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Operator: Welcome to the HEXPOL Q3 presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Klas Dahlberg and CFO, Peter Rosen. Please go ahead. Klas Dahlberg: Thank you, operator, and hello to you all, and thank you for joining this call, and welcome to the HEXPOL Q3 presentation. This is Klas Dahlberg speaking, and I'm here together with our CFO, Peter Rosen. If you please turn to Page 2. I will start with a business update. Peter will take you through the financials, and I will summarize the quarter. After that, we are happy to answer your questions. If we then go to Page 4, please. I will start by going through the Q3 performance. We see that most markets continue to be affected by the geopolitical uncertainty, but it's pleasing to see that the European market continues to be rather stable, while the North American market is still challenging. We had only minor direct impact from tariffs, whereas the indirect impact on end customers affected the overall demand, especially in North America. It's also pleasing to see that including acquisitions, volumes were actually higher than last year. And excluding acquisitions, they were in line with last year, but with an unfavorable mix. Looking at our main segments, we saw that the automotive end customer segment continued to be slow, primarily in North America. That was partly compensated for by increased demand in building and construction and also in wire and cable. Our most recent acquisition, Piedmont in the U.S. and Kabkom in Turkey contributed positively to the quarter. Sales prices as well as prices on major raw materials were stable, both versus last year but also sequentially. High uncertainty continues triggered by U.S. tariffs and U.S. trade policy, and that is impacting us indirectly, as mentioned before. In North America, that is the main reason why we could not grow the overall sales and results compared to last year. In the quarter, we delivered sales of close to SEK 4.7 billion with a negative FX effect of some SEK 300 million. Piedmont and Kabkom added some SEK 240 million in sales that was offset by lower organic sales in Rubber Compounding Americas. Compounding Europe showed rather stable organic sales. We reached an EBIT of SEK 688 million and a margin of 14.7%, impacted negatively by FX of some SEK 50 million and an unfavorable mix. The operative cash flow continued on a good level, and we reached SEK 740 million in the quarter. If you please turn to Page 5. If we look into the different business areas, starting with HEXPOL Compounding, the overall organic volumes were in line with last year. The lower sales were impacted by negative FX of some SEK 290 million, but also by the mix. The automotive end customer segment was down primarily in North America, but that was partly offset by increased demand in building and construction and wire and cable. The price on major raw materials were sequentially stable and also versus last year. And the lower operating margin was affected by an unfavorable mix. Rubber Compounding Americas is, as you know, an important part of the HEXPOL Group. And we are very happy to welcome Ken Bloom back to HEXPOL as the Interim President for Rubber Compounding Americas. Ken has a clear mission to take the next step capturing and growing that business. If we then jump to HEXPOL Engineered Products, if we exclude a negative currency impact of SEK 22 million, we actually had a small increase in sales compared to last year and also good development across all product areas, leading to a stable EBIT. We are firmly committed to sustainability and our focus continues. We are on a good path to deliver on the 75% CO2 reduction target that we set for the end of this year. We are also working on the sustainability strategy and the new targets will be completed during Q1 next year. M&A is, as you know, an important focus area for our growth plans. We have the financial resources to accelerate acquisitions. Short term, the geopolitical uncertainty impacts the M&A activity level. There is somewhat a wait-and-see mentality among some companies, and that is affecting that. And last but not least, on November 4, we will have our Capital Market Day in Stockholm, and then we will share more about our growth strategy. If we then turn to Page 6. It's time for the financial update, and Peter will start with the sales development in Q3. Peter Rosén: Thank you very much. So if I can ask you to turn to Page 7, we'll take a look at the sales development in the quarter. And as you've seen, we delivered sales of SEK 4.7 billion in the quarter, which is down 6% compared to the same quarter last year. And if we look on the drivers, we see that organic sales are down 4% in the quarter. And at the same time, the acquisitions of Piedmont and Kabkom added 5% in sales. And as Klas mentioned, there were large negative effects in the quarter, adding up to SEK 312 million. Coming back to the volumes, overall organic volumes were on the same level as last year, but sales were still down, affected by a less favorable mix. Looking at it from a geographical perspective, Europe showed stable sales in the quarter, while we saw a decrease in North America that also translates into the decrease on group level. From an end customer perspective, automotive showed soft demand, which was partly offset by increased demand primarily from building and construction, wire and cable, but also several smaller end customer segments that showed higher sales in the quarter. If I can ask you to turn to Page 8, just taking a look at the financial overview and the P&L. We delivered a profit of SEK 688 million. That includes a negative FX impact of just above SEK 50 million. EBIT margin of 14.7%, which is below what we did the same period last year. And the main reason for this is somewhat less profitable mix, but also OpEx in relation to the lower sales that we saw here in the quarter. Strong cash flow in the quarter with an EBIT of SEK 688 million, we delivered a cash flow of SEK 740 million in the quarter. If I can then ask you to turn to Page 9, taking a somewhat different view of the financial performance here in the quarter. We see that sales came in at SEK 4.7 billion with an operating profit at SEK 688 million below last year, as mentioned, and an operating margin of 14.7%, which is then below what we did last year. If I can ask you to turn to Page 10, looking at the drivers of the operating profit, we see that the lower EBIT is primarily driven by the lower sales, but also impacted by lower gross margin. The lower gross margin is affected by mix. OpEx is somewhat above last year levels, but that is driven by we've added Piedmont and Kabkom to the cost base compared to the same period last year. If I then ask you to move over to Page 11, starting to look at HEXPOL Compounding in the quarter, delivered sales of SEK 4.3 billion in the quarter, which is below what we did the same period last year. Negative FX has a sizable impact of almost SEK 300 million in the quarter. Recently acquired Kabkom and Piedmont added about SEK 230 million in sales, while as mentioned before, organic sales were down some. And these lower organic sales are seen in North America, while Europe showed sales on the same level as last year. And as mentioned, from an end customer perspective, the lower sales is seen with automotive customers, and this was partly offset by higher sales to end customers within building and construction, wire and cable and also some other smaller segments. Operating profit came in at SEK 624 million with a margin of 14.4% for the quarter. If I can ask you to turn to the next page, we take a look at Engineered Products, where adjusting for negative effects in the quarter, sales were up 3%, and this is driven by strong performance by the gaskets products. Operating profit at SEK 64 million with a good EBIT margin of 18.1%, both in line with last year levels. If I can ask you to turn to Page 13, taking a look at the working capital. You can see that we continue to manage working capital efficiently. Despite adding Piedmont and Kabkom, working capital is on the same level as last year, both in absolute terms and in relation to sales. And as mentioned also in last quarter, there are no changes to underlying payment terms. And if I can then ask you to turn to Page 14, taking a look at the cash flow. As mentioned, we delivered a strong cash flow in the quarter, SEK [ 640 ] million with smaller movements across the various items, but well above the EBIT that we delivered in the quarter. And then finally, when it comes to the financial part, if I can ask you to turn to Page 15, looking at the net debt standing at SEK 3.9 billion and a net debt-to-EBITDA ratio of 1.14 at the end of the quarter. This is higher than last year, but this is mainly driven by the acquisition of the minority share of almak as well as the acquisition of Kabkom that we've done this year. So all in all, after the third quarter, we continue to stand with a very strong financial position. And with that being said, I hand over to Klas. Klas Dahlberg: Thank you, Peter. Finally, then just to summarize the third quarter. Europe showed stable sales compared to last year. Engineered Products also showed stable sales with a good profitability. We saw lower demand in North America affected by the high uncertainty related to U.S. trade policy; however, we didn't really see a direct impact from tariffs in Q3. As mentioned, Ken Bloom is appointed as the Interim President for Rubber Compounding Americas. And we consolidated Kabkom as of the 1st of May. And as we've said many times now, wire and cable that they represent is a growing segment for us. We continue to focus on M&A, and we have a strong balance sheet allowing us to act. We continue to focus on sustainability with good progress, both when it comes to our internal targets, but also when it comes to our products. And on the 4th of November, we will have our Capital Markets Day in Stockholm. So by that, we conclude the presentation of the third quarter, and we open up for your questions, ladies and gentlemen. Operator: [Operator Instructions] The next question comes from Joen Sundmark from SEB. Joen Sundmark: So starting with a question on automotive. If I look at the S&P figures on light vehicle production in Q3, it looks like it has improved a bit compared to last year, yet you mentioned that the decline in automotive seems to be present for you guys in Q3. So do you expect that there is some kind of lagging effect here? Or is it rather your particular exposure that's impacting this? If you could shed some light on that, it would be very helpful. Klas Dahlberg: All right. So when it comes to automotive, we always look at the production. And as you say, there is, of course, a certain time difference, those figures compared to our figures. When it comes to the North American market in September, there was, from a sales point of view, an increase, and that was due to the fact they had a subsidy of EUR 7,500 per vehicle. So that triggered sales in that very month, let's say. But other than that, it's a rather slow market. Joen Sundmark: Okay. That's clear. And I know that you have a fairly short order book, but could you share some color on the current discussions on demand that you have with your customers out there and sort of what they foresee demand-wise? Klas Dahlberg: Well, as you say, we have a very short order book. And the trend we have seen is that it becomes even shorter. So we get very late orders from many of our customers. But yes, the overall situation, like I said, it's a rather uncertain situation. So we don't have good visibility when it comes to the order book. Joen Sundmark: Okay. Fair enough. And on the back of that sort of uncertainty in demand and as the margin trend have been quite negative now for a few quarters, do you see any signs of that shifting? Or how are your sort of current discussions going to address that and improve the margin profile going forward? Peter Rosén: Peter here. Just to be clear, we don't give guidance or earnings. That being said, there are a couple of things. One driver of the somewhat lower margin is the mix. And it's no secret that automotive is an important end customer segment for us. So we would prefer to see that automotive production goes up and we get some of those volumes back and which is, of course, something that we are working on. The other part is looking at our cost structures. And there are 2 things. One is looking at the manufacturing footprint. But in the short run, we haven't taken any new decisions on that. Then when it comes to the more -- the other cost side, we're looking both at manning indirect production to bring that down and allocate that according to the volumes coming in. And you will see in Q3 that the number of people were actually lower, about 60 people less this quarter compared to last quarter, Q2 this year. So we're looking at those costs as well to see what can be done to bring down the cost level and manage those. Operator: The next question comes from Henric Hintze from ABG Sundal Collier. Henric Hintze: This is Henric at ABG. So on -- I was wondering if you could give us an update on how you view the M&A landscape at the moment. For example, are potential buyers and sellers closer or further apart on pricing compared to earlier this year? Klas Dahlberg: As I mentioned in my report that what we see right now is some of the companies are also affected by this uncertainty in the market. And because of that, there is a certain wait and see at the moment. So it's not maybe so much about multiples and so on. It's more that if their total result goes down, they are a bit hesitant at the moment to, let's say, to close a deal, if I call it that. So that is what we see. But with that said, we still have quite a pipeline of companies of prospects, so to say. So that's what we're dealing with at the moment. Henric Hintze: All right. And continuing on capital allocation, if this wait-and-see attitude persists among sellers, would you consider buybacks or extra dividends if you're unable to find attractive M&A opportunities? Peter Rosén: Peter here. Priority #1 is to do the M&A, and it's a very high and very clear priority for us. That being said, a while back, the dividend policy was upgraded to be in the range of 40% to 60%. And I think that's where we are right now. So priority #1, M&A. And then we haven't increased dividend policy since I think about 2 years. So that's what we can say at this point. Operator: The next question comes from Gustav Berneblad from Nordea. Gustav Berneblad: Yes. It's Gustav here from Nordea. I thought maybe just to build on your comment there, Peter, on the cost side. As you said, you haven't really taken out anything recently. Is that more due to -- you want to wait and see where demand is heading due to the geopolitical uncertainty? Or do you feel that you do have a quite good balance where you are today and with enough overcapacity to be ready to deliver if demand returns? If you can elaborate a bit more on that. Peter Rosén: Yes, of course. First of all, I think just to point out, last -- Q4 last year, we decided to close one site in the U.S., and that project was finalized in second quarter. So I just want to say that to be clear that we've just finished one project to close a production facility. That being said, there's always a trade-off on do we want to close sites in relation to the expected volumes when they come back. Since we are a batch producer, and we also don't work with order stocks, we need to have a flexibility when it comes to production capacity because when customers come and ask for volumes, we need to have that capacity ready to produce. So we need to strike a balance between the cost and having the capacity to meet volumes when they come back. And I would say that's where we are right now. Gustav Berneblad: Okay. Perfect. And then if we move to Europe, I mean, it looks to be quite stable here year-over-year. Is it possible to give a bit more comments there? Is that stability, is that across all end markets? Or are you seeing sort of wire and cable drawing a heavier part here and being sort of a cushion, if you know what I mean? If you can just elaborate a bit there. Peter Rosén: In a sense, it's a similar pattern as we see on the group level just with smaller movements. So automotive, somewhat softer and building and construction, wire and cable and some of the other smaller end customer segment being somewhat positive. So in a sense, same pattern, but smaller movements compared to North America. Gustav Berneblad: That's very clear. And then just one last question there to build on Henric's here on the M&A side. Would you say that you're more open to close acquisitions in Asia today than you were a couple of years ago within compounding? Klas Dahlberg: So when it comes to Asia, that's too early for us to say. And I think that's also part of, as I mentioned, our Capital Market Day to come back to that subject, how -- what opportunities could be there for HEXPOL, let's say. We will come back to that, Gustav. Operator: The next question comes from Andres Castanos-Mollor from Berenberg. Andres Castanos-Mollor: Can you please comment on any impact of the bankruptcy of first branch group if it has had any impact at the [indiscernible] Group level at all? I assume it was a client. Is there any receivable at risk here? Or will you have any demand -- lack of demand, let's say, while the company solves its issues? Peter Rosén: We don't normally comment specific customers. But let's put it this, Andres. We don't expect any material impact at all from that customer. Andres Castanos-Mollor: Right. And also, I was thinking in the changes in the U.S.A., the footprint changes you've been doing there, a few plant closures, also replace the leadership of the business there. What are your priorities or objectives for the region with these changes? Peter Rosén: Sorry, Andres, I didn't hear the beginning of your question. You mentioned change footprint. Andres Castanos-Mollor: Yes, footprint changes. You have closed a few plants in the U.S.A. You have also replaced your leadership there. What are the objectives for the new interim leadership? Peter Rosén: If I'll start with the first one when it comes to the manufacturing footprint. The last 2 years, we've closed 2 sites, one in California. The reason for that was that we had 2 sites in California, and we could see that we could service the customers from one site. So that's an efficiency improvement that we closed that down, and we could maintain all those customers. The site that we decided to close last year was Kennedale, Texas, similar reason there. We saw that we could service those customers from other sites. So it was a redundant capacity that we had, and that's why we closed Kennedale. So both of those plant closures where we said that we could maintain the volumes, but we could service our customers from other existing sites. So that was to improve profitability. Klas Dahlberg: And if I may, Klas here, Andres, regarding leadership in North America, we saw a need for a change to better address the challenges we see and also to capture the opportunities in the North American market. And we think that Ken Bloom is the right person to do that. And he has experience also from HEXPOL. He knows the organization. So we are very positive about that change. Operator: The next question comes from Johan Dahl from Danske Bank. Johan Dahl: Just wanted to dig a bit deeper on the comments you made, Klas, regarding unchanged organic volumes in the quarter, if I got it correctly. I mean, excluding acquisitions, I guess you referred to unchanged volumes in the group. Does that mark a material improvement compared to what we've seen earlier in the year in your view, i.e., the year-on-year progression on volumes? Is that sort of significantly better than in Q3 compared to previous quarters this year? Peter Rosén: Johan, it's Peter here. Just to be clear, again, we're not going to give any guidance on coming quarters when it comes to volume or profitability, et cetera. That being said, if we look at the volume development, we've seen both in Q1 and Q2, we did discuss that we had lower organic volumes. This quarter, organic volumes are in line with last year -- Q3 last year. So in that sense, it's somewhat different compared to the first and second quarter this year. What that will mean -- Sorry, go ahead, Johan. Johan Dahl: Can you hear me? Peter Rosén: Yes. No, I can hear you again. Johan Dahl: That's good. No, it's just -- you have minus 4% on organic revenue growth, right? And you're saying raw material is flat pretty much and also volumes flat organically. It's a fairly massive shift in the top line if you have the average selling price per tonne going down 4%. So what I'm just wanted to pick your brains on is what's your sort of visibility in terms of how this develops going forward? Is it just a function of sort of small variations U.S. versus Europe and auto versus other segments? Or is there something else going on here? Are you selling significantly more bulk volumes, for example, commoditized products? Are you losing market share in that sense? Peter Rosén: No, you're right in your first reasoning. If we look at the 4% organic, volumes are -- organic volumes are basically flat compared to last year. If we are very specific, we're talking very, very low single-digit volume down, percentage. So a very, very small part of the 4%. Then if we look at the other part, it's not sales prices, but there is a mix effect, and it consists of 2 parts. One is a geographical shift. We do lose -- see lower volume and sales in our North American market. And price levels in North America are generally higher. So that has an impact. Then we also see that there is a, call it, a product mix shift, which is the basically automotive. Automotive, as we've said many times before, is a good end customer segment for us. So it's a combination, smaller combinations of those 3 items that make up the organic. So it's not a structural shift in that sense. No, it is not. Johan Dahl: It's just that it's a fairly big number for those sort of variations. But I totally hear your message there. And on to the topic, what you can do to affect this. Is this just a function of the way markets go? Or do you have any visibility, i.e., how you sell more advanced compounds, et cetera? Klas Dahlberg: You mean for the profitability, Johan? Johan Dahl: Well, I guess both in the end, both top line and profitability. I understand that if U.S. is weaker than U.S., it's going to impact your organic growth. But I'm just trying to understand how you structurally can sort of approach this issue to sort of possibly improve mix as we go forward. Klas Dahlberg: Yes. And again, as Peter is saying, I mean, automotive is an important part, and that has not been growing, as you know, and even shrinking as we can see in the S&P figures. And we have found a business, as you can see also in our report within building and construction, wire and cable is a segment that is also growing and where we have also been able to capture business. So I mean that's our day-to-day operation to find new ways because we can change the market conditions in that sense. We have to work on the things we can influence, of course. Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: I came a little bit late into the call, so apologies if this question was already brought up. But I have to ask again, I mean, when I look at the S&P production figures for the North American market for Q3, I think they indicate roughly plus 3% year-on-year. And you're talking about flat volumes, but of course, it sounds like some of the other segments are sort of offsetting with positive growth relative to automotive. And I think when I look at the production numbers for Q2 as well, it seems like there's been a little bit of a discrepancy on, let's say, the production numbers relative to your reported organic growth if I try to back it out on the automotive side. So yes, very simple question. Is there a simple answer to this question? Is the OEMs or your customers bringing this more in-house now when production levels are fairly low? Or is there something else? Peter Rosén: There are at least 2 things that separate the official S&P production numbers from the volumes that we look at. One is the timing. There's normally 20, 25-day timing difference from production of a car and material that we supply. So there's a timing difference. The other part is, which I think is fairly unique for this business is that a lot of our customers have their own compounding business. And we do see that when volumes are down in the market, they tend to bring it in-house. So when you see an S&P production number, that doesn't automatically mean that it's transferable or translatable to ours because we also have customers who sort of shrink the market where we can compete, what we normally call captive conversion or in-sourcing. And that also has... Carl Deijenberg: Yes. Understood. And I think that's fairly interesting. If you can talk a little bit more about that. I mean, what kind of, let's say, in-house levels are we at right now relative to, let's say, a pre-COVID scenario or something like that? I mean just understanding sort of the magnitude, which have fallen into this topic. Would it be possible to give a fairly -- yes, high-level view answer to that would be... Peter Rosén: High level. It's difficult to measure exactly because we don't have statistics where we see the exact movements in the total market and what goes in and out at customers. But our view is that we've probably hit the -- let's call it, maximum in-sourcing at this point. When we see volumes flowing back into the market where we can compete, that is difficult to put a timing on. But our view is -- our current view is that we'll probably hit maximum in-sourcing at this point. Carl Deijenberg: That's very much appreciated. And maybe just finally on that topic rounding it off. I mean, obviously, we don't know what '26, '27 is going to look like. But do you have any sense of what kind of production numbers you would have to see in the industry for that, let's say, in-sourcing to reverse back into your hands? What kind of demand levels? Is it growth of mid-single digits on the production numbers? Or -- because I guess that could be a fairly significant swing factor for you, if I just look at the numbers relative to the -- yes, what we've seen in the production numbers here. Peter Rosén: Very good question. I sort of wish we had an exact number to say that at this point, it will start to flow back. But we -- currently, we don't know. And that's also one of the things that brings uncertainty into future orders, as Klas mentioned in the beginning. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Klas Dahlberg: All right. Thank you, operator, and thank you all for participating in this call. And we hope to see you all at our Capital Market Day in Stockholm on the 4th of November. You are all very welcome to join us there. So thank you very much, and enjoy the weekend.
Operator: Good afternoon, ladies and gentlemen, and welcome to Eni's 2025 Third Quarter Results Conference Call hosted by Mr. Francesco Gattei, Chief Transition and Official Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you. Francesco Gattei: Thank you, and good afternoon. Welcome to our Q3 2025 results call. Our results are a further confirmation of the successful execution of our distinctive and consistent strategy and innovative business model. We continue to generate growth and value, both from our traditional energy activity, such as E&P and also from emerging opportunities in the evolving energy market. In particular, the 8.5% year-on-year growth in production results directly from our consistent long-term focus and investment in E&P. We are delivering material progress against ambitious strategic objectives and Q3 was a further proof of tangible momentum in this respect. I will comment on our financial results in a little more detail shortly. However, it is very pleasing we have positive news to report from each of our main operating segments. Combining the excellent financial and operating performances and the ongoing progress in valorizing our businesses, we're also able to announce a further improvement of our balance sheet and a higher share buyback. Focusing on a few of the strategic highlights, I would especially pick out. At the beginning of August, Azule Energy, our business combination with BP in Angola and Namibia, began production from its operated Agogo West Hub development with the FPSO coming on stream only 29 months after FID, almost a year ahead of our plan. Indeed, this quarter was notable for the contribution from our upstream satellite start-ups with Vår reaching 400,000 barrel per day production with significant incremental production from the operated Balder X development that started up at the end of Q2 and Johan Castberg ramp-up, driving 45% year-over-year production growth. In October, we announced a joint venture FID on our Coral North floating LNG offshore Mozambique with startup expect in 2028. This leverages our successful Coral South development in production since 2022 with a remarkable 99.4% availability. And together with the 2 vessel in Congo, it will reinforce our leadership in this technology. I would also flag the progress we are making with YPF towards FID on Argentina LNG, employing the exact competencies I discussed in terms of floating LNG in Mozambique and Congo to access a material new integrated resource opportunity. A further successful example of Eni skills and strategy is in Ivory Coast, where in September, we completed the sale of a 30% stake of our operated Baleine field to Vitol, in line with our dual exploration approach. The world-class Baleine field was only discovered in 2021, but has already reached over 70,000 barrels per day from the first 2 phases with a planned Phase 3 to take gross production to over 200,000 barrels per day. Coral North, Argentina LNG and Baleine Phase 3 form just a part of a deep hopper of high-quality project in our development and pre-FID portfolio. In the quarter, we signed an agreement with GIP, a strategic partner in relation to a 49.99% stake in any CCUS holding, our consolidated global CCUS operation, confirming the significant growth and value creation potential in this transition business, unlocked by a further example of a version of our satellite model. Finally, in September, Eni received approval for its application to convert part of our Sannazzaro refinery into a biorefinery. It will add along with 3 sites in operation, 3 under construction and further identified opportunities, including our Priolo chemical sites to the targeted tripling of biofuel production capacity to 2030. This emphasized the meaningful growth in diversified income streams our transition segment is delivering. Turning now to our results. Q3 reflects remarkable progress in our key businesses and another excellent financial outcome. Pro forma adjusted EBIT of EUR 3 billion was 12% higher than Q2 and just minus 6% down year-on-year in U.S. dollar terms despite the 14% fall in crude oil prices. In the Upstream, production was 1.76 million barrels per day, up 6% year-on-year on a reported basis and 8.5% on an underlying supported by a new start-up and ramp-ups, good regularity and production optimization in the base. Pro forma EBIT of EUR 2.6 billion was consistent with the prevailing scenario with EBIT associated split reflecting the rise in production I highlighted at the Vår and Azule. In exploration, we have already added over 800 million barrels of new resource year-to-date. GGP reported another good quarter at EUR 279 million in pro forma EBIT in a quarter that is usually quieter, remaining focused on maximizing value and optimizing the gas and LNG portfolio. Our significantly reconstructed midstream business has become a highly consistent deliverer of financial performance. In our transition activities, Enilive reported EUR 233 million of pro forma EBIT, corresponding to EUR 317 million of EBITDA, around 23% up year-on-year in a quarter that is typically our best one for marketing, but also where we saw a recovery in bioomargin to pre-2024 levels. Plenitude pro forma EBIT of EUR 98 million was softer year-on-year, reflecting the effect of some of the retail incentives coming off, but partially offset by strong growth in renewable capacity. In transformation, refining returned to profit, helped by better industry margin and improved utilization, while chemicals, despite the continuing weak scenario, began to show some benefit from the restructuring now underway, albeit it is very early days. Adjusted net income of EUR 1.25 billion, effectively in line year-on-year came despite the $10 barrel fall in crude price and weaker U.S. dollar. That is a testimony to the growth and performance improvement in the business and a more efficient tax rate at 42% that reflects the impact of high-grading upstream production mix, the transition towards a more sustainable diversified overall income mix and the benefit of our restructuring and performance improvement initiatives. Cash flow from operations once again reflects efficient conversion of our earnings into cash, and we saw a Q3 working capital draw, reflecting our focus on efficient use of the balance sheet. Indeed, we have already realized a EUR 2.1 billion benefit to the balance sheet through prompt cash initiative in response to the weaker scenario. Gross CapEx in the quarter was EUR 2 billion, taking us to EUR 5.9 billion year-to-date. Net CapEx has totaled less than EUR 1 billion year-to-date. Outstanding agreed valorization yet to close primarily related to the agreed Ares investment into Plenitude for which we have completed all the condition precedent and with closing expected in early November, the sell-down in Congo and the GIP stake in CCUS, this totals almost EUR 3.4 billion. After EUR 560 million in share buyback and paying the quarter 3 dividend, net debt was EUR 9.9 billion, down again quarter-on-quarter and leverage stood at 19%. Taking into account the still outstanding announced portfolio action, pro forma leverage was 12%, equivalent to 11% gearing, a level at the minimum of the industry range. Looking ahead towards the full year, we are able to further improve some of our targets. We now expect full year production to be between 1.71 million, 1.72 million barrels per day, up from 1.7 million barrels per day, a 3% underlying increase versus 2024. We expect GGP pro forma EBIT for the full year to be over EUR 1 billion. We expect cash initiative and self-help and mitigating the impact of weaker scenario to deliver around EUR 4 billion benefit, up from EUR 3 billion previously. We confirm gross CapEx below EUR 8.5 billion, but we expect net CapEx on a pro forma basis to be less than EUR 5 billion, down from the EUR 6.5 billion, EUR 7 billion that we previously guided to. And we are raising expected cash flow from operation pre-working capital to EUR 12 billion from EUR 11.5 billion previously, representing an underlying EUR 1.3 billion improvement versus our initial guidance for the year, while we are narrowing our expectation of year-end pro forma leverage to 15%, 18%. Reflecting the strong underlying business performance, the balance sheet metrics and the proven capability of the company to execute its strategy in a very accretive way, we are raising the 2025 share buyback to EUR 1.8 billion from EUR 1.5 billion, of which EUR 840 million has been completed as end of September and around EUR 1 billion to date. This, as we have already done since 2022, effectively share the upside in financial performance we have generated in the year, preserve a conservative position in response to the uncertainty ahead and ensure our ability to invest consistently over the cycle for growth and shareholder value. In fact, Q3 represents all the major elements of our distinctive strategy in action in one place. We are competitively growing our key businesses. We are launching new projects while also securing further opportunity through our industry-leading exploration and technological know-how in the upstream and opening up new opportunity in the transition. Meanwhile, we are managing risk reward, realizing value through our dual exploration satellite strategy, allowing us to bring in down debt and share upside with shareholders. And with that, I am ready along with Eni top management here on the call to reply to your questions. Unknown Executive: Thank you, Francesco. Hello, everybody. We've got a queue of questions. [Operator Instructions] And we're going to start with the first question that comes from Biraj at RBC. Biraj Borkhataria: I have 2, please. The first one is in the Upstream. One of the surprises today was the really strong production figure. And at least according to my model, that's the highest figure you reported since the pandemic. So could you just unpack the moving parts there quarter-on-quarter outside of the strong performance from Vår? And in particular, I believe there was a TSC adjustment this quarter. Wondering whether you could quantify that and tell us if there's any sort of follow-through into Q4 and '26? And then the second question is on Chemicals. Just noted no improvement in the sort of underlying results despite the crackers being shut down. So what should we expect going forward? Should those losses start to reduce from Q4? Or are there sort of additional shutdown costs coming through? Francesco Gattei: Okay. I leave the answer about production and comparison versus previous quarter to Guido Brusco and clearly, the Versalis to Adriano Alfani. Guido Brusco: So the increase quarter-to-quarter, both sequential and year-on-year are due to, as you rightly pointed out to Norway, Johan Castberg and Balder X, but also the accelerated start-up in Angola with Agogo and better performance in the ramp-up of our project in Mexico, Ghana, Nigeria and also overperformance in Ivory Coast. This, along with strong operational continuity in all geographies and an optimized major turnaround plan, particularly in North Africa. So the combination of all these 3 elements resulted into this remarkable performance. Francesco Gattei: Now Adriano. Adriano Alfani: Yes, Francesco. First, thanks for the question. About the shutdown of the chemical plant, as we previously said in different investor call, we always say that the benefits of the shutdown of the cracker start to be materialized 100% after more or less 9, 12 months that we shut down the crackers. So considering that we have stopped Brindisi at the end of Q1 and Priolo at the beginning of Q3, we expect to see some benefits starting from the second half of 2025 that is in the ballpark of EUR 40 million, EUR 50 million compared to the first half of 2025. But most of the improvement we will start to see from the significant improvement from the second half of 2026 that will be materialized in more than EUR 200 million on a yearly basis. That said, the scenario remained very weak, and this is also the reason why despite the improvement on our cost base due to the restructuring, we are not seeing a major improvement in our results quarter-on-quarter because what we are saving from restructuring is compensating the lower scenario. Unknown Executive: Thanks, Biraj. We're going to move to Santander and Alejandro Vigil. Alejandro? Alejandro Vigil: Congratulations for the strong results. The first question is about the outlook in terms of production for the coming quarters because we are seeing a very strong exit rate of about 1.8 million barrels per day. If this could be a good indication of the level for 2026 of volumes? And the second question is about the LNG business. You are very active in new capacity in terms of LNG, the Argentina, Mozambique, the joint venture in Indonesia. Just if you can elaborate about your view about this potential risk of overcapacity and how you're managing your portfolio of contracts? Francesco Gattei: I will give it to Guido the answer. Guido Brusco: So yes, clearly, our exit rate is strong. We are envisaging an exit rate in the quarter between 1.78 million and 1.80 million. We still have quite a strong and visible pipeline of high-quality projects. We still have 2 start-up coming by the end of the year. One is the Congo LNG and also we have a gas project in Angola operated by Azule. We also have project already in execution, as mentioned by Francesco, Coral North and others in the UAE, Hail and Ghasha and some in North Africa, along with projects which are coming in Indonesia, but those are, of course, in the plan period and not in 2026. As far as the LNG portfolio, we have a target of 20 million tonnes per annum. And this target, we want to combine also with a very diversified portfolio of opportunity. Currently, we have LNG assets in Indonesia. We will have soon in Mozambique with Coral North. We have in Congo and we'll expand it in Nigeria, in Angola. And we are complementing this with portfolio with U.S. Recently, you may recall, we've signed a 2 million tonnes per annum contract with Venture Global. And of course, last but not least, Argentina. Argentina is a 12 million tonnes per annum project in the second largest and world-class asset, which is Vaca Muerta. We are doing it with YPF, and we are targeting to have an FID sometime next year. Unknown Executive: Alejandro, I got that mixed up because we're now going to Alessandro. Alessandro Pozzi, Mediobanca. Alessandro Pozzi: I have 2. If I can go back to the production. I'm aware the guidance for next year is provided with the full year results. But I was wondering, given the very strong exit rate, should we -- and also the additional start-ups you will have in 2026, should we assume a further increase from Q4 into 2026 before factoring in the new JV with Petronas? And while on the topic, can we maybe have an update on where we are in terms of negotiations with Petronas? Guido Brusco: So you can imagine, there are a lot of moving parts, but we can confirm what we said at the last capital market update. We have an underlying of 3%, which, of course, we confirm over the plan. Sometimes, this is not a progressive growth because project comes over cycle and -- but we can confirm that growth. As far as concerned, the Petronas deal, we are in very advanced negotiations, and we are planning quite soon to sign binding documents for the joint venture. Alessandro Pozzi: Can you confirm the contribution to the production for next year? Guido Brusco: This is part of the underlying 3% growth year-on-year. As I said, there are many moving parts. There are new projects, new entry like the JV of -- with Petronas. There is also -- there are also some further M&A operations. There are also -- of course, there is also the decline of the field. So overall, we confirm the 3% underlying. Unknown Executive: Thanks, Alessandro. We are going to move back to London now with Josh Stone at UBS. Josh? Joshua Eliot Stone: Two questions, please. Firstly, on the buyback. Can you just talk about the factors that went into your decision to lift it this quarter? Because clearly, your business has been performing better. But at least until recently, oil prices are on a declining trend. So was there any consideration made about maybe holding back some buyback for next year to conserve cash? And to what extent was that factored into your new buyback level of EUR 1.8 billion? And then the second question, Namibia. Just hoping to get some latest thoughts there after your recent well results at the Land finding gas condensate. And maybe if you could just share your latest learnings about the asset and what potential next steps could be in terms of appraisal and whether this could be a potential fast-track development in your view? Francesco Gattei: I will answer about the buyback and then give the floor to Guido for the Namibia questions. On buyback, you have seen that the policy that Eni has already, let's say, confirmed for a number of years is substantially to start with a buyback announcement during the Capital Market Day and then a policy of, let's say, driving or sharing the upside in different form. The upside is the upside related to scenario increasing the CFFO, but also upside related to the capability to perform the strategy faster to benefit of more valuable M&A and deleveraging. Actually, this has occurred 3 times in the last 4 years. And many of these cases was not related to the improvement of scenario that actually declined, but then the capability to do better in terms of execution. This year, we have already announced in July, if you remember, this potential improvement. It's, let's say, a quite unique position in the market. Nobody is able to raise its distribution in this time and then nobody is able to reduce debt during the same period, while executing a full effective strategy in terms of project and growth in different parts of the business. So we are extremely, let's say, happy to share this opportunity and this value creation with our shareholders. And we think that the EUR 300 million was a fair evaluation of the improvement. And clearly, this also proves that we are quite confident on the capability to manage any kind of downturn or soft price in the next year. And then I'll leave back to Guido. Guido Brusco: Yes. On Namibia, as you know, we drilled 3 wells, very successful. The first one, Sagittarius discovered hydrocarbon with no observed water contact. The second Capricornus, we've tested and we were surface constrained with a flow rate of in excess of 10,000 barrels per day. And the third one, Volans showed a high condensate to gas ratio, but -- and we found 26 meters of net pay of rich gas condensate. So 3 successful wells, which they've not only found significant hydrocarbon, but they are also located at a very short distance from each other, in conventional deepwater, less than 1,500 meters. So clearly, they offer an excellent prospect for future development. Unknown Executive: We're going to move to Al Syme at Citi. Al? Alastair Syme: Argentina LNG Phase 3, one of the big changes in Argentina has been this incentive regime for large investments or RIGI. What do you think this legislation does to improve the profitability? And I guess, maybe put another way, would the project work without that legislation? And then secondly, I just wanted to ask, given you've done this big asset transaction, Baleine and Congo FLNG for, I think, $2.65 billion. I'm wondering what the invested capital is -- that you're essentially selling, sort of what multiple of invested capital have you been able to sell this asset at? Francesco Gattei: On Argentina, I give the question to Guido, then I will answer. Guido Brusco: In Argentina, investment in shale are been made since more than 10 years. So in 2013, it started the investment cycle in Argentina, and this is far before the RIGI legislation. RIGI legislation, of course, is a big enabler, particularly for the export of the LNG. And so that's the legal framework, and we are confident with this legislation and with this framework to make an investment decision in the country. Francesco Gattei: About the Congo LNG, as you know from also the other transaction that we have already completed with Vitol. This is based on an effective date that is 1/1/2024. And therefore, there are investments in the meantime, but we do not provide this kind of level of details that will be clearly also part of the final settlement at the closing time. Unknown Executive: Thanks, Al. We're going to move to Irene Himona at Bernstein. Irene? Irene Himona: My first question is on Enilive, where clearly, you're seeing very strong biofuel margins, improvements in your throughput and utilization. Can you give us a sense of how those are evolving in Q4, please? And then perhaps if you can split the marketing versus biorefining contribution to EBIT in the quarter? And then my second question, going back to tax, but not the P&L tax, more the cash paid tax, which fell almost halved sequentially. Is there any guidance at all on that? Is it -- are we likely to see a reduction in that cash tax rate aligned with the P&L reduction? Francesco Gattei: About the -- I will answer about the tax, and then I will give to Stefano Ballista for the Enilive. You've seen that in the last year or years, there is an improvement in the tax rate, both on the -- clearly the reported tax rate and the cash tax rate. This improvement is mainly related to a transformation of the company with the contribution of different geography in the upstream and therefore, the capability substantially to have more production and more results coming from lower tax regimes in this segment. Clearly, the contribution of the transition business, the possibility of the increase of return in Italy related to the fact that there is a transformation activity going on with the possibility to recover the deferred tax effects and also the contribution of satellites that are cash neutral from this point of view. So all this is a structural change that impacted both the nominal tax rate and the cash tax rate. So we have already said that we are expecting in terms of tax rate an improvement versus what we originally thought. So now we are moving in the range between 46% and 48%, while about the tax rate related to the cash tax rate, we are moving around the 28% to 29%. And now Stefano, please. Stefano Ballista: Irene, thanks for the question. Yes, the strong result of Enilive in this quarter have been driven mainly by the significant improvement of the biofuel scenario, coupled with a very good asset performance capturing this increased value. In terms of value, we can think about the sort of 80-20 in terms of overall contribution. Deep diving on biorefinery and looking at the scenario. What's going on is a progressive rebalancing of the supply-demand dynamics. This is fully in line with the direction we expected. There are some key reasons, some structural key reason pretty much on demand. Demand is improving. On a yearly basis, in Europe, we see above 6 million tonnes on a yearly basis compared to the 4.5 million last year. And this improvement has been, let's say, concentrated in the second half of the year. The reason is related to sustainable aviation fuel. We mentioned in previous call, the need for getting logistics in place in order to deliver SAF to customers. This is exactly what's going on. On top, actually, there is also a drive of extra demand coming from the expectation of the deployment in several countries of the Renewable Energy Directive #3. An example, a key example is Germany. It has to be approved, but the proposal is very relevant. The most