some of them will resume in January of 2026. Operator: We have no further questions. I would like to turn the call back over to Daniel Maheu for any closing remarks. Daniel Maheu: Thank you to everyone for participating today. We look forward to speaking with you again soon. Operator: This concludes today's conference call. You may now disconnect.
Hannes Wittig: Good afternoon, and welcome to Deutsche Telekom's Third Quarter 2025 Conference Call. With me today are our CEO, Tim Hottges; and our CFO, Christian Illek. As usual, Tim will first go through his highlights for the year-to-date, followed by Christian, who will talk about the quarterly performance and our group financials in more detail, and then we have time for Q&A. Before I hand over to Tim, please pay attention to our usual disclaimer, which you'll find in the presentation. And please also note that this conference will be recorded and uploaded to the Internet. And now it's my pleasure to hand over to Tim. Timotheus Höttges: Thank you, Hannes, and welcome to our results call for the first 9 months. Amidst various headwinds, we continue to deliver consistent, reliable growth. As usual, I will start with the year-to-date view for the group before Christian will dive into the details of the quarter. In the first 9 months of 2025, we delivered 3.7% of organic service revenue growth, 4.4% organic EBITDA and 6.8% growth in free cash flow and 9.5% growth in adjusted earnings per share. With these results, we remain on track for the midterm targets of last year's Capital Market Day. Also today, we raised our guidance to reflect T-Mobile's guidance increase. Despite a weaker than usual quarter in Germany, we talked about that last time, we keep our full year DT ex U.S. guidance unchanged, thanks to the good developments in other areas. We made progress with our strategic agenda in the U.S. with our successful acquisitions in Germany with a record fiber build, new collaborations and Europe's first industrial AI cloud across the Atlantic with significant progress in AI-driven digitization and our disciplined financial execution was recognized by Moody's with a credit rating upgrade to A3. Last not least, the Board of Management is proposing a dividend increase of 11% to EUR 1 per share for 2025. In addition, we plan to buy back EUR 2 billion worth of our own shares in 2026 together amounting to a shareholder return of nearly EUR 7 billion. As you can see on the next page, all our segments are contributing to our EBITDA growth. T-Systems leads the table with 11.7% year-to-date EBITDA growth. DT ex U.S. grew by 2.9% in the first 9 months. Moving on to our networks, where we continue to extend our leadership. In the last 12 months, we passed 3.6 million additional European homes with FTTH. We now nearly reached 23 million homes, of which nearly 12 million is coming from Germany. In the U.S., our joint ventures are delivering as expected, and we now have 934,000 fiber customers. Our mobile networks are leading across the footprint, and we are confident to maintain this leadership in all our markets. Let me now dive a bit deeper into a German fiber plan. We made some encouraging progress this year. And I know this is a big question mark for you what we are doing here and how are we reacting on the developments. First, we passed a record numbers of homes year-to-date, plus 17%. We connected more homes than ever before, plus 9%. And we achieved this with lower total CapEx, resulting from fiber CapEx savings, minus 9%. We achieved the savings through a variety of measures, AI-powered digitization, I talked about that, process industrialization, more shallow digging and better purchasing. This slide here is to illustrate that our fiber build has become much more efficient. This is a very important building stone for our strategy going forward. Another important building stone going forward is the tax benefited grant, which the German government developed over their accelerated depreciation model. We plan to reinvest this benefit into higher CapEx and thereby step up our fiber build-out without any changes in our DT ex U.S. free cash flow outlook as stated at last year's Capital Markets Day. So what do I mean by stepping up? First, we maintain our 2.5 million homes passed run rate. That's very important. We will increase the share of rural homes and the SDUs in the mix. And further, we will accelerate at homes connected with regard to the MDUs. So we are changing the way how we are building out fiber in our German footprint according to the current developments which we are seeing and the adoption rates of these fibers. With our new fiber strategy, we plan to strengthen our German broadband performance in the medium to longer term, both in terms of value and in connected volumes. Based on the efficiency improvements, we have already seen and the tax relief granted us that we can deliver a more effective fiber build, increase our fiber CapEx in the coming years, while -- and this is very important, confirming our stated free cash flow outlook of EUR 3.6 billion in 2025 and EUR 3.7 billion to EUR 3.9 billion in '27. At last year's Capital Markets Day, we talked a lot about how AI is accelerating our digital transformation. Throughout the year, we have shown a lot of examples of our AI initiatives. On Page 8, you can see that we have made further progress on all initiatives this quarter. We are seeing multiple strong use cases delivering tangible results. And this across the whole value chain of our companies in all our markets. I'm just coming back from a 5-day trip to Israel, where I have worked with our partners, with our ecosystem down there, how we can integrate their initiatives into our further digitization efforts. And I can tell you the agent model is offering us big time new opportunities, which we haven't considered yet. At the Capital Markets Day for DT ex U.S., we estimated the financial benefits of around EUR 800 million in cost savings by 2027. Based on the progress already made, we are very confident in delivering this target and even see more potential, more upside here. Last week, we launched Europe's first industrial AI cloud together with NVIDIA with a combined investment of EUR 1 billion. This is Europe's largest AI factory to date, by the way, opening up in the first quarter next year already. We also remain in the running for one of Europe's planned AI gigafactories, and we should talk about that later in the Q&A. Our customer growth continues on both sides of the Atlantic. Our mobile customer growth remained very strong with another record quarter in the U.S. And in broadband, we had a steady performance in Europe, while we suffered another small customer loss in Germany. Moving on to ESG. Despite rising data usage, outside of the U.S., we were able to slightly lower our energy consumptions in the first 9 months. Our ESG commitment has been rewarded with various awards such as the NetFed Sustainability Award and the award for Corporate Engagement for our initiative against online hate. Let's now move on to our guidance update on the next page. Our guidance remains based on last year's average of a foreign exchange ratio of $1.08. And as always, in the sum of the guidance for DT ex U.S. and for T-Mobile US adjusted by the U.S. GAAP IFRS bridge. T-Mobile once more raised its guidance for customer and financial growth, and we are passing this on in the group guidance today. T-Mobile raised its '25 EBITDA guidance by $300 million at the midpoint and its free cash flow guidance by $100 million at the midpoint. T-Mobile's new guidance now also includes the expected contribution from the recently completed acquisition of Metronet and UScellular. Our 2025 DT ex U.S. EBITDA guidance remains unchanged at $15 billion EBITDA and $3.6 billion free cash flow. With that, let me now hand it over to Christian for a deeper dive into the third quarter. Christian Illek: Thanks, Tim, and hello, everyone. So as usual, I'm going to provide you with an overview on the segment performance in the third quarter and then present some selected group financials. And as usual, let's start with the U.S. who have reported their numbers already on October 23. And you know that those numbers include a 2-month contribution from UScellular. Still the numbers, I think, are really impressive. You've seen according to U.S. GAAP, a service revenue growth of 9.1%. If we're taking a look at the postpaid service revenues, they even grow at close to 12%, and this is coming from volume as well as ARPA growth and the core EBITDA grew at 5.6%. Where is this all coming from? Take a look at the growth numbers on customers, and I think they are record-breaking. The postpaid net additions were 2.3 million, which was significantly higher than the consensus, which was 1.6 million. The postpaid account growth was almost 400,000, which is the highest number ever. The postpaid phone net adds were 1 million, which was also 150,000 higher than consensus and the best quarter since 10 years. And finally, the broadband net adds, which also include fiber, grew at 560,000. So I think what you've seen is a stunning customer result in the third quarter. The churn rate actually grew slightly vis-a-vis the previous years. But bear in mind, it was the lowest one among the 3 MNOs, which we have in the U.S. And the ARPA is now expected to grow at 2% vis-a-vis 1.5% in the previous quarter. So based on these very strong results, T-Mobile once again raised its net add customer guidance. They now intend to get to 7.2 million to 7.4 million postpaid net adds, which is up more than 1 million at the midpoint relative to the last guidance. And the phone net add guidance has been increased to 3.3 million, which is also up by roughly 300,000 at the midpoint. So a very, very strong third quarter. And now we're getting to Germany, a segment where we have to report some different figures, I would say. So if you take a look at the Q3 financials, you see there were impacted by prior year comps, but also by our cost phasing. And I indicated this already in the Q2 call that we have the double whammy coming from the wage increase, which obviously hit the EBITDA growth. So if you take a look at the headline growth in Germany, it's actually declined by 1.8%. And there are 2 factors which are responsible for this. In '24, you had the one-off revenues from the European Championships TV rights. And secondly, we have another, I would say, lower revenue contribution from third-party equipment sales, which are all low margin. We're taking a look at the EBITDA growth, which is slightly above 0. You can say it's stable and it's the lowest since many, many years. This is coming from a very low contribution from service revenue where we're getting into and the double whammy from the wage cost headwinds. You know that we increased the first wage increase in October '24. And then we had the EUR 190 one-off payment starting from August, and they both collapsed together in the third quarter, impacting the EBITDA quite significantly. Both of those quarters, the service revenues, especially the comp factor, but also the wage increases will roll over in the fourth quarter. So for the fourth quarter, we expect an EBITDA growth of above 2%, of at least 2%, above 2%, 2% to 2.5% of -- it's definitely above 2% to reiterate this for this community. Also, if we basically fast forward into 2026, bear in mind that we're not only facing headwinds from the wage cost increases, which are rolling over. We're also facing headwinds from the higher energy costs in '25. Both of them will obviously roll over in the next year and will help to support a better EBITDA result than the '25 EBITDA result. On top, we have launched an additional cost savings program, which is targeting only non-personnel costs, which will also support the EBITDA growth in Germany in the year '26. Let's move over to service revenues. And you see it on the right-hand side, the service revenue growth in the third quarter '25 was really low at 0.4%. It was all driven or largely driven by the negative contribution from the fixed line business. And there are 2 major explanations for this. One is the comp from Q3 '24, which was largely driven by B2B business. You see that we have a very strong growth in the third quarter of the previous years. That obviously has an impact on the year-on-year growth for this year. And the second one is we have to actually acknowledge that the German economy is weak right now. And we're seeing this in the number of insolvencies in the German market. So I think this is also something which is impacting us in a negative way. Secondly, the service revenue is impacted by the lower volume trends, which we're seeing in broadband, but also in wholesale. And this basically collapses to that negative growth in fixed line of negative 0.3% in this previous quarter in Q3. For Q4, we have a pretty high confidence that we're going to have a meaningful trend improvement. And for mobile service revenues, we absolutely remain consistent with the guidance which we have given, which is 2% to 2.5%. Let's move over to the broadband revenues. And you see that the retail broadband revenues obviously have come down. Also, the wholesale revenues have come down, and this is pretty much driven by negative volume impacts. What you see is that the ARPA-up strategy, so the more-for-more strategy is working. The ARPA growth in the consumer space grew by 3.6% in the previous quarter. So upselling is working and has to contribute a large part of the broadband growth. Despite the volume pressure, you see us discipline on pricing. We maintain our promotional period at 3 months. You know that we have taken this down since April. It was coming from 6 months. We have increased front book prices for single play between EUR 2.5 to EUR 3 a month. We also, in October, have increased the broadband front book prices by EUR 1. So we are playing the value game. We're playing the long game. We're not fighting for every incremental volume, and we hope that the market will stabilize in that sense. On wholesale revenues, what you can see is there's a significant step down relative to the previous quarters. We are basically flat as we guided it to be at the Capital Markets Day, but we do not expect any significant deterioration in the upcoming quarter. Let's move over to the fixed line KPIs. And you see that the monetization works upper right-hand side, 54% of our customer base on our customers with at least 100 megabits per second. And you see this continuous trend happening since quite a bit. And what you also see is that we're still not mitigating the negative broadband net adds. We're remaining at that 20% to 25% trend. And to be honest, we don't expect a significant improvement short term despite the fact that we're working on quite a significant amount of measures, which is digital retention management, extension of our distribution and more localized pricing. But what is important is obviously, since the market is slowing down and since we are facing ongoing pressures from the overbuilder that we have readjusted our build-out strategy on fiber. We're not only spending more on fiber. We're shifting the mix towards more rural areas and SDUs because we know that the connection rate is coming in much faster than it is with the MDUs. And we're stepping up the initial connections of MDUs. Even if we don't have a customer, at least a home is prepared and we have a connection there so that we can actually act on customer demand fast. So -- and you see that -- and I think that is kind of for me the bright spot in the quarterly numbers on the customer numbers that the fiber strategy is working off. We added another 155,000 fiber customers. This is the best quarter which we ever had. That remains the key focus area, and you know that we have given a commitment for '27 to add 1 million fiber customers over the course of the full year. Let's move over to the mobile commercials. And you see we're back as we indicated in the last call, we know that we have elevated competition quite a bit, but our commercials actually remain strong. You know that in the second quarter, we lost a very large customers. We said we will return back to the, let's say, usual run rate, which is somewhere in between EUR 250 million to EUR 330 million. And you see us now coming in at EUR 314 million. And this is also driven by a lower churn rate, which has been reduced from 0.9% to 0.8%. So that is pretty much it on Germany. So not a very good result on Q3, but a much better outlook for the fourth quarter. Let's move over to Europe. Europe has provided another excellent quarter, 31 quarters with consistent EBITDA growth. If we just take a look on an organic perspective, which is the lower part of the chart, you see that overall revenues grew by 2.2%, service revenues by 3.3%, and EBITDA has grown by 4.6%. You see that there is a sequential slowdown in the EBITDA growth, and this is obviously coming from the progressive rollover of inflation-driven price increases in some of the European markets. Moving over to the commercials in Europe. I think what you see is overall very good results across all categories. I think one has to highlight that the mobile net add is actually being impacted by negative cleanup ahead of the Romanian disposal of 60,000. If you would basically exclude this, there would be close to 190,000 of customer growth in the mobile space. And you see also steady and strong performance in broadband and TV and in fixed mobile convergence. Moving over to T-Systems. And T-Systems continues to be on a positive track. I'm really happy with the performance of T-Systems. Last 12 months order book is up close to 4%. The organic revenue is up by 3%. It's the middle column. If you take a look where it's coming from, T-Systems is actually benefiting from the AI-driven digital solutions, and we're talking quite a bit about AI, but also from the sovereign cloud services, which we're providing that supported this growth. And they had a very stunning organic revenue growth of close to 23% in the previous quarter in Q3, gets us to a year-to-date EBITDA growth of close to 12%. And this is coming not only from top line growth, but also from cost efficiencies. But bear in mind, this is a project-driven business. So there's quite a bit of volatility in there. But I'm completely confident that they're going to make and beat their commitments they have given at the Capital Markets Day. So that basically concludes my operational review, and we are moving over to the reported financials. I think, first and foremost, I think we have to acknowledge that we're negatively impacted by a weaker dollar. Last year, the dollar was at $1.10. This year, it's at $1.17. So it's a depreciation of $0.07. That impacts the reported figures. It's partly mitigated by the contribution from T-Mobile's M&A activities. And you see also that there is some phasing. But bottom line, I don't want to go through all the details here. I would say we're broadly on track with all of the targets. and you're going to see us confirming the CMD targets later on as well. Moving over to the usual Q-over-Q annual comparison of free cash flow and net profit, and I'll keep it short. You see there's a reduction of 9% in the free cash flow. This is very much driven by 2 factors. One is the weaker dollar, which impacts us with negative EUR 500 million and a stronger CapEx volume. And you know that we, in the previous quarters, have reported kind of CapEx, which was below the average what you would expect in a given quarter, and there is a catch-up, which you can see here. And if you take a look at the year-to-date numbers, they grew at close to 7%. So this is very much in line with the increased free cash flow guidance Tim was talking about earlier on. Same holds true for the adjusted net profit. It grew by 14%, but very much driven by the financial result and despite a headwind from a weaker dollar. Moving to the next page, which is leverage. So the overall, the leverage has increased by EUR 5 billion. Everything was driven and more than driven by M&A activities, which was obviously UScellular and Metronet. And you see the impact of EUR 8 billion. Nothing of the other contributions to the net debt are a surprise. You see us moving within the corridor, which we indicated, we're below 2.75, including leases. Excluding leases, we are 2.23, sorry for that. And I think that also led to the decision of Moody's to basically give us an upgrade in our rating. So I can only encourage the other rating agencies to take a closer look at our balance sheet and our financial discipline. So finally, on the last page, the key takeaways, we're confirming our midterm adjusted EPS target, which is around EUR 2.5 by the end of '27. Tim was talking about the consistent reliable growth despite some headwinds which we are seeing in Germany. But other than that, I think all the other segments are performing well. We have confirmed our targets which we have given ourselves in the ex U.S. business, and we have increased the guidance in the U.S. business, and we confirm our midterm CMD guidance. The flywheel works. We're working on our -- expanding our network leadership on both sides of the Atlantic. That drives customer growth as we've talked about this. And we have a massive initiative running on AI in order to not only drive efficiency but also top line growth. So I think this is something where you basically should remind us on every quarterly call, this is kind of what we call a drumbeat when it comes to AI. We are reinvesting, and we weren't clear about this in the last quarterly call, we are reinvesting the German tax relief into CapEx and into adjusted fiber rollout strategies. We remain comfortable with our comfort zone in the leverage. And obviously, I think we have proposed an attractive shareholder remuneration package with an 11% dividend increase to EUR 1 and an up to EUR 2 billion share buyback program for the upcoming year. With that, I hand it over to Hannes. Hannes Wittig: Okay. And now we can start with the Q&A part. [Operator Instructions] I think we start with Andrew Lee at Goldman Sachs. Andrew Lee: I had 2 questions. Two questions, one on capital allocation and one on the U.S. Just in terms of the capital allocation, you're obviously giving an 11% dividend growth guide for 2026. So I don't want to mean that and reloading on the EUR 2 billion buyback. But if we look at what that leaves -- where that leaves you in terms of your net debt to EBITDA for next year, even if we take out the positive effects on -- or the reductive effects of FX on net debt, you seem to be leaving yourself with more balance sheet flexibility into 2026 than you did a year ago. Could you just take us through why is that? What is the strategic flexibility that you need into 2026 that's maybe a greater pull on your balance sheet than last year and where that's coming from? And then just secondly, on the U.S., clearly, that's been, along with Germany, a kind of major source of concern in terms of the sustainability of growth from investors. And that seems to have narrowed down into a major concern around your Verizon competitive intensity. The question is just pretty broad and straightforward. What's your take on the degree of change that we've seen in terms of