relevant thing is the ban, the proposed ban of double counting by itself, this means above 1 million ton of extra demand on top of the number I said before for next year. So these are the 2 key structural reasons. On the supply side, I want to mention another structural reason. It has been confirmed the duties for sustainable aviation fuel coming from U.S. There was a doubt in the first half of the year, this duty are there for HVO due to clear the tax credit that is in U.S. It has been confirmed it's going to be applied to SAF as well, and this is another reason strengthening the market. Unknown Executive: Very good. Thanks, Irene. We're going to move to Peter Low at Redburn. Peter? Peter Low: Maybe the first, just on disposals. Can you just confirm the expected time line for the remaining ones, so kind of Congo to Vitol and then the Plenitude stake sale. But then beyond that, should we think of those as being the end of large disposals? Or are there other positions across the portfolio you're working to monetize? And then just on the net CapEx guidance, you've lowered it for the full year, but it looks like gross CapEx is broadly unchanged. Can you perhaps walk through the moving parts that have allowed you to lower that net CapEx guidance? Francesco Gattei: Yes. About the portfolio, we can, as we have already mentioned, confirm that we are very close to cash in the EUR 2 billion related to Ares acquisition of a 20% in Plenitude. All the condition precedents were completed. We do expect to have this contribution in a period of weeks. This will imply substantially a benefit on our leverage in the range of more than 4%. On the other side, we are still clearly waiting all the natural process authorization for the other transaction, the one that is related to Congo that takes some more time. So this is still ongoing, but it is a process that is maturing progressively. And about the contribution for next year, clearly, this year was extremely, let's say, rich in terms of opportunity. We have benefit from disposal that we matured last year in terms of closing, and we completed for the cash in this year. And also, we were able to fast track some of our disposal within the year. This acceleration is also at the basis of the improvement in the net CapEx results. You're right that the gross CapEx are substantially in line with expectation. But clearly, they were revised down during the first quarter once we announced the first estimate for the cash initiative that includes also CapEx reduction. In terms of what are the future, the future is that the dual exploration model is a living model. So it's continued to generate opportunity. You know that we explore with high stake, and there is also some results already emerging in different geographies. You know also that in Indonesia, we have a 10% disposal on the assets that will not be included in the business combination. And clearly, we are also evaluating other opportunities that could come in terms of valorizing our portfolio and aligning capital. Another element that will be cashed in within the end of the year, I was forgetting is the contribution of the CCUS, so the deal with GIP. Unknown Executive: Thanks, Peter. We're going to move to Michele Della Vigna at Goldman Sachs. Michele Della Vigna: And again, congratulations on the very strong results. Two questions, if I may. First, I wanted to start with biofuels. Very clear comment on RD. I was just wondering on SAF, if the mandatory blending does not increase from 2% until 2030, don't you see the risk that with new capacity coming on stream that market could soften over the next couple of years? And then I was wondering if you could give us perhaps a bit more visibility on what drives that EUR 1 billion upgrade in the cash initiative. And in case the macro deteriorates in 2026, how much flexibility do you see on your CapEx budget? And where do you think you could potentially cut some of your net investments? Francesco Gattei: Stefano for the biofuel. Stefano Ballista: Yes, Michele, thanks for the question. On SAF, for sure, is driven by the mandatory mandates, given the penalties -- underlying penalties. So this is, let me say, it's a given. On top of Europe, now at 2%, we got higher target like in U.K. already in place. Clearly, an increase sort of step-up of the target along the time line is going to help demand on SAF. This is something that could be addressed. On top, actually, there are demand like in Japan, this is a global market. In Japan, they approved the 10% in 2030. There are some discussion even in other country in order to get SAF mandatory at defined percentage given it's the only way to decarbonize the aviation sector. On top, actually, there are some sign on voluntary demand. This is going to be driven also by, let me say, the supportive incentives that at specific level will be put in place. An example is the Heathrow Airport, where half of the gap between jet, biojet and jet is supported with a limited amount clearly by the institution. This kind of approach is going to support demand. And then lastly, let me add, there is the CORSIA program. It's a program that has to be fulfilled by all the ICAO countries, all the countries that participate to the ICAO. Up to now, it's just voluntary. It's going to be mandatory from 2027, and this is going to drive demand above in countries that today doesn't have any obligation. In terms of overall demand supply, a biorefinery that can produce -- HVO can produce SAF. So there is flexibility is a core lever to address market evolution. We don't know exactly the growth, the demand of SAF, but there are clear mandates on overall HVO growth. And given current project in place and even current decision, let's say, of delay in terms of projects from other players on top of technical difficulties that other players are getting into in this new business and given current trajectory of overall biofuel, HVO and SAF, we see the market definitely a bit tight in the medium term. Francesco Gattei: Contrary, for the -- sorry, for the difference related to the estimate on cash initiative 2025, the previous one that was EUR 3 billion and now it's EUR 4 billion is substantially a mix of different factors. One is that we derisked some of the actions that we risked in the first half. You have to consider that we have a way to optimize or evaluate substantially our storage activity on oil, some ETB, so our trading activity on trading of oil. We have some additional value coming from swap of bond from fixed to variable, et cetera, et cetera. And the main contribution in this round in this last quarter is related to the additional initiative related to trading, another EUR 100 million that is EUR 300 million, another EUR 100 million that is related to this swap -- liquidity swap on our cash strategic pool and this EUR 400 million -- more than EUR 400 million that is related to the derisking of the previous cash initiative. So almost EUR 800 million are related to these 3 different items. About next year, I can tell you that the flexibility, the plan is under -- still under preparation, early phase of preparation. But generally, we are working with -- in the first year of the plan in a 20%, 25% flexibility. So we are speaking on a gross CapEx, something in the range of EUR 2 billion. Unknown Executive: Thanks, Michele. We're going to move to Henry Tarr at Berenberg. Henry? Henry Tarr: I had one really, which was around the GGP business and the sort of consistency of profits there. We've seem to have had much better profitability sort of through the summer and kind of consistent upgrades over the last couple of years. Is -- do you think this is a durable level of profit for this business? Or do you think it's related to -- so are there sort of structural changes post the change in your supply makeup that mean that this is a more durable supply or stream of profits? Francesco Gattei: Cristian Signoretto will answer. Cristian Signoretto: Well, yes, you're right. I mean, the third quarter has been a good quarter. And I would say, in this case, the major driver of the performance was what I would call the locational spreads. So in Europe, but also globally, we have taken advantage of premium market vis-a-vis the flexibility that we have in our assets in order to move the gas and LNG where the premium was actually higher. I think as we said, as Francesco said at the beginning, I mean, we have reengineered the business. Clearly, the lack of the Russian gas and our development of our new gas projects and LNG projects upstream have really changed the shape of our portfolio. We tend to be much more attentive to make sure that we can create enough optionality and flexibility in our portfolio in order to make sure that the new volatility environment that we are facing, and I think we will be facing in the future will be structurally creating headroom and opportunities for us to tap on. So I'd say, I mean, this is a trend that we will see continuing in the future. Unknown Executive: Thanks, Henry. We're going to move to Martijn Rats at Morgan Stanley. Martijn Rats: Yes. A lot have been covered, but just 2, if I may. So I noticed that Rosneft has a 30% stake in Zohr. And I was wondering if you could say a few words on how -- if that has any impact on you as the operator of the project. Maybe not, but I just wanted to kick that off. And then the other one I wanted to ask about your European gas sales volume. They were down sort of 15% this quarter year-on-year. European gas demand is not very strong, but it's not that weak either. Is that due to the portfolio changes that you just alluded to? Or is there another specific reason for that decline? Francesco Gattei: Cristian, if you would like to answer, and then I will go back to the sanctions. Cristian Signoretto: Well, the drop in the European sales this year have fundamental reason is linked to the fact that we have terminated the contract with which we were selling gas to BOTAS in Turkey via the Blue Stream. This was linked to, let's say, the pipeline itself. So I mean, this is a business that we are trying to unwind also in terms of participation in the pipeline. So that is the biggest contributor to the sharp -- to the drop in the sales into Europe. On the other hand, I mean, as I told you before, I mean, the demand in Europe is shrinking. We are adjusting our portfolio to the new reality. We are much more focused on creating more value from the single molecule than clearly getting more molecules into the market. Francesco Gattei: And about the impact of the new sanction introduced by the U.S. administration, it's still very early because clearly, there are details that have to be analyzed and clearly, the full impact to be completely assessed. What we can clearly say is that we will ensure full compliance with the sanction. But we have to also take into account that we have a very limited interaction with these 2 companies in of our assets. And generally, we are speaking about minority stakes and nonoperated stakes. So we believe at the end that there shouldn't be any material impact on ongoing operation due to this sanction activity. Unknown Executive: Thanks, Francesco. Thanks, Martijn. We're going to move now to Mark Wilson at Jefferies. Mark Wilson: You speak to how this quarter is really seeing strategic initiatives coming through, certainly with the satellites in Norway and U.K., and that's been a number of years in the making. So I'd like to ask about what appears to be clearly another strategic angle, and that's the use of floating LNG. I'd argue you appear to be the leader in that concept now with the second Coral vessel sanctioned, Congo [ FMG ] coming on stream, just 33 months in Argentina, initial development being 2 vessels of an even larger capacity. We know there's certain security benefits and clearly, speed if Congo FLNG is anything to go by. But could you speak to the CapEx, OpEx and emissions intensity benefits versus production of FLNG versus onshore? And any improvements expected between the 2 Coral vessels? And I did note in the previous answer, you spoke to getting more value out of a single gas molecule. So I think that relates to it. Francesco Gattei: Yes, Guido can provide all the details. Guido Brusco: Clearly, we have built a technological hedge on floating LNG. We are currently the largest operator of floating LNG and results, both in terms of delivery and performance are outstanding. Just to name a few of them. On Coral South, we delivered the project on time, on cost despite the COVID and the uptime of the floating LNG is just outstanding. I was mentioned by Francesco in his speech, 99-plus percent. In Congo, we have 2, one in operations and one coming, and we've just sanctioned Coral North recently with the start-up expected in 2028. In terms of security, it's pointless to say that is safer and basically provides and disconnect completely from any turbulence from onshore, and we are seeing it how successful was the choice in Mozambique. In terms of cost, costs are -- I mean, we are in the deepest -- in the, I would say, steepest part of the learning curve. So if I compare cost from the first floating LNG and the cost of the project in -- of the future project in Argentina and the current project in Coral North, the reduction is significant. The industry is making significant progress in driving down to the point that we are reaching level comparable, if not better, in some geographies of the onshore LNG plant on a million tonne per annum basis. In terms of -- you said the emissions, of course, we are applying the best available technology. And in some cases, it's not the floating LNG, but I just want to mention one in Angola on the FPSO Agogo, we are basically -- we are actually capturing CO2 and reinjecting CO2 in the reservoir through the gas injection, which is used for gas recovery. So even on an emission basis, we are doing significant progress and driving down emissions on a unit production basis. Francesco Gattei: I will also add that it is an opportunity to exploit associated gas reserves in certain, say, conditional fields where this gas potential will not be improved, cannot be recovered. And this potentially could become a cap on oil production. This is exactly the case of Congo. So it's not just a matter of cost, but it's a matter of value towards the opportunity and the optionality that this technology will add to your capability to exploit resources. Unknown Executive: Thanks very much, Mark. And I think a subject we'll end up returning to. So we're going to move from Mark to Italy to Massimo Bonisoli at Equita. Massimo, are you still there? Massimo Bonisoli: Two questions left on Enilive. The first on new Sannazzaro biorefinery. Can you explain how the configuration feedstock and product profile differ from your existing biorefineries like Venezia or Livorno? And the second one is on the antitrust fine on Italian biofuel distribution. If you could elaborate on any potential impact this ruling may have on the profitability and competitive positioning of your fuel distribution business following the fine? Francesco Gattei: I will ask Pino to answer to the first, and then I will answer to the second one. Giuseppe Ricci: Thank you, Francesco. About Sannazzaro, Sannazzaro is a brownfield biorefinery because we will recover an existing hydrocracker unit very recently realized in Sannazzaro in 2010, very high pressure. And in this way, because of the high pressure and the good configuration, we will be able to maximize the flexibility to produce SAF. Production of SAF in Sannazzaro is an upside because there is the direct connection by pipe to the big Malpensa airport that is a big hub for the Central Europe. And about the feedstock, the flexibility of feedstock will be the same of Livorno or the other refineries, a mix of western residue and vegetable oil coming from not in competition food areas, including our agri business. The logistics system will provide different channels of supply of feedstock and distribution of products in order to maintain the flexibility. The unit is expected to be completed by 2028 in order to be in production at the end of this year. Francesco Gattei: About the fine that was proposed decided by the AGCM on biofuels. First of all, what we can say that clearly, we appeal against this decision that we judge as substantially incorrect. The biocomponent is aligned in terms of pricing because as you have already -- you know very well and from the fact that there is a very limited number of feedstock and a very, let's say, small market. This is substantially aligning the cost of this element to the different operators. So everything is happening in a very transparent way and the cost of obligation for all the players in the market are substantially similar. Secondly, the change of information that was considered in breaching of the competitive rule was, in fact, a legitimate change between the party on fuel supply agreement that requires this quarterly communication. In terms of competition, clearly, this is nothing to do with competition. As we said before, this is an element that is a key issues for the market, the growing market in terms of capacity is the capacity of the feedstock, the key element of risk. We are working on the capability to develop our own agri hub, and this component is a mechanism to derisk in terms of both quantity and value, the contribution of our own internal production. So we think this is something that we are trying to defend through building an integrated chain also on this side. Unknown Executive: Thanks very much for that question, Massimo. We're going to move now to Nash at Barclays. Nash, are you there? Naisheng Cui: Two questions from me, if that's okay. The first one is around technology. I was very impressed at your Technology Day in Milan earlier this year. I just wonder if you can talk about your progress over there, your deployment of technology, AI and how does that add momentum for your operation and the financial performance into next year and beyond? Then my next question is on working capital movement. Given some of the volatilities we have seen, I wonder if you can give us a bit of color on working capital in Q4 and Q1, please? Francesco Gattei: I leave to Lorenzo Fiorillo, Head of our R&D Technology Group business to answer about the artificial intelligence, and I will come back for the working capital. Lorenzo Fiorillo: Thank you, for the question. What I can say that we use AI since a while, it's not just in the last years. Internally, we are more than 200 use cases we are developing. We found a lot of advantages in using AI application within the company in optimization, find solution and helping us in creating better scenario. The use of a big number of data and important technology and technical expertise as well as digital competencies internally and with high-performance computing, for sure, is a fantastic habitat for us to develop this kind of tool, which is very helpful for us. The progress for us is to continue on agentic model for AI, and this is the way we are going to develop in the next years. Francesco Gattei: About the last quarter, the next quarter, we do expect substantially a very limited drawdown in terms of working capital. This quarter was substantially aligned and neutral. Overall, in the full year, we have a positive working capital in the range of EUR 2 billion. On next year, clearly, we have to assess all the working capital activity based on the new plan that requires also a definition of the scenario first and clearly, all the activity that we are performing in the different businesses. Unknown Executive: Thanks, Nash. We're going to go to the last 3 questions now. So the first one of those is Bertrand Hodee. Bertrand, are you there? Bertrand Hodee: Yes. I have 2 very short questions left. The first one is on Coral North. So you just took FID in September. But when looking at the annual report 2024, in fact, you already booked 329 million barrels of equivalent of proved reserve. Even if your share has risen from 25% to 50% in the project, as Exxon pulled out, looks to me that you've already booked the full reserve of Coral North in '24. And the second question is, so EUR 1.8 billion of buyback for fiscal year '25, EUR 0.8 billion been already bought back. And so there's EUR 1 billion left. How should we split those EUR 1 billion between the remainder of the year '25 and '26, please? Francesco Gattei: I leave the answer to Coral North to Guido. Guido Brusco: Yes, of course, yes, you are right. We booked last year. This year is the JV FID. We took the joint venture FID. And in terms of share, as you rightly pointed out, it is a bit disproportionate compared to our share of the project, which is 25% because we've reached a swap agreement with one of our partner between the onshore and the offshore molecules. Francesco Gattei: About the buyback, we generally do not provide guidance in terms of, let's say, weekly or next or planning plan of buying because clearly, this is a sensitive matter. Clearly, we publish every week what is the amount that we have bought, and you have seen, I would say, some steps or the pace of this buyback activity. As you correctly said, there is still EUR 1 billion to be bought in front of us. We have 3 months of 2025 and then 4 months in 2026. I think that there are different combinations, but will not change too much. Unknown Executive: Thanks, Bertrand. We're going to move to Chris Kuplent at Bank of America. Chris? Christopher Kuplent: I've got one question remaining, Francesco, and it's quite a high-level one. I remember you often arguing why go over and beyond on a CFFO payout promise when you have so many great opportunities to invest. And I just wanted to double check where you are on that theme, in particular, because if I add up the dividend, the new buyback, I end up in sort of plus 40% territory. Is that -- are you signaling something into the coming years that you are now more comfortable being in that 40% plus range than you were previously? Francesco Gattei: First of all, the percentage that you're referring to, the 41%, 40%, I think, is substantially the same number also because we have a quite positive expectation on the quarter that is coming. So I don't think this is an element of concern. On the other side, as you have seen, we are able to find solution opportunity or value inside the organization that you are able to raise on a quarterly basis. I refer in particular in this case as the cash initiative on the capability to execute the strategy on the production performance. So I think that generally, I see more upside. And therefore, I confirm that we are moving within the 35%, 40% range. I confirm that we continue to be selective in opportunity. I confirm that we have still a long list of opportunity that allow us to be extremely capable to select with the best one for the right time. And so I think that we are able to tick all the different boxes to reach our goals and confirming also an attractive distribution plan for our shareholder without modifying our view on what is the right amount of distribution that we should provide in order to ensure growth and capability to defend our balance sheet. Unknown Executive: Great. Thanks, Chris. We're going to move to the last question now. If anybody has more questions, we can deal with those directly afterwards, but I'm conscious we've moved over the hour. So the last question is Matt Lofting at JPMorgan. Matthew Lofting: Apologies for being late joining. I wanted to just come back on the strength of the cash flow generation by the company this year. I think you sort of stated this morning that the underlying improvement or upgrade versus the original plan at the beginning of the year is sort of close to EUR 1.5 billion. And it struck me that it was a higher proportion of the sort of the original plan start point. Could you sort of break down what some of the key wins have been from that perspective? And perhaps then secondly, also, if we take a step back and put it in the context of full year plan cash flow expectations, I'm interested in the extent to which you sort of see that underlying improvement is running ahead of your 4-year plan baseline or whether it's a case of sitting within the 4-year plan, but having accelerated the delivery of that cash? Francesco Gattei: Sorry, but I should ask you to make the second question again because the line was extremely noisy. So if you can repeat the second question, please? Matthew Lofting: Yes. Francesco. I was just interested if you could share any thoughts on the extent to which that EUR 1.3 billion underlying improvement represents an upside or an incremental delivery of cash flow compared to your 4-year plan baseline or whether it's the case that you're delivering cash flow faster within that 4-year plan? Francesco Gattei: Okay. Thank you. Now I can tell you sure that about the performance, the improvement of the underlying that clearly take into account of the scenario impact of this EUR 1.3 billion, we have practically EUR 500 million that are related to the Upstream. Clearly, upstream is a result of the improvement in terms of production that you are referring to, capability substantially to have a different mix that is generating more value. And clearly, in this plan, there is also some benefit from the different tax regime in the different new production contribution that are coming up. There is GGP. GGP, we have revised the guidance during the year, and this clearly is transferring value from the EBIT also to the cash generation. We are here in the range of EUR 300 million. On Enilive, there is again EUR 300 million. This EUR 300 million of Enilive is split between improvement in terms of marketing and from biofuel is related to the capability to have a good performance from our biorefineries. There is also a small improvement in terms of Versalis because clearly, unfortunately, on Versalis, we are seeing the negative side, but this is because it's a scenario that is classically hiding the contribution that Versalis is gaining from the shutdown and from the anticipated shutdown. So overall, these are the key elements that are showing improvement. Clearly, what we can say about next year is early to say. I would say that production enhancement upgrading of E&P is continuing. GGP performance is subject to the volatility, but also to the capability to have a larger optionality in the different contracts in the different assets. So this is another element that should help to capture upside also next year. On Enilive, clearly, we are expecting to have a continuous improvement in particularly a better scenario that we would like also to capture through the budget. And we do expect clearly on Versalis a more visible evidence of the recovery that is related to the new configuration of assets. So I think these are the elements. Unknown Executive: Thanks very much. That's -- and thank you, Francesco. That's bringing to an end the conference call. I'm conscious we have run a bit late, but I wanted to include as many people as possible. Those people who weren't able to ask a question, please do get in contact with the team here, and we'll be delighted to help. That's it. Have a great weekend, and thanks for joining us. Francesco Gattei: Thank you.
Operator: [Audio Gap] our current forward-looking assumptions are described in our earnings release and our Form 10-K. Joining me today are Lee Gibson, CEO; Keith Donahoe, President and CFO, Julie Shamburger. First, Lee will start us off with his comments on the quarter, then Keith will discuss loans and credit and then Julie will give an overview of our financial results. I will now turn the call over to Lee. Lee Gibson: Thank you, Lindsay, and welcome to today's call. I'm going to start by discussing the repositioning of our available-for-sale securities portfolio. During the quarter, as market conditions allowed, we took the opportunity to sell approximately $325 million of lower-yielding long-duration municipal securities. And, to a lesser extent, mortgage-backed securities and booked a net loss of $24.4 million. These securities had a combined taxable equivalent yield of approximately 3.28%. Most of these sales occurred in September. The net proceeds from these sales partially funded loan growth during the quarter with the balance reinvested in agency mortgage-backed pools that had primarily 5.5% and 6% coupons and, to a lesser extent, Texas municipal securities with coupons ranging from 5% to 5.75%. The sale of these securities will not only enhance future net interest income, but it also provides for additional balance sheet flexibility as we grow. We estimate the payback of this loss to be less than 4 years. As previously disclosed, we issued $150 million of subordinated debt at 7% fixed to floating rate notes in mid-August. Linked quarter, our net interest income increased $1.45 million, and our net interest margin decreased 1 basis point due to the issuance of the subordinated debt during the quarter. When considering our net income, earnings per share and other financial results, excluding the onetime loss on the sale of securities, we had an excellent quarter. Linked quarter noninterest income continued to perform well, and loans increased $163 million, with $81 million of that growth occurring on September 30. Keith will provide additional commentary about our loan portfolio and third quarter loan growth. The repositioning of the securities portfolio, combined with the late third quarter loan growth sets up an optimistic outlook for net interest income. If the current favorable swap markets remain, we will look for additional opportunities to enter into swaps. Overall, the markets we serve remain healthy, and the Texas economy continues to be anticipated to grow at a faster pace than the overall U.S. growth rate. I look forward to answering your questions, and will now turn the call over to Keith Donahoe. Keith Donahoe: Thank you, Lee. Third quarter new loan production totaled approximately $500 million compared to the second quarter production of $290 million. Of the new loan production, $281 million approximately funded during the third quarter, including the $81 million Lee referenced, which closed on the last day of the quarter. We expect the unfunded portion of this quarter's production to fund over the next 6 to 9 quarters, likely weighted towards the back end of those quarters given the construction nature of those opportunities. Excluding regular amortization and line of credit activity, third quarter payoffs totaled approximately $116 million, a significant improvement from second quarter payoffs totaling approximately $200 million. Third quarter commercial real estate payoffs included 15 -- approximately 15 loans secured by retail, multifamily, industrial, skilled nursing facilities and some commercial land. Commercial real estate payoffs continue to be largely driven by open market property sales. However, 2 retail properties were refinanced with other bank lenders offering fixed rates using spreads below our target. After back-to-back strong production quarters, our loan pipeline dipped to approximately $1.5 billion mid-quarter but has rebounded to $1.8 billion today. While lower than the prior 2 quarters, it remains elevated compared to the same period in 2024. The pipeline is well balanced with approximately 42% term loans and 58% construction and/or commercial lines of credit. C&I-related opportunities represent approximately 22% of today's total pipeline compared to approximately 30% last quarter. This reduction is largely due to closing a new $20 million C&I relationship which originated in our East Texas market. Credit quality remains strong. During the third quarter, nonperforming assets increased approximately $2.7 million but remain concentrated in the previously disclosed $27.5 million multifamily loan that was moved into the nonperforming category during the first quarter. We continue to expect this to be -- this loan to be refinanced or rightsized before the end of the year. And overall, as a percentage of total assets, nonperforming assets is at 0.42%. With that, I will turn the meeting over to Julie. Julie Shamburger: Thank you, Keith. Good morning, everyone, and welcome to our third quarter call. For the third quarter, we reported net income of $4.9 million, a decrease of $16.9 million or 77.5%. Diluted earnings per share were $0.16 for the third quarter, a decrease of $0.56 per share linked quarter. As of September 30, loans were $4.77 billion, a linked quarter increase of $163.4 million or 3.5%. The linked quarter increase was driven by an increase of $82.6 million in commercial real estate loans, $49.3 million in commercial loans and $49.1 million in construction loans partially offset by a decrease of $10.4 million in municipal loans and $6 million in 1 to 4 family residential loans. The average rate of loans funded during the third quarter was approximately 6.7%. As of September 30, our loans with oil and gas industry exposure were $70.6 million or 1.5% of total loans compared to $53.8 million or 1.2% linked quarter. Nonperforming assets remained low at 0.42% of total assets as of September 30. Our allowance for credit losses increased to $48.5 million for the linked quarter from $48.3 million on June 30. And our allowance for loan losses as a percentage of total loans decreased to 0.95% compared to 0.97% at June 30. Our securities portfolio was $2.56 billion at September 30, a decrease of $174.2 million or 6.4% from $2.73 billion last quarter due to the partial restructuring of the AFS portfolio. The restructuring included sales of $325 million of lower-yielding, longer-duration securities. The sales, along with maturities and principal payments more than offset the purchases of $288 million. As of September 30, we had a net unrealized loss in the AFS securities portfolio of $15.4 million, a decrease of $45 million compared to $60.4 million last quarter. The improvement occurred primarily due to the restructuring of the AFS portfolio and, to a lesser extent, an improvement in the remaining AFS portfolio. There were no transfers of AFS securities during the third quarter. On September 30, the unrealized gain on the fair value hedges on municipal and mortgage-backed securities was approximately $905,000 compared to $5.2 million linked quarter. The decrease is primarily driven by the unwinding of fair value hedges associated with the restructuring in the AFS portfolio. This unrealized gain partially offset the unrealized losses in the AFS securities portfolio. As of September 30, the duration of the total securities portfolio was 8.7 years compared with 8.4 years at June 30. And the duration of the AFS portfolio was 6.5 years compared to 6.2 years at June 30. At quarter end, our mix of loans and securities was 65% and 35%, respectively, compared to 63% and 37%, respectively, last quarter. Deposits increased $329.6 million or 5% on a linked quarter basis due to an increase in broker deposits of $288.6 million and a $137.1 million increase in commercial and retail deposits, partially offset by a decrease in public fund deposits of $96.1 million. On August 14, we issued $150 million of 7% subordinated notes. Our 3.875% subordinated notes issued in 2020 with an outstanding amount of $92.1 million will begin to adjust quarterly at a floating rate equal to the then current 3-month term SOFR plus 366 basis points in mid-November of 2025. Our capital ratios remain strong with all capital ratios well above the threshold for well capitalized. Liquidity resources remained solid with $2.87 billion in liquidity lines available as of September 30. We repurchased 26,692 shares of our common stock at an average price of $30.24 during the third quarter. On October 16, 2025, our Board approved the additional 1 million shares, authorization under the current repurchase plan, bringing the shares available for repurchase to approximately $1.1 million. There have been no purchases of our common stock since September 30. Our tax equivalent net interest margin was 2.94%, a decrease of 1 basis point on a linked-quarter basis, down from 2.95%. And our tax equivalent net interest spread for the same period was 2.26%, also a decrease of 1 basis point from 2.27%. For the 3 months ending September 30, we had an increase in net interest income of $1.45 million or 2.7% compared to the linked quarter. Noninterest income, excluding the net loss on the sales of AFS securities increased $260,000 or 2.1% for the linked quarter, primarily due to an increase in trust fees. Noninterest expense was $37.5 million for the third quarter, a decrease of $1.7 million or 4.4% on a linked-quarter basis, primarily driven by a $1.2 million write-off on the demolition of an existing branch recorded last quarter and a decrease in software and data processing expense. Our fully taxable equivalent efficiency ratio decreased to 52.99% as of September 30 from 53.70 as of June 30, primarily due to an increase in total revenue. At this time, we expect noninterest expense to be in the $38 million range for the fourth quarter. We recorded income tax expense of $189,000 compared to $4.7 million in the prior quarter, a decrease of $4.5 million, driven by the loss on sales on AFS securities. Our effective tax rate was 3.7% for the third quarter, a decrease compared to 17.8% last quarter. We are currently estimating an annual effective tax rate of 16.6% for 2025. Thank you for joining us today. This concludes our comments, and we will open the line for your questions. Operator: [Operator Instructions] Your first question comes from Michael Rose with Raymond James. Michael Rose: Sorry if I missed this, but I wanted to go back to the restructuring. I know there's obviously going to be some moving parts here just given that the loan growth happened kind of on the last day of the quarter, half of it, roughly, you did the restructuring. Just wanted to get kind of a level set of if I normalize all that, what's a good kind of starting margin that we should be contemplating for the fourth quarter just given, again, the late quarter growth, the benefits of the securities restructuring as we go forward. Just looking for a little color there. And then what your rate expectations are? Lee Gibson: The NIM in the fourth quarter, I expect to be up slightly. We have the sub debt costs in the third quarter that will have the full impact in the fourth quarter. But with -- if loans don't grow at all in the fourth quarter, which we're not anticipating, the average loans will increase $125 million during the quarter. And then we'll have the full impact of the $325 million of security sales restructuring that will take an effect, along with repricing of over $600 million of CDs that we anticipate will have an average savings of around 34 basis points on. The only headwind to the NIM in the fourth quarter is, I mentioned, the full impact of the 7%. And then we also have the repricing of the $92 million that Julie mentioned which today would be a rate of 7.52% compared to the current rate of 3.875%. So overall, I expect the NIM to be up slightly. I expect net interest income to improve nicely. And I think we're set up for a lot of positive things in the future when it comes to net interest income and the NIM. I don't know if that gives you a flavor for what we're looking at. Michael Rose: Yes, it's helpful. There's just obviously, a good amount of moving parts here. Lee Gibson: There's a bunch. Michael Rose: Maybe just moving on, we've seen some deal activity here in Texas over the past couple of months. I know you guys have kind of previously stated wanting to potentially do a deal yourselves. Just wanted to see if there's any kind of update there in terms of what you may be looking for? And then maybe separately, if there's some opportunities for hiring in light of those recent deals or maybe market share gain from clients. Lee Gibson: What we're looking at really hasn't changed. There are a few institutions that we have some interest in that potentially might be for sale. And in terms of hires, that is something we're looking at, and we've made a few hires. But yes, with some of the disruption that's occurring, especially with some of the larger out-of-state banks buying, some of the less than $10 billion banks here in Texas. There's definitely been some disruption, and we hope to jump on that opportunity and make some additional hires there. Michael Rose: Okay. Great. I'll step back. Lee, congratulations on the announcement. Operator: Your next question comes from the line of Wood Lay with KBW. Wood Lay: I wanted to start on loan growth, obviously, a really strong quarter, and it sounds like a lot of that growth actually came on the final day of the quarter. So I was just curious on the pipeline entering the fourth quarter, how it's looking and if there was any pull-through of the pipeline in this quarter? Lee Gibson: Yes. The pipeline is strong. It did take a dip. That's somewhat to be expected given the strong production quarters we've had. As we talk about internally, we have folks that are running hard to catch something when they catch it, they run hard to get it closed. And during that period of time, they get in what we sometimes refer to as bunker mentality, so they're closing the transaction and not looking for the next one. But I was really excited to see that after we took a dip in the pipeline that it bounced back up to $1.8 billion, which I feel is a really strong number. If you go back 12 months ago, I think we were running about $1 billion typically on a on a pipeline. So we're strong. We feel good about pull-through. Generally speaking, we're still seeing 25% to 30% of the pipeline moving through to a success rate. Sometimes that gets a little bit skewed by time because some of these have taken a while. They've been in the pipeline a while. So -- but we feel good. The one thing that's always out there is, especially as you get towards the year-end, there may be some unknown payoffs that occur, but we still feel pretty good about our guidance number today. Wood Lay: Got it. That's helpful. And then based on the current pipeline, are there segments that you're seeing a particular strength in? And just what's the overall pricing competition dynamic like? I feel like most banks this quarter just talking about how intense competition is. So are you seeing that from you all's perspective? Julie Shamburger: Yes. There's a lot of competition out there, both from the CRE standpoint and C&I. So we're not immune to it. We are being disciplined in our pricing approach. And generally speaking, since the second quarter, pricing hasn't changed a lot. We're still looking at term -- if it's a fully funded transaction, those are -- and it's a high quality. You're getting down to a 2% spread over SOFR. We have seen some banks willing to go below -- we slightly dipped below 2 on one transaction, but we are also selling a swap as part of the deal that helped get us back to what we would consider kind of the floor for us. On the construction side, we're still seeing construction debt that is going or moving -- lending at somewhere between as low as 2.50%, but generally speaking, somewhere around 2.65% to 2.75%. Wood Lay: Got it. And then lastly, as it pertains to the securities restructure, a part of those proceeds going to loan growth. To the extent that loan growth remains strong in the future, should we expect additional restructures to sort of help fund that growth? Lee Gibson: Well, 2 things. I spoke to the fact that this restructuring provided us even more flexibility as we have a lot of securities now that are at gains. And so we're in a position now that we can fund loan growth, increase spreads and actually sell securities near our book or above it. If the market allows and conditions are such that it makes sense to do some additional restructuring in the available-for-sale portfolio, we're certainly going to take a look at it. As Julie mentioned, the markets improved quite a bit. Spreads have also tightened there quite a bit, especially in the muni market. So we're going to continue to look at that carefully. But I would say most of the heavy lifting in the AFS portfolio has been done, but there is still some that we will take a look at and make decisions on as appropriate. Wood Lay: Lee, congrats on the upcoming retirement. And Keith, congrats on stepping into the role. Operator: Your next question comes from the line of Jordan Ghent with Stephens. Jordan Ghent: I just had a question on the buyback. So you recently increased the authorization. And just kind of what should we expect with buyback activity going forward? Julie Shamburger: Yes. So we did increase, as you mentioned, the last time we increased was back in July of '23. And since that date, we've purchased 868,000 shares, give or take a few. And so I think we're going to approach it the same way that we historically have. When we see the price dip and it's opportunistic, we will be out there actively purchasing shares. We've historically purchased open market shares and then done several 10b5-1 plans at the quarter end. So we did not do that this last quarter. But that's pretty much our strategy. We just try to -- we want to have it in place when it's opportunistic to purchase. So no strategy just to be terribly active at any one point, but just to watch the market. Jordan Ghent: Okay. And then just kind of going into the fee income. So it looks like trust fees have just had a steady climb over the last year. Kind of where do you guys see that going over maybe the next year or so and as a portion of fee income? Lee Gibson: We have a really good team in place that we've put in place over the last 2 years. and they're having a lot of impact, especially here in East Texas. And so we anticipate seeing double-digit revenue growth in that area next year as well. So we have -- we were expecting continued success. They're extremely busy, and they're taking on new clients all the time. So that's an area of noninterest income that we're really encouraged about and excited about. Julie Shamburger: Yes. And to add to that, Lee, we are -- one of the missing things for us right now is to really go into the metro markets with the wealth management. So we are exploring that, and we think we're going to make some good headway in 2026 on that. We may not attack each metro market with the same vigor, but we've got a pretty good footprint in Fortworth that I think could be a good support and starting point for wealth management in the metro market. So we're -- I'm really excited about that in the future. Jordan Ghent: Perfect. And then maybe just one more question. How many rate cuts are you guys assuming through year-end and maybe even into '26? Lee Gibson: I'm pretty certain that next week, we'll see movement, potential that there's another move, the last Fed meeting this year. Next year, I'm anticipating probably at least 2 cuts. It really just depends -- what the Fed determines. And of course, we're going to have new leadership mid next year. And my guess is that the new leadership is going to be more on the side of cutting additionally based on what the executive branch is saying. So it could be more than 2 cuts next year. A lot of it is probably going to depend on inflation and the employment. And the inflation numbers came in nice this morning, lower than expectation. but it's still above their 2% target. Now whether they change that with new Fed leadership, that's up in the air. Operator: [Operator Instructions] Your next question comes from the line of Anja Pelshaw with Hovde Group. Unknown Analyst: I'm asking questions on behalf of Brett today. I was hoping you could talk about the growth in DDA if it was somewhat seasonal or if you think it was sticky. Julie Shamburger: Yes. I guess the answer is it's not necessarily seasonal what we were just talking internally. So through some Erafile business, we have picked up some large depositors through that process. So we're -- we do think that's going to moderate probably in the fourth quarter. Some of that came in through one particular customer that is ramping up sales right now and getting deposits. So we do think that will moderate some through the end of the fourth quarter. Unknown Analyst: Okay. And you've talked about the loan pipeline, but I guess I was talking -- I was hoping you could expand on the growth so far from the new lenders. Julie Shamburger: So out of the Houston market, is that what you're referring to? So we're seeing good positive traction. One thing that -- just to keep clear, we've had 4 new hires in that market that are specific kind of to C&I business. And one of them came in, I think, December 30 of this past year. We had another one add in the first quarter, right towards the end of the first quarter, and then we've had one added at the end of the second quarter, and then we had another one added right in end of July, early August. So we haven't been able to see truly a full year of production yet, but it's been positive. They are gathering deposits. as well as loan growth right now. The C&I uptick, one thing we've talked about is really pushing our mix on C&I. Right now, we are -- at the beginning of the year, we were about 15% of our book is C&I. We have seen a slight uptick. We're about 16% today. And that -- some of that growth is actually coming out of our existing East Texas market. So we're excited about what's happening in Houston, but we've long been doing C&I in the East Texas and Southeast Texas markets, and we're seeing some good traction with that. Lee Gibson: Overall, in Houston, we've seen really positive loan growth probably in the 15% range this year. Julie Shamburger: And some of that's coming on the back of CRE lending. Operator: This completes our question-and-answer session. I will now turn the call back to Lee Gibson, CEO, for closing remarks. Lee Gibson: ing to be my final earnings call as I'm going to be retiring at the end of the year. So I wanted to take this opportunity to thank the analysts that cover Southside for your thoughtful questions, keen insight and your overall excellent coverage. I also want to thank our shareholders for your continued support and encouragement. And I want to let you know how excited I am about Southside's future as Keith Donahoe takes the helm, assisted by CFO, Julie Shamburger, and an extremely capable senior management team. Thank you, everyone, for joining us today. We appreciate your interest in Southside Bancshares, along with the opportunity to answer your questions. We look forward to reporting fourth quarter results to you during our next earnings call in January. This concludes the call. Thank you. Operator: Ladies and gentlemen, thank you all for joining. You may now disconnect.