imminent competitive threat in the U.S. market and risk to your to derailing the TMUS growth story? Christian Illek: So let me start with the capital allocation question. Andrew, we actually have a slightly different view. If the weaker dollar is rolling over, so to give you the calculation right now on the leverage ratio, the EBITDA is calculated at 1.13 and the debt is calculated at 1.17. If you basically adjust both of them for the same rate, which will happen over time, we are 2.72. This is one. Second is, look, there's always projects coming up, which you don't know. And so for example, take a look at the Gigafactory, which we didn't have on the radar screen. And therefore, I want to have some flexibility. Thirdly, I think if you take a look at the shareholder remuneration program, which we have articulated yesterday, it's an 11% dividend increase. It's the highest dividend ever in the history of this company. And the EUR 2 billion share buybacks, if you assume that the EPS is around over the next 24 months at [ EUR 2.25 ], [ EUR 2.30 ], gets you an 8% yield on that share buyback program. But we feel comfortable with the volume, and we don't want to, let's say, be super volatile on this one. We want to be consistent. So it's a combination of, first of all, we're not as optimistic on the leverage ratio as your calculation is. Second one, it's prudent. And thirdly, I think it's still an attractive program. Look, we are basically distributing EUR 6.8 billion next year, which is quite a significant number, at least from our point of view. Andrew Lee: Just a quick follow-up on that, Christian. So the TMUS buyback is done, decisions are made on a seemingly quarterly basis. The DT buyback decision is currently on an annual basis. Can you see a time where that's made more flexibly, i.e., on a half yearly basis or quarterly? Or do you still expect to announce buybacks on an annual basis? Christian Illek: Both are being decided on an annual basis, but the programs are more flexible in the U.S. So we can course correct on the program. So for example, you know that we stopped the share buyback in the U.S. for quite a bit because we had a leadership change. And therefore, we have adjusted the share buyback program now for the remainder of the year. So the U.S. has more flexibility because we always have this freeze period or this grace period of 90 days. So we have to file 90 days before we actually can execute. So we have less flexibility on the ex U.S. side. but both programs are being decided on an annual basis. Timotheus Höttges: Andrew, I do not want to tell you a fairy tale in investor call, but it's a little bit, let's say, the second question like the hedgehog and the rabbit. And if you look back, the U.S. market has always been very competitive. It is recently very much focusing on device promotions, and that is, let's say, where it's going. And we were a share taker in this environment over the next. Now what we seen this quarter, it was that we were attracting more customers to us, and we had lower churn than before, which is resulting in a much better performance. We did that at the same time with a significant increase on our EBITDA growth with 6%, so which is giving us the opportunity to invest into the infrastructure and our network leadership has improved as well. Now it is not only about, let's say, subsidization or the money which you put into the market. It has a lot to do about, let's say, how good you are perceived from a brand, how good your network is improving compared to the others. It is about, let's say, how you enter into the smaller markets or the rural areas, how you're attracting business customers or even the broadband customer numbers is quite encouraging. We will probably see 1 million next quarter already. So this is all, let's say, growth, which is not coming only from price competition, but as well from quality and investments which we have taken before. Now coming back to the hedgehoc, I think we have heard about, let's say, the new announcement from Dan Schulman, which I know for years about what he is doing. And he has laid out his plans about that Verizon's ambition is to win back shares and moving away reasons to churn and focusing on customer centricity to grow his cash flow and his leadership over the next years. Now this sounds very reasonable to me. But the hedgehog is on a path already. So he is already running in another direction. So I think they are all well at this point. But I think what Srini and what the team is doing is this way of finding a new digital customer experience the way of serving customers in a new kind of Un-carrier way. This way of surprising customers with new propositions, this is what we are about. It's not about, let's say, that this is wrong what these guys are announcing. But customers are looking on other things as well and what is new with their brands. And I can tell you, I'm very encouraged about -- for instance, the efforts with regard to digitization. It's an outstanding achievement that 80% of the upgrades are done digitally within 1 year. So it shows to me even that the skills are within this company to reinvent the way how they're performing. They have cost potentials which they can reinvest. We have a super network leadership, which we have strengthened these days. All of this is coming together. So we are used to competitive environments. I don't think it's only about money. It has a lot to do with propositions which we have played out very well in the last years. And we stay -- remain focused on a thoughtful balance of commercial and financial growth in the U.S. market. Hannes Wittig: Okay. Thanks, Andrew. Thanks, Tim, and Christian. And move on to Ottavio at Bernstein, please. Ottavio Adorisio: Two questions. The first is on the domestic business. You highlighted the good performance on the ARPA. The 3.7% is welcome because that's compensated for your negative net adds. Today, you're somewhat guiding for a continuation of negative net adds, and therefore, the ARPU increase will be very crucial going forward. During the call, you attributed the main drivers to the upselling, not just the price increases. So your upselling will be very key for your growth. So my question is, how fast you can increase that upselling because it's still running significantly lower than you project for 2027 for around 1 million. You go into rural. So the question is there, how much the increase because you said that rural would be a better take-up rates. So someone would expect that the overall take-up of fiber vis-a-vis the overall base will increase. So that should be good for ARPA. And also you can update on the plans by the German Digital Ministry to weaken the landlord ability to stop in-house fiber rollout. Last quarter, you were very vocal. And I don't know if it's still a discussion or any decisions been made because that I think will be crucial for you to improve the upselling and therefore, of course, to improve the ARPA trends going forward. The second question, it's going back to the capital allocation strategy. But this time, I would like to do a bit more with numbers. You -- in the CMD, you're talking about a precise number, the EUR 15 billion surplus. I follow the logic. And at that time, you basically were thinking of unchanged gearing. And Christian, you've been very clear on the fact that 2.64 is misleading because you have to put the debt and the EBITDA on the same currency. That's fine. So if you do, you ended up effectively around the same gearing that you expect to go, 2.75. So therefore, last year, you allocated around EUR 4 billion for additional shares into TMUS and the EUR 2 billion buyback of last year was already included. So the additional EUR 2 billion that you announced today will be against the surplus. So effectively, you used up around EUR 6 billion roughly or EUR 6.5 billion of the surplus. So my question is, there is still around EUR 8 billion left there. Now is the intention to see TMUS share price relatively low for you to go for more shares in TMUS rather than the buyback considering for last year? Or it's still undecided what are you going to do next? Christian Illek: Ottavio, complex questions, to be honest. So first of all, on the ARPA increase, I think if you basically go back into the previous quarterly reviews, you basically see a linear increase of customers adding faster lines. So obviously, we're working on better monetization, especially when it comes to fiber because as we're moving into SDUs, obviously, we can monetize that fiber much faster also if we connect on the MDUs, that should give a contribution. The second one is obviously related to the price increases, which have recently been introduced, right? So you don't see any impacts on them right now. And obviously, we expect a net-net positive effect, which will drive also the revenue. And on the volume trends, look, I'm a finance guy. I'm a little bit conservative, let me put it this way. As long as I don't have line of sight, I don't want to promise you anything other than what you've seen in the previous quarters. And therefore, we don't predict anything as long as we have good evidence that the volume trend is actually moving in the right direction. And it's not too far away, to be honest, right? Just -- let's assume it's 15,000 more, then you're getting closer to the 3%. Right now, I think the 3% to 4% broadband growth is not being achieved right now. But I think on a CAGR basis, we have no indication or at least we believe this is still an achievable target. So this is the combination on how things are evolving. I don't know whether our signals to the markets like on single play on broadband will be received by others in -- let me put it this way, in the right manner. So that could help to basically go for a little bit of market repair. We will see whether it's going to happen. But that is kind of the basis we're working on. And the biggest lever for us is churn management, right? If we get the churn management on our broadband base, just a notch down, that will immediately turn quite a bit on the volume. So this is kind of the equation. I can't give you a mathematical equation, but this is the equation on the levers we're working on. Timotheus Höttges: Look, let me add update on the plans with German Digital Ministry. Yes, it is -- and I was, by the way, not vocal last week. I was vocal this morning already again in the press. It cannot be that we are paying the bill of building a fiber network, not only on the Level 4, but even -- sorry, Level 3, but even Level 4 in the houses. That we pay tons of money for connecting the country into the next-generation infrastructure and that then the landlords are sitting there and asking for a revenue share or asking for an installation fee for the apartments. If Germany really wants to get digitized, they have to support the environment. And by the way, the German Digital Ministry is already on our side. He had put a paper [indiscernible] into the discussion, which is clearly enabling and accelerating the build-out in the multi-dwelling units, which is the main part of it. So to be honest, I cannot tell you when they're coming to decision. I have the feeling that the German government is under a lot of pressure and taking a lot of decisions every single day. Next week, on Tuesday, there is the digitization Summit with Chancellor Scholz and with Macron and a lot of, let's say, other players. I promise you, I will address this topic there again. And I have the feeling that there is a big understanding. The problem here is that Vodafone is trying to defend their position in the houses with their coax, which is nothing else than copper, and this is not fiber. But I think more and more people tend to understand that, that they are not investing into the next-generation fiber, that they're just trying to defend their position here. And I make sure that we will, by the way, with the other fiber investors in Germany fight for this initiatives. Let me make a general comment at the end because Christian laid it out. Guys, since the last quarter, 3 months, we have worked intensively, intensively on reshaping the way what we are doing with the fiber rollout. And we have laid it out in the presentation today that the CapEx per connection has gone down. We expect further reductions being possible. Second, that we are now changing the rollout areas. Thirdly, that we are building more fiber, multi-dwelling units, homes connected and more homes connected with regards to the SDUs, so in the rural areas and single households because we see here a higher acceptance rates. Thirdly, to stop that the altnets are eating our cake. Fourthly, we have a total new go-to-market with regard to additionally to the ranges, we have now enabled our sales organization, our retail organization to meet people at their homes. Fourthly, we have allocated additional people to this one. On top of that, we have a new churn program, as Christian laid it out, and so on and so on. So we were very unhappy and we are unhappy with negative net adds. This is not acceptable. And therefore, I can promise you that there is a big program up and running within the financial commitments which we have given to improve the situation here in Germany. Christian Illek: So on the capital allocation, let me try to answer that question, at least partly. So first of all, we want to keep the flexibility. So if you take a look what I said earlier on, the share buyback program, which we decided or which we consulted with the Supervisory Board and obviously then decided on later, as a Board, will give us an 8% return, which is obviously a pretty good return relative to other means. Secondly, what we have not decided yet, we want to keep that flexibility for good reasons on whether we should basically continue with the share buyback program beyond the EUR 2 billion we have just announced or basically put everything into the T-Mobile US shareholding. Look, none of us in the summertime would have estimated that the share is going down to $203, right? None of us. So I think this flexibility is prudent to have and obviously, it has to be taken into account for. And the third one is, if you take a look at the current run rate, we indicated 4% to 6% EBITDA growth, we're around [ 4.4% ]. So we're not at the midpoint. So that -- obviously, that surplus is also coming down. And therefore, we take it -- let me put it this way, 1 year for another and explain why we're doing what we're doing instead of giving you a midterm outlook, what we're planning to do with the surplus. Hannes Wittig: Thanks, Christian. Thanks, Tim. And next, we move, I think, to Robert Grindle at Deutsche Bank. Robert Grindle: Sorry, no video, it's usual WebEx versus the issue here. Two questions on the increased attention to fiber in rural areas and stopping the altnets, eating your cake as you say, Tim. Are you thinking more greenfield sites here or looking to defend in areas already under threat from the competitor build? And secondly, you acquired a call option over 10 million TMUS shares owned by SoftBank last month. Is there an ongoing cost to that? Have you thought about buying out the residual stake? Hannes Wittig: It's both, is the answer. There is greenfield. I mean, basically, we're looking at areas which are most likely to be overbuilt and then we build there. That's kind of a big part of this change in mix. And if it involves overbuild of an existing plant where we feel that we have an attractive interest business case, then it will involve overbuild. Timotheus Höttges: With regards to the SoftBank question, at the beginning of October, SoftBank granted DT 10 million call options in TMUS that can be exercised at market price until -- and now listen April 2029. This is a very, very long-term option. And you know that we have a very good partnership with these guys, which has worked even without buying them out. So there is no read across to our target TMUS stake. What I can tell you, this is more a sign of the partnership, which we have built for a much longer-lasting relationship. So that said, as stated at the Capital Markets Day, TMUS stake increased remain one of the preferred uses of any surplus capital alongside M&A and DT level share buybacks. And therefore, there's nothing to say. The only thing is I think there's no need to make any kind of short-term speculation on activities here. Operator: Great. And with that, I think we move to Paul Sidney at Berenberg. Paul Sidney: I had 2. Firstly, we've seen more and more European telcos announcing their AI initiatives, talking about data centers, et cetera, yourselves, you're partnering with NVIDIA going live in Q1 next year. So I was just wondering, is it possible to put some numbers around this opportunity? I'm not looking for specifics, but just in terms of what the opportunity could be for Deutsche and perhaps the industry? And then secondly, you're one of the last European telcos to report. And on our calculation, European service revenue growth has worsened versus Q2. I was just wondering, what do you think yourselves and your peers need to do in Germany and the rest of Europe to maintain healthy service revenue growth and keep it in positive territory. We talk about value over volume playing a value game, prices are going up. But a lot of this stuff just doesn't really seem to stick. And I just wonder, it would be great to get your views on what you think the industry needs to do or change. Christian Illek: Okay. So I think, first of all, there is no single answer for each country. I think you have to take each country, country by country. And let me start with the largest one. Look, the indication, Paul, which we have given to the market is we would appreciate market repair in broadband, right? And we're doing this both on single play, where obviously, we don't have a lot of competition, to be honest. But also in broadband, and we have to see whether actually the other guys are following this direction, yes or no. We don't know. We cannot influence this. But I think in a slow growth market like the broadband market in Germany, that is the only way that you either upsell or that you have market repair on the overall market. And I think as the market growth rates, especially in broadband are coming down, it's not true for every Eastern European market, by the way. I think I would clearly favor value over volume. In mobile, it's a different answer. You've seen the net adds from our 2 competitors, negative 1 and plus [ 157 ]. Our segmentation is working, the conjunction of B2B vis-a-vis B2C and the separation between, let's say, single households, which are predominantly addressed by Congstar and family plans, which are predominantly addressed by the first brand, it's working out just fine. And this is why we're growing where the others are not growing. So therefore, I think we don't see any necessity right now to basically change that proven model, especially given the fact that we have our network optimization program, Nemo, which gives us the capacity to actually fuel those future demands. So I think you have to answer this country by country. And to be honest, I wouldn't be in the position to give you an answer in every European country. But overall, I think it's only working if the market, let's say, environment is also reacting in a rational manner. Because what you're seeing in many markets is that GDP growth is much faster than, for example, mobile service revenue growth. And I think that shouldn't be -- given the importance of that service, which we're providing, that shouldn't be the case. So we have to work on and especially market leaders have to work on repairing the market and actually getting the right value from the service. And then it's all about value-added services, especially in the B2B space, right? It's, for example, adding security on top. Security is a massive issue across the Board, especially for smaller companies because they don't have the capabilities to basically have an own staff, which is dealing with that security by adding IoT services on top, where we're seeing quite a significant volume impact here. So these are the things where I would say in our core business, I was just talking about mobile and fixed, how you basically put additional and adjacent services on top. Tim? Timotheus Höttges: I'd like to address your AI question. Look, by the way, the first one is you mentioned that telcos are going into AI on Giga in AI initiatives. Yes, that's true. But then you mentioned NVIDIA as an example, which is data center capabilities. In this case, I would say no, because Deutsche Telekom is the trailblazer here in this industry. I don't know whether others are following, but we are the early mover in this environment. There's not a single other telco who had made a commitment or partnership with NVIDIA committing 10,000 GPUs being available from first quarter 2026 for the industries here in Europe already. So let me talk about the AI Gigafactory for the first step. I think this is where we are unique. Maybe Telecom Italia is a little bit comparable here because they have this governmental commitment that all the data is moving into their inference centers, data center infrastructure. But no GPUs so far as I know it. We have now the partnership with NVIDIA, where we started with 10,000 GPUs. And I think Jensen and NVIDIA selected it very wisely because they are going to the industrial core of Europe, which sits in Germany. They're going to us and with us with the biggest market access to business customers. We can offer a sovereign solution, network infrastructures, the [indiscernible] 400 giga -- connectivity coming from us. The data center infrastructure is something which we know already because we are running 186 data centers across the globe. I'll go into that in a second again. The sovereign cloud, which we are offering already is now almost a decade in the market. So well known to a lot of, let's say, classified services. Our partnership with SAP on the BTP side is enabling the customers with their applications to go into this ecosystem. And NVIDIA is providing their latest Maxwell chips into this industrial environment in Germany. So I think this is a great opportunity now for us to see how the Industry 4.0 is becoming real in automation and digitization here. For us, this is a kind of good learning case. for the next step, which is the AI Gigafactory. Together with our partner, Brookfield, we have submitted a consortium bid for this Europe's planned AI Gigafactories. The size of the location is expected to be around 100,000 GPUs. We expect any investments here together with them off balance. But nevertheless, the distribution and the go-to-market will be facilitated by our T-Systems arm. So therefore, this is a big opportunity for us even to participate in this new high compute and digital ecosystem. We call it physical AI or we call it, let's say, participating in this environment of robots and the Industry 2.0, however you want to call it. Look, we do that step by step. We do that with strong partners. So it's not that we are going alone here and in a big risk. And this is a big opportunity. Now you can judge what you get for 10,000 GPUs on the market price today for revenues that would give you an indication about how much money