Operator: Good morning, everyone, and welcome to Grupo Televisa's Third Quarter 2025 Conference Call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything discussed in today's call and in the earnings release. Please note, this event is being recorded. I would now like to turn the call over to Mr. Alfonso de Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead. Alfonso de Angoitia Noriega: Thank you, Elsa. Good morning, everyone, and thank you for joining us. With me today are Francisco Valim, CEO of Cable and Sky and Carlos Phillips, CFO of Grupo Televisa. Before discussing our third quarter operating and financial performance, let me share with you what we believe are the key milestones achieved this year, both at Grupo Televisa and TelevisaUnivision. At Grupo Televisa, let me touch on 4 major achievements. First, our strategy to focus on attracting and retaining value customers in cable has allowed us to grow our Internet subscriber base in the first 9 months of the year compared to the end of 2024. Second, we keep executing on implementation of OpEx efficiencies and the integration between Izzi and Sky to extract further synergies. This has already contributed to expanding our consolidated operating segment income margin by 100 basis points in the first 9 months of the year to 38.2% driven by year-on-year OpEx reduction of around 7%. Third, we continue to keep a disciplined CapEx deployment approach to focus on free cash flow generation. So far this year, we have invested MXN 7.5 billion in CapEx, which is equivalent to 16.8% of sales. In the fourth quarter, CapEx deployment should remain at similar levels to those of the third quarter. Still, our CapEx budget of $600 million for 2025 implies a reasonable CapEx to sales ratio of less than 20% for the full year. We have been able to achieve this mainly because we have had successful negotiations with suppliers, resulting in more favorable terms. And fourth, during the first 9 months of the year, we have generated around MXN 4.2 billion in free cash flow, allowing us to prepay a bank loan due in 2026 with a principal amount of around MXN 2.7 billion. This debt repayment comes on top of the $220 million principal amount of our senior notes already paid on March 18. Additionally, at the end of the third quarter, Grupo Televisa's leverage ratio of 2.1x EBITDA compared to 2.5x at the end of last year, mainly driven by our free cash flow generation. And at TelevisaUnivision, I will mention 3 key milestones. First, engagement and growth for ViX remains solid with strong momentum across both our free and premium tiers. Moreover, the Gold Cup semifinals and final and the compelling entertainment in sports slate that included the third season of La casa de los famosos, Mexico and our broadcast of Liga MX and the NFL helped drive a high single-digit increase in MAUs and robust demand for advertisers and ViX. Second, the efficiency plan to reduce operating expenses at TelevisaUnivision by over $400 million in 2025 is delivering outstanding results. In the first 9 months of the year, our total operating expenses have declined by around 12% year-on-year for total savings of around $300 million. This shows a disciplined execution of our cost savings initiatives, including lower content, technology and marketing costs and the normalization of our DTC related investments. And third, looking at TelevisaUnivision's leverage and debt profile, the company ended the quarter at 5.5x EBITDA an improvement from 5.9x in the fourth quarter of 2024, driven by growth. Moreover, so far this year, TelevisaUnivision successfully refinanced $2.3 billion of debt. As discussed in our second quarter earnings conference call, the company successfully issued $1.5 billion of new 2032 senior secured notes and refinanced over $760 million of term loan A now due in 2030. In addition, more recently, TelevisaUnivision extended its $500 million revolving credit facility and its $400 million accounts receivable facility. These transactions strengthened TelevisaUnivision's balance sheet, enhanced its liquidity and extended its maturity profile with its nearest maturity now almost 3 years away. Deleveraging remains a core strategic priority for TelevisaUnivision and management remains committed to further strengthening the capital structure of the company over the coming quarters. Having said that, let me turn the call over to Valim as he will discuss the operating and financial performance of our consolidated assets. Francisco Valim Filho: Thank you, Alfonso. Good morning, everyone. As Alfonso mentioned, we had an excellent quarter in this third quarter. First, let me walk you through the operating and financial performance of our cable operations. We ended September with a network of almost 20 million homes after passing around 20,000 new homes during the quarter. Our monthly churn rate has remained below our historical average of 2% for 2 consecutive quarters as we continue to execute our strategy to focus on value customers while working on customers' retention and satisfaction. Our broadband gross adds continues to improve on a sequential basis, allowing us to deliver 22,000 net adds during the third quarter compared to net adds of around 6,000 in the second quarter and disconnections of about 6,000 in the first quarter. In video, we also experienced a strong gross adds than in the first 2 quarters of the year and managed to reduce churn. Therefore, we lost about 43,000 video subscribers during the third quarter compared to 53,000 cancellations in the second quarter and 73,000 disconnections in the first quarter of the year. Moreover, we expect the improving trends to continue going forward, influenced by our recently announced multiyear partnership with Formula 1 to provide live coverage of all Grand Prix via Sky Sports channels available through Izzi and Sky. Beginning in the fourth quarter of this year until 2028 season, Formula 1 is the one of the fastest-growing and most passionate sports events in Mexico and around the world, and we definitely see this as a competitive advantage relative to our peers. Moving to mobile. Our net adds of 94,000 subscribers during the quarter continued to gain momentum, beating the 83,000 net adds of the second quarter and doubling those of the first quarter. Our innovative MVNO service developed by ZTE, offering enhanced user experience is already making our bundles more competitive and allowing us to increase our share of wallet from our existing customers. During the quarter, net revenues from our residential operations of MXN 10.6 billion, which accounted for around 91% of total cable revenue decreased by only 0.7% year-on-year. This marked the best quarter of the last 2 years at our residential operations from the revenue growth performance standpoint and compares well to a decline of 3% in the first half of the year. On a sequential basis, net revenue from our residential operations grew by 0.4%, potentially signaling an ongoing gradual recovery. During the quarter, revenue from our enterprise operations of MXN 1.1 billion, which accounted for around 9% of our cable revenue increased by 7.7% year-on-year. This also marks the best quarter of the last 3 years of our enterprise operations from a revenue growth performance standpoint and compares favorably to growth of 3% in the second quarter and a decline of 4.5% in the first quarter of this year. Moving on to Sky's operating and financial performance. During the third quarter, we lost 329,000 revenue-generating units, mostly coming from prepaid subscribers that have not been recharging their services. In addition, beginning in the second quarter, we started to charge an installation fee of MXN 1,250 to all satellite pay TV subscribers to increase the return on investment for this service. This translated into a slowdown of video gross additions for Sky that has been steady over the last 2 quarters. Sky's second quarter revenue of MXN 3.1 billion declined by 18.2% year-on-year mainly driven by a lower subscriber base. To sum up, segment revenue of MXN 14.7 billion fell by 4.4% year-on-year, while operating segment income of MXN 5.7 billion declined by only 0.7%, making it the best quarter of the year as we appear to be very close to reaching operating segment income stabilization. Our operating segment income margin of 38.5% extended by 140 basis points year-on-year, mainly driven by the efficiency measures that we have been implementing and synergies from the ongoing integration between Izzi and Sky. Regarding CapEx deployment, our total investment of MXN 3.6 billion account for 24.3% of sales during the third quarter. This shows a material sequential increase in CapEx deployment, but it is in line with our updated CapEx budget for 2025 of $600 million. Finally, operating cash flow for Cable and Sky, which is equivalent to EBITDA minus CapEx was MXN 2.1 billion in the third quarter, representing 14.2% of sales. Alfonso de Angoitia Noriega: Thank you, Valim, best quarter of the year indeed. Now let me take you through TelevisaUnivision's third quarter results. The company's third quarter revenue of $1.3 billion declined by 3% year-on-year, while adjusted EBITDA of $460 million increased by 9%. Excluding political advertising, revenue fell by 1% year-on-year, marking a sequential improvement compared to both the first and second quarters of this year. On the other hand, also excluding political advertising, adjusted EBITDA increased by 13% year-on-year, underscoring the scalability of a profitable DTC business and the sustained impact of cost reductions initiatives launched at the end of last year. Moving on to the details of our revenue performance. During the quarter, consolidated advertising revenue decreased by 6% year-on-year or 3% excluding political advertising expenditure. In the U.S., advertising revenue was 11% lower as growth in ViX continued to partially offset linear declines. Within ViX, the Gold Cup, semifinals and finals helped drive a high single-digit increase in MAUs and robust demand from advertisers. In Mexico, advertising revenue increased by 3% year-on-year, primarily driven by private and public sector ad sales that powered ARPU growth for ViX. Results this quarter benefited from a compelling entertainment and sports slate that including the performance of the third season of La casa de los famosos Mexico, dramas such as Monteverde and Amanecer and our broadcast of Liga MX and the NFL. During the quarter, consolidated subscription and licensing revenue increased by 3% year-on-year, driven by ViX's premium tier and higher content licensing revenue. In the U.S., subscription and licensing revenue grew by 11%, supported by ViX and results included a mid-single-digit increase in linear subscription revenue and higher content licensing revenue due to timing of content delivery. In Mexico, subscription and licensing revenue fell by 17%. Excluding the impact of the renewal cycle, subscription and licensing revenue in Mexico grew by 5% driven by ViX. To wrap up, Bernardo and I remain confident that our focus on value customers, efficiencies and ongoing integration between Izzi and Sky at Grupo Televisa and further integration and operational optimization at the TelevisaUnivision now that our DTC business has gained scale and achieved profitability will allow us to create greater value for our shareholders throughout this year. Now we are ready to take your questions. Operator, could you please provide instructions for the Q&A. Operator: [Operator Instructions] Our first question comes from Marcelo dos Santos with JPMorgan. Marcelo Santos: The first question is if you could comment a bit the CapEx outlook for 2026. How do you see this trending? And the second question is regarding the insurance claim you received. Was that related to Hurricane Otis? And is there something left to be received? Alfonso de Angoitia Noriega: Thank you, Marcelo. I'll ask Valim to answer both questions. Francisco Valim Filho: We gave -- Marcelo, we gave a guidance of around $600 million, and we should be within that range. Regarding the insurance claim, I think that's the last portion of the claim on the Otis Acapulco situation. So we shouldn't be seeing anything more from that event. Marcelo Santos: Valim, just one question. The CapEx for 2026, so for next year you're... Francisco Valim Filho: 2026, no 2026 is so far away, Marcelo. No, no, no. Alfonso de Angoitia Noriega: Let's finish 2025, then we can talk about '26. Operator: Our next question comes from Matthew Harrigan with Benchmark. Matthew Harrigan: You've actually reached a point in the U.S. when you look at the entire TV industry, there's more consumption on streaming than on linear. And I know your linear is much more durable than your English language peers. But you've got tremendous local programming positions, particularly in news and some of the largest U.S. EMAs. Are you really taking a lot of our -- hopefully, eventually almost all the news content on local stations and the distinctive content on the local stations and moving that to ViX over time because it feels like it would be a shame to lose the local identity. You have those stations because eventually, linear is going to fall off even for Hispanic audiences. And then secondly, clearly, a very dynamic situation in the U.S. and Mexico right now. Are you doing anything more on the BC side in relation to advertising for investments? And also, I can't help but ask, what's your general perspective on the U.S. and the imaginations with the administration on the tariff side and the prospects for near-shoring and everything going on. I know this is kind of ridiculously open-ended question. But just any thoughts on the stability of the economic relationship with the U.S. Alfonso de Angoitia Noriega: Yes. Thank you, Matthew, for your questions. I think, as to your first one, local news is very important for us. We are very strong in the local places where we produce news and local programming. We are exploring the possibility of including that in our streaming platform. We haven't yet included all of that content, but we're exploring that. The good thing is that, as I was saying, the local content is very strong. So very popular. As to your second question, we have made media for equity deals with great companies with great startups. We have assembled a great portfolio, I would say, and more companies are coming to us as they realize the importance of our platforms. And this is because of the strength of our platforms, we can position and grow their products and especially their brands when they're launching. Companies like Kavak, like Rappi, have become our ambassadors. At the beginning, we had doubts about the strength of linear television and most specifically in Mexico. But now they have become ambassadors of ours. We will continue to do these deals as we generate value with unsold inventory. And these companies become regular clients. So it's basically a funnel for these start-ups to grow, to position their brands, to position their products. And we take equity, which is great at very good valuations, and then they become regular clients and this is basically unsold inventory. So we're very happy with the portfolio we have been able to put together, and we'll continue to do this. As to your last question, I think that the Mexican government President, Sheinbaum has done an extraordinary job in dealing with the negotiations, the trade negotiations. I think that Mexico and the U.S. are key partners. If you look at the border region, it's one of the largest economies in the world by itself. The border, the legal border crossings that happened every day are in the millions. So I mean it's an integrated region. It's an integrated economy. So I believe that eventually, we'll be able to get to the right deal for Mexico and for the U.S. Operator: Our next question comes from Alex Azar with GBM. Alejandro Azar Wabi: Few ones on competition, Valim, on cable. If you can share a little bit of color on short-term and medium-term dynamics, especially when seeing how competitors are adding 1 million, 1.5 million net adds per year. It seems that in 2, 3 years, the market is going to be fully penetrated. So that would be my first question. And the second one is on Sky. With the levels of net disconnections you have year after year, how should we think about the EBITDA contribution in the next couple of years from Sky? Alfonso de Angoitia Noriega: Thank you, Alex. Valim? Francisco Valim Filho: Thank you, Alfonso. Well, I agree 100% with you. With this amount of net adds on a yearly basis, the market is very close to being fully penetrated. That's why our strategy is not going after volume because we know that we will be fighting for prices at the lower end of the pyramid. So our aim is to focus on the higher-end clients. That's why we have -- we are the only company in Mexico increasing ARPU consistently across the board. So I think that's the focus. So we think there's obviously a diminishing returns of this fight for the volumes of subscribers. And that's why our strategy moved away from that, and we have been successful in doing that. Regarding Sky, Alex, the way I see Sky is very straightforward. This is a business that will eventually disappear. Why? The penetration of the fiber networks and the amount of OTTs and the availability of a linear TV through cable and fiber operators is something that will obviously position Sky to only subscribers that are outside of those covered areas. So it will by definition then keep on declining. So how we perceive it, we perceive it as a cash flow from existing subscribers minus the programming cost, minus the technological cost of the satellite and all that is involved in that and then it generates a positive cash flow. That's the business and it has been generating positive cash flow and for the foreseeable future, we'll see positive contribution from Sky as a cash flow perspective. Obviously, it has this negative optics on our revenue, but just the way we see it is we've kind of segregate that from everything else and see that as an inflow of cash flow and everything else is more a stable growing businesses. Alfonso de Angoitia Noriega: Yes. And to add to your first question, to add on what Valim was saying, in Mexico, we have a 4-player market, but it's a pretty rational market, except for Telmex, which has kept its entry price unchanged for, I guess, more than 10 years, while also increasing Internet speeds and offering Netflix now for 3 -- for 6 months. They don't seem to be really interested in the profitability of Telmex as they extract value from the lease of fiber owned by other subsidiaries of theirs. And the other Megacable raised prices by around MXN 30 per month from the beginning of the year. So there, you can see that the industry is raising prices, except for Telmex. Totalplay also announced price hikes from April particularly from broadband customers that are heavy data users. So even though it's a 4-player market, it's a rational market and if you look at the prices and ARPU, we feel comfortable, and we feel confident that this will remain like that. Alejandro Azar Wabi: If I can just add a follow-up on Sky remarks. When you say Sky probably will disappear. I'm just thinking that there must be some part of the population that where fiber is not around, and they -- if Sky becomes the only thing that they can use, especially for video. Do you guys have an approximate of that? I don't know. Alfonso de Angoitia Noriega: No, you're absolutely right. I mean there are rural areas where a satellite provider makes sense. I don't know. Francisco Valim Filho: No, I don't think they will disappear per se. It's obviously a diminishing volume like we have been seeing and we'll keep on seeing. But just to give an example, in Central America, we have close to 100,000 subscribers basically flat because in those areas, there are less competitors offering a fiber network or a cable network. And it is very stable. And like Mexico, where we are all deploying network and expanding our infrastructure. So yes, I don't think it will disappear, not just there will be a day that will be just shut down. I think it will still have -- and I think there are just several hundred thousand people living in areas where there's no other option for entertainment and Sky will keep on being a solution. But that's why we don't see this as a -- I understand some people see this as a problem. We actually see this as an upside given the fact that we're generating positive cash flow. Alfonso de Angoitia Noriega: Yes. I think Valim is absolutely right. We see Sky as a cash flow. And the more we extend, we prolong the life of the subscribers, it's going to be an amazing driver for our cash flow. Operator: Our next question comes from Ernesto Gonzalez with Morgan Stanley. Ernesto Gonzalez: Look, I know it's early but going back to the discussion on broadband penetration in Mexico. Do you have any -- or can you share any expectations for cable growth rates next -- sorry, next year? Do you believe that you can accelerate growth for the unit. And the second question is on the sustainability of margins for Cable Sky but also TelevisaUnivision. They were strong in the third quarter. So I wanted to get a sense of how much more room they have to grow going forward. Francisco Valim Filho: Well, I think that -- back to your point Ernesto, I think that it's key to understand that obviously, as penetrations go higher, the level of net adds will diminish for every player in the market. And you have already saw that. As you see quarter after quarter after quarter, we already see a diminishing number of net adds being added to the different players. So that's a diminishing return in other countries like Brazil, for example, where the penetration is significantly higher even than Mexico. You see there's this dynamic as well and companies find ways by selling more products to the same existing customers to keep revenues growing but obviously, you're not going to be seeing high double-digit numbers because of the dynamic of the market. So like Alfonso just said, this is a very rational market. Nobody is flashing, prep is down. The promotions are very reasonable. And everybody is actually making money in this market like our cash flow generation that we have just presented. This is significantly -- is very significant. So I think that's a dynamic in mature market that you'll see. And what happens is you add more products, better products, more speeds and that's how you keep on increasing ARPU. And that's why we think the strategy of going after the high-end customers, they have more disposable income available as opposed to the other end of the pyramid. And I think regarding margins of cable... Alfonso de Angoitia Noriega: No. I think he asked about TU... Francisco Valim Filho: No, no, no. The answer is not over. Alfonso de Angoitia Noriega: Okay. Go ahead. Francisco Valim Filho: So the idea here is we think that we keep on improving margins. This is an ongoing, never stopping exercise that will go internally. And we find that through many different ways, mostly through technology. Obviously, we still are collecting a few synergies from Sky mostly through technology and improvement in how we provide services and processes. So there is an ongoing effort to increase margins. I'm talking about cable. Alfonso de Angoitia Noriega: Yes. Yes. And about -- I mean, TU amazing margins. I think that was a result of the cost cutting and all that we did in terms of costs and expenses in the fourth quarter of last year, which are being reflected in this year. We believe that we have the highest margins in the industry. And that has to do with that cost cutting, $415 million. And also, it has to do with owning the largest library of content in Spanish in the world, more than 300,000 hours of content. It also has to do with the very efficient way in which we produce content, especially in our studios in Mexico. And that allows us to have these amazing margins. So I think those margins in the mid-30s are sustainable. Operator: This concludes our question and answer session. I Would like to turn the conference back over to Mr. Alfonso de Noriega for any closing remarks. Alfonso de Angoitia Noriega: Well, thank you very much for participating in our call. And if you have any questions, please give us a call. Have a great weekend. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Sdiptech Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Anders Mattson and CFO, Bengt Lejdstrom. Please go ahead. Anders Mattson: Hi, everybody, and welcome to our Q3 presentation and Q&A. I am Anders Mattson, CEO of Sdiptech, and I will be presenting the results together with CFO, Bengt Lejdstrom, here today. I will start with the highlights of the quarter before we go into the more general content with the financial results. So in the quarter, we have implemented and streamlined our portfolio and Sdiptech will become a more coherent and better aligned group going forward. Until today, we have consisted of 41 companies in our 4 business areas. We have historically been growing our adjusted EBITA at a good level, but we have, at the same time, been quite volatile. Our portfolio has partially been based on installation companies, companies with exposure to cyclical end markets like construction and quite a few companies with a margin around 10% in the group. And these companies were usually or most of them required before our strategic shift into. So if we look at the financials here for this total portfolio in Q3, we had approximately 19% in adjusted EBITA margin and 12% return on capital employed. If we look in the middle, so what have we done? We have assessed on our key strategic priorities. We prefer product-based companies. We like markets with strong underlying growth drivers. And we would like to see a clear niche, which is usually protected a good way and that's also the reason why we [Technical Difficulty] in many of our business units. So based on this assessment, we have made a decision to divest 11 companies from the group. We have already started the process of finding new homes to these companies, and we have good progress with several of divestments so far. As these 11 companies only stand for roughly 3% of the year-to-date adjusted EBITA, their P&L effect is minor. On the balance sheet, the result will be a write-down of SEK 500 million in goodwill and other intangible assets. And Bengt will come back to this later in the presentation. So if we look to the right here, from today and going forward, we will consist of 30 companies and a better aligned portfolio. We believe we will be able to more proactively drive organic growth with this portfolio. And from our point of view, it's also a better allocation of capital towards our strategic priorities going forward. Financially in the quarter, as I said, is a minor effect. Adjusted EBITA will be reduced by SEK 7 million from SEK 242 million to SEK 235 million. but our adjusted EBITA margin will go up from 19.4% to 21.3%. And return on capital employed will increase from 12% to roughly 13%. So in the presentation going forward now, I will present numbers according to the core portfolio. So summary of the quarter from a financial perspective, net sales increased with 9%. That was 4.5% organic growth and roughly 9% due to acquisition. We were glad to see solid demand from all our business areas. It was positive to see a slow recovery from some larger business units where orders have been pushed forward in the year from Q1 to Q2 and now in Q3, we finally got some sales realized. Adjusted EBITA increased with 9% at 2.4% organic and rough from acquisitions. The increase in sales made EBITA grow as well. So it's not only because of cost adjustment. And year-to-date, we are still behind last year's numbers, but positive with the organic growth in the quarter. We have also been able to maintain the margin of 21.3% in the quarter, which has been quite challenging due to tough market conditions, both on price and also actually to getting the customer to commit to the orders. We had a strong cash flow generation in the quarter as well of 94%, which resulted in SEK 255 million in cash. And that was primarily a result of improved inventory levels from a high level in the last quarter. If we're going into the net sales, the net sales increased with 9% to SEK 1,102 million. And as I said, there was a good demand, solid demand from all our business areas. And the 4.5% organic growth is something we are, of course, satisfied with in the quarter. As I also talked about previous quarters, we have experienced a slow first half of the year, especially from some larger business units in the group. So it's a positive sign that I mentioned as well that we have been able to deliver and recognize sales in the quarter. We have also had a strong contribution from acquisitions. And some of the acquisitions is influenced by strong growth drivers linked to security around data center as one example, and that is in our smallest business area, Safety & Security. In the graph to the right, we have separated the core portfolio since 2023. And from this date, you can see we have achieved a CAGR of 13% in sales growth. If we're looking at the sales split, the sales split of the portfolio looks now a little bit different. After the separation of the core, Sweden has decreased in size and now it's only between 5% and 6% in total sales from the portfolio. U.K. is still our biggest market. We believe we are successful in the U.K. We like the trend with the long-term investments in infrastructure assets. Other Europe is now roughly at 20%. This is a geographic area we foresee to continue to grow in. If you look to the right, turnover by type, proprietary products is the dominant type of revenue for us as a group. Installation has been reduced as a result of the core portfolio. The installation and service that you still hear -- you still see now is primarily on our own products. And we have several companies with a strong service offering that enables stability in the earnings. And that's usually both service on hardware, software and manual labor hours as well. But again, on our -- primarily on our own products then. Coming into the adjusted EBITA. Adjusted EBITA increased by 9% to SEK 235 million. That is, for us, a stable profit growth with 2.4% organic growth. We also had a strong contribution from acquisitions with 10%, and it's coming primarily from companies within Safety & Security and also from companies within Energy & Electrification. And again, that's the trend around security for data center that has been driven this acquisition quite good in the quarter. The margin at 21.3%, we have been able to maintain from last year. As I mentioned before, it's been a price pressure in the market. So being able to maintain this margin is a result of a good cost control, both from activities within purchasing, but also from overall overhead cost development. If we look at the diagram to the right, we see a stable and high level in adjusted EBITA in percentage since 2023. If you also then look at the CAGR, the CAGR of the EBITA is at 11%, and we know we can do better than this. But in this graph, it's affected by a slower pace of acquisitions since last 1.5 year and it's also a weaker, as we know, organic growth since the beginning of 2024. So looking at the development in our 4 business areas, I think it's important to mention that we believe our 4 business areas serves us well as a group. They are broad enough to enable good M&A opportunities within each and every business area. And they also align our focus to the markets with strong underlying growth drivers, which is very important for the long-term development for us as a group. In Q3, all 4 business areas had solid demand. It's also positive to see that our smallest business area, Safety & Security, had a strong development in the quarter. If you look at Supply Chain & Transportation, we have begun to recover in this one after a weaker first half of the year. Several customers in this business area postponed their orders, actually from Q2 during the summer into Q3 and some into Q4. But in Q3, we released some sales, and it was also a good scalability, which led to margin improvements in the business area. Safety & Security, as I already mentioned, had a strong quarter, and there was several smaller units benefiting from favorable market trends, the one I already mentioned around data center, but also around emission control, pollution control, which is a strong area for us. And the new acquired companies in this business area also affected positively. Within Energy & Electrification, performance was mixed. A few units were driven by continued strong demand from energy efficiency, while some units were still affected from some very tough comparison from last year. That was from Q1, Q2 and also now in Q3. In Water & Bioocconomy, several units performed well, although margins were impacted in this business area by some cost pressure. And we are working to -- but we also need to be balanced to foresee future opportunities and future growth in regards to our cost base. And with that said, I hand over to you, Bengt. Bengt Lejdstrom: Thank you, Anders. Yes. And let's have a little bit deeper look into the cash flow and cash conversion for the whole group. As Anders was mentioning, we had a very good cash conversion of 94%, much of that coming from the inventories that were built up during the summer for seasonal sales that have started now and will continue into Q4. Improved the whole situation with inventory levels. We also saw some lower tax payments compared to last year. So all in all, a good quarter. And as you can see there on the chart that typically, we are between 70% to 90% in cash conversion. That's from operations and from working capital ups and downs. And we're now on a last 12-month basis, right in the middle at 81%, comparable with last year's 83%. We also start to show in our reports now the free cash flow per share. We haven't reported that for a very long time, but we report it now. And we had a very good free cash flow. That means all cash coming in from the business and also after the working capital adjustments, but then deducting the amortization of different leasing contracts as well as deducting the capital expenditures for different type of investments in the companies. So really, the only thing not included is when we acquire companies or pay earn-out debts to already acquired companies. So that cash flow was very good. And apart from the good cash flow from the operations, we saw a lower CapEx level in this quarter as we have done also for the full year. We work very closely with the companies, of course, to decide what type of the investments they should do. And we do that by looking at a classical DuPont chart, you could say that we -- where we look at both their EBIT margins and their capital turnover and see what kind of return on capital employed they have and from that decide what's most prioritized. So yes. And also the free cash flow for the last 12 months, as you see here at the last bullet is also very strong coming then both from the operations and from lower capital expenditures. Looking then at some additional metrics. We have the profit after tax, of course, an important measure. And -- but this quarter, it's a bit affected quite heavily actually by this write-down of goodwill when -- and it's all of SEK 500 million, this write-down of goodwill and other immaterial assets. When we moved these companies that will be divested out of the business areas, we could then make a full impairment test of their values. As you know, we do our impairment tests on goodwill, et cetera, based on our business areas because they are our cash-generating units. And all our 4 business areas have been able to defend very well the values that are in there. There is no risk for write-downs of the business areas. But when we then subtract out these specific companies, we have enabled them to look at them individually and in fact did total write-down of SEK 0.5 million. But if we exclude that more bookkeeping exercise, it's not cash generating anything, not affecting the cash flow, then we see that the profit after tax was a little bit lower. The difference is mainly because of the currency effects. We had SEK 14 million of currency loss in the quarter. And as you could see and hear from Anders previously that it affects both top line and profit, of course, this 4%, 5% all in all FX effect. But in our finance net, it affects us with SEK 14 million in the quarter. And that also affects us on the last 12 months. Then total, the finance net is affected with SEK 50 million, most of that coming from currency effects. And as you saw on the chart on our distribution of sales that currency effect could, of course, be quite substantial as the Swedish currency becomes stronger as we have more than 90% of our revenues kicking in from other currencies. Then another measure then taking that profit after tax and take it per ordinary share after dilution, you see then a very hefty minus in the quarter, minus SEK 11.14 per share. But if we then exclude this write-down, it's 2 -- a little bit more than SEK 2 per share, and it's of the same reasons as I just explained. And that also goes for the last 12 months compared with last year. Then taking a look on the leverage. We saw a quite big increase in the financial debt leverage compared with last year and also compared with the year-end last year. And that's because we have paid out earn-out debts. These earn-outs have been provided for in the balance sheet ever since we acquired the companies. So the payout of earn-outs do not affect the net debt in total, the bottom line, but it affects the financial net debt. So that has -- we have paid out about SEK 150 million in the quarter and almost SEK 400 million in the year, year-to-date. So that's, of course, a lot of money going out, but it's going up and it's having performed very well since we acquired them. So it's a good thing to pay earn-outs. The total net debt compared with the adjusted EBITA has decreased since new year since we haven't made so much acquisitions, but it increased from last year September because we have acquired SEK 85 million of profit in the last 12 months. And of course, that affects the balance sheet and since the organic growth hasn't been top notch during that period. That affects the profit and results in an increased -- slightly increase in the net debt leverage. Then as the last financial metric here presented, we look at the return on capital employed, the ROCE. And as Anders mentioned, it was 12% now. It's counted as, of course, on the average capital employed for the last 4 months and then compared with the EBITA profit we have had. And that decreased because we have increased the capital employed from the acquisitions and the organic growth, as I said, has been -- last 12 months have been slightly negative. If we just look at the outgoing balance of capital employed after the write-downs of goodwills, we are at almost 13%. And if we only look at the core businesses, taking their capital employed and their profits, then we're at 13.5% now. So as we divest these companies one by one, then, of course, then the capital employed is reduced and this ROCE will increase slowly, but steadily. If we look upon the operational return on capital employed, that is the average from our operating units, we're at 51%, which is, of course, very good, we believe. Okay, with that, back to Anders. Anders Mattson: Okay. Thank you, Bengt. So coming into acquisitions, which is a very important aspect of our business model. Year-to-date, we have acquired SEK 40 million in EBITA, and we hope to close one small deal before year-end. We have some ongoing discussions that is quite far in the process. So that's the aim for the year. I think it's important to mention our guiding principles here in regards to M&A. Regarding the pipeline, we continue to build the pipeline to meet the customers and customers -- sorry, companies to come to the discussion about the final acquisitions, and we do that, and we have a strong, solid pipeline in place continuously building that one. In regard to valuation, we're disciplined here. We know that it's easy to go away in valuation. And we have -- during this quarter, we have stepped away from 2 deals that I was part of as well due to the valuation was going too high for us. And on the leverage side, as we have said, our aim is to reduce the leverage in the future. So of course, that together with our disciplined evaluation is affecting as well the numbers of acquisition and the number of EBIT we have done so far in the year. I can also add here that we have started to look into Germany. We did it already last quarter, but it's a good progress and a lot of exciting companies in that region for us now and also for the future, we believe. Okay. So last slide before we go into the Q&A, a little bit of the takeaways from the quarter from us. I think the solid underlying demand is positive. A majority of our companies had a stable demand in Q3. It is still uncertainty out there in the market. And the condition for many of the businesses in Q4 is unstable. We see that 2026 is a positive sign for us, but it's still uncertain. And that's what we see right now. And we don't want to say anything more about 2026 than that here today. On the second bullet here, on our strategic actions for the long-term value creation, we have taken some very important steps in the [ quarter line ], our portfolio. We have been talking about that for quite some time, and it's -- I think it's good for us for Sdiptech to finally have done this decision now going forward. Many of the companies, we will divest. We have ongoing discussions with and progress in a good way. We have not set any strict deadline when it needs to happen, the divestment. But both from our perspective, from the company's perspective, we would like to be efficient and fast in the process. So that's what we are driving at. We have -- during the autumn as well, we have looked into our strategy, and we have made some adjustments, and we will present that on a Capital Market Day in end of November. And on the last note then, the acquisition pipeline. It is a solid pipeline that we have. Discussions ongoing, but we keep a strong discipline in our valuation and also around our investment criteria, especially with our aim to decreasing the leverage over time in the future. So that was, I think, everything from us as a presenter, and I think we can open up for our Q&A session as well now. Operator: [Operator Instructions] The next question comes from Max Bacco from SEB. Max Bacco: Well done in the quarter. Three questions from my side, 3, 4 questions. Perhaps starting with the cash flow. As you said, very strong here in the quarter, partly due to lower tax, but also lower CapEx and then quite neutral impact from net working capital. So the first question on cash flow, I think you mentioned this, Bengt. But here in the end of 2025 in Q4, do you see potential for further support from net working capital in terms of the cash flow? Or yes, what's your thought on that, if you start with that one? Bengt Lejdstrom: Exactly. Now typically, Q4 could be quite good from a working capital perspective since we have some seasonal oriented comp. There's no moving equipment and heat work and so on. And they have been building stocks during the summer and starting now then to sell it and turn it into accounts receivables, of course, but then also get the cash in from those invoices. So -- last year, it was actually above 100%, the cash generation. So it's not that high this year, but still Q4 is typically good for net working capital. Max Bacco: Okay. Sounds promising. And then you actually touched upon this also during the presentation that in the quarter, CapEx was a bit lower and that you have a very strict process with the subsidiaries when deciding how to allocate capital. And perhaps thinking a bit more long term than just next quarter, but historically, Sdiptech has been at some 4% of sales in terms of CapEx. Do you see a potential to reduce that number going ahead and perhaps allocate more into acquisitions instead and deleveraging? What's your thought thoughts on that going forward? Bengt Lejdstrom: Yes. I mean it's typically perhaps difficult to say the exact number for the future. But I think if we have been sometimes around 4 and even above, I think we're more around of sales now in CapEx spending. So -- but as I said, it's always depending on the actual situation and what's most profitable for that company, for example. But yes -- but we have tightened up the process quite a bit. Anders Mattson: I can add to that as well, then. Yes, I think what Bengt said there, it's important for us to see the CapEx and the need for the total portfolio and to prioritize in the coming years in a better way. And that's something we have looked into ourselves in our strategic work as well. Max Bacco: Okay. Sounds good. And then changing topic. I mean as you have explained yourself, quite a lot of things going on right now in Sdiptech, I mean, everything from improvement measures in several core subsidiaries. You still have an active M&A pipeline, you have ambitions to divest several companies. And I guess you're preparing as well for Capital Markets Day here in the end of November. Just curious how you allocate responsibilities internally? And do you consider yourself to be able to execute on all parts without, I guess, losing momentum and/or sacrificing quality? What's your thoughts on that? Anders Mattson: Yes, I think from -- I agree, it's a lot of -- on the agenda, but I think we have structured it quite good. The M&A team is not responsible for the divestment. So they are focusing on building the pipeline and meeting and executing on the M&A side. We have other internal individuals responsible for the divestment. And it's going quite good actually with -- we are not going on big broad processes. We are identifying smart, we think, key potential buyers to the businesses, and we drive that process quite efficiently. And from the other perspective is that we are still working on establishing the new business area organization. In August, Daniel started as the new Head of Supply Chain & Transportation. And we are quite far in the process to recruit somebody in the U.K. as well for Energy & Electrification. And I think that will, of course, be very important going forward to have that stable organization in the business area side as well. But so far, it looks -- feels good on that side. Max Bacco: Okay. Perfect. And then one final question, turning a bit more short term again, Just if it's possible, if you could help us how we should think about Q4 here in the next quarter in terms of comparable numbers, both for core and noncore? I mean at first glance, it looks like that noncore or other operations seem to have a quite weak Q4 last year. I guess it's some seasonality into it as well, whereas core had a more -- it looks like more decent quarter Q4 last year. Did you share that view on things? Anders Mattson: Yes. Yes, I can -- definitely, it's correct. In our situation, we look at the divestment process. So it might be that some of the companies might be divested now during Q4. And then, of course, it's going to affect that comparable numbers then. From the core, I think Bengt was touching upon that as well, that it's important that our companies with a bigger seasonal effect deliver now. And it's a little bit -- as we said, it's a little bit unsecured at the moment. We have some more slight negative, so to say. But overall, it's a positive sign for the future. But it's -- right now for Q4, we have said not to guide anything more than this at the moment. Operator: The next question comes from Simon Jönsson from ABG Sundal Collier. Simon Jönsson: First, just I want to say, it's a nice addition with the free cash flow per share KPI. Things like that are appreciated. And then I also have a question, like Max, on the acquisition pace. You -- it sounds like you expect maybe one more smaller acquisition this year. And it sounds like you remain quite active in new deals. So I just wonder how you think about new acquisitions versus your preferred gearing levels sort of what you're comfortable with and where you think your limits might be in terms of gearing and how much you can do on the acquisition side in near term. So I guess that's maybe not Q4, but in coming quarters or so. Anything on that would be helpful how you're thinking? Anders Mattson: Yes. So I think on the first perspective of this, it's important to be active. We prefer to say no to deals than not having the deals to not sit at the table. So we are, yes, definitely building the pipeline and meeting the customer and trying to get to the deal, so to say. But regarding the exact numbers, we will touch upon that, and we have discussed that internally in regards to our Capital Markets Day that we will come up with targets, I think, around some potentially new financial targets there. But right now, we are at 3.2%, as Bengt showed you, but I think we would like to go down from there and not to go up. So that's the balance. We still would like to acquire those value companies that are out there when we can get them at a good valuation, but still ambition is to drive down leverage. But we don't want to make it too fast and not make any stupid decisions when we have the good targets out there. Simon Jönsson: All right. Good answer. Then I just have a follow-up on the margins on the segments, specifically on Water & Bio. You commented briefly on the margins in that segment were impacted by cost pressures. Could you maybe elaborate a bit more specifically due to the margin decline year-over-year and how we should expect that those pressures going forward? Anders Mattson: Yes, we have a company, which is having a lot of big workforce. So from a salary perspective, salary increased quite significantly in the beginning of the year in -- especially in the U.K. And we are having some longer contracts with insurance customers, which is very hard to adjust for those kind of compensation or salary conversations. So there's a tough year for that company specifically in the U.K. And then -- but that's really the majority. And then we have also in other companies, we have been taking some decision to build up a little bit more because it's -- we need that for -- to be able to deliver for a possible upside in the coming quarters. It looks good from a revenue side in projects and orders. Operator: The next question comes from Martin Wahlstrom from Redeye. Martin Wahlstrom: The first one is related to the dynamic you say, where you postpone orders from H1 to H2. Could you give any more color on the split between kind of what lands in Q3 and what lands in Q4? Anders Mattson: I think we have a good -- let's say, part of that was actually now coming into Q3. But yes, it's still -- some of those orders, it's -- I'm thinking specifically of the 3 companies in the group. They have been promised orders. It didn't come in Q3. So yes, potentially, it will come in Q4. The good thing when we have the U.K. companies that they have the budget year in actually end of March 2026. So it's still on the right side in the budget, so to say, for some other companies. But no, it's difficult to say that, specifically how much of it came in Q3 and how much is going to be realized in Q4. Q4 is more about what I think we answered before as well, the seasonality in some of the winter needs to come, and we need to be able to deliver for the season or in season as well. Martin Wahlstrom: I see, I see. And then one final question is related to if you could give some more color on the distribution in your acquisition pipeline when it comes to kind of the split between business areas and geographies going forward? Anders Mattson: So from business area perspective, it's, let's say, it's equally among the 4 business areas. We have had some good discussions within supply chain, but also in Safety & Security in the recent quarter. So I think that's good. It's important that we work with all 4 business areas in acquisitions. From geography, it's actually nothing special there. It's our main geographies. It's U.K., it's the Nordics, it's Italy as well. And then as I said as well, we are going into Germany, and we have some good discussions with German or Dutch as well companies. So the DACH countries. It's -- so that's new and fresh into the pipeline, but nothing more or more significant than other geographies at the moment. Operator: The next question comes from Linus Alentun from Nordea. Linus Alentun: Just a quick couple of questions here from me. Starting off in Water & Bio, what would you say is a normalized margin here once we see a rebound? Bengt Lejdstrom: Well, I could perhaps step in there. Anders Mattson: Yes. Bengt Lejdstrom: Yes, we have seen -- typically, they have been around 24%, 25%. And then as the companies we now count as the core companies in that business area. Now it was 21% in this quarter for the reasons that Anders mentioned. So we're working to get it up there again. So whether it will be 23% or 24%, 25%, that's, of course, still to be seen because there are many different unique situations to take care of. But at least we're working to improve from the current 21%, that much we can say. Linus Alentun: Okay. And on '26 here, you mentioned in the report that, that is when you see a broader recovery. What makes you confident in that? Is there anything -- any indicator you've seen turning more positive or... Anders Mattson: No, I think it's the discussion with the companies. We are in a budget process as well, and we've been asking -- or in our discussions with the companies, it is positive momentum for business areas or business units and orders and they are looking into projects for next year and new potential customers. So no, it's from that perspective, talking to the companies and seeing there what they see for the orders and for the potential in the coming year. Linus Alentun: Okay. Super. That's super clear. And just one last question here. If I remember correctly, you had some swaps here that are contributing negatively in the net financials. What's the time line? When will they stop affecting here? Bengt Lejdstrom: Yes, we have 2 types of hedging arrangements. One is for interest and those interest swaps are right now negative. They were positive before when the interest rates were higher. Right now, we pay an extra 0.2 or so percent on the debt. But they will be closed from end of next year. And so 1, 2 years, you could say. So it's not a very big downside, but still, we pay about 20 basis points more than we should because of those hedging. But they have been giving a good return because they were better before. The other side, we have hedging arrangements on currencies. And there, we tried to hedge our currency exposure in the balance sheet to some extent. And not -- we're still net asset positive, which means that when, for example, British pound sterling is weakening towards the SEK, all in all, we get then a cost in the P&L, but not as much as we would if we hadn't those FX swaps and hedges. Linus Alentun: Okay. Super. So 20 bps there. Operator: [Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments. Bengt Lejdstrom: Yes. And I could kick off then with the questions. We have received 3 questions in the chat here. I think one we have already answered that was regarding the EBITA margin in the Water & Bioeconomy business area. And the second question was that some of the companies we are now intending to divest among the other companies. They have quite well-performing companies with good margins and product based to some extent. Why divesting such companies? Anders Mattson: Yes. I think I can add to that question is that -- so what I said, what we look for in the companies we would like to buy in our strategic priorities is around 3 things. We would like to have a strong promise that actually have their own products. They sell and they make service to them. We also want to have not cyclical end markets. It has been a challenge with some of the companies, which is very cyclical and working, trying to proactively work with organic growth is quite difficult if you don't have the mindset, that's what it is with those companies. And the third thing around the niche. If you have niche, you can protect it and you can drive growth from that niche. And all of these companies that we're giving examples of here, they have some aspect or they are not meeting that criteria. So it's been -- for us, been challenging, and we would like to allocate that money into more our prioritized businesses and future businesses. And we believe many of these businesses, as we said, it's not because they are performing financially bad, it's more that -- to allocate that capital to something that we believe in the future is better according to us. Bengt Lejdstrom: Thank you, Anders. And then the last written question, as I see, it's regarding the write-down if -- was that a one-off? Or could that potentially continue to be more write-downs Q4 and also next year? But what we have done now is to the best of our knowledge, as it's typically called and also to write down the value. So we don't foresee that we need to do any more write-downs. And of course, it's depending on how much money, high considerations we will get for the companies once we divest. But we believe at least that the value of these companies represent their market value and potential than consideration that we will get. So it shouldn't be any major at least. It could be -- go both ways. We could both have some profits or we could have some smaller losses when we divest, but it shouldn't really be any big numbers. But no write-down of goodwill as such because of any impairment. I think that was all of the written questions. So back to you, Anders. Anders Mattson: Yes. I think then thank you for the written question and asked question. And yes, thank you all for listening in, and we are looking forward. And hopefully, we will meet some of you at the Capital Markets Day in November, which will be held here in Stockholm, and we are looking forward to that. So with that, thank you, everybody, for today.