we earn with that. We have a deal with NVIDIA that almost 50% is getting invested from them, 50% from us, and we have a revenue share model established so that we are cautious with regard to all the upfront investments here. But I think this is a unique proposition, which gives us as well credibility for the second step, which is the Gigafactory. On top of that, by the way, Maincubes, and sometimes we always forget that, Maincubes is with over 200 megawatts of capacity in operations or in development in Frankfurt, in Berlin. And GreenScale, it's another subsidiary of Deutsche Telekom and is with 170-megawatt project in Ireland and a 300-megawatt project in Norway on its way. So it's -- this is something where I think Deutsche Telekom is building on their infrastructure experience, something new where we have a lot of, let's say, competencies already scaling it up. And we only scale with commitments from customers. That's the good thing in this industry. It's not that we have to build a mobile network first, and then we will see whether we get customers. So we will learn on the run. So I think, yes, that's an opportunity for T-Systems business. Yes, we want to do that as cash cautious and CapEx cautious as well for our business frontline. And -- but nevertheless, we want to -- under the frame of building sovereignty for Germany, we want to scale that here in our industrial environment. Hannes Wittig: Thanks, Tim. To be clear, Maincubes and GreenScale are held through DTCP, right? And thanks for the questions. And we move on with James at New Street, please. James Ratzer: So actually, the first question I'd like to ask is to follow on precisely, Tim, from what you're actually just talking about that. I'm excited to learn more about the kind of NVIDIA project because the financial analyst would like to just go a bit further on the numbers from what you said just now. So I think the initial project with NVIDIA, you said it's about EUR 1 billion, of which maybe now Deutsche Telekom is going to be putting in 50% of that. But you said you could scale up with Brookfield now to 100,000 GPUs. Could we take that as saying that if that's successful, that becomes a EUR 5 billion investment we see from Deutsche Telekom? I would therefore love to just also understand a little bit more about some of the specifics about how you see the return on capital on that project. And then the second question I had, maybe one for Christian. But Christian, in one of your answers earlier, you seem to link the EUR 15 billion of surplus capital that could be used to the EBITDA growth of 4% to 6% range. So I suppose the question is, if actually EBITDA ends up being at the lower end of that range of 4% growth, what does that imply for the EUR 15 billion of surplus capital? And is there actually a commitment that all that money would be spent somehow by the end of 2027? Christian Illek: Do you want to start? Timotheus Höttges: Look -- by the way, I'd like to start with the first question. Again, these are 2 separate projects. The first project is 10,000 GPUs. It's going to be a data center being based in Munich. It is using an existing facility, which we have renovated. It's 3, 4 floors under the city. It is using 100% renewable energy and cooling from water, which is available. This 10,000 GPUs is something which we have in our planning, in our financial envelope, which we have laid out. No additional funding or concerns which you should have with regard to the envelope which we have laid out. The -- this project is now the first step. And that is, by the way, 100% on balance because this is a project which we run out of the system. The project #2 is the planning and the preparation for the AI Gigafactory, which is a European RFQ for 6 data centers across Europe, where the EU is committing to a certain utilization of their public domain data on this -- in this environment. In this case, we are planning an off-balance solution. In this case, we are not planning automatically, let's say, a high ownership on the infrastructure investments because we have said that we are going to take Brookfield as a partner into this ecosystem who is taking, let's say, a significant portion of the investments. We might even consider other partners who are building this infrastructure. It is too early to give you now the financial construction about how that is taking place, but the infrastructure will be built off balance. And it will be supported with public sector money or utilization, which is helping that. We are now in the selection of the real estate. We are in selection of where we are building it. We are in the selection about how this consortia would look like. There's an application, which is taking place in January. Then there is the decision from theEuropean Commission who is taking the offer. And then we will see whether we are successful or not. Until then, we will decide on -- the financials is something which we then have to release at a later stage, but not -- it's too early now. Let's focus on the Munich side first then. Christian Illek: So James, without declaring the detailed numbers, what is our planning assumption. Obviously, you can assume that we haven't built on the low end nor on the upper end on the EBITDA corridor. But there are several factors which are basically impacting the surplus. The second one is obviously our adjusted EPS because that impacts our dividends and the adjusted EPS is very much driven and impacted by the U.S. dollar. At the time where we have given the Capital Markets Day, we said we don't see any auction in the U.S. in the foreseeable future after the One beautiful Bill Act. Obviously, there will be spectrum made available in the U.S. You see there's quite a bit of activity also on the satellite side from SpaceX. So these were things which can also be used for that surplus. So -- and in that given chart, which I presented, I said it's predominantly meant to be used for either share increases or buybacks on the DT side -- share increase on the U.S. side or buybacks on the DT side, but we also want to have strategic flexibility in terms of assumptions are changing. And especially when it comes to U.S. spectrum, I think I would say we don't see a spectrum auction up until end of '27, I would be less optimistic that this is going to happen given what we know right now. So therefore, this is how we want to use the surplus, and this is why we are wake in how we want to use the proceeds. Hannes Wittig: Thanks, Christian. And with that, we move on to Polo at UBS, please. Polo Tang: I've got 2 questions. The first question is Rodrigo Diehl has taken over as CEO of Germany. But can you comment on how the strategy for the German unit is evolving? And what are Rodrigo's priorities? You've obviously already flagged a change in terms of the German fiber strategy, but what else is changing in the German unit? Second question is actually just on Starlink. So investors have had a number of questions on how Starlink will impact both broadband and the mobile markets in both Europe and the U.S. So I'm just interested in your perspective. Do you see Starlink as complementary? Or do you expect Starlink to take share? Timotheus Höttges: Look, I'd like to start with Rodrigo. And I told you that we're going to see a reinnovation of our team within Deutsche Telekom over the next years, and that is taking up here. And I have to say I'm very, very happy how the first weeks with the new team is. Being at Srini now in the U.S. with all his experience and his track record in Europe and Germany, plus his insights into fiber, being at Rodrigo now in Germany, taking over the lead. He's, by the way, hiring a new B2C head, who is there, the former Congstar manager, which we have seen. And then we have Abdu, who is the new CTO in the group, another young man with a lot of experience running or being in charge for the infrastructure and the network before. And we have a new CIO in the group, KD, who is coming from India with all his experience about using AI for software development and accelerating this business. There are a lot of people who are now trying to build their own legacy, and that is definitely something which is very encouraging. What we have talked or discussed today about the new direction with regard to fiber is definitely Rodrigo's work. He has intensively spent the first weeks on looking what is working, what's not working, how can we improve the homes connected, how can we improve the take-up rates on the numbers. I do not want to repeat all the initiatives which we are driving here these days. So that was, I think, a tough start for him. He's as well focusing on B2B and the capabilities of stepping up in new services beyond connectivity because traditionally, this market is somewhat competitive on the pricing side on the connectivity. And the third thing is he's very much focusing on culture in the organization. So the way of becoming more uncorporate, this element about becoming more collaborative across the teams. And the third one, digitizing the efforts, digitizing the organization, using AI, modernizing the way of how we're doing things, learning from the U.S., by the way, in this regard. This is something which he's driving actively at that point in time. So I think these are already 4 big initiatives, which is on. So we will bring him up into one of the investors call next year to get to know him, but I gave him some relief to work first on the operations and on his team before he's coming here and committing. But what you see, what we are announcing today is already his work. With regard to Starlink, to be honest, we can now highly speculate about what's going on there and what is Starlink doing and where is he going to. The first thing what I want to say is that Starlink -- and for us, very much relevant is the direct-to-sell connectivity. And this is definitely a very attractive complement to our wireless service. Because in the U.S., in large parts of the country, there are no mobile infrastructure, there are no emergency calls possible. And for this service, Starlink entirely makes sense. That is why we made that deal and why we're collaborating with them on the Gen 1. They are using our spectrum in this regard. So that is then possible that you have an immediate connectivity in these areas. I think that's very important to know that this has to play on the same bands as the bands which you're having in the phone. Otherwise, you have a very complicated switch and a complete registration service. The second is Starlink has now stepped up by buying Dish EchoStar spectrum. So for Gen 2, my understanding is this will not be deployed before '28, '29 with new satellites. With this, they might have a different position to play because they have more spectrum. But we should not forget that satellite providers are fighting with some technical issues as well. The first one is that there are limitations with regard to the capacity. Look, we have today 350 megahertz of spectrum, while these guys are coming with 40, 50 megahertz of spectrum. Second, they have latency issues. Thirdly, they have disruption caused by weather or line of sight issues compared to the networks. And in the cities where you have this dense traffic, it's very hard to substitute our services. So I see that as a very logical adjacency for telecommunication operators. We are very interested to further collaborate with Starlink as we did in the past. In Europe, the situation is -- and by the way, whatever we are talking about is very much U.S. because the spectrum which he has now is very much American spectrum. It's less of really globally used spectrum. The one which globally is available from EchoStar is for renewal in 2027, at least for a lot of European markets. So there are regulatory discussions coming up. With regard to the rest, European, I think the homes in Europe are much better served by terrestical services than in the U.S. So the substitution risks to a fiber line from satellite, I don't see that. It is only for houses which are really, let's say, rural, unconnected. In this case, a Starlink might make sense. But if you have a fiber or a 5G coverage at your house, I don't see a big risk on this one. On top of that, spectrum for Europe is limited in this regard as well. So it's not that they can have unlimited spectrum for satellite. So I would say the market potential in the U.S. is in this very uncovered areas. It is an adjacency to communication, mobile communication services. And in Europe, I really see that as a niche play. Hannes Wittig: Okay. Thanks, Tim. And now we move on to Josh at BNP -- Exane BNP Paribas. Joshua Mills: The first was just on the updated fiber strategy and the second on fiber CapEx. So on the fiber strategy, it looks like you're playing a mixture of offense in the MDU areas and defending more in the rural areas. Is that a fair characterization of how this new strategy has evolved? And perhaps to help us think about the impact of this. Could you maybe give us a bit of a steer on what your market share in MDU areas is, what your market share in some of the rural areas you're now targeting is and how that compares to your nationwide broadband market share would be very helpful. And then secondly, on the fiber CapEx, I know you haven't quantified this explicitly, but I think you were due to receive a tax benefit of about EUR 0.5 billion over the next 3 years from these fiscal rule changes. Is that the right proxy for how we should think about the increased fiber CapEx? Would you go above that tax saving envelope as it were to do more fiber if you needed to? And beyond 2027, should we now be thinking of EUR 100 million, EUR 200 million higher German CapEx as a fair run rate? Or is this really just a pull forward of more expensive homes that you would have gotten to later in the decade anyway? Christian Illek: I start with the second question. And I will never call this a pull forward if the build-out is not ready by 2030. So what kind of pull forward are we looking for then? So I would say an indication of around EUR 200 million a year is, I think, a good indication. So I would use this as a proxy. We haven't finalized our planning session yet completely nor have we discussed it internally. But I think that is -- so the EUR 500 million, maybe EUR 550 million, something around EUR 200 million is the right indication for an annual, let's say, increase of the envelope. But it's not going to be a pull forward because that program is running for so long that I wouldn't call this a pull forward. Hannes Wittig: On the other hand, tax benefit from the accelerated depreciation comes to an end in 2028, the -- from 2028, the corporation tax rate in Germany will come down progressively by 5 percentage points, which is also then resulting in a tax relief -- in progressive tax relief. So if you -- therefore, there is a longer time line for this equation that we have outlined today, although we have basically been specific on the next 3 years. Christian Illek: Since we're playing ping pong here, I think we're hopeful that this accelerated depreciation will be extended, especially if you see that the money which you basically get is being reinvested into Germany, and we can prove that. And I think that's a good argument to basically make this like the immediate expensing in the U.S. a more permanent vehicle or tool. Timotheus Höttges: Look, the answer to your first question is, you're right. In the rural areas, we have to defend our position. If you look that they are very stable and gaining market share from us where we are not covering. In these areas, we have traditionally high market shares, and we want to stop that bleeding by building out in these rural areas. And in the MDUs, we have a lot of MDUs where we have homes passed, but we have no homes connected. If you ask me about, let's say, the market share in MDU areas, it's traditionally very low because this is Vodafone area and the cable area. So therefore, we have their opportunity to grow market share. And if you ask me about, let's say, where can we invest in this area, I would call the mix would be with this additional money 50-50 in MDUs connected and in rural areas as well. So it's not -- I've just looked up the numbers here, so it's around 50-50, if that helps you. So I think that is the new allocation of the additional money. What we urgently need is definitely this kind of getting access to the apartments and to the houses. That's definitely something which -- where we need the political support. Otherwise, these investments are very difficult to monetize. But anyhow, we should give you an update about all the details when implemented. I do not want to release all details here because that from a competitive angle is as well something relevant for us that we have a little bit surprise factor as well. Hannes Wittig: Okay. With that, we move on to -- thanks, Josh. We move on to Carl at Citi, please. Carl Murdock-Smith: Two questions, please. Firstly, in Germany, on the wholesale access revenues, what drove the slowdown in Q3 or recognizing that your CMD guidance was stable? Maybe the better question is why was the wholesale access revenue growing faster than anticipated in the first half? And then secondly, I was wondering if you can talk a bit about T-Systems, both the growing disparity between public sector and corporate revenue growth rates and also EBITDA growth. I'm used to talking about margin dilution in enterprise telecoms divisions. So can you talk a bit to the margin growth you're seeing there? Year-to-date, margins have improved by 100 basis points. Is that just phasing? Or are we seeing a structural shift in T-Systems margins going forward? Timotheus Höttges: Look, on the wholesale side, our capital markets guidance was for stable wholesale access revenues for the period of 2023 to '27. That is what we always have said. So far, we have outperformed the guidance. But now we're seeing volume losses overcompensating ARPA growth in these areas. And that is mainly coming from the weakness of our competitors in the broadband area. So it's a little bit, let's say, the indirect impact of the development of the retail broadband situation here in Germany. In the third quarter ' 25, our wholesale access revenues were essentially stable. So we are expecting somewhat a similar picture for the next quarter. And here, we are focusing on monetizing our fiber footprint with our partners as well. So what we are doing for us should be, let's say, accessible and available for our wholesale partners as well. So Telefonica or Hansenet or alike. And we are discussing now how they can improve their fiber utilization as well. But so far, I think -- I know that we are in line with our expectations here. Christian Illek: So Carl, let me try to give you an answer. I'm not sure whether I'm satisfying or whether you're going to be satisfied with the answer. Look, first of all, we have a mix of different businesses within T-Systems. So you have infrastructure-like business like the cloud services business or the road charging business, which is obviously very much depending on the capacity utilization of a given infrastructure. The second one is digital solutions, which is predominantly driven by utilization and rate card performance, right? How good is your pricing lever you're providing to your customers, completely different businesses. The third one is the team around Ferri is laser-focused on efficiencies. So he's probably one of the hardest guys when it comes to cost reduction because he knows that his margins are razer sharp and thin. So therefore, he has to prepare also for quarters where things are not happening the way how he wants to see it. And the fourth topic is the nature of projects. Look, first of all, it's the mix I was talking about, whether it's infrastructure-led or more digital solutions led. Obviously, digital solutions coming in with lower margins relative to the infrastructure. The second one is, do you have a lot of A-deals, which are very large deals? Or do you have a contribution from smaller deals who usually have a better profitability. This is why I was causing (sic) [ cautioning ] you don't read too much into that 23% EBITDA increase because there's volatility coming from different angles, and you don't know how the business mix is going to look like in the upcoming quarters. And therefore, it's much, much harder to predict relative to the infrastructure business, which we're running outside T-Systems. But what I'm seeing is, look, we're coming from negative cash contribution from T-Systems, and we are now in positive territory. The operating free cash flow is actually growing. And I think this is where I'm saying as a finance guy, I don't expect you to give me 10% of the overall pie on EBITDA, right? But I want to see a continuous trend improvement so that we don't have to discuss T-Systems as a financial, let's say, challenge. And they are helping us in kind of pull-through by selling other businesses because they're solving complex issues, especially with the public sector. For example, remember the COVID app, which was basically being built between T-Systems and SAP that helps you in those sectors. So this is kind of a pull-through effect, I would say, you're going to have from the infrastructure business. So this is why I'm happy, but I can't give you kind of an equation whether it's accretive or dilutive because it depends on the mix of the business, which is coming in every quarter and that changes. Hannes Wittig: Okay. Thank you, and thanks, everyone, for the Q&A, which is now coming to an end. I think Tim would like to make a few closing remarks, and then I take back from you. Timotheus Höttges: Thank you for the questions. Look, my summary of this quarter and even looking for the end of the year is, this is -- everything is well on track with regards to the overall capital markets targets. We had this concern about the German broadband market. We have a great plan now worked out, which is in execution. We have a good team, which is now pushing for that one, young fresh leaders here. On top of that, we are able to increase our dividend to EUR 1, which is another commitment. It is the highest dividend ever paid in the history of Deutsche Telekom. And on top of that, we are committing to the share buyback, which was highly and well received from the market environment. All the acquisitions are well on track. No kind of negative surprise. The opposite is the case. For instance, with UScellular, we have a very good development as lighting out one issue. And we have cleaned up the portfolio again because after a long, long painful period, Romania is out of the portfolio, which is now -- which has now resolved as well. And then the Deutsche Telekom is quickly taking the opportunity of the sovereignty discussion here in Europe, where we see big opportunities. There is definitely the AI factory, which I want to mention here. We were able to develop this whole concept to implementation, ready to use within 6 months, 10,000 GPUs. That is the biggest GPU in Europe at one single place. And on top of that, it's increasing the capacity of GPUs in Germany by 50% in one single step. And I can tell you, this is giving us huge credibility, not only in the public environment, but as well for business use. And we are going in the defense sector, both on the T-Systems side and as well on the DT Capital Partners side, which is helping. And the last thing which I want to mention is expect more from us with regard to AI and the AI implementation. Great ideas in the organization, agent models enabling new opportunities here for us, which we are evaluating a strong momentum here in our company, good use cases and success cases as well from the U.S. now swapping over here to Germany and other markets. So next year, it's going to be an AI year. And that is something which is helping us to not only increase our customer retention, but as well our efficiencies here, which is well on track. So I'm overall very happy with the situation here. We will do everything to improve the financials, not doing the stupid and ridiculous things here, and we like to thank you for your trust. And have a nice day, guys. Christian Illek: Thank you, guys. Hannes Wittig: Thank you. And now just if you would like to ask further questions, please contact the IR department. And we look forward to hearing from you again and see you soon. Thank you very much. Bye-bye.