Operator: Good morning, and welcome to the General Dynamics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics Third Quarter 2025 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; Danny Deep, Executive Vice President, Global Operations; and Kim Kuryea, Chief Financial Officer. I will now turn the call over to Phebe. Phebe Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.88 per diluted share on revenue of $12.9 billion, operating earnings of $1.3 billion and net income of $1.059 billion. Across the company, revenue increased $1.24 billion, a strong 10.6%, led by a 30.3% increase in our Aerospace segment and a 13.8% increase in Marine Systems over the year ago quarter. Importantly, operating earnings of $1.3 billion are up $150 million or 12.7% Similarly, net earnings increased $129 million or 13.9% and earnings per share are up $0.53 or 15.8% over the year ago quarter. On a year-to-date basis, revenue of $38.2 billion is up 11% over last year. Operating earnings of $3.9 billion are up 15.7%. Net earnings of $3.07 billion are up 16.4% and earnings per share are up 19%. As an aside, we beat consensus estimate by $0.18 on higher-than-anticipated revenue and modestly better operating margins. My reaction to the quarter is best reflected in thoughts about the sequential comparison. In the second quarter of this year, we had very good results, which were well received by investors. This quarter was even better. The 2 quarters enjoyed similar revenue, but operating margin improved by 30 basis points, and we generated significantly higher free cash flow, as you will hear in greater detail from Kim. Robust order momentum continued in the quarter, yielding record backlog. In short, we had a superb quarter from my perspective. With that, let's move into a discussion of the operating segments. First, Aerospace. Aerospace performed very well in the quarter to say the least. It had revenue of $3.2 billion and operating earnings of $430 million with a 13.3% operating margin. Revenue is a dramatic $752 million more than last year's third quarter, a 30.3% increase. The revenue increase was led by new aircraft deliveries, higher special mission volume and the services business at both Gulfstream and Jet. Similarly, operating earnings of $430 million show a staggering 41% increase over the year ago quarter. The 13.3% operating margin is 100 basis points better than a year ago. We delivered 39 aircraft in the quarter, 11 more deliveries than a year ago, including 13 G700s. It is important to note that this is the first quarter where we had no deliveries of the high gross margin G650ER compared to 9 in the year ago quarter. We also made 3 initial deliveries of the G800 in the quarter. This plane will provide the majority of delivery growth in Q4. For the year-to-date, Aerospace revenue is up $1.82 billion, an increase of 24.2%. Operating earnings are up $386 million, an increase of 43.9% all very impressive, especially when the comparator year 2024 showed remarkable growth over 2023. Turning to market demand. We saw accelerated interest across all models in the third quarter, led by the North American market. This led to very strong order intake and loaded the pipeline for a good fourth quarter. This remains, by all accounts, a very resilient and robust market for new business aircraft. In summary, the Aerospace team had a very good quarter and look forward to a strong finish to the year. So let's move on to the defense businesses. As a collective, we once again saw strong growth in Marine Systems and good operating performance across the portfolio. Let me walk you through each segment in turn. First, Combat Systems. Combat Systems had revenue of $2.3 billion for the quarter, a modest 1.8% increase. Earnings of $335 million are up 3.1%. Operating margins at 14.9% are up 20 basis points over Q3 last year, demonstrating nice operating leverage. On a sequential basis, while revenue decreased 1.4%, earnings rose 3.4% on a 70 basis point improvement in operating margin. Year-to-date, revenue of $6.7 billion is up 1.7% and earnings of $950 million are up 3.3% Overall, demand is strong across Combat, particularly in our ordinance and international combat vehicles business. Artillery orders in the missile subcomponent work we do for the primes has increased in our Ordinance business. Internationally, demand for all classes of combat vehicles across the European theater has been increasing and orders are following, particularly in those countries in which we have indigenous production. We saw robust order intake with over $4.4 billion awarded in Q3, resulting in a book-to-bill of 2:1 for the quarter. Orders came from across the portfolio and internationally, primarily Europe. Our Combat System backlog at roughly $18.7 billion reflects a strong demand. All in all, a strong performance quarter for Combat that sets them up nicely for improved growth rates. Turning to Marine Systems. Yet again, our Shipbuilding Group is demonstrating strong revenue growth. Marine Systems revenue of $4.1 billion is up $497 million, 13.8% against the year ago quarter. Columbia-class construction and Virginia-class construction led the way with increased throughput. Operating earnings of $291 million are up 12.8% over the year ago quarter with a 10 basis point decrease in operating margin. However, we are seeing metrics showing improved performance across the business, which should lead to improved operating margins little by little. Sequentially, results are about the same as the prior quarter. Year-to-date, Marine revenue of $11.9 billion is up 14.7% and earnings of $832 million are up 13.2%. So across the business, we have seen rapid growth of revenue and earnings, but margin performance around 7%. As I have said before, improvement here represents our most meaningful opportunity. And lastly, Technologies. It was another good quarter with revenue of $3.3 billion, which is down 1.6% over the year ago quarter. Operating earnings in the quarter of $327 million are essentially the same on a 10 basis point improvement in operating margin. The year-to-date comparisons are better. Revenue at $10.2 billion is up 3.5% and earnings of $987 million are up almost 5% on a 10 basis point improvement in operating margin. Order activity was particularly strong in the quarter with a book-to-bill of 1.8:1. That resulted in backlog at the end of the quarter of $16.9 billion, up $2.7 billion sequentially. Through the first 9 months, the group achieved a book-to-bill ratio of 1.3:1. This positions the group well for better revenue growth than they have had in the last 2 years. Prospects remain strong with a large, qualified funnel of more than $113 billion in opportunities that they are pursuing across the group. It is interesting to observe that our slower growing segments in more recent periods have enjoyed very robust book-to-bill this quarter and year-to-date. That concludes my remarks about the defense businesses. Before I hand the call over to Kim, I'd like to have Danny share his observations from an operating perspective and provide additional color. Danny Deep: Thank you, Phebe. Let me start with Aerospace. We have seen strong performance across the board, including orders, manufacturing and deliveries as well as customer service. From an order standpoint, Phebe mentioned a robust quarter across the portfolio. To give you some additional perspective, in the first 9 months of 2025, unit orders are up 56% versus this time a year ago. From a productivity standpoint, we are seeing good learning across all our lines with manufacturing hours on the G700 and G800 coming down quarter-over-quarter throughout this year. We have seen measurable improvement in the supply chain with on-time deliveries to pre-COVID levels. And in terms of airplane deliveries, the progress has been pronounced with our delivery cadence steadily increasing. Through the first 9 months of this year, we've delivered 113 airplanes as compared to 89 airplanes for the same period in 2024. So overall, plenty to be pleased about from an operational standpoint. Turning to our defense businesses. I'll highlight a few key items of interest. In our Marine group, at Bath Iron Works, we are seeing positive momentum in terms of ship-over-ship learning reflected in both the number of hours to produce as well as the schedule to produce them. At Electric Boat, our productivity and schedule metrics are slowly but steadily improving as we see the investments in tooling and fixtures, automation, robotics and most importantly, our shipbuilders all taking hold. These improvements have stabilized margins and put us in a position to consistently grow them over time once the supply chain improves. With respect to the supply chain, we have seen improvements in some areas, but others are still struggling to meet the significant increase in demand. In the Combat Group, we have seen considerable uptick in demand in our European operations from bridges to combat platforms, and our long-term presence and manufacturing footprint in several European countries positions us well to serve this increased demand. In our Technologies group, we are seeing the benefits of the strategic investments that our Mission Systems business has made in differentiated defense electronics to serve priorities and strategic deterrence, subsea warfare and next-generation command and control. As we transition from legacy programs, which are nearly completed to programs with highly differentiated content, we expect to see continued growth with robust margins for this year and into the future. Across all our businesses, our continued focus on operational performance is bearing fruit as evidenced by our third quarter results, and we expect continued margin strength and strong cash generation in the future. Let me now turn the call over to Kim to discuss relevant financial data. Kimberly Kuryea: Thank you, Danny, and good morning. The third quarter was another strong quarter from an orders perspective. The overall book-to-bill ratio for the company was 1.5:1. All 4 segments experienced a book-to-bill of at least 1.2x. Our Defense segment's book-to-bill was a robust 1.6x their revenue. Aerospace continued its momentum with a book-to-bill of 1.3x for the second quarter in a row, even as revenue increased in both quarters. Year-to-date, the book-to-bill for the company was a solid 1.5:1. This robust order activity led to a new record level of backlog at $109.9 billion at the end of the quarter, up 19% from a year ago and 6% from last quarter. Looking at the segments, Marine and Technology each ended the quarter with a record level of backlog. Our total estimated contract value, which includes options and IDIQ contracts, also ended the quarter at a new record level of $167.7 billion with each of the Defense segments reaching new highs. Moving to our cash performance. It's an even better story than orders. Last quarter, we discussed our efforts to drive cash to the left given our back-end loaded cash forecast for 2025. Well, we realized the fruits of those efforts in the quarter. Our business units really outperformed our cash flow generation estimates for the quarter, driven by solid cash collections. Let's get to the specifics. Overall, we generated $2.1 billion of operating cash flow. All segments contributed to the better-than-expected results with particularly strong cash generation in Combat Systems and Technologies. Including capital expenditures, our free cash flow was $1.9 billion for the quarter or 179% of net income. Coming off strong cash collections in the third quarter, we now expect about half as much free cash flow as we generated in the third quarter in the fourth quarter. Our estimate includes an increase in capital expenditures as we continue to invest in our businesses, especially at Electric Boat and somewhat larger tax payments in the final quarter of the year. As a result, we anticipate a free cash flow conversion percentage in the low 90s for the year. This guidance includes some goodness from the reversal of the R&D capitalization, but the rest of that benefit will be realized over the next few years. Having said that, the uncertain duration and future potential impacts of the government shutdown creates a lack of clear visibility into our cash forecast for the remainder of the year. We are taking prudent actions to conserve cash and liquidity. If a resolution can be reached in the near term, we would expect to be able to achieve the forecast that I just discussed. However, in the event of a protracted shutdown, it is unclear how and when our cash flow will be impacted despite our careful efforts to diligently manage cash. Looking at capital deployment. Capital expenditures were $212 million in the quarter or 1.6% of sales and $552 million year-to-date. We are targeting over 2% of sales for the full year CapEx, given the expected investments in the fourth quarter that I mentioned a moment ago. We paid $403 million in dividends and repaid $696 million of commercial paper during the quarter. Year-to-date, we have returned $1.8 billion to shareholders in dividends and share repurchases. We ended the quarter with a cash balance of $2.5 billion. That brings us to a net debt position of $5.5 billion, down $1.7 billion from last quarter. After quarter end, we did reenter the commercial paper market to support our liquidity during the government shutdown in the event of slow or nonpayment issues. Interest expense in the quarter was $74 million compared with $82 million last year. That brings interest expense for the first 9 months of the year to $251 million, up slightly from $248 million last year. Finally, the tax rate in the quarter was 16.7%, bringing the rate for the first 9 months to 17.2%. This rate is approaching our outlook for the full year, which remains around 17.5%. Now let me turn it back over to Phebe. Phebe Novakovic: Thanks, Kim. So in light of the things we've just discussed, let me give you some thoughts for the remainder of the year. On a company-wide basis, we see annual revenue of around $52 billion and margins of around 10.3%. The puts and takes around the businesses are sufficiently modest that I will not get into them here. Overall, we are increasing our EPS forecast to between $15.30 to $15.35. Some of you may regard this as a cautious forecast given the performance year-to-date. Let me remind you that we're in the midst of a government shutdown with no end in sight. The longer it lasts, the more it will impact us, particularly the shorter-cycle businesses. So forecasts in this environment are difficult at best and less reliable than one would hope. This concludes our remarks, and we'll be happy to take your questions. Nicole Shelton: Thank you, Phebe. [Operator Instructions]. Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] Your first question comes from the line of Myles Walton with Wolfe Research. Myles Walton: Phebe, on the orders front within Aerospace, second quarter that they've been quite strong. And I'm curious, how much of this do you think is customers seeing that delivery pace is sort of coming together, realizing that they better get in line, lead times where they are? And maybe how much of it is maybe just more because the certification happens, the orders come in? Phebe Novakovic: I'd say there were a whole host of factors that drove the orders. I think primarily, it's the strength of the economy. It's been -- our order book has been pretty resilient. And in fact, the pipeline remains resilient and pretty robust. So I'd say it's that. It's a combination of that plus the fact that we've got a number of new models. Delivery cadence is improving. So I think it's all the factors that you mentioned. And I will note that it is across the portfolio, led primarily by the 800. Myles Walton: Geographically, is there an area of particular strength? Phebe Novakovic: North America. Operator: Your next question comes from the line of Robert Stallard with Vertical Research. Robert Stallard: Phebe, there's been some reports that the customer, the U.S. customer is talking to defense companies about potentially investing more of their own money, the CapEx and R&D in exchange for the work they do and also potentially putting restrictions on their ability to return cash to shareholders. And I wonder if you had any views or experience of this so far. Phebe Novakovic: I think we've all read the same reports. I would note that we have invested heavily over the last 7 years in our business because we anticipated the growth in all of our shipyards in our Combat Systems business and in technology. So we have a very, very clear record of heavy investing in our portfolio because we did see this growth coming. And some of it was predictable and some of it, I think, is just the natural cycle of defense spending driven by the threat, which is increasingly obvious. So I think we all read the same reports. We haven't seen anything like that yet, but we're pretty comfortable that we have invested, and we will continue to invest where we see it prudent to support the growth. Robert Stallard: Okay. And then just a quick follow-up for Kim on the very strong free cash flow in the quarter. Were there any unusual defense advances in there, particularly from Europe, which helped the number? Kimberly Kuryea: No, there were not, not in this quarter. Operator: Your next question comes from the line of Ken Herbert with RBC. Kenneth Herbert: Phebe, I wanted to follow up on your comments and Kim's comments. On the shutdown, you said protracted. How should we think about timing from what would be a protracted shutdown from your view? And are you seeing anything yet specifically you can point to that's either impacting cash collection or contract timing or anything else as a result of the shutdown? Phebe Novakovic: On cash collection, not yet. On contracts, in some instances, the contracting people have been sent home. So that will push contracting into whatever week or month that the government resumes. I think from our point of view, we've looked at this as a rolling basis since it is unknowable. When the shutdown ends, then we are looking on a weekly basis and rolling forward to anticipate what each one of our contracts look like to the extent that we can. So we're -- it does introduce uncertainty in the quarter. And if it goes into next year, that increases the likelihood that it will have additional impact on particular lines of business that begin to run out of funding. So there's an awful lot of, I think, uncertainty. And in that uncertain environment, I think we're taking a prudent approach. Kenneth Herbert: Okay. And when you talk about protracted, I'm guessing based on your comments, we should think about something resolved this quarter, probably not a material impact, but if it spills into '26, that would be obviously a different story. Phebe Novakovic: I think we'd have to assess where we are contract by contract. But clearly, the longer this goes on, the greater the risk and particularly in the supply chain. Operator: Your next question comes from the line of Ron Epstein with Bank of America. Ronald Epstein: Phebe, maybe the first one for you on Gulfstream. So unlike a lot of other companies in the market, you guys have a suite of new products out there, and you're really gaining the benefit from that. How are you thinking about product development now? Because my understanding is Gulfstream has always had sort of a steady investment in product development and kind of year-over-year and just doesn't ramp up, ramp down, it's very steady. Is that still the case? And how are you thinking about it going forward? I know we got all this behind us and sort of like the last question you probably want, but how are you thinking about it? Phebe Novakovic: Well, look, as you well know, we have -- this has been a long-term strategy of ours to replace the entirety of our fleet with all new product designed to meet every one of our customers' missions, and we've done that. I think the most recent announcement of the 300 shows that. As we go forward, we will be upgrading our products in due course. And that's probably all that we're going to say at this point. These are all brand-new airplanes, and they've got a lot of running room, and they've met with very, very strong positive customer reaction. Ronald Epstein: Got it. Got it. And then one for Danny, if you will, on the shipbuilding. Shipbuilding has been sort of a bugaboo for the industry. When you think about making the shipbuilding business more efficient, how are you thinking about it? I mean labor, I think it's been one of the big problems for the entire industry. But I mean, from your point of view, I mean, what are the levers you're pulling today to try to really get the efficiency out of the shipyards up? Danny Deep: Yes. So let me start with the supply chain. I think in my comments, I mentioned that we've seen some improvement in the supply chain, and there's other areas where it's still lagging. But those improvements are significant. Just to give you a sense -- and that will have the biggest impact on our ability to drive productivity and schedule and start to grow margins. But to give you a sense of how the supply chain has evolved and a lot of it from the investments the government has made in the supply chain in terms of productivity, employee retention and just increasing capacity. But we've seen a 40% increase in the last 2 years in the sequence critical material. And that's really helped -- that helps with productivity. And if you look at it across all of the supply we get, it's been a 75% increase. We'll receive almost 5 million parts. So I'd say the #1 thing that will impact our efficiency in our shipyards is the supply chain stabilizing. And as our shipbuilders come down the learning curve from an efficiency standpoint, and we're starting to see that we're starting to see good ship-over-ship learning. And we make investments in all the same things that is happening in the supply base with respect to robotics and automation and employee development and training. That's where we really see the biggest bang for our buck. Operator: Your next question comes from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Congratulations on the record backlog in defense and growth in aerospace. But I guess, Phebe, focusing on technologies, look, we've seen continued strength in the backlog, but we're also seeing a notable step-up in the unfunded backlog. I was wondering if you could provide more color on what's driving this? Is this related to DOGE or the government shutdown? And when would we expect this to either convert to funded or eventually convert to higher revenue for the segment? Phebe Novakovic: I don't think that there's any root cause other than just timing that drives that increase. We're not -- I'm not aware of anything in particular. We are continuing to work with our customers. We always work with them in a normal course, and that's continuing now on ways in which that we can all improve our efficiency. But I wouldn't point to any particular element in that. And recall, we book -- and Nicole can walk you through this offline, but we book backlog a little differently than a lot of them, and we're pretty conservative about it. But I would say that driving that backlog is the demand that we're seeing pretty much across the portfolio. DDIT, in particular, had a very, very strong book-to-bill a little in excess of 2:1 in the quarter, and they've continued to have very strong bookings as a lot of their investments have begun to pay off in cyber, Zero Trust environment, AI. So we're in pretty good stead in that market. Kristine Liwag: And if I could follow on Ron's question about product development in Aerospace. We've seen in the past few years kind of some interest in Supersonic. I was wondering, would that be on the table for a next new program for Gulfstream? Phebe Novakovic: Well, first of all, there is 0 way I'm going to venture into what we're going to do next, but I will say something about Supersonic. We have yet to see a business case that even remotely works. So yes. Operator: Your next question comes from the line of Peter Arment with Baird. Peter Arment: Nice results. Phebe, maybe just to stay on Gulfstream. Just given the resilience of this -- the bookings environment and the backlog and how well you guys are doing, does that provide pressure on kind of where production is? Or do you need to take rates up? Or do you feel like you've got the right cadence with the current rates today? Phebe Novakovic: Well, our rates are driven by the backlog and demand. So far, we're comfortable in our rates will increase in a regular order. But if you -- if we continue to see increasing demand and increasing backlog, we'll have to increase our rates. That's pretty much, I think, our standard operating cadence. And nothing's changed in that regard in how we -- with respect to how we react to increases in demand. So we'll continue to increase, I think, year-over-year for the next couple of years. That's sort of our plan. Peter Arment: Got it. That's helpful. And just as a follow-up, could you give us the latest on where things stand on construction for the first Columbia class, just given all the reports out there and maybe how things are either showing some improvement and getting ready for additional volumes that are coming? Phebe Novakovic: So we have the jigs fixtures facilities to continue to produce. We'll continue to invest and particularly in productivity improvements and additional footprint as needed. The first Columbia is about 60% complete by the end of this year. We'll have all the major modules at Groton ready for assembly and test and then systematically work through each one of those testing items, pretty rigorous, as you can imagine, first-of-class testing program that will work in coordination hand in glove with the Navy. But we're moving -- we're working very hard to move that ship to the left along with our customer and along with the supply chain. So we've -- and we've seen some improvements again from the supply chain, as Danny, I think, clearly articulated. So this next year will be pivotal. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: I wanted to ask one about Combat. And so I was kind of thinking about the future there and the fact that there are some headwinds in vehicles, including Stryker and some tailwinds maybe from munitions and in Europe and kind of wondering if that business was going to grow. But based on the comments you made earlier and kind of the backlog growth we saw in the quarter, it sounds like there's potential for Combat growth to accelerate out of this year. Is that a fair way to think about it? Phebe Novakovic: That's how we're looking at it. I think you quite accurately pointed to the headwinds and the tailwinds. International vehicle demand is increasing and at a higher rate and munitions demand, both internationally and domestically is increasing as our -- we are a supplier to the primes on missile parts, and that also is increasing. But there is some headwind with respect to U.S. combat vehicles. That is until we accelerate the delivery of the new tank. So it's a mix, but we see some nice growth driven by our international business. And let me tell you, I want to give you a little bit of perspective on that international business. So we have indigenous businesses that have been the backbone of their country's supply chain for the last -- or industrial base for the last 25 years. And in these businesses, they are -- have indigenous engineering design and manufacturing, and they are run by host country national. So these are -- when we produce vehicles coming out of Europe to Europe, they are European engineered, European designed and European manufactured. And we think that's a very, very good and has been a successful business model for us as demonstrated by we've got the largest installed fleet in Europe. So we're pretty comfortable with the competitive positioning of that business. Seth Seifman: Great. Great. And maybe as a follow-up, can you talk a little bit about where we stand in the replacement cycle for G650. To what degree has that been driving recent orders for G800? And I assume it's more 800 than 700. And to what kind of pipeline is there for that as we kind of look ahead? Phebe Novakovic: So as you know, we phased out the 650, and you're quite right, replaced by the 800. The 800 has had an awful lot of customer interest. It led the orders demand in the quarter. And we have a pretty robust pipeline. So we -- that transition from the 650 to the 800 went very, very smoothly. The introduction of the 800 and has gone well and deliveries are increasing. I mean, this week, we just delivered our sixth G800. By the way, we also, this week, delivered our 72nd G700. So I think that's an indication of more regular cadence in the delivery profile as the supply chain has stabilized. Operator: Your next question comes from the line of Sheila Kahyaoglu with Nepris. Sheila Kahyaoglu: Maybe if I could ask a follow-up on that topic, Phebe. Just how do we think about -- you have so many development programs, and you've done a great job with the shift from the 650 to the 800 and yet the margins are going to be stable even with the 650 going away. So how are you thinking about the G800 learning curve, the 700 as well? If you could provide us an update on those blocks and how we should be thinking about that? Phebe Novakovic: Well, we're coming down the learning curve on both of those airplanes. 650 was a mature high-margin airplane. So it will take a while for the 800 to reach those similar gross margins. But we like the prospects on both of the -- on all of our airplanes, frankly. And the keys are getting the increasing stabilization of the supply chain, and they've gotten much, much better. I'd say the introduction of the 800 demonstrated the strength of the supply chain as they become more reliable and are better able to keep up with demand as compared to the 700. That supply chain, too, has stabilized. So we'll continue to see gross margin improvement as we come down our learning curve. Sheila Kahyaoglu: Can I ask a follow-up again on Aerospace, if it's okay, on deliveries and just R&D. On the delivery profile for the 700, 800, do we think about that cumulative being the 650? Or is it plus that? And then R&D, how much of a tailwind do we see from R&D as you've certified some of these major programs? Phebe Novakovic: Our R&D will be about the same for a while. We've got developmental programs, and we still have airplanes to get through certification. The 800 is really the replacement for the 650. And that is what we are seeing as the 650 customers are buying the 800 as a replacement. The 700, I think, is a market expander. It is a new offering in an element of the market that we didn't have before. So I think net-net, that's a positive growth profile going forward. Operator: Next question comes from the line of Doug Harned with Bernstein. Douglas Harned: On -- going back to Combat, you talked about the value of having the indigenous operations in country in Europe. When you look forward, given the growth potential in Europe, do you expect to be doing more investment there? And could this be beyond just ground vehicles into other areas? Phebe Novakovic: We have the facilities and the infrastructure to produce at the moment. I don't see getting out of our core. I don't see moving past tactical bridges or high-end combat vehicles. I think one of the things we have differentiated ourselves is having the discipline to stick with what we know, do what you know well and get better and better and better at it as you serve your customers, your people, your shareholders best by doing that. So we'll stick to our knitting. Douglas Harned: And then going back to Columbia Class. I mean the delays, there's been a lot of discussion about delays. Can you talk a little bit about what has driven those? Have those been related to design changes, supply chain, labor and you mentioned a little bit about addressing these issues, but can you talk a little bit more about mitigation and where we might end up if things get better there? Phebe Novakovic: So I'd say the single largest impact on the cadence of manufacturing and delivering -- ultimate delivery of the first Columbia has been the supply chain, the fragility of the supply chain as it's tried to ramp up from very low rate production, which has been in for the last 25, 30 years and quintupling that production. That has been the single largest challenge. And the government has recognized that and for the last several years has provided some nice robust funding to mature that supply chain and to expand it. And we're beginning to see some of the fruits of that effort pay off. We also, as you know, and this happened through most of U.S. industrials had a significant demographic shift as experienced workers retired, and we had a generational change with younger workers coming on board. I would say that we've -- we had invested in our training programs and with the government's help are continuing to invest in our training programs. So that we -- when the new shipbuilders come out of the training program, there are a higher level of proficiency than they had been in the past. That's all good. With the government -- working with the government, we've also been able to increase wages in a wage competitive environment. So -- and we're very comfortable that we've got the manpower and the facilities. We've continued to invest in facilities. And as Danny was alluding to, particularly on the productivity side. So I think there is a lot that's beginning to coalesce and come together to reduce risk in this program and bring it to the left, and that is our objective, working very closely with our customer. Operator: Your next question comes from the line of Richard Safran with Seaport Research Partners. Richard Safran: If it's okay, I just have a -- I'm going to ask one 2-part question on contracting. And right off the bat, I'm not asking for anything on specific contracts. Generally speaking, could you comment on changes to the contracting environment you're seeing with the new administration? There was some chatter about award fees and incentive fees. And I'm just wondering what you're seeing in new contracts. And then second, just with respect to international, are you seeing more of an influx of direct commercial awards versus FMS? I was just kind of curious as to what the mix is given all the new awards you've been getting. Phebe Novakovic: So I don't know that I've seen wholesale change in contracting other than there's been an emphasis on speed. And in some customers, we've seen faster contracting and in others, a little bit more prolonged. So I can't say that across the entire portfolio that we've seen any wholesale changes. I think that we've got a sophisticated buyer, and we are working with them right now on several large contracts. So I don't know that I can offer any holistic or observations on that front. We have seen, again, if you step back and look at the entirety of the federal workplace, we've seen the retirement of -- at least in the markets that we play in, retirement of experienced contracting personnel with an increase in newer contracting folks. They'll have to come down their learning curves. But I suspect that will -- they will do so in time. With respect to international orders, there is quite a robust pipeline for FMS, but it is slow to materialize. We know the demand is out there. When it comes through the FMS process is always a question. In Europe, we have direct commercial sales and sometimes -- ex U.S. and other places in Mid East. And we'll see as the munitions demand ramps up. That could be a combination of both direct commercial sales and foreign military sales. Operator: Your next question comes from the line of Gautam Khanna with TD Cowen. Gautam Khanna: I wanted to follow up on Rich's question actually with respect to Marine. And I know you guys are in talks for 5 Columbia class and the next Virginia-class block. I wanted to get your expectations around timing and the form of that contract. Do you think you'll get all of them ordered at once? Or is it going to be incremental? -- maybe when? And if the contract terms might actually be a little more favorable with the government taking on a little more risk than they were willing to in the prior administration. Phebe Novakovic: Well, the operating assumption is that those contracts are executed this year. We're certainly not going to get into any particulars of those contracts. They'll be very large, highly complex contracts. And once we sign them, we can and will be a little bit as we have been in the past, transparent about what the incentives and obligations are in those contracts. But we've had and we'll continue to have and see even more working -- close working relationship between the government and us as we try to solve mutual problems, how do we get shipbuilding throughput increased and while maintaining the quality. So we remain optimistic that together as partners will drive a lot of that change and move these deliveries to the left. Kimberly Kuryea: And Eric, I think we have time for just one more question. Operator: Your final question comes from the line of Scott Mikus with Melius Research. Scott Mikus: Historically, you've talked about Colombia driving $400 million to $500 million of annual sales growth at Marine. It's been significantly higher than that in the past couple of years. Obviously, very strong growth on tough comps again this year. So if we're going to progress to 2 plus 1 on Virginia and Colombia, should Marine sustainably be growing sales at least $1 billion per annum until we hit that cadence? And then once we do hit that cadence, is that when Marine margins get back to the 8% to 9% range? Phebe Novakovic: So I think the way to think about this is that we anticipate similar growth that we've seen over the last few years. And when you think about -- so I don't see that at least in the near term changing, but it's been very robust growth. But when you think about margins, I think Danny walked you through kind of what are the main drivers. And it's primarily stabilizing that supply chain and increasing our throughput so that we can both offset any supply chain perturbations. And I think that's the best way to margin improvement, and it is very importantly, the best way to accelerate the throughput. I don't know if you want to add anything on that, Danny. Danny Deep: Yes. No, I think you've captured it. To the extent that the supply chain stabilizes, I think that's where we will see meaningful margin expansion. Nicole Shelton: Okay. Well, thank you, everyone, for joining our call today. Please refer to the General Dynamics website for the third quarter earnings release and highlights presentation. As a reminder, we will resume our normal reporting schedule of Wednesday at 9:00 a.m. for our fourth quarter call. If you have additional questions, I can be reached at (703) 876-3152. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to the HEXPOL Q3 presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Klas Dahlberg and CFO, Peter Rosen. Please go ahead. Klas Dahlberg: Thank you, operator, and hello to you all, and thank you for joining this call, and welcome to the HEXPOL Q3 presentation. This is Klas Dahlberg speaking, and I'm here together with our CFO, Peter Rosen. If you please turn to Page 2. I will start with a business update. Peter will take you through the financials, and I will summarize the quarter. After that, we are happy to answer your questions. If we then go to Page 4, please. I will start by going through the Q3 performance. We see that most markets continue to be affected by the geopolitical uncertainty, but it's pleasing to see that the European market continues to be rather stable, while the North American market is still challenging. We had only minor direct impact from tariffs, whereas the indirect impact on end customers affected the overall demand, especially in North America. It's also pleasing to see that including acquisitions, volumes were actually higher than last year. And excluding acquisitions, they were in line with last year, but with an unfavorable mix. Looking at our main segments, we saw that the automotive end customer segment continued to be slow, primarily in North America. That was partly compensated for by increased demand in building and construction and also in wire and cable. Our most recent acquisition, Piedmont in the U.S. and Kabkom in Turkey contributed positively to the quarter. Sales prices as well as prices on major raw materials were stable, both versus last year but also sequentially. High uncertainty continues triggered by U.S. tariffs and U.S. trade policy, and that is impacting us indirectly, as mentioned before. In North America, that is the main reason why we could not grow the overall sales and results compared to last year. In the quarter, we delivered sales of close to SEK 4.7 billion with a negative FX effect of some SEK 300 million. Piedmont and Kabkom added some SEK 240 million in sales that was offset by lower organic sales in Rubber Compounding Americas. Compounding Europe showed rather stable organic sales. We reached an EBIT of SEK 688 million and a margin of 14.7%, impacted negatively by FX of some SEK 50 million and an unfavorable mix. The operative cash flow continued on a good level, and we reached SEK 740 million in the quarter. If you please turn to Page 5. If we look into the different business areas, starting with HEXPOL Compounding, the overall organic volumes were in line with last year. The lower sales were impacted by negative FX of some SEK 290 million, but also by the mix. The automotive end customer segment was down primarily in North America, but that was partly offset by increased demand in building and construction and wire and cable. The price on major raw materials were sequentially stable and also versus last year. And the lower operating margin was affected by an unfavorable mix. Rubber Compounding Americas is, as you know, an important part of the HEXPOL Group. And we are very happy to welcome Ken Bloom back to HEXPOL as the Interim President for Rubber Compounding Americas. Ken has a clear mission to take the next step capturing and growing that business. If we then jump to HEXPOL Engineered Products, if we exclude a negative currency impact of SEK 22 million, we actually had a small increase in sales compared to last year and also good development across all product areas, leading to a stable EBIT. We are firmly committed to sustainability and our focus continues. We are on a good path to deliver on the 75% CO2 reduction target that we set for the end of this year. We are also working on the sustainability strategy and the new targets will be completed during Q1 next year. M&A is, as you know, an important focus area for our growth plans. We have the financial resources to accelerate acquisitions. Short term, the geopolitical uncertainty impacts the M&A activity level. There is somewhat a wait-and-see mentality among some companies, and that is affecting that. And last but not least, on November 4, we will have our Capital Market Day in Stockholm, and then we will share more about our growth strategy. If we then turn to Page 6. It's time for the financial update, and Peter will start with the sales development in Q3. Peter Rosén: Thank you very much. So if I can ask you to turn to Page 7, we'll take a look at the sales development in the quarter. And as you've seen, we delivered sales of SEK 4.7 billion in the quarter, which is down 6% compared to the same quarter last year. And if we look on the drivers, we see that organic sales are down 4% in the quarter. And at the same time, the acquisitions of Piedmont and Kabkom added 5% in sales. And as Klas mentioned, there were large negative effects in the quarter, adding up to SEK 312 million. Coming back to the volumes, overall organic volumes were on the same level as last year, but sales were still down, affected by a less favorable mix. Looking at it from a geographical perspective, Europe showed stable sales in the quarter, while we saw a decrease in North America that also translates into the decrease on group level. From an end customer perspective, automotive showed soft demand, which was partly offset by increased demand primarily from building and construction, wire and cable, but also several smaller end customer segments that showed higher sales in the quarter. If I can ask you to turn to Page 8, just taking a look at the financial overview and the P&L. We delivered a profit of SEK 688 million. That includes a negative FX impact of just above SEK 50 million. EBIT margin of 14.7%, which is below what we did the same period last year. And the main reason for this is somewhat less profitable mix, but also OpEx in relation to the lower sales that we saw here in the quarter. Strong cash flow in the quarter with an EBIT of SEK 688 million, we delivered a cash flow of SEK 740 million in the quarter. If I can then ask you to turn to Page 9, taking a somewhat different view of the financial performance here in the quarter. We see that sales came in at SEK 4.7 billion with an operating profit at SEK 688 million below last year, as mentioned, and an operating margin of 14.7%, which is then below what we did last year. If I can ask you to turn to Page 10, looking at the drivers of the operating profit, we see that the lower EBIT is primarily driven by the lower sales, but also impacted by lower gross margin. The lower gross margin is affected by mix. OpEx is somewhat above last year levels, but that is driven by we've added Piedmont and Kabkom to the cost base compared to the same period last year. If I then ask you to move over to Page 11, starting to look at HEXPOL Compounding in the quarter, delivered sales of SEK 4.3 billion in the quarter, which is below what we did the same period last year. Negative FX has a sizable impact of almost SEK 300 million in the quarter. Recently acquired Kabkom and Piedmont added about SEK 230 million in sales, while as mentioned before, organic sales were down some. And these lower organic sales are seen in North America, while Europe showed sales on the same level as last year. And as mentioned, from an end customer perspective, the lower sales is seen with automotive customers, and this was partly offset by higher sales to end customers within building and construction, wire and cable and also some other smaller segments. Operating profit came in at SEK 624 million with a margin of 14.4% for the quarter. If I can ask you to turn to the next page, we take a look at Engineered Products, where adjusting for negative effects in the quarter, sales were up 3%, and this is driven by strong performance by the gaskets products. Operating profit at SEK 64 million with a good EBIT margin of 18.1%, both in line with last year levels. If I can ask you to turn to Page 13, taking a look at the working capital. You can see that we continue to manage working capital efficiently. Despite adding Piedmont and Kabkom, working capital is on the same level as last year, both in absolute terms and in relation to sales. And as mentioned also in last quarter, there are no changes to underlying payment terms. And if I can then ask you to turn to Page 14, taking a look at the cash flow. As mentioned, we delivered a strong cash flow in the quarter, SEK [ 640 ] million with smaller movements across the various items, but well above the EBIT that we delivered in the quarter. And then finally, when it comes to the financial part, if I can ask you to turn to Page 15, looking at the net debt standing at SEK 3.9 billion and a net debt-to-EBITDA ratio of 1.14 at the end of the quarter. This is higher than last year, but this is mainly driven by the acquisition of the minority share of almak as well as the acquisition of Kabkom that we've done this year. So all in all, after the third quarter, we continue to stand with a very strong financial position. And with that being said, I hand over to Klas. Klas Dahlberg: Thank you, Peter. Finally, then just to summarize the third quarter. Europe showed stable sales compared to last year. Engineered Products also showed stable sales with a good profitability. We saw lower demand in North America affected by the high uncertainty related to U.S. trade policy; however, we didn't really see a direct impact from tariffs in Q3. As mentioned, Ken Bloom is appointed as the Interim President for Rubber Compounding Americas. And we consolidated Kabkom as of the 1st of May. And as we've said many times now, wire and cable that they represent is a growing segment for us. We continue to focus on M&A, and we have a strong balance sheet allowing us to act. We continue to focus on sustainability with good progress, both when it comes to our internal targets, but also when it comes to our products. And on the 4th of November, we will have our Capital Markets Day in Stockholm. So by that, we conclude the presentation of the third quarter, and we open up for your questions, ladies and gentlemen. Operator: [Operator Instructions] The next question comes from Joen Sundmark from SEB. Joen Sundmark: So starting with a question on automotive. If I look at the S&P figures on light vehicle production in Q3, it looks like it has improved a bit compared to last year, yet you mentioned that the decline in automotive seems to be present for you guys in Q3. So do you expect that there is some kind of lagging effect here? Or is it rather your particular exposure that's impacting this? If you could shed some light on that, it would be very helpful. Klas Dahlberg: All right. So when it comes to automotive, we always look at the production. And as you say, there is, of course, a certain time difference, those figures compared to our figures. When it comes to the North American market in September, there was, from a sales point of view, an increase, and that was due to the fact they had a subsidy of EUR 7,500 per vehicle. So that triggered sales in that very month, let's say. But other than that, it's a rather slow market. Joen Sundmark: Okay. That's clear. And I know that you have a fairly short order book, but could you share some color on the current discussions on demand that you have with your customers out there and sort of what they foresee demand-wise? Klas Dahlberg: Well, as you say, we have a very short order book. And the trend we have seen is that it becomes even shorter. So we get very late orders from many of our customers. But yes, the overall situation, like I said, it's a rather uncertain situation. So we don't have good visibility when it comes to the order book. Joen Sundmark: Okay. Fair enough. And on the back of that sort of uncertainty in demand and as the margin trend have been quite negative now for a few quarters, do you see any signs of that shifting? Or how are your sort of current discussions going to address that and improve the margin profile going forward? Peter Rosén: Peter here. Just to be clear, we don't give guidance or earnings. That being said, there are a couple of things. One driver of the somewhat lower margin is the mix. And it's no secret that automotive is an important end customer segment for us. So we would prefer to see that automotive production goes up and we get some of those volumes back and which is, of course, something that we are working on. The other part is looking at our cost structures. And there are 2 things. One is looking at the manufacturing footprint. But in the short run, we haven't taken any new decisions on that. Then when it comes to the more -- the other cost side, we're looking both at manning indirect production to bring that down and allocate that according to the volumes coming in. And you will see in Q3 that the number of people were actually lower, about 60 people less this quarter compared to last quarter, Q2 this year. So we're looking at those costs as well to see what can be done to bring down the cost level and manage those. Operator: The next question comes from Henric Hintze from ABG Sundal Collier. Henric Hintze: This is Henric at ABG. So on -- I was wondering if you could give us an update on how you view the M&A landscape at the moment. For example, are potential buyers and sellers closer or further apart on pricing compared to earlier this year? Klas Dahlberg: As I mentioned in my report that what we see right now is some of the companies are also affected by this uncertainty in the market. And because of that, there is a certain wait and see at the moment. So it's not maybe so much about multiples and so on. It's more that if their total result goes down, they are a bit hesitant at the moment to, let's say, to close a deal, if I call it that. So that is what we see. But with that said, we still have quite a pipeline of companies of prospects, so to say. So that's what we're dealing with at the moment. Henric Hintze: All right. And continuing on capital allocation, if this wait-and-see attitude persists among sellers, would you consider buybacks or extra dividends if you're unable to find attractive M&A opportunities? Peter Rosén: Peter here. Priority #1 is to do the M&A, and it's a very high and very clear priority for us. That being said, a while back, the dividend policy was upgraded to be in the range of 40% to 60%. And I think that's where we are right now. So priority #1, M&A. And then we haven't increased dividend policy since I think about 2 years. So that's what we can say at this point. Operator: The next question comes from Gustav Berneblad from Nordea. Gustav Berneblad: Yes. It's Gustav here from Nordea. I thought maybe just to build on your comment there, Peter, on the cost side. As you said, you haven't really taken out anything recently. Is that more due to -- you want to wait and see where demand is heading due to the geopolitical uncertainty? Or do you feel that you do have a quite good balance where you are today and with enough overcapacity to be ready to deliver if demand returns? If you can elaborate a bit more on that. Peter Rosén: Yes, of course. First of all, I think just to point out, last -- Q4 last year, we decided to close one site in the U.S., and that project was finalized in second quarter. So I just want to say that to be clear that we've just finished one project to close a production facility. That being said, there's always a trade-off on do we want to close sites in relation to the expected volumes when they come back. Since we are a batch producer, and we also don't work with order stocks, we need to have a flexibility when it comes to production capacity because when customers come and ask for volumes, we need to have that capacity ready to produce. So we need to strike a balance between the cost and having the capacity to meet volumes when they come back. And I would say that's where we are right now. Gustav Berneblad: Okay. Perfect. And then if we move to Europe, I mean, it looks to be quite stable here year-over-year. Is it possible to give a bit more comments there? Is that stability, is that across all end markets? Or are you seeing sort of wire and cable drawing a heavier part here and being sort of a cushion, if you know what I mean? If you can just elaborate a bit there. Peter Rosén: In a sense, it's a similar pattern as we see on the group level just with smaller movements. So automotive, somewhat softer and building and construction, wire and cable and some of the other smaller end customer segment being somewhat positive. So in a sense, same pattern, but smaller movements compared to North America. Gustav Berneblad: That's very clear. And then just one last question there to build on Henric's here on the M&A side. Would you say that you're more open to close acquisitions in Asia today than you were a couple of years ago within compounding? Klas Dahlberg: So when it comes to Asia, that's too early for us to say. And I think that's also part of, as I mentioned, our Capital Market Day to come back to that subject, how -- what opportunities could be there for HEXPOL, let's say. We will come back to that, Gustav. Operator: The next question comes from Andres Castanos-Mollor from Berenberg. Andres Castanos-Mollor: Can you please comment on any impact of the bankruptcy of first branch group if it has had any impact at the [indiscernible] Group level at all? I assume it was a client. Is there any receivable at risk here? Or will you have any demand -- lack of demand, let's say, while the company solves its issues? Peter Rosén: We don't normally comment specific customers. But let's put it this, Andres. We don't expect any material impact at all from that customer. Andres Castanos-Mollor: Right. And also, I was thinking in the changes in the U.S.A., the footprint changes you've been doing there, a few plant closures, also replace the leadership of the business there. What are your priorities or objectives for the region with these changes? Peter Rosén: Sorry, Andres, I didn't hear the beginning of your question. You mentioned change footprint. Andres Castanos-Mollor: Yes, footprint changes. You have closed a few plants in the U.S.A. You have also replaced your leadership there. What are the objectives for the new interim leadership? Peter Rosén: If I'll start with the first one when it comes to the manufacturing footprint. The last 2 years, we've closed 2 sites, one in California. The reason for that was that we had 2 sites in California, and we could see that we could service the customers from one site. So that's an efficiency improvement that we closed that down, and we could maintain all those customers. The site that we decided to close last year was Kennedale, Texas, similar reason there. We saw that we could service those customers from other sites. So it was a redundant capacity that we had, and that's why we closed Kennedale. So both of those plant closures where we said that we could maintain the volumes, but we could service our customers from other existing sites. So that was to improve profitability. Klas Dahlberg: And if I may, Klas here, Andres, regarding leadership in North America, we saw a need for a change to better address the challenges we see and also to capture the opportunities in the North American market. And we think that Ken Bloom is the right person to do that. And he has experience also from HEXPOL. He knows the organization. So we are very positive about that change. Operator: The next question comes from Johan Dahl from Danske Bank. Johan Dahl: Just wanted to dig a bit deeper on the comments you made, Klas, regarding unchanged organic volumes in the quarter, if I got it correctly. I mean, excluding acquisitions, I guess you referred to unchanged volumes in the group. Does that mark a material improvement compared to what we've seen earlier in the year in your view, i.e., the year-on-year progression on volumes? Is that sort of significantly better than in Q3 compared to previous quarters this year? Peter Rosén: Johan, it's Peter here. Just to be clear, again, we're not going to give any guidance on coming quarters when it comes to volume or profitability, et cetera. That being said, if we look at the volume development, we've seen both in Q1 and Q2, we did discuss that we had lower organic volumes. This quarter, organic volumes are in line with last year -- Q3 last year. So in that sense, it's somewhat different compared to the first and second quarter this year. What that will mean -- Sorry, go ahead, Johan. Johan Dahl: Can you hear me? Peter Rosén: Yes. No, I can hear you again. Johan Dahl: That's good. No, it's just -- you have minus 4% on organic revenue growth, right? And you're saying raw material is flat pretty much and also volumes flat organically. It's a fairly massive shift in the top line if you have the average selling price per tonne going down 4%. So what I'm just wanted to pick your brains on is what's your sort of visibility in terms of how this develops going forward? Is it just a function of sort of small variations U.S. versus Europe and auto versus other segments? Or is there something else going on here? Are you selling significantly more bulk volumes, for example, commoditized products? Are you losing market share in that sense? Peter Rosén: No, you're right in your first reasoning. If we look at the 4% organic, volumes are -- organic volumes are basically flat compared to last year. If we are very specific, we're talking very, very low single-digit volume down, percentage. So a very, very small part of the 4%. Then if we look at the other part, it's not sales prices, but there is a mix effect, and it consists of 2 parts. One is a geographical shift. We do lose -- see lower volume and sales in our North American market. And price levels in North America are generally higher. So that has an impact. Then we also see that there is a, call it, a product mix shift, which is the basically automotive. Automotive, as we've said many times before, is a good end customer segment for us. So it's a combination, smaller combinations of those 3 items that make up the organic. So it's not a structural shift in that sense. No, it is not. Johan Dahl: It's just that it's a fairly big number for those sort of variations. But I totally hear your message there. And on to the topic, what you can do to affect this. Is this just a function of the way markets go? Or do you have any visibility, i.e., how you sell more advanced compounds, et cetera? Klas Dahlberg: You mean for the profitability, Johan? Johan Dahl: Well, I guess both in the end, both top line and profitability. I understand that if U.S. is weaker than U.S., it's going to impact your organic growth. But I'm just trying to understand how you structurally can sort of approach this issue to sort of possibly improve mix as we go forward. Klas Dahlberg: Yes. And again, as Peter is saying, I mean, automotive is an important part, and that has not been growing, as you know, and even shrinking as we can see in the S&P figures. And we have found a business, as you can see also in our report within building and construction, wire and cable is a segment that is also growing and where we have also been able to capture business. So I mean that's our day-to-day operation to find new ways because we can change the market conditions in that sense. We have to work on the things we can influence, of course. Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: I came a little bit late into the call, so apologies if this question was already brought up. But I have to ask again, I mean, when I look at the S&P production figures for the North American market for Q3, I think they indicate roughly plus 3% year-on-year. And you're talking about flat volumes, but of course, it sounds like some of the other segments are sort of offsetting with positive growth relative to automotive. And I think when I look at the production numbers for Q2 as well, it seems like there's been a little bit of a discrepancy on, let's say, the production numbers relative to your reported organic growth if I try to back it out on the automotive side. So yes, very simple question. Is there a simple answer to this question? Is the OEMs or your customers bringing this more in-house now when production levels are fairly low? Or is there something else? Peter Rosén: There are at least 2 things that separate the official S&P production numbers from the volumes that we look at. One is the timing. There's normally 20, 25-day timing difference from production of a car and material that we supply. So there's a timing difference. The other part is, which I think is fairly unique for this business is that a lot of our customers have their own compounding business. And we do see that when volumes are down in the market, they tend to bring it in-house. So when you see an S&P production number, that doesn't automatically mean that it's transferable or translatable to ours because we also have customers who sort of shrink the market where we can compete, what we normally call captive conversion or in-sourcing. And that also has... Carl Deijenberg: Yes. Understood. And I think that's fairly interesting. If you can talk a little bit more about that. I mean, what kind of, let's say, in-house levels are we at right now relative to, let's say, a pre-COVID scenario or something like that? I mean just understanding sort of the magnitude, which have fallen into this topic. Would it be possible to give a fairly -- yes, high-level view answer to that would be... Peter Rosén: High level. It's difficult to measure exactly because we don't have statistics where we see the exact movements in the total market and what goes in and out at customers. But our view is that we've probably hit the -- let's call it, maximum in-sourcing at this point. When we see volumes flowing back into the market where we can compete, that is difficult to put a timing on. But our view is -- our current view is that we'll probably hit maximum in-sourcing at this point. Carl Deijenberg: That's very much appreciated. And maybe just finally on that topic rounding it off. I mean, obviously, we don't know what '26, '27 is going to look like. But do you have any sense of what kind of production numbers you would have to see in the industry for that, let's say, in-sourcing to reverse back into your hands? What kind of demand levels? Is it growth of mid-single digits on the production numbers? Or -- because I guess that could be a fairly significant swing factor for you, if I just look at the numbers relative to the -- yes, what we've seen in the production numbers here. Peter Rosén: Very good question. I sort of wish we had an exact number to say that at this point, it will start to flow back. But we -- currently, we don't know. And that's also one of the things that brings uncertainty into future orders, as Klas mentioned in the beginning. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Klas Dahlberg: All right. Thank you, operator, and thank you all for participating in this call. And we hope to see you all at our Capital Market Day in Stockholm on the 4th of November. You are all very welcome to join us there. So thank you very much, and enjoy the weekend.