Operator: Good afternoon, ladies and gentlemen, and welcome to the MLP SE conference call regarding the publication of the results for the third quarter 2025 and first 9 months 2025. [Operator Instructions] Let me now turn the floor over to your host, Pascal Locher. Unknown Executive: Thank you very much, and welcome to MLP's conference call to our results for the third quarter and the first 9 months of 2025. With me today is our CFO, Reinhard Loose. He will guide you through the presentation. And of course, we are happy to take your questions after the presentation. So please go ahead, Reinhard. Reinhard Loose: Thank you, Pascal, and good afternoon, ladies and gentlemen. First of all, please allow me to present the key message for the first 9 months of the financial year 2025. MLP remains firmly and vigorously on its good course. Even one-off effects, which need to be processed at times as it is the case this year, do not change this. We provided information on this last Friday. Within the MLP Group, we benefit more than ever from our broad and strategically interlinked positioning, which provides additional stability and at the same time, generates sustainable growth year after year. During the first 9 months of this year, we were able to achieve new highs in total revenue despite a persistently difficult macroeconomic environment. This is a remarkable achievement by our team, not least because, as I already reported at the half year stage, we have not experienced and are still not experiencing any tailwind in parts of our markets. Businesses and consumers alike are unsettled. The U.S. President's so-called Liberation Day in particular, with the drastic tariffs shook the capital markets in April and still has an impact today. However, the lack of political decisions, the ongoing economic downturn and not least recent rising unemployment are also cause for concern. Despite operating in such a difficult environment, the MLP Group still succeeded in setting new highs in key figures for future business development. This applies to both the assets under management of EUR 64.2 billion and the managed non-life insurance premium volume of EUR 794 million. In terms of earnings before interest and taxes, EBIT, the MLP Group stands at EUR 61.1 million after 9 months in 2025, which is below the previous year's record high figure of EUR 66.4 million. In the third quarter of '25, we achieved EUR 18.3 million and thus, even slightly exceeded the very strong prior year quarter. One thing is particularly noteworthy about this development, our well-established and very successful consulting business, namely the intensive support we provide to our clients. We are their preferred dialogue partner for all financial matters. A closer look at the previous year's comparative figure makes this particularly clear. Q3 EBIT 2024 includes significantly larger EBIT contributions from performance-based compensation at FERI and from the interest rate business of MLP Banking. This shows the enormous growth and substance that we have already achieved in the MLP Group in recent years. As already reported, we have adjusted our EBIT forecast for the current year. This was due to changed expectations regarding the level of performance-based compensation in wealth management and the real estate development business. In addition, we are seeing a weaker than originally expected old-age provision business. As previously announced, we also intend to focus the business of our group company, Deutschland.Immobilien, and thereby making it less susceptible to risk. We will benefit from this very soon, just like from our extensive IT investments, which I talked about at the half year point. The IT investments are focused particularly on artificial intelligence, which is increasingly being integrated into our consulting services, for example, in the preparation of client meetings by our consultants. And last but not least, we'll further strengthen our position in the corporate client business, among other things, through innovative and digital companies that we have established within the MLP Group in a targeted manner and whose development we are actively advancing. This means we are following our proven path to success. We have increased our EBIT midterm planning for 2028 to between EUR 140 million and EUR 155 million. On our way there, the current year is above all a year of transition, a year in which we have invested and focused. Regardless of the necessary responses to changing markets, our business model is so robust that we have set ourselves even more ambitious yet realistic targets for 2028. The fact that we are implementing this increase in our targets at this particular point in time once again underpins how sustainably we have positioned the MLP Group for this path. You can find an overview of revenue development on Slide 4 of the presentation. In the first 9 months of 2025, MLP increased the total revenue to a new high of around EUR 773 million. The share of recurring revenue was almost 70% at the end of '24, highlighting the great and sustainable stability of our business model. We earn recurring revenue from the continuous high-quality service provided to our existing clients throughout the MLP Group, above all the Property & Casualty and Wealth competence fields. The remaining share of sales revenue generated from our new business, particularly in the Life & Health competence field. In the first 9 months of '25, the group grew particularly strongly in the Property & Casualty competence fields with an increase of 7%. Compared to the same period of the previous year, MLP was able to significantly increase the managed non-life insurance premium volume. MLP also achieved growth in the Life & Health competence field with an increase of 4%, driven primarily by the health insurance business included in this figure and to a lesser extent, by the old-age provision business. After the first 9 months of the year, the Wealth competence field recorded a slight decline in revenue of minus 2%, primarily as a result of significantly lower performance-based compensation. This requires new record levels to be achieved in the underlying concepts even after market-related setbacks. Without the performance-based compensation, the Wealth competence field would also have recorded growth with the corresponding figure standing at 4%. While we recorded lower interest income as expected due to the declining interest rates, we were able to achieve double-digit growth rates in real estate brokerage and loans and mortgages. This is yet another example of the strength of our business model, which is based on multiple pillars. Finally, a brief look at the Others competence field. As expected, revenue was slightly lower here due to the plan that strictly implemented reduction of market and business-related risks in the real estate development business. I've addressed this repeatedly during the previous quarters. And with the step announced last Friday at Deutschland.Immobilien, we now intend to end real estate project development, for which we ourselves are also responsible for construction and thus make our real estate business less risky. We will, therefore, no longer initiate such projects. Only the existing projects will be carried out by us to completion. The growing and continuing trust in our consulting services displayed by our clients is also reflected in the key figures. They are extremely important for future revenue development. It is therefore all the more pleasing that we were able to increase assets under management to a new high of EUR 64.2 billion. To the best of our knowledge, this makes us the second largest bank independent asset manager in Germany today. Let's take a quick look at our other key figure. We were also able to increase the managed non-life insurance premium volume to another record high of EUR 794 million. As of the 30th of September, the MLP Group's consultants served 597,400 family clients. The gross number of newly acquired family clients was 15,500. We also supported a further 27,800 corporate and institutional clients in the MLP Group. The number of consultants rose to 2,121 during the course of the year, primarily as a result of our successful trainee program. This program, which is very attractive for young professionals, equips employed junior consultants at MLP with the skills they need to succeed as self-employed consultants. Indeed, 495 trainees had already joined the program by the end of September '25 since its launch in mid-'23. You can find in the bridged version of the current income statement on Slide 8. In the first 9 months of '25, the MLP Group recorded EBIT of EUR 61.1 million, which, as already communicated, was below the exceptional strong figure from the same period last year, but significantly above the average of the past 5 years with average figures EUR 47.6 million. If you now take a brief look at the right-hand section of the slide, you will see key performance indicators that underpin our strong balance sheet. Our shareholders' equity amounts to EUR 577 million. The regulatory core capital ratio was at 17.9% as of the 30th of September, which remains significantly above the requirements of the regulatory authorities. The liquidity coverage ratio or LCR for short, serves as a benchmark for short-term liquidity and stress scenarios and is therefore an indicator of resilience. At 1,124%, it is also well above the 100% minimum required by regulatory authorities. Let me come back to our recently revised EBIT forecast of EUR 90 million to EUR 100 million for the whole year before possible one-off effects resulting from focusing of the real estate business in terms of EBIT. However, these effects should not exceed EUR 12 million and might also even have an impact on EBIT of the financial year '25. We are more convinced than ever that we will continue our operational business success. In the current financial year, we expect sales revenue to slightly increase in the Property & Casualty competence field in particular. In the Wealth competence field, we continue to expect revenues in '25 to remain at the previous year's high level, though we remain cautious in view of the volatility of the capital markets. Of course, it also cannot be ruled out that there may be positive capital markets developments from which we would benefit directly in the Wealth competence field. In line with developments in the first 9 months, we are now anticipating stable revenue in the Life & Health competence