Johan Andersson: Good morning, everyone, and welcome to the presentation of Saab's Q3 Report for 2025. My name is Johan Andersson, and I'm honored to have been appointed Head of Investor Relations here at Saab. With me here in Stockholm, I have our CEO, Micael Johansson; and Anna Wijkander, our CFO. Anna and Micael will present the report, and thereafter, we will start the Q&A session. And you can either ask your questions over the phone or you can enter them in the web interface, and I will read them out loud here in Stockholm. So with that quick intro, I will hand over to our CEO, Micael. Micael Johansson: Thank you so much, Johan, and thank you all for joining us this morning for the quarterly 3 report and the first 9 months. I want to welcome Johan as well as Head of Investor Relationship. So you're most welcome to the company. And I also want to thank Merton Kaplan for an excellent job during so many quarters and back old -- looking backwards. And then I wish him luck, of course, in his continued journey within Saab. Before I go into the highlights of this quarter, I just want to say a few words about the day we had Wednesday in Linköping, where we the had honor of receiving President Zelensky and his delegation and also our Prime Minister and his delegation to host them for this important statement and letter of intent that they signed in the direction of creating a strong air force in Ukraine going forward. This was, of course, a unique day and it was an important statement which we have been waiting for to now continue our journey in exploring scenarios and planning for how an establishment and delivery so quite a few aircraft will look like in Ukraine. And it also adds to our assessment of investments that we need to do looking into that. With all due respect, I mean, there's no contract yet. Still a lot of work to do. You heard the President Zelensky and also Prime Minister Kristersson talking about sort of the financing solution and what needs to be established there. And then, of course, there are a couple of other things. But we will start doing our work to sort of support this going forward. And it was great to see our employees in Linköping spontaneously applauding and sharing when President Zelensky stepped out of the car, and we're so much committed as a company to support Ukraine going forward. That was a unique and fantastic day. And now we will work hard to sort of make this happen as well, of course. So with that, I just want to go into a few highlights then of the quarter. It has been a strong demand in the market. We still have lots of geopolitical tensions, of course, around us and strong demand from many countries in all avenues of our portfolio and we develop contracts really well. We had a strong quarter when it comes to order intake, as we've seen. But it's also timing. It's sort of on the same level as the quarter last year. But in October, only after the closing of this quarter, we have SEK 16 billion in order intake. So we're looking toward a really strong year when it comes to contracts as well. We have a number of campaigns apart for our product sort of demand in the market that we are running, of course, both when it comes to the Gripen side, and we'll come back to that; and also GlobalEye, where a number of countries have a huge interest in our system. As you know, we've been selected by France, and now we're just waiting to sort of -- them to sign the contract in that country as quickly as possible. And then we have interest actually from NATO and from Germany and from Denmark, and a number of other countries is looking into our GlobalEye system. So there is still a need to continue to invest in capacity, which we're doing in a diligent way, I think. And looking at the execution this quarter, which has been solid in sort of a normally weaker quarter, but it's really been stronger this quarter. And as you've seen, I mean, the first 9 months is now an organic growth of 21%. So we've done really well also adding the third quarter to the first two ones here. And we will continue to look at our development of our profitability, which has also been good. But we'll also never trade off versus sort of investing in capacity to sort of meet the demand in the market, of course, but also being relevant when it comes to new technologies that we have to invest in going forward. All in all, it's been a strong quarter, and we have, as you've seen now, upgrading the outlook for '25. I will come back to that in the end. But we're now sort of raising our guidelines on top line to 20% to 24% from 16% to 20%. So back to the numbers. As I said, almost SEK 21 billion in order intake, a good increase in the medium-sized story. It looks a bit different between the quarters. And I think, as I said, we added SEK 16 billion only in October, which we have press released. So it looks really good going forward as well. We have a book-to-bill of 1.3x and a very strong organic growth in this quarter, the strongest quarter we've ever had on top line and also in absolute numbers when it comes to EBIT. So the margin is now 8.7% in the quarter but 9.3% looking at the first 9 months. Cash flow is on the same level. If you look at the first 9 months, sort of minus SEK 1 billion roughly. We have still the same view as last year. We will generate a positive cash flow. We have a number sort of important payments coming in now during the fourth quarter. So I'm confident that we will meet our guidelines on that as well. A few statements about the different business areas as usual. Yes, of course, a big interest in the Gripen conversion now. We have contracted Thailand during the quarter, the first 4. And they are looking into further contracts as well, of course. The batch 2 and batch 3 of their contract is being discussed already. And then, of course, we have been selected by Colombia and we are negotiating a contract there. We have no contract yet but we are moving ahead in a good pace in Colombia. And then, of course, the interest now from Ukraine is something we will sort of take into account and start planning for, as I mentioned. We have a good strong quarter from Aeronautics. They have gone 34% up sort of compared to the quarter last year. So they had really good project execution in the Gripen program mainly. But still, the profitability level is affected by ramp-up costs that we have mainly in the T-7, the trainer aircraft in the U.S. in West Lafayette. So that is still sort of a burden to Aeronautics, but they're moving in the right direction definitely. Dynamics, again, good growth. A quarter that is normally quite weak for Dynamics has been quite strong actually. If you look at the first 9 months of Dynamics, they have grown 34% or something, maybe even 36%, if I remember correctly now. It's an extremely strong year for Dynamics. They have had a number of medium-sized orders but also a large one from the Czech Republic when it comes to the medium, short-range air defense system RBS 70. So there is still a big demand in the market and we are investing heavily, as you know, to increase capacity in this area. I think we have only in the Karlskoga sort of 40 projects ongoing to expand everything and building factories in the U.S. and in India, as you know. And they have a huge backlog now of almost SEK 90 billion as we speak. Surveillance, also a very interesting portfolio. I said that the campaigns for the GlobalEye are a number of them now. So we are intensifying that, of course. I hope that we will see this GlobalEye system, which is the state-of-the-art system, most modern one, taking a bigger position also within the Alliance with multiple countries going for GlobalEye. So that's what we're working. And the first one that we were selected upon is, of course, France that you know all about. So there is not only on the GlobalEye side, but the surface side, the surface sensors, the sensor side of Surveillance is really strong and getting more and more contracts. And they deliver quite well as well, growing 8%. And honestly, the quarter 3 of Surveillance is the strongest ever top line-wise. So they are doing well also when it comes to project execution, and they have a huge potential going forward, I would say. I also want to mention that we are divesting TransponderTech, which is communication and automatic identification system type of entity, as we have also already press released. And we will close that deal now in quarter 4. Also a very big backlog on the Surveillance side, as you can see, SEK 55 billion. Saab Kockums also have a big interest in many segments. We're working campaigns now on the submarine side with Poland, and that we're putting a lot of effort into, of course. And it makes lots of sense to have Sweden and Poland work together to protect the Baltic Sea. But also on the surface side, we have the Swedish corvette/frigate program coming out, which is called Luleå class, which we are also seeing as a big potential going forward. But there are many other export contracts where we are involved. And we have also now invested but also got the contract to look to design and test a large underwater unmanned vehicle with the Swedish Navy, which is great to see that we're moving in that direction. Because also on the Navy side, it's not only in the air you will see collaborative combat entities working with manned entities. That will also happen on the surface and subsurface going forward. We also got a task, which is a fantastic honor, to lead the project within NATO when it comes to underwater battlespace project, connecting and creating interoperability between manned and unmanned systems. So that, we look forward to execute. And the growth is really good, 17% year-on-year when it comes to the quarter, and they are really moving in the right direction. And they have a substantial backlog. I need to mention, of course, that after the quarter in October, we got an additional contract, as you've seen, on the submarine side for SEK 9.6 billion, adding to the backlog now going forward. And then finally, when it comes to our business area, Combitech. We have, of course, a very well moving forward Combitech, our technical consultant entity. They are growing also rapidly year-on-year 17%. It's all about sort of employing new people, of course, and getting utilization into the operations that create these numbers. And I think we've employed 200 people up now only in this quarter from the Combitech side, and that adds to the growth, of course. We're doing well as a consulting company. We're absolutely in the right areas, in the right niches right now, cybersecurity, critical infrastructure, critical communication, creating security operation centers for many type of industries and also from the -- in the public side, the authorities. And everything connected to total defense in terms of resilience is something that sort of generates business now for Combitech going forward. So they had a good quarter as well, definitely, and they're growing quite a lot over the year as well. So I just want to say a few words about something that's been discussed every day, every week in terms of what's happening in Ukraine when it comes to drones and what kind of drone capability do we need going forward and counter-drone capability. And also the EU Commission have launched projects now during the last few weeks, which is sort of a drone wall, making sure that we have resilience versus big drone capabilities coming from the East. And I just want to mention that this is something we really are investing in, and we already have solutions in place. We don't talk so much about this, but we have already used these solutions in NATO missions in Poland. We call one system -- the way we approach this, I say, is to make sure that we are quite agnostic when it comes to what effectors or interceptors do we use. We can use everything from Bushmaster Gun to an electronic warfare type of effectors to nets or kamikaze drones or actually RBS 70, and we are now investing in a new missiles that you've heard about called Nimbrix, which is in a segment between the guns and the RBS 70. So that's sort of agnostic. We can sort of integrate the system that would manage different types of threats. And the Loke system is sort of a brand name of the system includes, of course, a sensor capability with the Giraffe 1X, which is excellent and the most state-of-the-art radar, that you'll find everything from micro drones to larger drones and cope with many threats at the same time, a commander control system, which is really compact and then an interceptor vehicle that would have sort of the chosen effector on it. That -- a counter UAS system already established in Sweden and used in NATO missions. The loitering munition side or actually having a known swarm technology capability. We have already released that we have something that is self-organized in terms of software and using AI to have swarm of drones during different types of missions. And I think we are focusing, among other things on not only surveillance but also loitering munition. That is important because of how you would manage an aggressor going forward, not only with support weapons that called Gustav and anti-tank weapons, but you can also use drones to accomplish part of the mission and work together with support missions. So we are involved in this area and ramping up our capabilities, and we already have existing systems. A couple of highlights from the sustainability area, a very important area to us. We have this quarter established a biogas facility in our site, which is the Barracuda entity in the Gamleby, which is doing camouflage and signature management. which reduces our energy dependence on fossil fuel, of course, dramatically. And if you compare year-to-year in the first 9 months to last year, we have reduced 4% on the CO2 emissions. And we are on a good track now to support our SBTi targets, where we have said we will be 42% down 2030. And if you look at the base year compared to where we are now, we are 33% down. We have a good progress on operational health and safety. We really make sure that we have a safe operational environment within the company, and we measure this all the time. And we must report every incident to mitigate everything that could happen. And another thing is, of course, diversity and inclusion. We are happy to see that we are now moving up when it comes to our female employees in the company, now at 27%. That is a very good step, and we want to go further also, of course, when it comes to female managers. But we are moving in the right direction. And since we have employed 2,700 people net up during the first 9 months, 34% of that employment is actually female. So we're going in the right direction. I'm really happy to see this. So last but not least, I already said that at my first slide that we have -- because of the good progress this year, the first 9 months, organic growth of 21% and also good visibility, of course, into the backlog which is now over SEK 200 billion, and we know what we need to deliver the remaining part of the year, we have now said that we will take this step from 16% to 20% growth rate to 20% to 24% instead. So that's our new guidance. And we still retain the other portion, saying that EBIT will grow more than the organic sales growth. And we will generate a positive cash flow and we are confident doing that going forward. I just want to thank all our employees for doing a fantastic job during the first 9 months and supporting this growth and the commitment to creating societies and having people in societies safe is a strong sort of purpose of the company, which is supported by our employees. I'm really pleased to see that. With that, I think if I have not forgotten anything, I will hand over to Anna, our CFO. Anna Wijkander: Thank you, Micael, and good morning, everyone. Yes, as you have heard, we are delivering a strong third quarter especially from a sales growth and EBIT growth perspective. So I think now it's time to dig more into the financial numbers. And we start with the order backlog. We left the third quarter with a strong backlog, increasing it to SEK 202 billion. In particular, it was the medium-sized orders that increased during this quarter. They more than doubled actually this quarter. So we booked SEK 21 billion. And we have, since the quarter closed -- we booked additional SEK 16 billion in order intake. So the start of Q4 looks promising. 73% of our orders in the backlog are international, and its Dynamics and Surveillance that is the majority of the order backlog, 71%. If you look at to the left in the graph, you can also see that we are increasing our deliveries from the backlog for the fourth quarter with 35% compared to the last year. And we can also see that we're increasing the deliveries from backlog the year 1 and 2, that is '26 and '27 compared to last year. So that really shows that we have -- we are in a growth journey and that we are also expanding our production capacity to deliver on our commitments. Let's turn into some more comments on the drivers of our sales and profitability then. And yes, as you have heard us saying, this was our highest sales and EBIT ever in a third quarter. And we have strong sales growth, 17% reported or 18% organic for the group. And the EBIT grew 16% in the quarter. What's also good to see is that the gross margin is increasing in all business areas in the quarter due to high project activities. And looking in then to more in each business area, Aeronautics, 34% growth this quarter, driven very much from the Gripen deliveries and high activities in the business areas. Also, we see improvements in the commercial business in the sales growth. However, the EBIT is still impacted by the startup costs that we have in the T-7 factory as well as a bit higher marketing cost for all the Gripen campaigns, and also we're starting to do amortization on a capitalized R&D that's impacting the EBIT. Dynamics, again, continued the strong growth from Q2. It grow 12% this quarter and also delivered a higher EBIT margin, 19.3% in the quarter. And that is a result also of project execution, several deliveries, a mix situation. You know in Dynamics, we had a lot of delivery projects. And in this quarter, lots of deliveries from ground combat that is impacting the margin in a positive way. Also, Surveillance grew 8% in the quarter. Good project execution and EBIT level at the same level almost as last year. Here, it's very much deliveries from also the Giraffe 1X radar production that's impacting in a positive way, but also good project execution in the business area. However, on Surveillance, we can mention that there are still negative impact from the Civil business impacting their margins. Kockums, also a high activity level and a very significant growth in their EBIT margin year-over-year. That is very much driven this quarter from both high project execution and, in particular, in their export business. To mention also Combitech, they grow 17% in the quarter. High utilization, high activity, and as we heard, that they are in -- working very much in an area which is growing as well. And their EBIT margin was on par with their EBIT margin last year if we deduct the divestment that we made in the Norwegian operation last year. And from a group perspective, mentioning also that on a corporate level, we have some corporate costs that are SEK 200 million approximately higher this quarter, and that is something that we expect to continue. It was driven very much of these share-based incentive program but also somewhat higher costs for IT and security as we're growing the company. The financial summary then. I think I mentioned all items above EBIT. So I think focus more here on the financial net that turned negative this quarter. And the reason for that is mainly because of the revaluation of shares in a financial investment of around SEK 50 million that impacted the financial net, and we had also a lower result from currency hedges related to the tender portfolio if we compare it to last year. This revaluation that I talked about impacting also the tax rate this year. So compared to last year, it's a bit higher. And then all in all, the group net income is in line with last year and as well as the EPS. Let's zoom out then to 9 months and look how it looks for us after 9 months has passed. On a group level, the sales increased 20% or organic 21% related to effect on currencies. All our business areas have double-digit growth year-to-date. So that's very positive to see. Also our gross margin is improving 70 basis points, and it's all business areas that are contributing to this gross margin increase, but in particular, its Dynamics and Surveillance where we see the improvements. So after 9 months, our EBIT is up 30% and we delivered a margin of 9.3%. Year-to-date, the financial net is positive. And here, it's supported by the appreciation from currency hedges related to our tender portfolio. And following that, we also have a lower tax rate decrease due to lower share of taxable income from foreign operations. So net income and EPS improvement driven by the EBIT growth and also the improvement then in the financial net. Next, our cash flow. I think we can say that we have a strong cash flow from operations despite increased working capital that is driven by our business growth. After 9 months, we have generated SEK 7.3 billion in cash from operations. That's SEK 1.9 billion more than last year. Also in line with our sales growth, we are building working capital, and we're doing that in line roughly with the same amount as we did last year. So if you look at the operational cash flow and deduct the change in working capital, we actually have a positive cash flow of SEK 3.9 billion after 9 months. But as you know, we need to do our investments. That's something that we have communicated earlier in the Capital Markets Day and continue to communicate. It's important for our growth. And we have increased our investments. SEK 4.9 billion is the amount now. That's SEK 1.7 billion more than last year. And so we end up with a negative cash flow year-to-date. But we expect the operational cash flow to be positive this year since we are expecting several large customer payments by the end of the year. Finally, on this slide, I just want to mention also that it's very positive to see that we are improving our return on capital employed, it's now almost 15%, and that's driven both by our profitability but also by increased return on capital turnover. Finally, our balance sheet. We have a strong financial position and a solid balance sheet. Our net debt-to-EBITDA is on a healthy level, 0.1x. This quarter, we have a net debt of SEK 700 million, and that was mainly due to that we have a new -- the lease of our newly opened office in Solna here in Sweden, and that's impacting around SEK 1.3 billion in the third quarter. We have cash and liquid investments of SEK 12.2 billion. And during the quarter, we had issued total bonds of SEK 2 billion additionally. Additional to that, we have an unutilized revolving credit of SEK 6 billion. So all in all, that puts us in a strong position to capitalize on future growth opportunities both through increased investments and also enable us to do potential acquisitions. So in summary, I think a strong quarter both in sales and EBIT across the business. The group has a solid financial position and we have a strong order backlog to deliver on. So with that, I hand over to you, Johan, to open the Q&A. Johan Andersson: Thank you very much, Anna and Micael, for a great presentation. So let's start the Q&A session. And we will start with the questions from the phone conference. [Operator Instructions] So please, operator, do we have any questions from the telephone conference? Operator: [Operator Instructions] The first question comes from Daniel Djurberg with Handelsbanken. Daniel Djurberg: Then I will go to Aeronautics, I think. You had a good quarter, nice growth. A little bit lower EBIT margin versus last year's quarter, [ 30 basis point ] I believe. But it's still the -- as you mentioned, the T-7A program lingering. Can you both give us an update on this in terms of both the cost or margin impact and also how -- for how long we should expect this to linger and if it will increase in size or the opposite. Micael Johansson: Thank you. No, I think when you look at Aeronautics, I would say that a normal Aeronautics with a reasonable scale of Gripen contracts and what have you should be sort of in -- I don't guide, but we talked about this before, sort of high single-digit numbers. So the effect is still there from T-7, absolutely. We've turned around the commercial business in a good way. We're not sort of adding lots of profitability really yet, but it's still okay. So I would say still a couple of years, it don't -- it won't go in the wrong direction, it will go in the right direction. But before it's actually a good addition to our Aeronautics business, it will be sort of 3 years ahead from now, roughly, I would say. But it will go in the right direction over time, of course. Operator: The next question comes from Ian Douglas-Pennant with UBS. Ian Douglas-Pennant: So I've got several questions but I'll limit myself to one on Gripen, please. Could you expand on the comments that we've read, I think, in the press this morning that you could expand Gripen capacity very rapidly if required? I wonder if you can just educate us on this group as to what we said there and how quickly that could happen. And in order for that to happen, do you need to see deposits coming in before you consider making those investments? Or would you consider investing elsewhere? Micael Johansson: Well, as I've said, I mean, we still need sort of set a scenario, that is, if we now get sort of the financing in place, if the politicians sort that and you get support refinancing Ukraine to go into contract on the Gripen E and expanding the production will be important. The way I see it is that, and I've said that this morning that right now, we are looking at expanding production with investments that we've taken to somewhere between 20 and 30 aircraft a year. And of course, as you know, with the numbers that was stated in the Wednesday's meetings, that sort of would add a lot to that. So that we're looking into that now, how quickly can we take another step because this investment we're talking about is sort of look to be implemented sort of next year and the year after that, roughly get to that level, and then you can take another step, of course. It will be adding more to the Linköping production lines if we do that, and that's sort of a few years ahead. But it would also mean that we would sort of expand our hub in Brazil. And we are initiating, as we speak, other sort of partnership discussions in countries that would have an interest for the Gripen, of course. So this will mean that we would need another hub beyond sort of the hub we have in Brazil and expanding in Linköping as well. Well, we said that, okay, if Ukraine push the button, we would deliver the first one in 3 years' time, and that is sort of what we commit to. And then it depends on what is the stretch of the delivery schedule with Ukraine and when we have to have this capacity in place. Normally, it takes like 2 to 3 years to get sort of improved capacity in place, I would say. That's sort of the view I have on how quickly we can do this. But there is absolutely an opportunity to implement this. Will we -- yes, I would like to see sort of a more solidified financing solution in place before we take the big step to start sort of adding huge sort of investment to this. But since we're already moving in the investment direction, we can add a little bit more maybe at risk to actually make sure that we keep the lead times. That's the way I see it without quantifying exactly. Operator: The next question comes from Aymeric Poulain with Kepler Cheuvreux. Aymeric Poulain: Clearly, the demand outlook is great. And it's the third year you're going to be growing at 20% or 25%. So the question is, do you expect that rate to be maintained? Or are the supply chain challenges, especially regarding the staffing or specific material that are starting to emerge given the very strong demand situation? Micael Johansson: Well, it's a bit sort of premature to sort of talk about sort of the next years beyond, I would say, this year right now. You know we've committed to a midterm target of 18% CAGR over the time period of '23 to '27. We will come back and refresh -- revisit that, not refresh it, in the year report quarter, I would say, in February next year. And then we will have a new view from our perspective on how quickly we can continue to grow. So that's where we are right now. If you look at what is the pain points, what's the limiting factors to grow, you are touching upon the right things. We need to bring with us the supply chain and maybe sometimes invest in supply chain. But they have to invest also. To find a whole ecosystem supporting us is absolutely necessary. And there are a few pain points there but manageable, I would say, going forward. And then I am assuming long term, of course, that we will resolve the rare earth elements discussions we have with China and also start to invest to have sovereign capacity on that side. But then we're talking years ahead because that will affect every industry, I would say, if that is not sorted. But yes, that's the way I see it. Johan Andersson: Excellent. Thank you. Let's take a couple of quick ones from the web. One is, what's the difference between Gripen and E and F? And when can we see the first Gripen F? Micael Johansson: Okay. Yes. We are maybe a bit of nerds using all these acronyms. But as you know, we have the Charlie, Delta version in operations right now. And yes, we have delivered an Echo version as well. The C is -- the E is a single-seat version. The F is a dual-seat version. And we will deliver this dual-seat version to Brazil in '27. So that's where the first aircraft is being manufactured right now. This has been a design that's been done together with the Brazilian industry and Brazil and that is in line with the plan that we have. Sweden has not contracted any dual-seat versions of the Gripen F. I hope I was not too complicated here. It's simple, actually. Single seated version, dual-seated version. Johan Andersson: I think it was pretty clear. Another one. You talked a lot about your drone capabilities in your strategy there. How much are you doing and developing by yourself? And how are you looking and doing things with partners? How do you think strategically there what's important? Micael Johansson: That's a really good question. I think from a software-defined perspective, we're doing everything ourselves and then, of course, when it comes to sensors and effectors, we have also things in-house. Then we are looking into how can you scale something quickly either yourself, lots of 3D printing or storing, parts that you can actually assemble quickly and how many partners do we need there. So I think on that side, when it comes to platforms, there will be more partnerships. But it's a bit different depending on what kind of drone you're talking about, of course. Johan Andersson: Good. Excellent. And we had a quick one for Anna. Do you expect your backlog to continue to increase going forward? Anna Wijkander: With our growth that we're foreseeing, I think that is something that we can assume that today's backlog will increase going forward. Yes. Operator: The next question from the phone comes from Björn Enarson with Danske Bank. Björn Enarson: Yes. On Dynamics and the super solid backlog and -- but the mix is very, very important. Can you give us some color on how you look upon the mix situation in the backlog? As profitability can swing quite a lot. We have seen that over the years depending on what Dynamics you have. Micael Johansson: In the Dynamics area, you mean. Björn Enarson: Exactly. Micael Johansson: Well, I think I won't go into exact details on the mix as such, but of course, it's quite dominated today by support weapons and missiles. Both have a substantial backlog in that and both will add good profitability numbers. I will sort of -- we have always talked about what's the ambition level in terms of sustained EBIT level on Dynamics side. And I've always said that depending exactly on the question you asked, the mix between the different portfolio entities in Dynamics, but it should be always sort of in the mid-double digit numbers, around 15%. Now we've had good quarters now. So we are above that. And of course, that's very nice to see. But it will always be on that level, so to say. But I won't go into exactly a part of the SEK 87 billion, what's what there. But the main parts are absolutely support weapons and missile capability, and you can probably sort of draw that conclusion from contracts that we have received. Anna Wijkander: And it varies, of course, between different contracts, also within the same business unit within a Dynamics. So it differs. So that could also impact. But I think it's a good, as you say, Micael, in the mid-teens mid-15s, what you say... Micael Johansson: Mid-double digit numbers, the number between 10 and 20, not sort of between 10 and 100. Operator: The next question from the phone comes from Carlos Iranzo Peris with Bank of America. Carlos Peris: I just want to ask on the GlobalEye because it looks that it's having a strong commercial momentum recently. So can you help us to understand how big the GlobalEye opportunities could be for you midterm? Micael Johansson: Well, I mean, this is one of the mega deals that always will take sort of a Prime Minister or a Defense Minister to decide in the end. But I mean, we have campaigns ongoing. As you know, France have selected and they will start with 2. We have 3 in production for Sweden. There is an interest for a number of aircraft when it comes to Germany and NATO. We have a couple of interest also in the Middle East. So it adds up to a number of platforms with a strong potential. But I would hesitate to sort of bring too much of mega deals into our growth. And this is not part of our growth this year or sort of a big portion of our business plan going forward. We look upon mega deals in a careful way. They are adding substantially when they happen. But it has to be continuous growth anyway. So I just want to say that, yes, there are many platforms that could come into play, but I wouldn't sort of jump into conclusions because they are megadeals campaigns. And political decisions will also be involved in that. But I look very positively upon sort of the future of GlobalEye. That's what I can say. And I mentioned a few countries now that have an interest. Operator: The next question comes from Tom Guinchard with Pareto. Tom Guinchard: A question on the risk guidance here. Any changes in delivery pace across the different business areas? Or what's changed since your last guidance? If you could break that down, please. Micael Johansson: Well, I think everyone is actually picking up nicely when it comes to expediting deliveries and pushing sort of things from the backlog into sales. And also some of it is connected to that we get our capacities coming into place. And also seeing, yes, that we have added 2,700 people to the company net up this year adds lots of push into this. And we are sort of optimizing our way of working and automating production. So it's a number of things that comes together that sort of had lacked visibility in the beginning of the year. But now we are more confident that we have actually succeeded in many things that we put ourselves forward to do. So it's actually in all areas. And of course, I mean, Dynamics is growing dramatically. You see 36% growth over the first 9 months. So it's an engine in this. But also the other business areas are growing, and there's lots of potential in Surveillance, and Aeronautics have now really stepped up in terms of growth. So I wouldn't sort of point something specific, but you can see from the numbers 9 months now what's driving this and what comes into play first. Operator: The next question comes from Sasha Tusa with Agency Partners. Sash Tusa: It's Sash Tusa here. I've got a couple of questions. First is just to R&D. On a 9-month basis, it's doubled over the last 4 years. Going forward, if you have investments, particularly in counter-UAS, do you expect continued growth in R&D? Or is there just going to be a shift in the mix probably towards the counter-UAS area and away from other areas? I wonder if you could just give some color on how the R&D is expected to develop. Micael Johansson: No. What I can say is I want to grow the R&D investments as much as I can but still keeping to the guidelines that we have, the trade-off between sort of here and now, top line growth, increasing our profitability but still having the strength to grow our investments in R&D. And we need to do that when it comes to AI, autonomous systems in all domains and also, of course, in the way we develop software. We have established a common tech organization that is pushing sort of software out on the business unit in a different way with sort of solidified architectures and stuff. So we need to continue to invest, make no mistake. So if we continue to grow, it will not only be a mix and shift in that, so to say. We have to do a number of things going forward in all core areas both when it comes to sort of autonomous systems in the air, which we call collaborative combat aircraft, the unmanned underwater vehicles. We have, as you know, a collaboration with General Atomics to do an autonomous sort of airborne early warning capability. So there are a number of things that we have to do and which I look forward to do. So it will continue to grow. But I won't quantify it how much. It is always this trade-off between the different pieces I mentioned. Anna Wijkander: Just maybe I can add. We have also some capitalized R&D that we have started to depreciate now that is also impacting. And that's something positive because we are delivering in our projects and, therefore, we can -- we depreciated the capitalized R&D. So that's also going to increase during the year. Operator: Excellent. Thank you. The next question -- sorry, did you have a follow-up there? Sash Tusa: Yes, please. That's helpful. Yes, I just wondered if you could elaborate on the Luleå frigate program, which seems to be in a degree of flux. You clearly said that it's now more of a frigate than a corvette. Corvette was probably a bit of a euphemism anyway. But could you just give us some color on where that program is? And in particular, the reported bid by France to export frigates directly to Sweden, possibly as part of the offset for the GlobalEye program, how do you see that developing? Micael Johansson: I think it's a question you should ask to Swedish customer mainly. And I want to underline it's probably -- I mean, it's probably corvette, of course. I mean, maybe it's my ignorance. But listen, we have put forward a very strong offer together with Babcock, our main partner here. And I hope that, that will prevail and be the selected thing. Yes, the Swedish customer has opened up, as I know, for other sort of proposals. And it's up to them now to select. But I still think we and Babcock have the strongest proposal. Now it's up to the Swedish Navy, Swedish FMV, the defense material organization to make a selection. And exactly when that is going to be done, I'm not sure. But time is of essence, of course, since they want the frigates to be operational sort of '29, '30 something. Operator: The next question comes from Marie-Ange Riggio with Morgan Stanley. Marie-Ange Riggio: The question that I have is on your current capacity expansion. Clearly, we see that 25 is quite a record level for you. you announced some capacity expansion at your last CMD mainly for Dynamics and Surveillance. I'm just wondering, given the level of backlog that you have today and the demand that you are seeing in the coming years, are you already increasing further the capacity compared to the guidance or like compared to the indication that you gave at your CMD? Or you are still expecting basically the orders before like moving forward from those targets? Micael Johansson: I would say for the year, we are in line with what we talked about at the CMD. It's not sort of a walk in the park to get everything executed. So that is really sort of a high ambition to invest all that money into capacity increases that we talked about. And we're looking into what do we need to do next year, of course. And we'll come back to that next year. But we will continue to invest in capacity increases, obviously, because of the demand in the market. But what are we doing right now is supporting what we talked about in the support area going from sort of below 100,000 units to somewhere in between 400,000 and 500,000 units when we get all the capacity in play. And I look forward to getting the factory in Grayling, Michigan up and running in the end of next year and also then India, of course, to add to this. So we'll come back on that, but we will see more -- again, we stick to our guidelines. But we will not compromise, making sure that we have the capacity to support the demand in the market and not compromise to make sure that we invest in the right technologies to be relevant all the years to come. And this is the sort of the puzzle that we work with all the time to make that sort of really efficient going forward. But we will need more capacity investments, absolutely. But we'll keep to the CMD statements that we had. Marie-Ange Riggio: If I may, on that, I mean, are you afraid about the lead times for your policy? Because like -- are you afraid basically that the lead time about increasing the capacity can limit further growth going forward given the fact that, I mean, it will take time. If I'm correct, you have drone combat where you can increase the capacity pretty quickly. But for the rest, I think that takes a bit more time. So that's why I was saying like if you are trying to be ahead of the curve in terms of adding capacity because clearly, the backlog would support further growth or not. Can you probably just remind us a bit the lead time for any other projects that is not ground combat if you increase the capacity? Micael Johansson: If you talk about the lead times to get increased capacity into play when it comes to ground combat, it's like roughly 2 years. So we started early, fortunately. But there are different movements. As I said, there are 40 building projects ongoing in the Karlskoga area only. So they are not in the same sort of schedule as we speak, all of them. But it's roughly to get to full-fledged sort of big step-up on the capacity of support weapons, I would sort of simplify it to say it's roughly 2 years. Johan Andersson: Excellent. Thank you very much for the questions. I think we need to move on to some of your colleagues. But just take one question from the web here. Micael, in your CEO statement, you write right that Colombia has selected the Gripen and that you are in negotiations. Do you dare to set a time frame here? Or how should we view that? Micael Johansson: As I said before, I hope to conclude that during this year. That's sort of what I've said before. I'll stick to that. I won't give a week or a month or so, but we've been doing good progress and I'm pleased to see that. So I hope we will conclude this year. Johan Andersson: Good. Another one is on your drone capabilities. Should we start to see that, that also can be some larger orders here? Or will it be more of test and trials and so forth? Or in the future, would you see that this can also grow to more products and bigger-sized orders? Micael Johansson: No, I anticipate that to happen because I think also looking at what capabilities the commission has stated as flagship projects, if you want to implement that, of course, you need plenty of counter-UAS systems. And if you want to have another capability sort of more aggressively, you also need quantities. But we're not really there yet, but we're seeing contracts coming now. So I think that's an avenue that will grow, absolutely. But exactly how and when it's -- I can't say. But we're in that race. Johan Andersson: Good. Okay. I think we have a number of more questions over the telephone conference so let's spend the last 5 minutes there. Please, operator, next question. Operator: The next question comes from Renato Rios with Inderes. Renato Rios: This is Renato of Inderes. Congratulations on very good results today. Great work. It's similar to the question that was just asked regarding drones and AI. Looking ahead to, say, 2026 to 2030 or even beyond, how do you see drones technology and AI-driven unpowered products and systems moving from development to sort of recurring revenue and contracts? How significant a share do you think this could become in the medium to long term? And would be interesting to hear your view on the revenue mix, how it could look like across the ground, air and marine domains and the largest product categories. Micael Johansson: Good questions. I think looking into the crystal ball and trying to understand how quickly AI and autonomous capabilities will take an operational role and great quantity is really a difficult one, I must say. It's all connected to also the end user, how quickly are they prepared to change a bit of their concepts of operations from doing what they're doing now to using these capabilities in a new way. I mean, it's different looking at Ukraine, which are moving really quickly ahead with short iteration cycles, upgrading the drone capability on a weekly, daily basis, very decentralized to keep trying winning the war. And they take a bit of a risk, of course. It's different in an environment where you change the CONOPS of a defense force or an army to do things. It will take a little bit of time, I think, but it will definitely prevail and be there going forward. Technology was developed much quicker than I think we understand. And how much you can do on an autonomous basis and how much support you will have from AI agents, agentive AI going forward will be tremendous. But to quantify the share is -- I can't do that today. I have to make sure that we are part of that journey and that we invest in that going forward. Between the domains, I think the land domain will continue to grow and will be substantial if you look at the company from our side. Maritime and air is a bit sort of dependent on the mega deals, of course, a bit different in that domain. But then it will be a sustained business, of course, in the background as well. So I think land domain is more sort of sensors and products and weapons will continue to grow. And also, we hopefully will continue to grow a lot in the air domains as well. But that will be a bit dependent on the mega deals, honestly. Johan Andersson: Excellent. Operator, do we have a final question from the telephone conference? Operator: Yes and It comes from Afonso Osorio with Barclays. Afonso Osorio: I just wanted to come back to this Gripen deal with Ukraine. I mean the 100 to 150 jets is a massive potential order here. So firstly, what will be the total length of these contracts, assuming the delivery starts 3 years from now, as you just said? And then what would be the profitability of that contract compared to the other contracts you have within the Gripen family? Micael Johansson: Good questions that I'm sure you understand I can't sort of nail that down completely. But I mean, I've said before, I mean, that size of the contract would of course create scale and improve the profitability of the Aeronautics domain. Then it depends on many other things, what kind of availability do they need, what kind of flexibility and agility do they need, ground support equipments, training and all of that in terms of the whole contract. But you can sort of look at Brazil and then you do your mathematics on what sort of 100 or 150 contract. It's in that ballpark, but it depends on the number of things that we haven't nailed down yet to look at the size of the contract. But everything that adds that scale to the operation would, of course, add profitability. That's for sure. But I won't sort of say how much today. That's not sort of possible. We will start working this now and look what the expectations are from Ukraine comes to schedule, delivery rates and when the first aircraft needs to arrive and then offer them something that needs to be discussed. And apart from that, all these things around financing must come into play as well. So we will work that diligently, of course, no question about it. And I look forward to it. Can I say one thing before we end, which I forgot actually. You've seen probably the press release that I just want to say that we have now appointed a new position in our corporate management, strategy and technology. And it is Marcus Wandt, who is a great technology guy and a visionary guy, a good leader that will take that role. And we do this because there are cross-company initiatives that we have to have a thorough discussion about in corporate management and all the initiatives that comes from me or NATO, of course, as well. But technology is moving so fast. So we need to be sure that we have the right discussion in corporate management. So I look forward to welcome Marcus Wandt 1st of November to my corporate management. Johan Andersson: Thank you very much, Micael. And with that, good ending. We finalized this call for the third quarter, and very much look forward to the Q4 call that we will have then in beginning of February. So thank you again very much for listening in and also joining over the web. And if you have any further questions, do not hesitate to reach out to us at the Investor Relations department. And have a really, really nice day. Thank you. Micael Johansson: Thank you. Anna Wijkander: Thank you.
Operator: Greetings, and welcome to the OMA Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Emmanuel Camacho, Investor Relations Officer for OMA. Thank you. You may begin. Emmanuel Camacho: Thank you, Melissa. Hello, everyone, and welcome to OMA's Third Quarter 2025 Earnings Conference Call. We're delighted to have you join us today as we discuss the company's performance and financial results for the past quarter. Joining us today are CEO, Ricardo Duenas; and CFO, Ruffo Pérez Pliego. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. And now I'll turn the call over to Ricardo Duenas for his opening remarks. Ricardo Duenas: Thank you, Emmanuel. Good morning, everyone, and thank you for joining us today. This morning, Ruffo and I will review our operational performance and financial results. And finally, we will be pleased to answer your questions. In the third quarter of this year, OMA's passenger traffic totaled 7.6 million passengers, an 8% increase year-over-year. Seat capacity increased by 11% during the quarter. On the domestic front, passenger traffic grew by 7%, driven primarily by the Monterrey Airport, which saw increases on routes to the metropolitan area of Mexico City, mainly to Toluca Airport, Bajio, Puerto Vallarta, Mérida and Querétaro. These routes collectively added over 300,000 passengers during the quarter, representing 68% of the total domestic passenger growth. International passenger traffic increased by 11%, mainly driven by Monterrey on the route to San Francisco, San Luis Potosi with higher traffic on the routes to Atlanta and Dallas and Tampico on the route to Dallas. Together, these routes added more than 47,000 passengers during the quarter, accounting for 46% of the total international passenger growth. Moving on to OMA's third quarter financial highlights. Aeronautical revenues increased 11% with aeronautical revenue per passenger rising 3% in the quarter. Commercial revenues grew by 7% compared to the third quarter of '24 and commercial revenue per passenger stood at MXN 60. Commercial revenue growth was mainly driven by parking, restaurants, VIP lounges and retail, mainly as a result of higher penetration and an increase in passenger traffic. Occupancy rate for commercial space stood at 96% at the end of the quarter. On the diversification front, revenues increased 8%, with Industrial Services contributing most of this growth, mainly because of additional square meters leased in our industrial park as compared to the third quarter of '24 and contractual increases to rents. OMA's third quarter adjusted EBITDA increased by 9% to MXN 2.7 billion with a margin of 74.8%. On the capital expenditures front, total investments in the quarter, including MDP investments, major maintenance and strategic investments were MXN 472 million. Finally, in relation to the negotiation process of our next Master Development Program discussion with the AFAC remain underway. We submitted our proposed Master Development Program for the '26-'30 period at the end of June, and the process remains on track. During the quarter, we continued addressing AFAC's technical observations and advancing the validation of investment projects in accordance with the schedule agreed with the authority. We continue to expect the final resolution and publication of results during December. Our expectations regarding the overall investment level remain at committed levels of MDP investment similar in real terms to the level of the previous '21-'25 MDP and maximum tariff increase in the low single digits. I would now like to turn the call over to Ruffo Pérez Pliego, who will discuss our financial highlights for the quarter. Ruffo Pérez del Castillo: Thank you, Ricardo, and good morning, everyone. I will briefly go over our financial results for the quarter, and then we will open the call for your questions. Aeronautical revenues increased 10.6% relative to 3Q '24, mainly due to the increase in passenger traffic as well as higher aeronautical yields. Non-aeronautical revenues increased 7.3%. Commercial revenues increased 7.0%. The line items with the highest growth were parking, restaurants, VIP lounges and retail. Parking grew by 9.4%, mainly as a result of higher passenger traffic. Restaurants and retail increased 9.8% and 8.2%, respectively, both driven by higher passenger traffic as well as the previously opened or replaced outlets. VIP lounges rose 9.9%, mainly due to higher market penetration, primarily in Monterrey as well as the increase in passenger traffic. Diversification activities increased 8.2%. Industrial Services, which relates to the operation of the industrial park contributed most to the growth in the quarter, increasing by 53%, resulting from higher square meters leased as compared to third quarter of '24 as well as contractual rent increases. Total aeronautical and non-aeronautical revenues grew 9.8% to MXN 3.5 billion in the quarter. Construction revenues amounted to MXN 382 million in the third quarter. The cost of airport services and G&A expense increased 14.4% versus 3Q '24, primarily due to the following line items: Payroll grew by 10.7%, mainly as a result of annual wage increases as well as higher headcount as compared to the third quarter of '24. Other costs and expenses increased by 22% due primarily to higher IT-related requirements and transportation services. Contracted services expense rose 16.4%, mainly due to higher cost of security and cleaning services following contract renewals in prior quarters, reflecting the inflationary pressures and tight labor market conditions in Mexico. Minor maintenance increased 19.8%, primarily due to timing effect of the works performed. Concession tax increased by 10.4% to MXN 290 million, in line with revenue growth. Major maintenance provision was MXN 28 million as compared to MXN 75 million in the same quarter of last year. OMA's third quarter adjusted EBITDA grew 9.0% to MXN 2.7 billion and adjusted EBITDA margin reached 74.8%. Our financing expense increased by 9.8% to MXN 299 million, mainly driven by higher interest expense as a result of higher average debt levels. Consolidated net income was MXN 1.5 billion in the quarter, an increase of 9.1% versus the same quarter of last year. Turning to our cash position. Cash generated from operating activities in the third quarter amounted to MXN 1.9 billion and investing and financing activities used cash for MXN 480 million and MXN 365 million, respectively. As a result, our cash position at the end of the quarter stood at MXN 4.4 billion. At the end of September, total debt amounted to MXN 13.6 billion, and we maintained a solid financial position, ending the quarter with a net debt to adjusted EBITDA ratio of 0.9x. This concludes our prepared remarks. Melissa, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Pablo Ricalde with Itaú. Pablo Ricalde Martinez: I have one question regarding your traffic expectations maybe for the fourth quarter and maybe your early thoughts on 2026, taking into account the World Cup. Ricardo Duenas: Yes. Thank you, Pablo. So we're looking for the rest of the year to finish in our traffic overall for the year between 7% and 8% growth. And our expectation at this point in time for next year, it's traffic to be in the low to mid-single digits for next year growth. Operator: [Operator Instructions] Our next question comes from the line of Enrique Cantu with GBM. Unknown Analyst: I have a quick question. Commercial revenue per pass declined this quarter, the first contraction since early 2023. Could you elaborate on the main drivers behind this softness? And how do you plan to reaccelerate this [ known ] area of growth? Ruffo Pérez del Castillo: Enrique, so yes, commercial revenue per passenger mainly reflects -- in the quarter reflects the impact of onetime revenues recorded in the previous year. And in the following quarters, we expect commercial revenues per passengers to gradually increase in line with inflation from current levels. Unknown Analyst: Okay. Perfect. And just another one, if I may. SG&A and utility costs rose this quarter, eroding margins despite strong top line growth. Do you view these cost pressures as temporary? Or should we expect a structurally higher cost base heading into 2026? Ricardo Duenas: Sorry, could you repeat that? Maybe you're too close to the microphone. Unknown Analyst: Yes, sorry. So it's regarding SG&A and utility costs. We saw that this quarter they erode margins. Do you view these cost pressures as temporary? Or should we expect this higher cost base heading into 2026? Ruffo Pérez del Castillo: So yes, as we mentioned, there are some specific line items that are facing some pressures like cleaning and security, where the total level of cost in the following quarters should be similar to the level of cost that we are facing right now. However, we do have started to analyze different alternatives to continue maintaining cost at check, and it's part of the history of the company to be very cost conscious, and we expect pressures not to be permanent. Operator: Our next question comes from the line of Gabriel Himelfarb with Scotiabank. Gabriel Himelfarb Mustri: A quick question on capital allocation. First, for the next MDP, I think you have mentioned that almost all the capital will go to Monterrey. It will be focused on, perhaps, increasing the capacity of the airport or developing more the commercial spaces, the commercial portion of the business? And my second question, are you seeking or have you considered expanding gap -- sorry, OMA's portfolio towards outside Mexico? Ricardo Duenas: Yes. Thank you, Gabriel. Regarding the last part, we're always looking for opportunities to expand internationally. At this point in time, we don't have a concrete transaction that we could share. In terms of the MDP, it's around half of the MDP will be allocated to Monterrey, given that half of the traffic is allocated in Monterrey. We're looking to expand in most of -- in capacity that will generate commercial opportunities as well. There's pavement, there's technology, there's environmental and sustainability projects as well. Operator: Thank you. There are no questions at this time. I'll turn the floor back to Mr. Duenas for any final comments. Ricardo Duenas: We would like to thank you, everyone, for participating in today's call. We appreciate your insightful questions, engagement and continued support. Ruffo, Emmanuel and I remain available should you have any further questions or require additional information. Thank you once again, and have a great day. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. Welcome to Megacable's Third Quarter 2025 Earnings Conference Call. With us this morning, we have Mr. Enrique Yamuni, CEO; Mr. Raymundo Fernandez, Deputy CEO; and Mr. Luis Zetter, CFO. Let me remind you that the information discussed at today's earnings call may include forward-looking statements on the company's future financial performance and prospects, which are subject to risks and uncertainties. Megacable undertakes no obligation to update or revise any forward-looking statements. I will now turn the call over to Mr. Enrique Yamuni. Sir, you may begin. Enrique Robles: Thank you, Saul. Good morning, everyone, and thank you for joining us today. During the quarter, we remain firmly aligned with our strategy and continued with the execution of our expansion and network evolution projects as planned. This disciplined approach has enabled us to sustain subscriber growth above market level, positioning Megacable as the second largest operator in the country by number of broadband subscribers. The achievement reflects our commitment to becoming a leader player in Mexico telecommunications sector. A key driver of this progress has been the expansion of our infrastructure. During this period, we successfully reached our goal of doubling our infrastructure by number of homes passed compared to those at the expansion announcement, making a significant milestone 3 years into the execution of this initiative. Today, our network is capable of serving 82% of our subscriber base to fiber, a tangible result of our strategic investments. We have already captured over 50% of the subscribers originally target in those territories, and we continue working diligently to increase penetration and reach the next set of objectives. In parallel, we have made substantial progress in our network evolution project, migrating subscribers to a state-of-the-art fiber network. This effort is part of our clear vision to become a full fiber operator in the medium term, enhancing our competitive edge. We are proud to offer a robust service portfolio with competitive pricing bandwidth, tailored to evolving needs of our customers and outstanding customer service. This is evidenced by our performance in key indicators such as Net Promoter Score, which continues to improve quarter-over-quarter. Operationally, we remain focused on driving value to quality service and fair prices. In this sense, ARPU increased both sequentially and for the first time in the last 12 months on a yearly basis, thus reflecting the strength of our value proposition and the positive impact of recent commercial adjustments. From a financial standpoint, subscriber growth has consistently translated into revenue growth. Our mass market segment has maintained high single-digit growth with an acceleration observed during this period. Likewise, with consolidated EBITDA has increased its growth pace, resulting in margin expansion on a year-over-year basis, a trend we expect to sustain in the coming quarters. Our capital investment levels are showing a clear deceleration trend. Excluding extraordinary investment projects, our organic CapEx has declined to mid-teens aligning with global best-in-class telecom operators aligning the foundation for a more efficient investment structure going forward. As a result of this lower CapEx intensity and continued EBITDA growth, we are approaching our cash generation target. This year, we expect to be cash flow positive before dividend payments and very close to achieving net cash flow even after dividends. It is also worth noting that throughout this investment cycle, our debt levels have not increased significantly. We maintain a solid balance sheet with one of the lowest leverage ratios in the market. This highlights the efficiency with which we have executed our initiatives and position us well to capitalize on future strategic investment opportunities. Our financial strength has been recognized again by the rating agencies as HR Ratings confirmed -- reaffirmed our AAA rating this quarter, following Fitch's rate confirmation in the second quarter. These rating actions reflect the quality of our balance sheet, the consistency of our performance and the strength of our long-term outlook. As we approach the final quarter of the year, we remain committed to execute our fiber deployment strategy, consolidated growth in new territories and drive operational efficiency. Above all, our focus is on maximizing free cash flows and solidifying our position as Mexico's most reliable telecommunications platform to preserve the strength of the Megacable brand, with millions of households and businesses across Mexico have come to rely on connectivity and entertainment. All this said, now I pass the call over to Raymundo for operational remarks. Please Raymundo, go ahead. Raymundo Pendones: Thanks, Enrique, and good morning, everyone. As Enrique just note, this was another quarter of steady progress. Our results reflect the continued momentum of the core business, reaffirming the strength of our strategy and our ability to adapt to shifting market dynamics and evolving customer expectations. Our subscriber base continues to grow both in new territories and expansion areas where penetration levels keep increasing. And more importantly, this growth in our base has consistently translating to revenue increases particularly during this period where mass market segment revenues accelerated. Let me walk you through the key operational metrics of the quarter. We ended the quarter with nearly 5.9 million unique subscribers, an increase of 9% year-over-year, equivalent to 506,000 net additions. In this quarter alone, net additions reached 122,000 slightly below last quarter's, but well within internal expectations in line with the consistency of our performance. In the Internet segment, subscribers totaled almost 5.7 million, up 10% versus third quarter '24, representing 528,000 net additions, of which 129,000 were added this quarter. This performance reflects strong demand for high-speed connectivity, even following the price adjustment implemented at the start of the quarter, highlighting the continued relevance of our value proposal particularly in price-sensitive markets. Regarding our Video segment, we closed the quarter with nearly 4 million unique content subscribers, including 3.9 million of linear TV and 124,000 users with streaming service coupled only with our Broadband solution. Within the linear TV segment, XView continued to expand, reaching almost 3.7 million users at 9.9% year-over-year increase with 333,000 net additions. In Telephony, we surpassed the 5 million subscriber mark, up 11% versus the prior year, equivalent to 490,000 net additions with 98,000 net additions during the quarter. While this service remains primarily complementary within our bundles, its expansion contributes significantly to customer retention. Turning to our mobile virtual network operator business, our revenue, total lines reached 640,000 with 21,000 net adds this quarter and 128,000 over the last 12 months. Growth remains focused on postpaid offerings continuing the upward trends since early 2023. We closed the quarter with 14.6 million RGUs, up 8% year-over-year driven by a steady subscriber growth in the mass market, whilst revenue generating units per unique subscribers stood at 2.49, ARPU improved to MXN 422.3, up from MXN 418.9 in the same period last year and MXN 421 last quarter. This figure reflects pricing optimization despite a bundled mix more inclined towards double play. Our expansion and modernization of network continues to be core drivers of our growth. Our infrastructure now extends to 107,000 kilometers, allow it to serve over 18.7 million homes, up 10% from last year. As of quarter end, over 82% of our subscriber base was already connected via fiber compared to 73% in the same period last year, a clear indicator of the progress made towards becoming a full fiber operator. Churn levels stood at 2.3% for Internet, 2.7% for Video and 2.7% for Telephony, reflecting the price adjustment carried out at the beginning of the quarter and despite the upward fluctuation within reasonable levels. It is important to mention that based on seasonal patterns, we anticipate churn to improve toward next quarters. In a nutshell, our mass market segment remains a primary engine of growth and profitability driven by expanding coverage and improved operational leverage in both legacy and developing markets. By contrast, the corporate segment remains soft, consistent with trends in earlier this year, mostly attributed to an economic slowdown in the corporate segment. Undoubtedly, competitive conditions in this market have intensified. With greater fiber availability, there has been an increase in the supply of available services, which has negatively impacted market prices for these services. On the positive side, the integration of the corporate segment has progressed steadily under the business Tech-Co model. As part of this merger, we have focused on evolving the business model shifting from generating most of our revenue from equipment sales to managed service models, which generate a larger recurring revenue base. This has had a temporary effect on the results of these 9 months of 2025. However, we expect greater stability and recurrence in revenue as these consolidation matures. Before I close, I want to emphasize that these quarterly results were achieved through disciplined execution and quality service despite an increasingly competitive and price-sensitive market as our network reliability coverage expansion and bundles continues to differentiate our value also. Looking ahead, we remain focused on preserving momentum to the fourth quarter, with churn expected to soften in the next quarters, territory penetration to move forward an infrastructure deployment to meet customer needs, we are confident in our ability to deliver resilient results as of year-end. Thank you for your attention. I will now turn the call over to Luis for the financial review. Luis Zetter Zermeno: Thank you, Raymundo. Good morning, everyone. Let me walk you through our financial performance for the third quarter 2025. During the quarter, as Enrique and Raymundo mentioned, we continue to execute our long-term strategy with discipline and consistency, enabling us to deliver solid top line growth and strong profitability. Taking a closer look at our financial performance for the quarter. Total revenues reached MXN 8.9 billion, a 9% increase against the MXN 8.2 billion recorded in the third quarter 2024. This performance was mainly supported by the mass market segment that grew 11% year-over-year, the highest growth in the last 6 periods driven by ongoing subscriber growth and a gradual ARPU improvement. In the same period, corporate segment revenues contracted 5% compared to the third quarter of 2024, mainly explained by the economic deceleration in this segment, coupled with a higher competition. As a result, mass market operations contributed with 85% of total revenues in the quarter and the remainder on the corporate segment. On the cost side, cost of services for the quarter totaled MXN 2.4 billion, up 6% year-over-year, mainly due to a deeper revenue mix composition in the corporate segment, favoring higher margin income streams. Well SG&A reached MXN 2.5 billion, increasing 9% primarily from higher labor costs. Both lines remain under control advancing at the same level or below revenue. Turning to profitability. EBITDA reached MXN 3.9 billion, up 10% year-over-year, accelerating its growth trend in the annual comparison along with total revenues. EBITDA margin was 44.2%, slightly below sequentially as a result of seasonal effects, but above the 43.6% recorded in the third quarter of 2024. Again, an expansion of 50-plus basis points, regardless of the contraction in corporate revenue. Notably, margin expansion at newer territories continue driven by an incremental subscriber base and improve infrastructure utilization. At the same time, margins in mature regions remain solid and aligned to historical trends. Net income for the quarter was MXN 628 million, accumulating MXN 2.1 billion year-to-date, a 13% increase versus MXN 1.9 billion recorded in the same 9 months of last year. In this context, we remain confident that profitability will strengthen as depreciation stabilizes and newly integrated regions mature. Turning to the balance sheet. Net debt declined sequentially, but remained largely in line with the same period of last year closing at MXN 22.3 billion at quarter end, supported by a solid cash generation and the absence of any additional debt. The net debt-to-EBITDA ratio stood at 1.45x down from 1.56x in last quarter and below the 1.54x of the prior year. In this sense, we continue to maintain one of the strongest leverage profiles of the industry. Additionally, our interest coverage ratio remained solid at 5.59x and the weighted average cost of debt stood at 8.77%, continuing its downward trend. This indicator reinforce the strength of our capital structure and provide flexibility to support our long-term goals. Turning to investments. CapEx for the quarter totaled approximately MXN 2.4 billion, above the MXN 1.9 billion reported last quarter, mainly due to typical second half seasonality. However, we remain comfortably within our full year investment guidance. In relation to revenue, CapEx represented 26.6% in the quarter and 25.1% year-to-date. And we continue to expect the full year ratio to lie as we have been mentioning between 26% and 28% of revenues, consistent with our soft lending investment trend. Looking ahead, we focus on balancing growth with cautious capital allocation, and our priorities continue to include the generation -- increase the generation of positive cash flow in 2026, preserving our investment-grade credit profile and advanced maturation of recent investment across both new and legacy markets. Lastly, I would like to highlight 2 items that reflect our continued commitment to transparency and value creation. First, as noted by Enrique HR Ratings reaffirmed our AAA credit breaking, following the reaffirmation rate by Fitch Ratings in the second quarter. Both rating actions validate the strength of our balance sheet and consistency of our financial strategy. Second, we continue to advance at our sustainability and disclosure activities with the release of our 2024 integrated annual report under GRI and SASB standards. Verified by 35 professionals in accordance with these standards as we continuously strive to further strengthen our ESG reporting in anticipation of evolving market standards and practices. In line with this, the impact allocation report of our 2024 local notes is also now available. In summary, our third quarter results reflect the strength of our business model, discipling financial execution and a healthy position for long-term growth. Thank you. We are now ready to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Marcelo Santos from JPMorgan. Marcelo Santos: I have two questions. The first is regarding CapEx. So you made it very clear what's the outlook for this year. How do you see CapEx going in 2026 and 2027. And the second outlook is a bit about the competitive environment and growth. I mean, you had very good adds, but churn was a bit higher and SG&A was a bit higher sequentially. So is growth coming at a more expensive cost than what was foreseen? Is this because of a bit of the environment? So just wanted to tie these things. Raymundo Pendones: Luis, you want to go ahead? Luis Zetter Zermeno: Yes, on CapEx, for sure, Marcelo, thanks for your question. And as we mentioned, our CapEx is in the downhill trend and even when we are going to end this year around 26% as we expected, our forecast for the future '26 and '27 will be, '26 will be around 24% to 26% of revenues and declining on '27 to grow between 21% and 23%. Enrique Robles: Yes. The CapEx trend continues to decline, even though we have [ up ] worth in this quarter because of the build of the network and the [ comps ] that we activate, we expect that we announced that in the second quarter when we said the second quarter wasn't difficult. But the good news is like Luis is saying that we continue to have a lower CapEx over revenue this year around 26% to 28%, that's what we expect. And the message here from the management is that we will have that decline for next year between 24% to 26%. Raymundo Pendones: And Marcelo regarding the competitive environment. The highest growth that we have in subscribers, the highest growth rate comes from expansion territories as there is a greater opportunity for penetration and company's expansion on that part, of course. In legacy territories, the good news is that penetration remains stable at around 40% and growing. That means despite of competition, the offer that we have and the strategy of a good product, good network at the best affordable price is proving to provide a 10% growth in revenue, EBITDA and subscribers all around and we continue -- we will continue to forecast that for the early 2026 if you might say. Now the churn, remember that we have an increase in rates at the beginning of the quarter. That increase in rates put pressure on the churn. Our level of gross adds is the same. It's a little bit higher than what we had in the second quarter. So that means we're improving and having more capacity of bringing gross adds. We're not against any increase in rates that we that we have at the beginning. And in some of our high penetrated market, we have that increase in short. We expect that's shown to stabilize and decline slightly in the quarters to come. That's our view of what we have. Of course, it is a competitive environment. We've been having that competitive environment for a long time. We have Izzi, we have Total, we have Telmex in our markets. But as we said before, we believe that we'll have the best offer and to continue to provide growth in the markets where we are. Operator: The next question comes from Milenna Okamura from Goldman Sachs. Milenna Okamura: The first one is you mentioned in your early remarks, some commercial adjustments that drove your ARPU increase. So can you give us a little bit more detail about these initiatives, aside from the price you have implemented? And how do you expect margins to evolve going forward as you continue to increase your fiber penetration in new areas? Raymundo Pendones: Yes. Thank you for the question, Milenna. Regarding the ARPU, we continue to provide a slight increase in the ARPU that we have there. And that's a combination of several factors. One is the increase in rates that we have on that part. The other one is the increase in apps and services per unique subscribers that we also are successful in that part. And that's coupled with the increase of subscribers bring a lower ARPU because of the promotions that we have. So all that combination doesn't allow us to increase more the ARPU, but we believe that we can continue to have a slight trend increasing going forward. Now in terms of the markets, we still have room to grow, we are at around 81% Broadband penetration in our markets, and we really believe that we can raise to around 90% -- to below 90% in the years to come. So all the companies will continue to grow in that part. The thing is that who has the better offer price and margins to take part of that growth in the market. So far, we have growth in expansion. That means we're capturing market from competition. And of course, some of them also will be new market subscribers. And we're capturing subscribers, also 1/3 of our subscribers come from organic systems. That means we're growing above market growth because of that offer that we have because we convert and we have all our subscribers, 83% of our base, the majority of those organic subscribers already has access to fiber, brand-new CPEs, better quality of the video that we have there and better offer. So that's what we see that we will continue to grow in the markets to come. You can expect 2026 and 2027 to continue to provide for Megacable growth between 100,000 to 150,000 subscribers per quarter. Operator: The next question comes from Phani Kumar from HSBC. Phani Kumar Kanumuri: So the first one is regarding the comment that you made earlier, saying that if you exclude the special projects, your CapEx margin is in mid-teens. So I wanted to understand like what are you excluding from this? Is it just the expansion project and the migration products that you have? The second question is how was this CapEx, the maintenance CapEx, let's say, 3 years ago, has it come down from like 20% to mid-teens? Or is it -- how is the trend evolving? And what is driving that trend? Raymundo Pendones: I'm sorry, this was [indiscernible], it was productized in my opinion. Luis Zetter Zermeno: Phani -- a little bit. Can you rephrase the first question, please? Phani Kumar Kanumuri: The first question is, you said that you are excluding some special projects. So what are the special projects that you have? Is it just a recognition or does it also include the customer premise equipment? Luis Zetter Zermeno: So what we consider special projects are both the expansion and the GPON evolution CapEx projects per se. There are other small investments that come along with that -- those strategies. But basically, those are the 2 special projects that we mentioned. Raymundo Pendones: The expansion project like Luis was saying, we announced that at the end of 2021, we start getting subscriber at the mid of 2022. We're very happy that we already doubled the infrastructure of the company, getting more than 9 million home pass in addition, put us in a very similar position to that of the competition as a strength company and growing subscribers on that. We are very well in terms of how we're increasing those subscribers, and that's reflect on the growth of revenue. And that means that in the future, we will slow down kilometers and homes to be activated in the expansion territories and that's for sure. The other project that we have, which is the GPON Evolution we call it, that's evolving from HFC to GPON to fiber, all our existing territories. We're very successful also. As I said, totally, we already have 83% of the company is already on fiber. So for the years to come, the evolution from HFC to fiber, it will be smaller. So what Luis is saying, our 2 main projects -- special projects are decreasing in CapEx intensity expenditures, okay? This company will never stop investing in CapEx, that's for sure because we're a technology company. But the levels that we expect after we finish those special projects and that's around 2028 will be levels between the 15% to 28% CapEx over revenue. Enrique Robles: But in the meantime, it will be declining from the current 25%, 26% to the lower very low 20s, and we will get to below 20s when we finish -- when we finish those 2 special products. Luis Zetter Zermeno: And to your second question, the maintenance CapEx has reduced, yes, because it's easier or cheaper to maintain network on the GPON side of the house compared to the HFC previous network. Phani Kumar Kanumuri: Is there any quantity measure? Is there any quantification of what's the decrease that happened, let's say, over the last 3 years? Luis Zetter Zermeno: Well, it was a little bit above 20%, and now it's on the high teens or mid-teens. So that's basically on the maintenance CapEx. Operator: Next question comes from Andres Coello from Scotiabank. Andres Coello: Two quick questions, please. The first one is on the competitive environment. I think Televisa just confirmed that they will invest $600 million this year. I think that's 20% more than what you are planning to invest, around $500 million. So I'm wondering if you are noticing any change in behavior from Televisa, if you think that Televisa can become a little bit more defensive in the territories that you just entered. That's my first question. And whether this can, in any way, affect your CapEx guidance to have Televisa investing more than you. And my second question is on the recent natural events in Veracruz and other states. I'm just wondering if there was -- if you're expecting any nonrecurring impact in the fourth quarter, perhaps in terms of revenues and also in terms of infrastructure. Raymundo Pendones: Yes, Andres, thank you for the questions. Regarding the competitive environment, Televisa is investing more than us because we already invest what we have to invest. We have been investing in fiber before they did hit on that part. We have a good offer, a good product and good price and we don't see why we are going to slow down our CapEx and our growth in subscriber. Regarding Veracruz, we were affected and hit in some of our markets. One of those markets being Costa Rica. We already have all the system back and working and on and working with our subscribers. And what we can say is that we're working in a normal condition. Operator: The next question comes from the line of Emilio Fuentes from [ GBM ]. Emilio Fuentes: I was wondering if you could give us some outlook on how your dividend will evolve going forward, especially given how you've been able to pay around 20% of your EBITDA. Now that you -- the company will go into a less intensive investment phase and the more cash generating phase, should we expect this to go up? Enrique Robles: Well, we haven't made any decisions yet. Obviously, it will depend on the future, how we see the industry and opportunities going forward, but if we do not have anything better to put our money in. Obviously, we could always raise our dividends. We don't see why not, but it's too early to call that. Operator: The next questions come from Ernesto Gonzalez from Morgan Stanley. Ernesto Gonzalez: Look, I know it's early to discuss 2026. But given the high levels of penetration in the Broadband market in Mexico, is it reasonable to assume that you can maintain the current level of growth for next year? And the second question is, can you also discuss the main drivers of why your subscribers churn? Is it because they get better prices elsewhere because they're looking for a better network or any general commentary in churn is appreciated. Raymundo Pendones: Thank you, Ernesto. Yes, as we mentioned, we don't see why we should slow our growth. We forecast the same growth that we have between 100 to 150 per quarter. That's what we're looking for 2026. And that's based in the offer and also because the market at 81% penetration still have room to grow on that part. Regarding the churn, what we see is that a slight amount of our churn goes to competition. But as I said, this slide, what we see is that every churn that we have is economically, that's the main reason that they can afford to pay. And as I said at the beginning of the third quarter, we had an increase in rates that put pressure on the churn. That's the reason of the increase in churn. Operator: The next question comes from Lucca Brendim from Bank of America. Lucca Brendim: I have only one here from my side. Can you give us an outlook on the corporate segment. It has slowed down this year, but how can you -- we think about it going forward, especially for 2026, 2027, how much do you think that this segment can grow. Raymundo Pendones: Yes, it's a good question. Look, as I said, the corporate segment has a slowdown, it's a soft result that -- what we have. And that's due to -- 2 main factors. One is the market. The market has decreased the price of fiber and the price of connectivity. And the other one is that we changed the way that we sell our infrastructure product before we used to sell a lot of that infrastructure on a cash basis. And now we changed that into more products that has serviced over a long period of time, bringing a more recurring into the future, more profitable instead of just selling hardware in that part that we don't like that part. So we make a shift in the strategy of the corporate segment that affect us slightly in the short term, but that sure will bring better results in the future. Something that I want to say is that the corporate -- even for the corporate segment has a 5% decline year-over-year. We did not see a decline in the EBITDA of that segment. That means we have a much more better margin with our strategy, recoveries of the decrease in the revenue that we have. So that's part of our strategy. We are very happy of that part. We integrate our 3 companies into MCM business, Tech-Co and that shift is sure it's going to pay off in 2026. Operator: The next question comes from Alex Azar from GBM. Alejandro Azar Wabi: I just wanted to pick your brains on what's next. Several questions from my colleagues being on capital allocation, fully penetrated market. So what's on your mind when you see Mexico fully penetrated in terms of cable perhaps '27, '28. How should we think about Megacable in the next 5, 10 years? Are you guys going to grow more aggressively in -- as an MVNO or perhaps the corporate networks. Just wanted to understand how you're viewing the company very long term. Enrique Robles: Thank you, Alex. Obviously, in the telecom industry, there is very many opportunities in the future, like as you mentioned, mobile with MVNO. In the corporate market, we have a great, great opportunity. In the digitalization of the country, obviously, also in education and telemedicine and all that and with the AI accelerating, growing -- the growth of the AI and all the applications that will come with that. Obviously, there is a big -- very big opportunities in the future for the telecom industry to sell -- to upsell services and applications for the Mexican homes and for the business community. Also in the education and medicine industries and services are really big -- it's going to open very big opportunities. We still have a lot to do in digitalization, and this government is putting a big emphasis in that. We have to digitalize the country banking and everything. I think that the market is there. Obviously, it will decelerate in some segments like the connectivity of homes, but we will get to saturation point at times -- some certain time, but there are a lot more things to do. And also, we -- I mean we don't know what new things are coming with AI and the new technologies. For sure, we will find something to do. Raymundo Pendones: That's the remark. At the end, this is a MXN 64 million question, what are you going to do? We're really, really, really focused, Alex, in what we announced at the end of 2021 in that part, those main 2 projects as we like to say, the GPON evolution that brings us that strength in the network and in the product for the future to come and expanding and being effective in both. That's where we're focused on the management right now on that part. But for sure, we're not going to stay on that part. CapEx will decrease. Free cash flow will increase. Revenues will continue to come. EBITDA will continue to come. And the same question that you have, it will be good to know in a year or 2, what we are going to do. But for sure, we're going to continue to be part as Enrique said, on a market that will continue to move from connectivity to IT solutions and value-added services, both in the corporate segment and the residential and maybe other technologies, too. Luis Zetter Zermeno: And we will have the balance sheet to support any endeavor that we will be searching. Raymundo Pendones: We won't be steady, that's for sure. Alejandro Azar Wabi: If I may add, if I may have a follow-up, and thank you for the color. But the market has been really hot in terms of AI, data centers. If I'm not mistaken, you have some data centers. So how are you thinking on these assets? Are you seeing them as core assets? Or would you be thinking of divesting like Axtel bid that under different circumstances. But how are you seeing your data centers? Are you -- are those core assets or you can divest them? Or how you think on those? Enrique Robles: Well, the data center is an asset that would be able to test the waters there. I think that's going to be really big players in that specialized in data centers. Ours is a very good asset that we have. But I don't think we will be growing in those kind of data centers. We will be more focused in edge data set. We already have built over 300 of those all across the country. Raymundo Pendones: And also, like Enrique telling you and your straight question, it is not core. What we have on those both in our main data centers, centralized data center and the edge, we have Megacable infrastructure. Those facilities are built mainly as an anchor for Megacable and an office space and kilowatts for other people to be here. We don't have the mind in investment in fixed data center assets. We want to have a solid core network, both in the long haul and the last mile, the best fiber company in terms of products and services and put applications on top of that. The other ones, the main anchor for the data center is Megacable. It has a great asset for somebody else in the future because it's located in the western part of Mexico. There is no other asset like that in this area. The hyperscalers and the content and the streamers will have to come after going to Greater Mexico, will have to come to different parts of Mexico, one of those being Guadalajara, and that's where we have it. And that's the mind that we have for that part. Our infrastructure is for Megacable use. We don't know whether to maximize that in the future. We will explore that when we finish having our mind in bringing the growth of subscribers increase in margin, the decrease in EBIT -- in CapEx and all the KPIs that we're telling you we're focused on that point. Operator: We have one question through the chat is coming from [ Patrick Brook ] from DS Advisers. There have been reports that AT&T is looking to sell its mobile business in Mexico. Is that something Megacable will be interested and consider buying? Enrique Robles: Not currently, we are pretty much focused in our main projects, which is finishing our expansion plan. And we don't want to go into -- I mean, we're going into a cash positive cycle, and we don't want to reverse that, not currently. We are focused in our main projects. Thank you very much. Operator: Okay. That was the last question. With no questions in the queue. This session is concluded. I pass the call over to Mr. Enrique Yamuni for final remarks. Enrique Robles: Okay. Thank you very much, Saul. As always, it is a pleasure to discuss our results with you. Please contact our Investor Relations department if you have any questions or concerns regarding the company. Have a very wonderful day and a great weekend. Luis Zetter Zermeno: Thank you, everybody.