field, having previously expected a slight increase in revenue. Within this competence field, we continue to expect a slight increase in revenue from health insurance and expect now stable revenue from old-age provision. Irrespective of this, we are keeping a very close eye on our costs. As already mentioned, we have slightly increased our midterm planning for the end of '28. The corridor now ranges from EUR 140 million to EUR 105 million -- EUR 155 million, sorry. Previously, it was EUR 140 million to EUR 150 million. We continue to expect total revenue of EUR 1.3 billion to EUR 1.4 billion. Performance-based compensation at FERI, which can only be planned and influenced to a limited extent, has once again been considered cautiously and therefore, only included to a limited extent in the increased planning. We have left unchanged from the previous planning. In this context, I had already referred to the enormous substance of our operating business, which we have continuously built up over the past few years. This is also reflected in our planning for continued significant growth in key figures, namely the managed non-life insurance premium volume and the assets under management. The expanding asset under management, FERI has significant further potential as an asset manager, underpinning by highly professional and modern investment research. In the area of alternative assets, with over EUR 18 billion under management, FERI already maintains one of the largest expert teams in Germany. The strategic development of potential and consulting family clients, the targeted expansion of the corporate client business and the multi-asset approach for institutional clients should lead to growth in all competence fields. The planned significant increase in earnings is also supported by our digitalization strategy with a particular focus on AI applications, which are expected to drive ongoing efficiency gains and further improve client support. Our development of AI service agent continues at full speed. At the final stage, we'll offer clients 24/7 [ visibility ] and complete processing of simple matters. An AI system, which makes the sometimes time-consuming preparation for client appointments significantly easier for our consultants has already reached the practical testing phase. For example, the AI can extract the relevant data for financial consulting from documents uploaded by clients and sought and stored in the right place in our systems to directly support the consultants. These new technologies are used throughout the MLP Group in a very targeted manner, but also always responsibly. Ladies and gentlemen, allow me now to move on to the summary. Firstly, our strategically developed positioning is proving itself more than ever, especially in phases without a tailwind from the market and also when it is necessary to deal with one-off effects, which can occur from time to time. Secondly, artificial intelligence as part of our digital strategy is already an additional efficiency and growth factor today and will remain so well into the future. We'll also remain vigorously active in this field. Thirdly, our increased midterm planning for the end of 2028 underlines our sustainable growth path. In the coming years, we will benefit from the fact that we have now focused our real estate business and at the same time, made strategic investments. Many thanks for your time and your interest. I'm now happy to take any questions. Operator: [Operator Instructions] The first question at the moment comes from Henry Wendisch, NuWays. Henry Wendisch: Thank you, Reinhard, for the presentation. A couple of questions from my side. Let's go with the obvious one I always ask is the net inflows and the performance fee metrics that we have seen in Q3 for our modeling. And then on the same topic, more or less regarding the guidance cut, you said was a mix of 3 things. One is a lower expectation of performance fees and of course, the real estate development that is not turning out the way it might have been looked like at the start of the year. And what is sort of a little bit of a surprise for me is the weaker old-age expectation now. Could you give us maybe a little bit of a split? So which of these 3 developments was the biggest one or to what extent? And then directly a follow-up on that, why has sort of your old-age provision business outlook for Q4? It's very, very important for the fourth quarter. So why has your outlook a little bit changed there? I've seen you launched a new product, the portfolio [ Venter ]. So what is sort of the -- how can we think of this new outlook of yours in the old-age space? And then I think the very positive highlight here is the underlying profitability. It was a very strong gain. And also sales, if you include performance fees, you grew by 5% on a Q3 basis. So that looks very good. And I think the biggest improvement we've seen in profitability was in banking. Could you shed some more light on what has happened there? I've seen a positive effect in the so-called the [indiscernible]. Maybe that's something that's behind this, but I don't really understand yet what is the real driver here, the banking business underlying profitability. So even if you include the net interest income, which has declined, of course, as well, the profitability is still very -- on a very good level there in banking. So what's going on there? Reinhard Loose: Henry, thanks for your questions. And I start with the, let's say, easy one to answer the net inflows. The net inflows for the whole group for the -- let's say, the gross inflow for the whole year was EUR 4.2 billion, and the gross outflow for the whole year was also EUR 4.2 billion. And then we have overall performance of EUR 1.2 billion. Obviously, mixed in different areas. Your next question will be where does it come from? We had outflow of a bigger customer with a consulting mandate in -- with extremely low margin, but with some interesting assets under management. And therefore, the -- in the area of the company sector there was relatively weak for the whole year. This was more or less explanation a little bit to the net inflows. The performance fees for the whole year was EUR 4.8 million. And I think this leads to your question then for the underlying business. And I just would like to compare for everyone here on the call, the performance fee for the first 9 months in '24 was EUR 26.8 million. That means we have EUR 22 million less performance fees in 9 months and only in [ license ], only EUR 5 million less profit finally that underlines that the rest of the business in general was quite okay, I think just to underline this. The guidance cut, yes, performance fee real estate is clear. Old-age provision, old-age provision, we will have a very strong last quarter, but perhaps not as strong as we expected. That's clear. And what's the reason for that? We see, let's say, very, very good activities in the wealth management area. And we know that our consultants are obviously only have 24 hours a day. And at the moment, they invest more time in wealth management than in old-age provision. And therefore, we have a little bit mixed feelings about this. On one side, we are extremely happy what's going on in the wealth management area, especially, let's say, in the area of private -- of the private consultants. The inflows are extremely good there, but this has then the result that they have less time to consult their customers in old-age provision. And that was the reason why we were a little more cautious there. But again, there will be a strong quarter, but perhaps less strong than we would have expected in the beginning. On the other side, we will see better results, I think, in the wealth management area in the last quarter in the private clients business. And therefore, as you also said, the underlying profitability was quite good. One reason for this profitability, of course, was the banking sector. There you also see as an outcome, what I just mentioned, the inflows in this area. We have, in the first 9 months, more than EUR 1 billion net inflow in the private customer sector in the banking with obviously the best margins in the wealth management in the whole group. And therefore, this supports the banking business and in the risk -- the [indiscernible] risk sector. We were relatively cautious concerning risks last year. And therefore, the comparison last year to this year is that we are good provided in the risk sector already from last year onwards, and therefore, we had to do less this year. That was the reason why the risk figure in comparison to last year is quite good. And I hope, Henry, I have answered all your questions with that. Henry Wendisch: Yes. Just one follow-up on the banking. So does this imply that this elevated margin is going to stay there at these levels? Or do you see an effect coming back in Q4 maybe and also into 2026? Reinhard Loose: As always, it's depending a little bit on the development in the market. But for '25, now 13th of November, we don't expect declining margins in the banking sector [indiscernible]. Operator: The next question comes from Jochen Schmitt, Metzler. Jochen Schmitt: I have 3 questions, please. Firstly, what's your new expectation for performance fees for the full year? Secondly, excluding any exit costs, do you expect a negative EBIT from property development in Q4? And thirdly, the EBIT range of your new guidance, may that implicitly be read as sort of headroom for the Financial Consulting segment for which Q4 is seasonally the strongest quarter for full year EBIT, but which may be somewhat volatile. These are my questions. Reinhard Loose: Mr. Schmitt, the performance fee in our original plan, we expected a low double-digit figure for performance fee. I just reported that we have until now EUR 4.8 million performance fee for the first 9 months. I would expect something like a lower EUR 1 million number to add on this EUR 4.8 million, but we will be definitely somewhere between EUR 5 million and EUR 8 million, I would say, just to give some numbers there. On the property and the real estate sector, that's a good question. The question was if we expect a negative result in the last quarter in the real estate segment, I would altogether expect a negative figure there. Yes. And then the EBIT -- I think I lost the last question. Can you please repeat the last question again? Jochen Schmitt: Yes, sure. I mean you have implicitly left a range of EUR 10 million in your new outlook for the full year, but this also refers to the fourth quarter. And what may bring you to the lower or to the upper end? Is it finally the performance of the Financial Consulting segment? That's my question. Reinhard Loose: Obviously -- thanks. Obviously, the area of performance fee left leaves some volatility for the last quarter. We are quite happy with all the other segments at the moment. And therefore, let's say, to reach the upper area, I think we should see -- we have to see no negative or let's say, some positive effects, not perhaps positive result, but at least some positive effects in the real estate segment and some perhaps a little tailwind on performance fees that would help us to come to the upper area of this range. Operator: So at the moment, there seem to be no further questions. [Operator Instructions] So as there are no further questions at this point, I'd like to hand it back to you, Mr. Locher. Unknown Executive: Okay. So if there are no further questions, I would like to thank you for taking part in our conference call. And of course, you can reach us if any further questions arrive later. I wish you a good afternoon. Thank you, and goodbye.