Operator: Welcome to Metropolitan Commercial Bank's Third Quarter 2025 Earnings Call. Hosting the call today from Metropolitan Commercial Bank are Mark DeFazio, President and Chief Executive Officer; and Dan Dougherty, Executive Vice President and Chief Financial Officer. Today's call is being recorded. [Operator Instructions] During today's presentation, reference will be made to the company's earnings release and investor presentation, copies of which are available at mcbankny.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to the company's notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release and investor presentation. It is now my pleasure to turn the floor over to Mark DeFazio, President and Chief Executive Officer. You may begin. Mark DeFazio: Thank you. Good morning, and thank you all for joining our third quarter earnings call. In aggregate, MCB's results this quarter reflect how our strategic position fuels our performance, highlighted by strong balance sheet growth funded by core deposits. Importantly, our continued growth strategy is underpinned by our unwavering commitment to risk management in all of its forms. In the third quarter, loan growth was approximately $170 million or 2.6%. Year-to-date, we have grown the loan book by approximately $750 million or more than 12%. Total loan originations year-to-date were $1.4 billion. As well, core deposits were up approximately $280 million or 4.1% in the quarter. Year-to-date, we have grown deposits by over $1 billion or 18% and that's without the acquisition of any teams. Our strategic funding initiatives include the maintenance and development of existing deposit verticals as well as the identification and pursuit of new verticals. In addition, we are moving forward with new branch openings in strategic markets well known to MCB in Lakewood, New Jersey, Miami and West Palm Beach, Florida. The third quarter marked our eighth consecutive quarter of margin expansion. The net interest margin increased 5 basis points to 3.88%, up from 3.83% in the prior quarter. Our financial highlights of the third quarter include Board approved $50 million share repurchase program and the payment of our first common stock dividend. These actions reflect our unwavering commitment to provide our shareholders with a meaningful return of their investment. We will utilize these capital management tools with a level of discipline that is appropriate and necessary for a growth company such as us. We continue to move forward with our new franchise-wide technology stack. We anticipate full integration to be completed by the end of the first quarter. We are confident that these new technologies will support and scale with MCB's diversified and growing commercial bank for years to come. I am equally excited about the launch of MCB's AI strategy. The hiring of MCB's first AI Director last quarter was a great start. We will approach AI reasonably and we will align ourselves with the regulatory expectations and will identify and prioritize use cases that advance MCB's franchise value overall. Our asset quality remains very strong with no broad-based negative trends identified in any loan segment, geography or sector impacting our portfolio. We actively engage with our customers to gather insights on current and expected market stress. The feedback to date has not indicated any specific areas of concern. Importantly, our thorough analysis of the Medicaid and Medicare features of the recently passed "One Big Beautiful Bill," indicates that the proposed cutbacks will not affect our borrowers in any material way. Our third quarter provision expense was $23.9 million, $18.7 million of that provision is related to 3 out-of-state multifamily loans extended to a single borrower group in 2021 and '22. The specific reserve is a clear outlier considering that over 26-year operating history, we have experienced minimum actual credit losses. I will discuss the ongoing workout during Q&A. The balance of the provision of $5.2 million was driven by adverse movements in the forecasted macroeconomic factors underpinning our CECL model and, of course, the loan growth. As we look to the future, deposit -- despite recent market volatility, favorable tailwinds for banking industry are building, and we are well positioned to benefit from them. Loan growth remains solid, and we are diligently managing the expanding our deposit funding opportunities. We remain committed to managing asset quality and optimizing profitability while further solidifying our presence in New York and complementary markets. Our focus for 2025 and beyond is to capture additional market share through traditional channels and strategically position ourselves to seize opportunities that enhance shareholder value. At this time, I would like to extend my gratitude to all of our employees and the Board of Directors for their dedication and hard work, which drive our continued success. Lastly, I want to thank our clients for their engagement, loyalty and continued support. I will now turn over the call to our CFO, Dan Dougherty. Daniel Dougherty: Thanks, Mark. Good morning, everyone. MCB's strong performance in 2025 continued in the third quarter. I'll begin with a few comments on the balance sheet. As Mark said, we grew the loan book by approximately $170 million or 2.6% in the quarter. Year-to-date, we're up more than 12%. Importantly, our underwriting standards and loan pricing parameters have not all been altered to achieve our growth results and goals. Total originations and draws of approximately $583 million ready weighted average coupon net of fees of 7.27% in the quarter. The new volume origination mix was about 70% fixed and 30% float, which is in line with our current modeling assumptions. While the coupon delta between new volume originations and back book maturities has narrowed, it is noteworthy that we still have more than $1 billion of upcoming loan maturities with a WACC of about 4.65%, including $365 million that will run off -- roll off by the end of 2026. Our loan pipelines remain strong. We project between $100 million and $200 million of additional loan growth for the remainder of the year and our first quarter '26 pipeline is shaping up to deliver continued robust growth. Recent headlines have reached concerned about nondepository financial institution lending. Our NBFI book totals to about $350 million or about 5% of the loan portfolio. Our channel checks on this portfolio have not identified any credit issues or stress in the portfolio. All credits within that portfolio are currently rated pass. In the third quarter, we grew deposits by about $280 million or approximately 4%. Clearly, the depth and diversity of our deposit funding model is the strength of MCB. Quarter-over-quarter, the cost of interest-bearing deposits declined by 9 basis points. As you all know, late in the third quarter, the FOMC did reduce the target Fed funds rate by 25 basis points from 4.5% to 4.25%. As our balance sheet remains modestly liability sensitive and about 1/3 of our indexed deposits reprice on the first business day of the month following a rate change, the benefits of the mid-September reduction in short-term rates will become much more apparent in the fourth quarter. We have $1 billion of hedged indexed deposits, which display positive carry down to a Fed funds effective rate of approximately 3.5%. In our forecast model, we're using a generic funding rate of the Fed funds target rate minus 50 to 75 basis points. We repriced approximately 80% of our unhedged interest-bearing deposits by a full 25 basis points after the Fed rate move. As Mark mentioned, our net interest margin in the quarter was 3.88%, up 5 basis points from the prior quarter. For the fourth quarter, we expect modest further expansion of the NIM due to a decline in cost of funds supported by expected further monetary policy easing and continued repricing of the loan book. As well, supported by our continued deposit growth, the average balance of relatively expensive wholesale funding declined by about $275 million in the third quarter. Based on current trends, I expect that the fourth quarter NIM will be between 3.90% and 3.95% and that our annual NIM this year will be north of 3.80%. That forecast includes only 125 basis fourth quarter rate cut in December. As a reminder, each 25 basis point cut in the Fed funds target rate will, all else being equal, drive about 5 basis points of NIM expansion annually. Now let's move on to some high-level comments on our income statement. I'd like to start by emphasizing the continued earnings strength and momentum of the franchise. For the third quarter, net interest income was $77.3 million, up 5% on a linked-quarter basis and up more than 18% versus the same quarter last year. Diluted EPS for the third quarter reported at $0.67. On a normalized basis, adjusting primarily for the Q3 specific provisioning, I estimate diluted EPS would have been closer -- would have been approximately $1.95. And that estimate does not include the reversal of $675,000 or about $0.04 per share of interest income related to the new nonperforming loans. Our linked quarter noninterest income was $2.5 million. That's essentially unchanged from the prior period. Noninterest expense was approximately $45.8 million, up $2.7 million versus the prior quarter. The major movements in operating expenses quarter-over-quarter were as follows, an increase of about $1.4 million in comp and benefits, primarily related to growth in headcount, a $1.6 million increase in technology costs, the primary driver of this increase was a $900,000 increase related to the digital transformation project. In the aggregate, for the third quarter, digital project costs were about $2.5 million. Another OpEx item was an $890,000 increase in licensing. That's due primarily to increases in a deposit vertical that leverages third-party software. And then finally, we had a $1 million decline in the FDIC assessment. On a go-forward basis, the quarterly run rate for the FDIC assessment should begin at about $1.5 million per quarter. And of course, this expense will scale with risk-weighted asset growth through time. Fourth quarter operating expenses are expected to be approximately $46 million inclusive of $3 million in onetime digital project costs. Finally, the effective tax rate for the quarter was approximately 30% and as a housekeeping note, detailed guidance for next year will be provided after we report fourth quarter earnings in January. I'll now turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Gregory Zingone with Piper Sandler. Gregory Zingone: I'm stepping in from Mark this morning. Could we start -- if you can give some additional details on that one CRE multi-family relationship, metrics like debt service coverage, LTV, size and geography would be appreciated. Mark DeFazio: The geographies are Champagne, Illinois and a city in Ohio. These are basically vacant buildings that were going to be renovated and then stabilized. It's a complicated story around the situation of why they didn't finish -- why the renovations didn't get done and why the properties didn't get stabilized. But we're at a point now where we are working through a restructuring with the client and cautiously optimistic that a material part of this specific reserve will be reversed in either the fourth quarter or the first quarter of next year. Gregory Zingone: Awesome. Thanks. If there's any more detail you could provide on the $5.2 million provisioning. I know you said it was forecasting related to the CECL model. But is there any more detail you could share with us? Daniel Dougherty: That's really just a feature of the CECL process, Greg. We rely on a third-party vendor to provide the reasonable and supportable forecast for macroeconomic variables, Moody's who we use. And as it turns out, Mark Zandi's forecast was a little negative on the CRE price index and his -- the model -- our model is highly levered to that index. And so it's not aligned generally with our specific concerns, but those macroeconomic variables as forecasted by Moody's drive the result. So $5.2 million, probably $3.5 million of that is related to the macroeconomic variable forecast deterioration and then the other part is growth. Gregory Zingone: And one more question for me. What's the bank's policy and insider selling prior to earnings releases? Mark DeFazio: Well, obviously, when you're in a blackout period, it goes without saying you can't sell and the comment that you guys made last night in your flash note, you would have noticed that the insider training from offices are under a 10b-1-5 (sic) [10b5-1] agreement. So they've been in place for some time. So nobody does insider trading here and nobody would violate a blackout period. Daniel Dougherty: Let me further that. You may have noticed that we shifted our reporting date by a week. So the 10b5-1 plans are set up to trade on the 20th. And that's -- we shifted our reporting date for a couple of reasons. One was the Columbus Day holiday, but the bigger reason was that my financial reporting team is very much involved in the ongoing digital project and our loan servicing system dress rehearsal was last weekend. So they've been putting in a tremendous amount of work to support that process. And as such, we thought it was a reasonable to shift our reporting date by a week. And that's why the trade date was before the earnings release. But again, all insiders that are selling stock are subject to 10b5-1 plans or blackout periods as required by the SEC. Operator: Our next question comes from Feddie Strickland with Hovde. Feddie Strickland: It's great to hear when I see a recovery on that new NTA. I was just wondering if you could provide a little more color on how many other CRE loans or kind of what percentage of the book is out of market today? Daniel Dougherty: We're going to have to dig for that one, Feddie... Mark DeFazio: Hold on a second, Feddie. In our investor deck... Daniel Dougherty: I can tell you that we have no other -- beyond what was posted in the third quarter, no other immediate concerns about other CRE, whether in market or out of market at this juncture. We're just trying to dig out that number. Feddie Strickland: Actually, I think I found it. Mark DeFazio: Yes. Feddie, Page 14 of the investor deck, you have -- you'll see a whole slide there. So 19% is in Manhattan. And -- so if you look at a couple of the other borrows, so a good percentage of the portfolio is outside of the New York -- the Greater New York City area. If you go to Page 14 of the Investor deck. Feddie Strickland: And are those relationships kind of just -- it's the same borrowers that you know and work with in New York, but they're just doing some projects in other parts of the country? Mark DeFazio: Generally, that is always the case. We have followed -- there's been emerging markets over the last couple of decades, and we have followed New York owners and operators of not only commercial real estate, but of commercial businesses and in health care, expand their franchises outside of the New York area. Yes, you will never find MCB to show up on Main and Main somewhere and say we can be competitive. So we generally follow very good sponsors and who have the ability to expand outside of their original footprint. Feddie Strickland: Got it. Appreciate that. And just switching gears to deposits. It looks like you had pretty strong growth across pretty much all the verticals aside of retail. As we look forward there, can you talk about where you see the most opportunity? Is it still that kind of EB-5 title and escrow bucket? Or is it elsewhere? Mark DeFazio: I think it's spread fairly evenly. That's how we approach it. And that's one of the value propositions of continuing to be a core-funded institution. We have so many different deposit verticals. We don't have to rely on any one of them to drive 10%, 15% or even 20% balance sheet growth. So we're very fortunate to be able to spread that challenge out throughout all of these categories. And we're working on a number of other opportunities that we'll talk more about in early '26. So we expect all of them to continue to contribute. Feddie Strickland: Got it. And then just on the digital transformation side, I appreciate the color and what your expectations are there. Given that you expect it to wrap up in the first quarter of '26, should we expect a little bit of a ramp in the digital transformation expenses in the first quarter, just given I think you still have about $11 million or so left in the budget. And I think you said there's about $3 million coming next quarter. Daniel Dougherty: Yes. You got that right, $3 million in the fourth quarter, approximately $3 million. And then there will be a bit of a tail in the first quarter, but we're kind of managing through that number right now and have -- we'll have a lot more detail about that when we release the fourth quarter. But to put it to kind of pin in it, it's going to be less than $2 million. It should be, I think, well less than $2 million. Operator: Our next question comes from David Konrad with KBW. David Konrad: Just a follow-up question on the credit here. Maybe I missed this, but what was the size of the credit? I know CRE NPAs went up around $41 million quarter-over-quarter. Is that a good proxy for what this is? Mark DeFazio: There were 3 loans in particular. One was around $8 million, one was around $17 million. And I believe the third one -- the total was around $34 million. Daniel Dougherty: $34 million... David Konrad: Okay. So then, I mean, the allocated reserve is about 55% of that exposure. So pretty healthy provision. Mark DeFazio: Very conservative. David Konrad: Okay. And then maybe -- I mean, you talked about this qualitatively, but just maybe a little more details on trends on criticized and classifieds or past dues just outside of this relationship kind of the asset quality. Daniel Dougherty: Yes. If you kind of strike this particular credit migration, this out-of-state multi-family, we -- there are no other noticeable credit migration movements within our portfolio. Very, very much static quarter-over-quarter. David Konrad: So then it sounds like -- just my last question, it doesn't feel like this credit is going to deter any of your near-term growth strategies or anything? Mark DeFazio: No. And this is an outlier that we'll work through it, but we just felt it was prudent to take this specific reserve. Remember, it's not a charge-off. This is a specific reserve this quarter right. . Daniel Dougherty: No impact on go-forward with -- no impact on go-forward lending. As I mentioned, Q4 is looking good. We're going to grow -- continue to grow right into year-end. And we did a channel -- we've done channel checks in the pipeline and even first quarter next year is shaping up to look very strong as well. Operator: And we do have a follow-up from Feddie Strickland with Hovde. Feddie Strickland: Just one more follow-up, just as we're thinking about -- I appreciate the year-end margin guide. And just looking at your interest rate sensitivity disclosures and the likelihood of multiple cuts next year. I mean, is it feasible that we could see the margin really approach 4% here in 2026. If we get multiple cuts, do you think that, that's something that's possible? Daniel Dougherty: Very much so Feddie. Very much so. Yes. We continue to be liability sensitive slightly, modestly. My forecasting, yes, we here is 4% when I look at that. And I'm a bit less aggressive than the market in the outlook for cuts. But when we model in 1 this quarter and 3 next year, yes, indeed, we can get very close or above 4%. Mark DeFazio: And Feddie, that's the base case. We're working on -- working really hard here to replace GPG. As you know, we exited that business last year. And we're working on other deposit opportunities that will drive lower cost of funds, which we're trying to control margin expansion and not relying on the Fed exclusively. So we're expecting to see some expansion by our own efforts, not just through the Fed. Operator: This concludes the allotted time for questions. I would like to turn the call over to Mark DeFazio for any additional or closing remarks. Mark DeFazio: Just like to say thank you for taking the time out this morning and your continued support of MCB. Thank you. Have a nice day. Operator: This does conclude today's conference call and webcast. A webcast archive of this call can be found at www.mcbankny.com. Please disconnect your line at this time, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Hexagon Q3 Report 2025 Webcast and 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 first speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead, sir. Anders Svensson: Thank you, operator. Good morning, and welcome to our third quarter 2025 earnings presentation. Today, we have an extended session with a bit of a different format. So I will take a moment now in the beginning just to walk you through how it will work. So in a moment, I will start by taking you through the third quarter performance. First, from a group perspective, and then focus on Hexagon core business performance in the third quarter. I will then hand over to Mattias Stenberg, the CEO of our potential spin-off company, Octave, and he will talk about the Octave performance during the quarter. Mattias will then hand over to Norbert Hanke, our interim CFO, who will cover the financials for Hexagon Group in a bit more details. Following this, I will take an additional roughly 20 minutes or so, to discuss my initial thoughts from my first full quarter at Hexagon, including also immediate priorities, with a focus then on -- also here on Hexagon core. And we will then, of course, open up for questions-and-answers. But starting then with our third quarter performance, and I start directly on the highlights. So in the third quarter, we made solid progress in our financial metrics and delivered a great deal of operational progress. Organic growth was 4%, with growth driven strongly by a demand in Autonomous Solutions and also across some of the other customer segments, such as aerospace and defense, electronics, machine control, mining and general manufacturing. Operating margin strengthened quarter-on-quarter, despite that Q3 is normally our seasonally weakest quarter, but it remained below our targeted levels. Across Hexagon Group, we have identified a cost efficiency program, which has been in action now and will begin to benefit margins gradually from the coming quarter here, the fourth quarter and will then have full effect by the end of 2026. Cash conversion in the quarter was good at 77%, considering that Q3 is normally the weakest quarter in the year. And we remained on course to achieve our annualized target of 80% to 90%. We also made some strategic operational moves during the quarter. We have previously announced the sale of our D&E business in Manufacturing Intelligence to Cadence for EUR 2.7 billion. And we made some changes to the executive leadership team ahead of the potential separation of Octave. And this separation is still on track for the first half year of 2026. And I will talk more about these changes in a moment. But first, I will walk you through the announcement where we are addressing our cost issue. So at my first call during the second quarter report, I committed to review the cost base of Hexagon to address the recent challenge in our operating margins. So across Hexagon Group, we have identified EUR 110 million of potential savings with around EUR 74 million being related to Hexagon core and EUR 36 million being related to Octave. And as I said, we expect to see these benefits gradually starting from the fourth quarter this year and then with full effect at the end of next year. The cost to achieve these efficiencies will be around EUR 113 million. In Hexagon core, we also conducted a review of our balance sheet, which we identified a charge of EUR 186 million related to primarily innovation in history and also some other items like inventory and also discontinued products. These charges were also taken during the third quarter. And I'm very confident that these situations will be less likely in the future as I expect our businesses to manage their profit and loss and balance sheet within normal operations, and key steps we are taking here is to give divisions full accountability for financial performance. It will also enable operational and product decisions to be taken closer to customers to ensure a market fit and also that customer needs are met. We're also strengthening our governance for approvals and review systems, and we are implementing a new performance management system to enable swift response. I'll now turn into recent changes to our executive team. So we have announced that David Mills is stepping down as CFO from Hexagon for personal reasons, and he will be replaced on an interim basis by Norbert Hanke until we find a permanent replacement. We didn't want to see David go, but I understand the reasons and he has my full support. But I'm very happy that David has agreed to remain available for us for the next 6 months as a financial adviser and that we also have a very competent and knowledgeable interim replacement here with Norbert. We have also announced that on the separation of Octave, Ben Maslen and Tony Zana will transition to the Octave leadership team, where Ben will be the CFO, and Tony will be Chief Legal Officer and Corporate Secretary. Ben and Tony has been key members to the Hexagon executive team for many years and still are. And while I'm sorry to see them go, I'm also delighted to see them progress into these new roles with Octave. And I have no doubt that they will be instrumental in driving value for Octave and embrace the future that this company is going into as an independent listed company. And I'm pleased to announce that replacing Ben is Andreas Wenzel. Andreas joins us from ABB, where he has held a number of senior roles, including Head of Strategy and M&A. Replacing Tony will be Thomas De Muynck, who joins us from Jones Day where he was the Head of the Brussels practice. Thomas joined us early in this month, and I'm very happy to welcome him on board to the team. Turning now to the next slide. I will talk briefly on the decision to sell our D&E business. In early September, we announced the sale of our D&E business to Cadence for EUR 2.7 billion. The engineering and simulation market has been consolidating rapidly and electronical design and automation suppliers, EDA suppliers, have been increasingly taking a leading role in this consolidation. And we are then consolidating with physical simulation suppliers like our own D&E business, and we have seen this with other companies like Siemens, Altair and Synopsys, Ansys. And this is a trend which is very difficult for Hexagon to follow. It is therefore better that we dedicate our time and attention to our core, which is precision measurement, positioning and autonomy technologies, where we can use our market leadership position to drive best-in-peer group growth and margin levels. And just to make it very clear for everyone, this is not an exit from software at Hexagon. Post the potential separation of Octave and the sale of D&E, Hexagon software and services revenue will still account for above 40% of revenues and 25% recurring revenues, and we expect these amounts to continue to grow also in the future. The funds released by the transaction expected to be in the amount of EUR 1.4 billion will help support us to build and develop our businesses while also maintaining a very robust balance sheet. We expect the transaction to close during the first quarter of 2026. I'm now turning to the next section, and that's the financial performance of Hexagon core in the third quarter. So I'll move directly into that. So Hexagon core, that means excluding Octave business, grew by 5% organic in the third quarter with an adjusted operating margin of 27%. This is a solid financial performance in challenged end market environments. I will now turn into a focus on Manufacturing Intelligence. So MI reported revenues of EUR 445 million, represent a 3% organic growth versus 2024. There was a strength in general manufacturing and electronics, and it was somewhat offset by continued soft demand within automotive. There was growth across all geographies with good demand in the Americas and growth also in EMEA, where automotive weakness was offset by a strong demand in aerospace. China also grew with 3% in the quarter, strength within electronics and general manufacturing, but signs of weakness is also here within automotive. The division reported EUR 112 million EBIT and an operating margin then of 25.1%, and it was impacted by some negative currency effects. In fixed currency, if you compare the margin year-on-year, it was actually better in 2025 than in 2024. So turning now to Geosystems, where we reported revenues of EUR 353 million during the quarter. And I'm happy to say that represented a 1% organic growth compared to last year. And it was really good to see a return to growth after 6 quarters of negative growth. Last time we had a positive growth was the fourth quarter of 2023. So good to see that we are back on positive numbers. We saw continued growth in the software portfolio and associated recurring revenues and a good contribution from our new product iCON trades, which continues to grow very well. This was, however, offset by continued weakness in hardware related to construction and heavy infrastructure, where the market remains very weak, especially in China. The Americas continued to grow, and there was a return to modest growth in EMEA. Asia remained challenged, of course, given the exposure to China heavy manufacturing or heavy infrastructure, particularly in high-speed railway, offsetting the continued good growth that we actually have in India. And here, maybe adding some interesting facts that in average 2022 to 2024, China was building 3,600 kilometers of rail every year. If you compare to the first half year of 2025, they only was building 301 kilometers. So it's almost a drop of 85%. And that is, of course, impacting Geosystems deliveries in China. EBIT declined to EUR 95 million with an operating margin of 26.9%, reflecting the combined effects of low volume in some product segments, the weaker product mix because the product mix going into this heavy infrastructure is a really positive contributor and also then we had negative currency impacts. Finally, I turn into Autonomous Solutions. And I'm happy to say here we have the standout performer in the quarter, delivered revenues of EUR 178 million, representing 19% organic growth compared to the prior year. There was a very strong performance in aerospace and defense. Mining was also growing well and end markets in agriculture actually remain challenging. So here's the problem child within this division currently. But it's market related, and the agriculture is currently in a serious downturn, and we are seeing signs of improvement, but still it's very low compared to where it should be. By geography, growth was strong in the Americas, which represented the majority of the aerospace and defense demand in the quarter. APAC also grew well, supported by demand in the autonomous road trend project within Australia and EMEA declined, but that was on tough comparables. EBIT came in at EUR 65 million, represented an increased EBITDA margin -- EBIT margin to 36.6%, driven by strong volume, positive product mix, but slightly offset by currency. So in summary, a very solid performance within Hexagon core in general. And I will now hand over to Mattias, who will cover the Octave performance. Mattias Stenberg: Yes. Thank you, Anders, and good morning, everyone. We'll start with, I thought, since this is the first time we report like this publicly for Octave, I thought we'd start with a short description on what the business is and what we do. So we are a market-leading provider of enterprise software that ultimately helps customers design, build, operate and protect mission-critical industrial and infrastructure assets. In terms of numbers, we had about EUR 1.5 billion revenue last year. As you can see also from the slide, we have high recurring revenue and high profitability. We have roughly 7,400 employees around the world. And we have a very strong, I would say, A+ list of customers. As you can see, roughly 60% of the global Fortune 500 companies are customers of Octave today. And you can see some of the logos there on the slide, but of course, many, many more. So what could we do if we move to the next slide and talk about our core pillars. I think, first of all, it's important to say what makes us unique is that we connect all of these pillars together into one platform, one natively integrated data platform, right, all the way from design, build, operate and protect. So you will see product names out to the right here on the slide, some of the flagship products, obviously, SmartPlant 3D, EcoSys, EAM, ETQ, et cetera. But the way we go to market is really by selling a platform. We're selling solutions. We're delivering value, not selling individual products. I think an example of that is that you can also see that products like SDx2, which is our data platform, shows up in several of the different pillars here. Design is our biggest area, as you can see from the revenue contribution pie there. Build would be our smallest one, operate our second largest, and that's also been the fastest growing over the last couple of years. But moving into the quarter, how did we do on the next slide. I guess the headline number is that we grew organic growth 1%. And one has to remember first that we come from several years of good growth, right? I think that's one important thing to say. The other thing to say is that our recurring revenue grew 6%. So I feel confident that we're building momentum for the future. We're adding customers, adding seats, et cetera. So the base is growing. And you can see that by our SaaS revenue that grew strong double digits. However, our lease revenue was flattish, which obviously had a, what you say, dampening effect on the recurring revenue compared to the SaaS. To offset this growth, we did have a decline in perpetual licenses. This is a revenue that varies quite a lot by quarter. It depends if you get a big deal in one quarter or the other, the other thing one has to say also is that it is an intentional strategy and has been for quite a while to transition this revenue into subscription revenue. So if you look at the slide there as well, we described that the license revenue is now 13% in this quarter of total revenue. And this is the revenue that we will gradually, over time, transition to SaaS. If you look at the profitability, we did 26% operating margin, which was lower than last year. And I think it's a combination of things. I mean, one, that the perpetual licenses were down that has a high drop-through. Also that we've had some additional investments partly due to making the company ready for being a stand-alone public company and also to integrate the other business units, SIG, ETQ and Bricsys that we have taken on recently. Important to say, however, that this is a temporary downturn in the margin. We are taking cost effects like Anders talked about. And my expectation is that this will put us back on a growing margin trajectory. If we move to the next slide, I wanted to highlight one very important strategic win we had in the quarter. We won a multiyear 8-figure deal. And I guess you could say also there was very high 8 figures, and I see this as proof that our strategy of selling a platform and our relatively new product, SDx2 is delivering value in the market and to customers. It really also sets a precedent, I think, for other owner operators that want to digitalize their assets. And it will clearly also influence and incentivize other players in the ecosystem, such as EPCs, suppliers, contractors to adopt our platform as they see big owner operators adopting it. Okay. On the next slide, I wanted to say a few words about some key initiatives that are going on right now. Like I mentioned, we are transitioning our business to a SaaS model. So you will see more of that going forward. I also mentioned that we are investing in making the company ready to be a stand-alone public company. Also wanted to highlight the strategic disposal that we did earlier this summer of some noncore assets in the HexFed business, which historically sat in the SIG division. It was around EUR 90 million of revenue, and this will strengthen our margin profile and, yes, sharpen focus for us going forward. Like I also mentioned, we are in the midst of integrating these businesses into one. We are making very good progress on that and we'll, yes, soon complete that. We're also, like Anders mentioned, completing the cost saving program, which will, like I mentioned, put us back on a growing margin path. Finally, we are also making improvements to our organizational structure. So if you go to the next slide, I wanted to highlight the management team that we have put together here over the last couple of quarters. I'm not going to read every resume here, but if you -- there was this press release in September where you can read more about this if you're interested. But I would say it's a world-class management team that we put together that we think really will help us scale this business. It's a combination of Hexagon executives like Ben and Tony that Anders mentioned. And then we have some executives from the former ALI division as well as 2 new recruits that I wanted to say a few more words about. So we've hired a Chief Product Officer in Jay Allardyce. He is a recognized leader in the industry across AI and enterprise software. He has had prior leadership roles at HP, GE, Uptake and Google. So I think he will be a great addition to our strategy and product teams. We also have hired Tamara Adams or Tammy, as she goes by, who is a strong CRO with lots of experience in the industry. She has had recent roles at Honeywell, Oracle and most recently as Chief Revenue Officer of a company called Dotmatics, which recently was acquired by Siemens. So in summary, I'm very happy with the team we put together, and I'm sure they will help us scale this going forward. Finally, on the next slide, I wanted to say a few words about the time line and what you can expect there. So we are obviously well aware of that the U.S. government shutdown, which is impacting the SEC and the review process, but we still feel that we are on track to complete the spin-off in the first half of next year. Also, like we mentioned before, Octave will be listed on a U.S. National Securities Exchange with the Swedish depository receipt expected to run for approximately 2 years. And also like we mentioned in the report, we will -- we are planning to hold an Octave Investor Day sometime in the first quarter next year, and we will come back with an exact date when we have it. So thank you very much. And then I'm handing over to Norbert. Norbert Hanke: Yes. Thanks, Mattias. In the following financial update, I will take you through the Q3 performance for the Hexagon group. Turning now to the next slide. Let us begin with the Q3 2025 income statement. Taking the sales bridge first. Revenue were EUR 1.3 billion, generating reported growth of 0%. Currency was a negative minus 4% on sales, and there was a positive plus 1% from structure, resulting in organic growth of 4%. Gross margin were stable at 67%, considering the impacts of FX. We continue to be confident in driving gross margin expansion as we will have positive impacts from new product releases. Operating earnings decreased by 7% to EUR 349 million, corresponding to a margin of 26.8%. I will break this out further in the profit bridge. Interest expenses and financial costs decreased from EUR 44 million to EUR 32 million, given a delta on earnings before tax of minus 5%. Taxes being at 18%, in line with prior years, bringing us down to an EPS of EUR 0.096 also declining by minus 5%. Just for reference, the EBIT1, including PPA includes EUR 27 million of amortization and so dilutes the EBIT1 percentage to 24.7%. Next slide, please. Moving on to the gross margin development. As I mentioned on the previous slide, we saw stability in the gross margin once adjusting for currency. On a rolling 12-month basis, gross margin of 67% is broadly in line with the prior year. Turning now to the profit bridge, please. So during Q3, currency continued to be dilutive, reducing EBIT margin by 30 basis points. The structural element was accretive with solid contribution from acquired companies such as Septentrio and Geomagic as well as by the sales of the dilutive assets in Octave. The organic impact was negative, diluting the margin by 240 basis points. This mainly reflects a cost base that is not yet fully aligned with the current level of demand. To address this, we have started a cost program to rightsize the organization and mitigating this impact going forward. We expect the benefits to contribute or to start to contribute gradually from the fourth quarter of 2025 and beyond. Turning to the next slide, please. Moving on to the Q3 cash flow, which is a strong performance when taking seasonality into account. The adjusted EBITDA variance at minus 2% demonstrates the continued stronger cash leverage versus the EBIT1 variance at minus 7% due to the increase in D&A. The working capital represented a build of EUR 32.4 million in the quarter, an improvement to working capital management last year that results in a 1% increase in the operating cash flow before tax and interest, which leads to a solid cash conversion of 77% versus 70% last year. Interest payments marginally decreased as expected and cash taxes remained at a similar level to Q3 last year. The nonrecurring items cash outflow of EUR 38.8 million versus the prior year of EUR 22.7 million brings an operating cash flow of EUR 139 million, decreasing by minus 3%. Next slide, please. Moving on to the working capital trend. The Q3 net working capital being a build of EUR 32.4 million versus the prior year build of EUR 56.2 million decreased the proportion to rolling 12-month sales to 5.3%, lower than the prior year level of 8.3%, which is still below the 10% threshold we aim to achieve. To conclude, the divisions have continued to mitigate an uncertain environment to deliver growth, solid cash conversion and stable gross margin. Negative currency has been a headwind to EBIT1 margin development, and we are working to address the cost base through the announced cost program. I will now hand back to Anders. Anders Svensson: Thank you, Norbert. And I will then start by summarizing the third quarter. So to conclude, in Q3, we have seen solid development in our financial metrics. Organic growth of 4%, an improvement in margins quarter-on-quarter and a good cash flow considering the usual seasonalities for the third quarter. While improved, our operating margins remain below our expectations and below our targets. And as a result, we then launched an efficiency program aiming to achieve cost savings of EUR 110 million. And this, we expect to have gradual benefits from the fourth quarter this year with full effect the end of 2026. We do not see the immediate market environment that currently is characterized by delays in customer decisions, as Mattias mentioned and also within the Hexagon core businesses, and we don't expect that to change in the near term. So we see a similar environment in the beginning here of the fourth quarter. But we have also released a lot of products in recent quarters, and we see that as we are set up in a good way when the positive environment returns. Operationally, we had a successful quarter. The sale of D&E, as I mentioned, as one of the key highlights and the release of those funds will then further fund growth for both Octave and Hexagon core. And finally, then, the potential separation of Octave remains on track for completion in the first half of 2026. I'll now turn to my first quarter review slides. So in this section, unless I otherwise mentioned or it's otherwise stated in the slides, it would be relating to Hexagon core businesses. And that means then the type of businesses that are left after the potential spin-off of Octave, of course. And this includes then our business areas, Manufacturing Intelligence, Geosystems, Autonomous Solutions and also the Robotics division. So I will take you through my initial thoughts and observations after now almost exactly 3 months being at Hexagon. And I will then talk about actions we are taking to drive performance further and some more details about our upcoming CMD. So I turn into the first slide here. So Hexagon has created superior value for many decades now, at least 2-plus decades, and we have the potential setup to continue to generate superior value creation for decades to come. And today, we are at a very exciting inflection point in our company's history because our industrial customer base, they value precision and quality more than ever as they try to meet the increased quality demands of everything getting more tight, more small and with less tolerances and also the increased sustainability challenges. They're also driving towards full autonomy as a response to the shortage of skilled labor in the world. Our industry-leading technologies regarding sensors, software and AI are allowing us to deliver ever more value-adding products and services to our customers, and we are well placed to seize the opportunity for autonomous operations in many industry verticals going forward. Our new operating model will enable us to take full advantage of our profitable growth opportunities. But first, a little more on the opportunity ahead. So I turn to the next slide. So Hexagon is ideally positioned to enable autonomy in many industry verticals, and we will do this by combining our capabilities and offerings within various fields. We possess market-leading measurement and positioning technologies, combining multiple types of sensors. We utilize these to deliver sophisticated real-time digital twins, including reality like full 3D environments of buildings and cities. And we leverage advanced analysis on [ AI ] to unlock the value of petabytes of data that we generate. The combination of these capabilities position Hexagon to be a clear leader in the emerging field of Autonomous Solutions. Many of our industrial customers have embarked on a journey towards these autonomous operations as they increasingly struggle to find skilled and qualified labor. And hence, they need to move towards so-called lights-out production. And here, of course, our new humanoid robot, AEON, is a prime example of enabling industry autonomy. Measurement and positioning new technologies and industrial autonomy are only going to become more important as industrial customers face these significant challenges. So let's see how our products are helping. So turning to the next slide. Since late 2024, we have launched a number of important product innovations, which combine our most advanced sensor with latest technology on AI and digitalization. All of them also bring significant advances on autonomy. Taking some examples from this page, we have talked previously quite a lot about AEON and iCON trades. And also last quarter, we talked about MAESTRO, our new coordinate measurement machine. So I will focus on the other one here. So in Manufacturing Intelligence, we have the ATS800, which is the first laser tracker ever to merge scanning and reflector tracking into one system. This portable metrology device is automation-ready and uses AI to pinpoint the true center of each measurement, detect features like holes and edges, et cetera, and this is huge to speeding up the process and removing the need for human intervention. And also now in the beginning of October in Geosystems, we just launched the TS20. And that's the first new total station platform in, I would say, 20 years plus. And it's a full hardware and software overhaul it's the first total station with on-device AI, which enables it to recognize and lock into any prism without user input. And this drastically reduces errors, setup time and operator dependency. And this is a direct response from Hexagon to the shortage of skilled surveyors. So combining our skills in measurement and positioning technologies, digital twins and advances in AI to deliver solutions for industrial autonomy is key for Hexagon, and we are in the middle of this journey. So the products you can see here on the page represent profitable growth opportunities ahead. And this potential is, of course, largely not reflected in Q3 financial performance and will also not be very much reflected in Q4. But going forward, these products will play a major role in Hexagon's delivery. So turning to the next slide. So we know that Hexagon historically demonstrated that we can generate strong organic growth with excellent operating margins. And on this slide, I try to demonstrate a bit the relationship between organic growth and profitability during the last 2 years. And we can see here in this recent history that we have 2 trends. One is that the organic growth has been impacted by the macro backdrop, and we can see it's been negative or at best flattish, while the operating margins have been subject to increasing cost levels internally and hence, a dislocation from our top line alignment and -- a top line development, which has been flat. So you can see we have dropped even more when it comes to profit. The recent quarter shows some signs of reversal of this trend. And with our increased cost focus going ahead here, combining this with our new operating model, we intend to generate a delivery model within Hexagon core that supports profitable growth generation. So let's have a look at the steps we have taken, moving then to the next slide. During the third quarter, we have taken 2 really important steps to enable us going forward to perform at our full potential. The first one is our new operating model, which embraces best practices of decentralization, but then applies them to the specific situation of Hexagon. So we have established 17 divisional P&Ls with our externally reported businesses with dedicated management team, and this would improve accountability within these organizations considerably. This would also improve our ability to quickly respond to end market changes and also to customer changes and make us generally faster to take decisions. It also means that product and operational decisions will move closer to customers, ensuring that we take the right decisions related to the different market dynamics and ensuring we don't take decisions centrally where we don't have the input from markets and customers. The second step that we have taken is to realign our operational performance, and that was to do this restructure program that we communicated of EUR 110 million. And this should be understood that this is in addition and completely unrelated to the operating model. If we would have kept the same model as we already had, we would have launched the same program. So it's not related. We already communicated that we are addressing the cost base challenge to respond to the pressures on these margins. And alongside this, we have taken the decision to review the balance sheet as well and in particular, related to historic R&D spend. This would help us to baseline performance so we can measure our divisional leaders properly on performance going forward. This baselining will only happen once, and we expect our divisional leaders to manage their P&Ls and balance sheet going forward as a part of normal operations, with adjustments only being taken for exceptional circumstances going forward. It could be such acquisitions with partly overlapping offerings. It could be a new COVID situation when we need to, as a group, react quickly. And it could be large restructure within the group, like the spin-off of Octave for example. All other items need to be handled within the business of day-to-day operations. Turning now to some more details on R&D, where we have taken the decision to make these impairments. So innovation power is one of Hexagon's greatest skills and assets and is something that we will nurture also going forward. However, in recent years, investments in R&D has spiked, as you can see in the graph there. And that's mainly due to related to somewhat delayed core product developments and cost overruns in some major innovation projects, and we have seen this not only in one division, it's been actually in several divisions where some of our key renewal projects has been fairly late to market. The positive thing is they're coming to market now. And so that's really positive to see with the TS20, et cetera. But this has meant that we have seen significantly increased R&D spend, while at the same time, the benefits of our organic growth and margins have not yet materialized to be seen. Maybe to be added here as well, there are some elements in this spike that related to software acquisitions that in relation has a generally higher R&D spend than our normal businesses. But with these new product launches across '25 and '26, we expect R&D to stabilize on an absolute basis and then to decrease on a ratio versus sales. However, as we reviewed our innovation and product portfolio, it also became clear that in some cases, we have invested into innovation that turned not fully to meet customer requirements or the target end market situation has changed or we have decided to exit a specific offering. This means that there are some product lines that are not performing and will not be able to generate a return. So we have, therefore, taken the decision to impair EUR 186 million in Hexagon core. Most of this then is related to these R&D spends, but there's also some related to inventories. And this will give our businesses the opportunity to reset and move forward from a more comparable basis. So we are also then able to performance manage on actual performance and not on historical effects. As I mentioned earlier, our new operating model will help us to avoid that we face the need to do such impairments again in the future. I move to the next slide. So this is explaining a bit the new management structure. So we will have 17 profit and loss accountable businesses, which are part of -- these are sort of the main part of our operating model. So I will explain a bit how it will work. So Hexagon has always operated with decentralized structure, which has then entailed a lot of freedom for the divisional presidents to run their businesses, and it has kept the corporate cost levels quite low. However, within the former divisions, the organizational structures became quite overly complex sometimes with slow decision-making and not always focused on end customers. So our new operating model establish clear and common management blueprint on a more granular level. And also, we have historically called divisions. They will now be called business areas instead, and they will have divisions reporting into them. So the previous divisions, Manufacturing Intelligence, Geosystems, Autonomous Solutions will now be called business areas. And they will then have the dark boxes, the 17 -- or you can say 16 smaller dark boxes reporting into them. But externally, we will still report on the business area level. And then you have the 17 dark blue box, which is robotics, and that will then continue to report into the CEO. Division leaders and their teams will then have mandate to deliver superior value creation within the businesses. And I move to the next slide to show how those mandates will be set up. So a division can have a mandate of stability, profitability or growth depending on where they are in the current situation. So we refer to these 3 stages as strategic mandates. And that sets the overall direction for the business and how the management and leadership of those divisions should basically think every morning when they wake up. If you are in stability, it does, of course, not mean that you need to restructure or sell parts of your business. You can also transform it organically. And if you are in growth, it doesn't mean that you need to buy everything, you can also grow organically. But we will allocate capital accordingly. So more capital allocated towards where you are in growth and less when you are in profitability and almost nothing when you are in stability. Moving then to the next slide. So a decentralized management structure with full accountable divisions can only create value sustainably if it's combined with a strong governance and a clear performance management system. And here, we are taking a major step forward at Hexagon with the introduction of scorecards. At the core of the scorecard system is a set of standardized financials and nonfinancial KPIs, which are closely tracked for all divisions in a fully consistent way. The scorecard system will significantly improve transparency, accountability and also speed of action taking to steer the division in the right direction and to pull the right levers to change direction or create more value. I then turn into the next slide, and that's the summary. So Hexagon is a strong company with a bright future ahead. Our fundamentals are very good. We are the market leader in precision measurement technologies. We have strong exposure to high-growth end markets and emerging field markets like industrial autonomy. And this places us very well to capture the opportunities presented from several macro trends, including the main one, labor shortages and skill shortages, increasing quality demands and also, of course, sustainability and safety demands. Our innovation and expertise is second to none, and that's reflected in several of the exciting new products that I showcased in an earlier slide. And as we have a clear plan to achieve superior value creation going forward, we are taking immediate actions to address our cost base. And in addition, we're implementing best practice decentralized operating model, establishing these 17 divisions with full accountability. Operational decisions will then be taken faster and innovation will be anchored in markets and close to customer needs. And last, we will manage our division portfolio very closely for performance and value creation, applying proven tools like strategic mandates and the scorecard system. Turning then to the next slide, where we are inviting you all to Hexagon's Capital Markets Day in 2026. And that's on the 30th April. It will be showcased in London. And on this event, we will discuss in much more detail business area strategies, including the divisional mandates that we have identified. And also, we will also discuss then new financial targets for Hexagon core '26 and forward. So we are really looking forward to seeing you all there. And with that, I think that summarizes the presentation, and we will now move into the Q&A section. Operator: [Operator Instructions] And your first question today comes from the line of Johan Eliason from SB1 Markets. Johan Eliason: I was wondering a little bit, I mean, your new setup of the Hexagon core looks excellent to me. One issue that's been high on the agenda over a couple of years has been the way you capitalize R&D and now obviously, you impair a lot of that. Will you change the strategy regarding R&D capitalization going forward? Anders Svensson: So thanks, Johan, for the question. We will not basically change the way we run capitalization is IAS 38. We will make sure, of course, that we are not capitalizing too early of any of the projects. We will manage our portfolio more like an insurance company. If we believe that we take a larger risk in one project, we can't afford to take larger risks in all projects. So we can manage all that within the normal operational structure of the company. So what we are doing is more strengthening around how we do governance when we approve projects to be started, how we review projects during the way to make sure we don't continue to invest in something that we are aware of will be difficult in a go-to-market situation. So the answer to your question is we will not change the methodology of capitalization and by then restating all our history or something like that. So we will keep the current way of operating, but we will operate more carefully and more controlled and with a tighter governance. Johan Eliason: Excellent. And then secondly, you will have a very strong balance sheet after the D&E divestment next year. How are you thinking about the balance sheet of the spin-off Octave? Is that a business that should be run on a net cash position? Or how should we think about how to split the balance sheet going forward? Anders Svensson: Yes. So this is a decision that the Board will take at the right stage in the process on how we divide the assets, net debts and the firepower within the company generated from the D&E sale. So that's a question we would need to come back to you on. Johan Eliason: Okay. I guess that's topics on the Capital Markets Day. Then just finally, a short question also for Mattias here. In Octave, you talked about lease revenue stable. I'm not sure I understand what lease revenues are. You have subscription license and services in your pie charts. How does this corroborate to each other? Mattias Stenberg: Yes. Yes, good question. And first of all, I should say we will break all of this down for you in more detail at the Investor Day, right, since we are in a public filing process, and we're still a division of Hexagon. There's -- we're not going to give all of the details today. But basically, leases are -- it's also subscription revenue, but it's month-to-month leases, right, of seats. So think of it, it fluctuates more than the SaaS revenue, right? So that's why it's, yes, more, I guess, short-term volatile than the SaaS, if that helps you. Operator: And your next question comes from the line of Erik Golrang from SEB. Erik Pettersson-Golrang: I have a couple of questions. So we'll start with Geosystems and China, which was weaker. And you talked about the development on the high-speed rail side in China. So given you have some peers in China growing much faster, is that basically an end market split dynamic that means Geosystems is growing so much lower? Anders Svensson: Sorry, we had a little bit of a problem here with the sound in the beginning of the question. Would you mind to repeat it? Erik Pettersson-Golrang: Sure. So on Geosystems development in China and your commentary there that a lot of the weakness is related to your exposure towards high-speed rail and that development. And so your take is basically that it's an end market split that means that you are growing slower than particularly some of the local peers in China. Anders Svensson: Yes, I would say the end market exposure that we have in China is related to where very high precision is required and not in the general sort of market for our competitors. So we are in the top-tier segment within China. And the top-tier segment is not required everywhere, of course. It's required when you have sort of high-speed railway manufacturing and other very large infrastructure projects. So our exposure to that sector within construction is much higher than our competition. So when something happens to that specific part of the market, we get hit very hard. And that's exactly what happened if you compare that to local competitors. Erik Pettersson-Golrang: Okay. And then as a follow-up on that, any -- there was never a plan to do with Geosystems similar to with -- as you do with MI now, making China a separate unit within to make it operate a bit more autonomously given developments in China? Anders Svensson: The question is good. And -- but that option is actually not available because the reason why we can do that in MI is that we have been very good in history on localizing our products and our innovation also is localized. So within MI, we have a good, better and best offering. Best is basically the offering that we use globally and the good and better offering is the offering we use within China for China. And it's fully manufactured, developed, et cetera, within China. If you look at Geosystems, basically, very little is localized in terms of supply chains, innovation, et cetera, to China. So it's mainly a global offering that we have. So a lot of the products are imported to China. And this is the reason also, of course, why we are only present in Geosystems in the top-tier segment and not in the general segment in the market. So completely different situations within those 2 businesses. So it wouldn't make any sense to do that within Geosystems. Erik Pettersson-Golrang: Okay. Then for Mattias on Octave, just if you can give some more perspective on the low growth rate. I get that you say that growth has been high for a few years, but I guess that depends a bit on the starting point you use and you certainly have some peers that are growing quite a bit faster. So what -- I mean, what kind of growth rate would you like to get out of Octave in the midterm? Mattias Stenberg: Yes. I mean I'm not going to give a forecast today, as you can imagine, since we are doing the Investor Day in Q1. But fair to say is that it needs to be higher the growth, and it needs to be higher the margin. And I feel confident when I see recurring revenue growing a lot faster than the headline number, the reported revenue. So yes, I mean, I think that's -- I'll stop there, I think, and then we'll discuss more in Q1. Erik Pettersson-Golrang: Okay. Then just one quick at the end. You mentioned for Hexagon core and the peer-leading profit margins. What peers will you compare with? Anders Svensson: We have different peers in the different businesses, of course. So if you look at first, maybe you start with AS, you have peers like Sandvik, Epiroc, Metso, et cetera, right? And if you look at MI, you have ZEISS, Siemens, to some extent, Sandvik as well. You look at Geosystems, you have Trimble, FARO, NavVis, Topcon, do you want to add any? Mattias Stenberg: No, I think that's Renishaw. You mentioned already. Anders Svensson: Renishaw, yes. Mattias Stenberg: That's all, good. Operator: And the question comes from Sven Merkt from Barclays. Sven Merkt: Maybe first, following the R&D impairment, how should we think about R&D capitalization going forward? It looks like you're on track to capitalize around EUR 500 million this year and amortize EUR 300 million. So this gives you a net benefit of EUR 200 million. Where is that heading going forward? Norbert Hanke: Yes, it's Norbert here. From our point of view, as we are managing now the cost -- the R&D costs, and you have heard as well going forward on this, that we are very selective, right, in the sense and we will be very focused. It will be going down in the sense that overall, I think from our point of view, it will slowly decrease the gap from our point of view. Anders Svensson: Yes. And maybe adding here, so let there be no mistake, we are not doing the write-down of the balance sheet to improve the results. And actually, if you would compare going forward with the new products being released and the impairments we are doing on the balance sheet, it's basically a wash from the performance and the gap within the third quarter this year. So there will be no sort of big benefit in our reported results from this impairment. What this impairment does is to set up the new management of divisions and business areas on a right level so we can actually performance manage them on their operational performance and not performance manage them on historical mistakes that we have on the balance sheet that are not generating a return. So this is the reason why we do this. And that enables us then us and the Board to make sure that we take portfolio decisions that are based on facts and not skewed by historical balance sheet issues. That's the reason. Sven Merkt: Okay. Got it. And of the capitalized R&D that you have on the balance sheet at the moment, how much is sitting within Hexagon core versus Octave? Mattias Stenberg: We will not give any, say, further information on that, honestly. We'll do it when we have the spin. You will see it then. Anders Svensson: Yes, you will see it clearly when you have this potential spin executed. Sven Merkt: Okay. Fair enough. And final question, just on the cost savings. How much of that should we expect to really flow through profit and how much you might reinvest elsewhere? Anders Svensson: So what you see on the EUR 110 million of savings that we have communicated, that is what we expect flowing to the bottom line at the end of 2026. So that is net. That is not gross. But you -- I want to add one thing. You should not calculate a big effect in Q4. That is important to understand because this is a process that will take time before you will see the effect. And you will see gradual effect starting in Q4 this year, but then it will ramp up during '26 and give the full benefit at the end of the year. Operator: We will now take our next question. And your next question comes from the line of Johannes Schaller from Deutsche Bank. Johannes Schaller: Three, if I could. I mean, firstly, on the impairments. You said there are certain kind of areas, products, initiatives that are now discontinued or maybe where you didn't have the success you wanted to see. Could you give us a little bit more detail on what that is and which kind of areas are not part of the strategy and the growth profile of Hexagon anymore? And should we expect that this is it now in terms of impairments, maybe for the next 1 or 2 years? Or is that more an ongoing process where maybe in 6 months' time, you also find other areas? That would be my first question. The second was just coming back to China. I know you don't guide, but could you give us a bit of a sense kind of when you would expect that region to be back to growth? And then lastly, just on the Cadence stake that you got as part of that sale, what's the strategy here and the plan with that stake? Anders Svensson: Okay. I counted at least the 4 questions, but... Johannes Schaller: Apologies, you're right. Anders Svensson: No worries. No worries. So starting with the impairment, I will give you a couple of examples where we mean -- what I mean there. It could be related to market changes. We have, for example, one project that we have developed for autonomous driving mass production. And this, as you know, has been quite delayed coming to market all over the world, basically -- maybe except China, where it has come to market a bit at least. So when the main producer of cars then decides to cancel the platform, we have nowhere to allocate this to get any revenues for this. So this is something we need to write off, right? So that's market change. Then you have misalignment to customer needs. And this is also related to ourselves, but customer needs can also change over time, right? It could be, for example, we have developed a product and the expectation of operations from customer is 4 hours, and we can operate for 20 minutes. We don't fulfill the sort of sound levels that are required by the customer, et cetera, which means that we basically can't offload this product even if we would discount it 90% because nobody would buy it. So this is something we need to write off. It's useless, won't generate any revenue for us. And then you have the third area then, and that is when we decide as we now restructure our company given the potential spin-off of Octave, and we are refocusing Hexagon core. We then have areas that we believe are not suitable for us to continue to invest in and continue to take a part of, and they're not contributing positively, either in growth or in profitability. And we have then decided to exit those areas and those products, and then we need to write those off. I will, for competitive reasons, of course, not mention exactly which products these are in this call. And then if we go into -- will this be an ongoing thing? And I think I answered that question during my presentation, I hope, at least twice, but I'm happy to do it again. So my expectation is that our divisions and business areas need going forward to manage this in their operational normal day-to-day business and the operational profit and loss and balance sheet performance, and they will be monitored closely to make sure that we achieve this. The decisions in those divisions will then be taken closer to customers, so we are sure that we are aligned to market needs, customer needs, market changes all the time. We will have a stronger governance also before we start projects and also during projects to ensure that we stop projects early on when we notice that they are no longer aligned with market or customer expectations. And we will have a new performance management system to enable swift response when we see that some of the KPIs that we follow are getting off track. So this is not that some will come back on a regular basis. And I hope we won't do this at all going forward, unless we have one of those big things that I mentioned could be a potential spin-off like Octave. That will, of course, make us do some things in terms of realignment structure, et cetera. It could be that we, as a company, need to react very quickly together, like a new sort of COVID situation or something like that. So those are the kind of situations where we might have to do this again on a higher level on a group level. But otherwise, it could also be that we buy a bigger company and there is product overlap and we need to make some impairments of some of that asset, of course. But those are the only examples. It should not be from normal operations and normal R&D development. That should be managed in the day-to-day business in the day-to-day results. And then China guidance, we are not guiding forward on China, but there are areas in China that are performing very well. So if you look at Manufacturing Intelligence, we are growing quite well in Manufacturing Intelligence on a constant basis in China. I think in Q2, we grew 10%. In Q3, we grew 3% organically. So we continue to grow. The different markets are strong there. Electronics, general manufacturing, we're doing very well. Then we have this construction and larger infrastructure projects, which is very weak currently. And when that change into being more positive again, I mean, your guess is as good as mine, right? So we are all hoping that, that will change quickly. But unless that change, we will not see a speed up or an improvement in Geosystems performance. And Geosystems is now, I would say, what is it, 20% negative growth year-on-year or so. So that is affecting, of course, the full number for China for us. But when that turns, that business turns, of course, we will start seeing better numbers from China on the group level. But underlying, ALI is performing quite well in China. Manufacturing Intelligence is performing well in China. And Autonomous Solutions, which is more bumpy, given mining orders, et cetera, are performing well from time to time in China as well. So our China issue is related to large infrastructure and construction within China currently. And then Norbert, do you want to take the Cadence? Norbert Hanke: Sure. So the question was on the Cadence, if I understood this correctly, because it's a while ago that you asked and the question here was related regarding net gain, I assume from... Anders Svensson: I think it's the EUR 810 million that we have as Cadence shares, right? Ben, you can maybe... Norbert Hanke: Yes. I think, obviously, the focus at the moment is to close the deal, Johannes, and that's still on track for the first quarter of next year. It's obviously a very nice stake to have. Cadence is a super strong company with a great outlook. So it's a nice stake to have. But I think we'll have to come back to you on what the plans for it are because it's tied to the capital allocation discussion between Octave and Hexagon, and that's obviously a decision for the Board. So I think we'll come back to you on that. Operator: We will now go to the next question. And the question comes from the line of Mikael Las en from DNB Carnegie. Mikael Laséen: All right. You stated here, that the division priorities will follow the sequence stability, profitability and growth on Page 37. Could you give a sense of how Hexagon Core is distributed across the 3 categories? And maybe give some examples from the 17 P&L accountable divisions on Page 36. Anders Svensson: Yes. Thanks, Mikael. We will give more clarity on how we rank the different businesses in the Capital Markets Day. We have just now launched the new organizational structure. It will be implemented basically from the 1st of January across the group finally. So it's too early to give any input on that externally. But I would also like to say that if you are in stability, it doesn't mean that it's a bad business. Even a good business could be in stability. I would even say that our D&E business was in stability phase. It's a very good business, but we didn't really know what to do with it. It wasn't growing for us. We were not the right owner for it. So that's why the decision was basically to offload it and reallocate those proceeds into where we are stronger and have a stronger market position. So it doesn't mean that if you are instability that you're a bad business. But in general, of course, we would like to move all our businesses into the growth scenario or strategic mandate. But we have a range of different businesses also within the different divisions. So there's a lot to go through here and to set up with the business areas and the divisions themselves. So we have to come back with that on the Capital Markets Day. Mikael Laséen: Okay. Fair enough. And just curious here about the book-to-bill ratios for the MI segment, if you can maybe comment on that or other areas where you have bookings leading sales? Mattias Stenberg: At the moment, we don't have -- I don't have the information with me now, but we'll come back to you directly afterwards in a sense. Anders Svensson: We will come back to you afterwards and give you the facts. Operator: We will now take the next question. And your question comes from the line of Ben Castillo-Bernaus from BNP Paribas. Ben Castillo-Bernaus: I guess a couple for Mattias to start with on the Octave business. Obviously, some headwinds there from the transition from licenses to SaaS. I just wondered what's your assumption on how long you expect that to take? And so you're sort of mostly SaaS business? And then I guess, related to that, the margin headwinds that we're seeing there at the moment. Obviously, there's some one-off costs going through there. I guess if you look out to 2026 and the sort of margin trajectory, what's your working assumption at this point in time? Mattias Stenberg: Yes, good questions. But what you said I had to be boring and answer you will get to know in the Investor Day in Q1, right? I'm not prepared to give outlook at this point. But we will lay that all out in detail at the Investor Day. Ben Castillo-Bernaus: Okay. I'll try one maybe that can be answered. Just on Autonomous Solutions, obviously, super strong performance there this quarter. How much of that was kind of anticipated and predicted, if you like? And was there any kind of one-off in there that we should think about just in that performance? Mattias Stenberg: Yes. Thanks. If you look at Autonomous Solutions, I mean, we, of course, know our order intake, right? So this -- our result was quite expected internally. Very strong order intake in aerospace and defense area. Also Mining has been very strong, and you can see that also, I think, in related companies reporting Mining numbers also on very good levels. So in general, the underlying markets in here are doing very well. And we have a good order intake in those markets that will also generate a good performance going forward. So we expect Q4 to also perform well. Q4 has a bit tougher comparable, so it will not be on a similar level, but we expect a continued strong market demand within Autonomous Solutions. And as I mentioned, the weakness we see in Autonomous Solutions is agriculture, which is in a quite serious downturn globally. And that weakness is also expected to continue during Q4. So we see a relative similar business climate in the fourth quarter. Operator: We will now go to our final question for today. And your final question comes from the line of Magnus Kruber from Nordea. Magnus Kruber: I just wanted to get back to the delta between impairments and -- or amortization capitalizations in R&D. So is the message that it will be relatively similar in the coming quarters, but gradually over time, it will narrow. And if that's the case, do you expect your new strategy will be able to offset this headwind on the margin side in the coming, say, 2, 3 years? Anders Svensson: Yes. Thanks, Magnus. Yes, that's correct. So given that we are releasing lots of new products to the market, like the TS20 now here in October, for example, we see that amortization of those products released will then completely net the gain that we will get from this impairment. So this impairment by itself will not move basically the amortization and capitalization gap. It will be on the same level in Q4 and in Q1 as it was in Q3. So that's correct. And then going forward, we expect, of course, these new products to generate higher sales numbers. And that is how we will compensate the shrinking gap between amortization and capitalization. And I want to make clear that to capitalize R&D is not dangerous if you capitalize good R&D, then that's the way it should be done, right? And then you take the cost over the life cycle of the product. So that's completely right in how it should be done. The dangerous thing is to capitalize and then not release the product and try to fix it and further capitalize a product which is not good. And then when you release it, you don't get the sales and you only get the amortization. So that is the danger. And that is what the new management structure will make sure that we avoid going forward. Magnus Kruber: Fantastic. That's very clear. And with respect to the EUR 110 million savings, could you characterize a little bit on how the sort of we should expect this to be filtering through 2026? Is it more linear or back-end loaded? Or what's the character of the implementation? Anders Svensson: I would say it's very linear. So you can model in linear with probably less in Q4 than going forward. Magnus Kruber: Perfect. And then just a final one, Geosystems China, I think you said down 20% or something, if I read that right. How do you characterize that slowdown? How long it has been going on? And is there any element of that, that's structural compared to cyclical, would you say? Anders Svensson: I would say it's generally cyclical connected to the large infrastructure projects like the rail. It's impacting very much for Geosystems. In China, we don't have good sales of our whole offering portfolio. We have good sales of the top tier of our offerings, the most sort of precise measuring equipment. That is what we sell in China. On the mid-tier offering, we have very strong local competition. So we have a very little footprint given that we don't have local manufacturing, local R&D, et cetera, within Geosystems. So that's why we get so heavily impacted when there is an effect on those type of industries. And it's been going on now for what is it, could it be something 12 months? Mattias Stenberg: 12 months, round about. Anders Svensson: Yes, that we see this effect coming in for Geosystems. And of course, since this is our top offering, that also gives a weaker mix for Geosystems because we have best margins on these top-tier products because we don't have any competition basically. So that impacts Geosystems mix negatively. And you can also see that in the year-on-year drop in Geosystems in financial performance when it comes to operational margin. You can see the effect there as well of the lack of sales of those top-tier products. Operator: I will now hand the call back to Anders Svensson for closing remarks. Anders Svensson: Thank you, operator, and thank you, everyone, for attending, listening and putting good questions for us. Our next report will be on January 13th -- 30th, sorry. Thanks. Good correction, January 30th, next year. So hoping to see you all then. And until then, be safe. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company Third Quarter 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Chase Mulvehill, Vice President of Investor Relations. Sir, you may begin. Chase Mulvehill: Thank you. Good morning everyone, and welcome to Baker Hughes' Third Quarter Earnings Conference Call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Ahmed Mogul. The earnings release we issued yesterday evening can be found on our website at bakerhughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can be found on our investor website. As a reminder, we will provide forward-looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings in website for the factors that could cause actual results to differ materially. Reconciliations of adjusted EBITDA and certain GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to Lorenzo. Lorenzo Simonelli: Thank you, Chase. Good morning, everyone, and thanks for joining us. First, I'd like to provide a quick outline for today's call. I will begin by discussing our strong third quarter results. Next, I will highlight key awards announced during the quarter and provide some thoughts on the broader macro environment. Following this, I will share an update on the current progress in the LNG sector. I will then hand it over to Ahmed, who will present an overview of our financial results, followed by an update on our continued focus on portfolio management, including the Chart Industries acquisition. To conclude, I will summarize the main points before we open the line for questions. Let us now turn to the key highlights on Slide 4. We continue to execute at a high level, delivering another quarter of strong results. Adjusted EBITDA rose to $1.24 billion, above the midpoint of our guidance range. This performance reflects continued momentum from our business system deployment, positive trends in gas technology and strong outperformance in U.S. land, where our leverage to production is a clear advantage. Oilfield Services and Equipment margins softened in response to the broader macro environment, while Industrial and Energy Technology reported improved results, contributing to a 20 basis points year-over-year increase in consolidated adjusted EBITDA margins to 17.7%. This margin progression highlights the resilience of our portfolio and the foundation we have built through disciplined execution. Given the strong operational performance year-to-date, we now expect full year adjusted EBITDA for the total company to exceed $4.7 billion. Turning to orders. IET continues to build strong momentum, achieving $4.1 billion during the quarter, driven by LNG equipment, record Cordant Solutions orders and ongoing strength in gas infrastructure and power generation. As a result, IET backlog grew 3% sequentially, reaching a new record of $32.1 billion, further reinforcing the durability and visibility of our growth outlook. Through the first three quarters, IET orders totaled nearly $11 billion, including $1.6 billion from New Energy, already reaching the high end of the $1.4 billion to $1.6 billion guidance range. With good visibility into fourth quarter awards, we now expect full year IET orders to exceed our prior midpoint. Looking ahead, we are targeting at least $40 billion of IET orders over the next three years. This outlook is supported by the breadth and versatility of our technology portfolio, which continues to generate a robust pipeline across an expanding range of end markets. We expect growth to be led by gas infrastructure, power generation and new energy markets, while LNG equipment orders are expected to remain consistent with our solid performance over the past two years. In OFSE, Subsea Surface and Pressure Systems delivered a record quarter with $1.2 billion in orders, driven by major contract wins in Turkiye and Brazil. Turning to Slide 5. As I highlighted, we made strong progress on IET orders year-to-date, reflecting continued momentum across LNG, power generation and new energy markets. With strong visibility into our current pipeline, we expect this strength to carry into 2026. In LNG, we secured over $800 million in equipment orders this quarter, including Trains 3 and 4 of Sempra's Port Arthur Phase 2 and Train 4 of NextDecade's Rio Grande LNG. At Rio Grande, our Cordant Asset Health digital solution is being deployed on the first three trains. These awards reflect continued investment in large-scale LNG infrastructure and demonstrate our ability to deliver value by integrating equipment and digital capabilities to reduce downtime and boost availability and production. In power generation, we continue to experience strengthening demand for distributed power, cogeneration and geothermal solutions throughout the oil and gas, industrial, data center and geothermal markets. Notably, we secured a significant award from Dynamis for mobile power generation for oil and gas operations in North America, supplying more than 1 gigawatt of aeroderivative gas turbines to meet rising energy needs across upstream and downstream markets. We also made meaningful progress in geothermal power, securing a contract to design and deliver equipment for five organic rank and cycle power plants for Fervo's Cape Station project in Utah. This site will generate 300 megawatts of clean, reliable power, enough to supply approximately 180,000 homes. This builds on our earlier collaboration with Fervo, where OFSE provided subsurface drilling and production technologies. Together, these wins demonstrate the growing relevance of our integrated portfolio for scalable, low-carbon energy solutions. We also signed a collaboration agreement with Controlled Thermal Resources for the 500-megawatt Hell's Kitchen geothermal project in California. As part of this broader trend, we are seeing continued momentum in data center power demand. Year-to-date, we have now booked more than $700 million in power generation equipment orders for data center applications, led by our NovaLT technology. We remain confident in achieving $1.5 billion of data center orders ahead of our original 3-year time line, underscoring the increasing relevance of our power solutions in this fast-growing market. On aftermarket services, we secured a long-term service contract with bp for its Tangguh LNG facility in Indonesia and extended our agreement with Pembina Pipeline to support upgrades for the Alliance Pipeline system in North America. These awards reinforce the convertibility of our installed base into aftermarket and service opportunities, reflecting the resilience of our life cycle model. In offshore, a market we continue to see as a compelling long-term growth opportunity, IET secured an award to supply power generation and compression equipment for an FPSO in South America. This award further demonstrates our ability to deliver integrated solutions for critical energy infrastructure. SSPS delivered a record order quarter driven by a significant award for subsea trees in Turkiye. We will supply Turkish Petroleum with integrated subsea production and intelligent completion systems for the third phase of the Sakarya gas field. In offshore Brazil, we also announced a frame agreement with Petrobras for up to 50 subsea trees, marking our return to the subsea tree market following an extended absence. In flexible pipe systems, we booked an additional 66 kilometers of rises and flow lines for hydrocarbon production, CO2 injection and gas lift, again, highlighting our technical leadership in complex offshore developments. We will also provide an all-electric integrated completion system for the Buzios field in Brazil, enabling more precise subsurface control, increased operational efficiency and enhanced reliability. Petrobras also extended contracts for our Blue Marlin and Blue Orca stimulation vessels. In Saudi Arabia, we won a major multiyear award from Aramco to expand coiled tubing drilling operations, including six new units and extensions for four existing ones, supporting both reentry and greenfield projects across the Kingdom. For Production Solutions, we signed a 5-year extension to provide hydrocarbon and water treatment products and services across Valero's North America and U.K. refineries. We also continue to see strong demand in Mexico for our downstream chemical solutions as we help Pemex manage crude quality challenges. These awards highlight our ability to serve downstream markets as well as upstream and midstream. In ammonia, we booked a major order from Technip Energies for the Blue Point #1 project in Louisiana. This facility is set to become the world's largest low-carbon ammonia plant with a capacity of 1.4 MTPA. We will supply critical compression equipment for ammonia production and CO2 transportation along with steam turbines and generators for power solutions. Overall, we continue to see strong momentum across an increasingly diverse opportunity set, supported by the breadth and depth of our technology portfolio. Now turning to the macro on Slide 6. The macro environment has remained relatively resilient throughout 2025 despite geopolitical and policy-related headwinds. A key factor contributing to this resilience is the powerful new growth dynamic related to the rapid deployment of generative AI. This wave of investment is unlocking new growth vectors across a wide range of industries and serving as a broad stimulus for the global economy with recent estimates indicating that AI-driven investments account for approximately 30% to 40% of U.S. GDP growth this year. Globally, McKinsey projects over $1.5 trillion in data center infrastructure investments over the next three years, a major opportunity for Baker Hughes. We are seeing a clear acceleration in project activity and commitments from leading AI companies with our Power Solutions portfolio well positioned to meet this demand for resilient energy-efficient infrastructure. Now turning to oil. The market continues to navigate a range of cross currents. On one hand, there are concerns around softer demand and rising OPEC+ production. On the other, persistent geopolitical risks in the Middle East and Russia continue to support commodity prices. Despite the accelerated return of OPEC+ supply, Oil prices in the third quarter remained somewhat resilient. While it is possible some OPEC+ nations do not have the capacity to fully meet their production quotas, the near-term potential for oversupply continues to weigh on sentiment, keeping operators cautious amid the risk of short-term pricing pressure. As we shared last quarter, we continue to expect oil-related upstream investment to remain subdued until the market fully absorbs this incremental OPEC+ supply. Against this backdrop, our outlook for 2025 is unchanged, maintaining expectations for a high single-digit decline in global upstream spending. Looking ahead to 2026, early indicators point to another year of subdued activity, possibly leading to another year of global upstream spending decline. Longer term, the outlook is more positive, especially internationally and offshore, where substantial investment will be required to sustain production growth in response to rising demand. We also expect continued growth in OpEx-driven upstream investment as operators focus on enhancing recovery rates and extending the life of existing fields. On natural gas, we continue to see growing divergence between oil and natural gas fundamentals. It's abundance, low-cost reliability and lower emissions set natural gas apart from other fossil fuels. That structural advantage is increasingly reflected in both policy and capital allocation. By 2040, we expect natural gas demand to grow by over 20% with global LNG increasing by at least 75%. This growth outlook creates a favorable environment for Baker Hughes. LNG demand continues to demonstrate solid growth increasing by 6% this year, largely driven by a strong storage injection season in Europe, although this was partially offset by softer demand in China. This demand is driving record LNG contracting activity, which is essential for future project FIDs. According to Wood Mackenzie, 84 MTPA of long-term LNG offtake contracts were signed in the first nine months of the year, surpassing last year's total of 81 MTPA. Over the past two years, nearly 75 MTPA of LNG projects have taken FID with an additional 25 MTPA needed to reach our 3-year target of 100 MTPA. This would increase the global installed base to our long-held target of 800 MTPA by 2030. Beyond this, we see continued growth in the installed base, which I'll address shortly. In summary, we are seeing strong momentum in our key end markets, especially natural gas and AI-driven power despite persistent headwinds in global trade policy and oil. Our diverse portfolio positions us to manage volatility and we remain confident in our ability to continue executing against our long-term strategy. Turning to Slide 7. Let me take a few minutes to share our updated perspective on global LNG capacity expansion beyond our long-held target of 800 MTPA by 2030. That milestone is now largely supported by projects that have already reached FID, but are not yet commissioned. Looking beyond 2030, we now expect global LNG installed capacity to increase to approximately 950 MTPA by 2035. To achieve this level of capacity, an additional 175 MTPA of projects would need to reach FID by 2031. Our positive long-term outlook is anchored in a simple reality. The world needs more energy. This requirement is being amplified by the exponential growth in AI-driven power demand. Natural gas is well suited to meet this demand, offering abundance, affordability and lower emissions than coal without the intermittency issues associated with renewable sources. In many emerging markets, natural gas accounts for less than 5% of the power mix compared to over 40% in the U.S. This disparity presents substantial potential for natural gas to displace coal and support the transition to a lower carbon economy, especially in regions with high energy requirements that demands reliable and affordable power solutions. Nonetheless, periods of market volatility may occur due to the nonlinear nature of supply growth. Historically, declines in spot prices have encouraged new buyers to enter the market, thereby spurring the next wave of demand and supporting LNG's sustained long-term growth trajectory. Turning to our technology portfolio. This remains a core differentiator for Baker Hughes. Our best-in-class liquefaction solutions pair advanced compression technology with the industry's broadest selection of drivers including heavy-duty and aeroderivative gas turbines and electric motors. We consistently raised the bar for efficiency, throughput and uptime, helping customers achieve superior LNG project economics. The LM9000 aeroderivative gas turbine exemplifies this, delivering 44% simple cycle efficiency and setting new benchmarks in performance and reliability for large-scale energy infrastructure projects. We expect that the integration of Chart will further enhance the value we bring to customers, enabling greater optimization across the LNG value chain. This allows for more efficient project design, improve and better life cycle economics which we expect will result in superior outcomes for our customers. Importantly, an increasing installed base supports structural growth over the next decade in our Gas Tech services business, a key driver of long-term growth and earnings durability for Baker Hughes going forward. The service agreements are critical to ensuring the performance, reliability and emissions performance of LNG facilities over their full life cycle. Overall, we see sustained LNG growth well beyond 2030, driven by rising global energy demand, the push for decarbonization and infrastructure expansion in emerging markets. Baker Hughes is well positioned to capitalize on this trend, leveraging deep market expertise, innovative technology and reliable execution to support our customers with solutions that improve performance reduce emissions and enhance project economics. Now let me summarize the key points before handing it over to Ahmed. The first quarter was marked by strong execution and meaningful strategic progress. Operationally, we continue to form at a high level. IET delivered another quarter of strong order momentum, further demonstrating the breadth and versatility of our portfolio. At the same time, our business system continues to drive consistent performance across the company. The announced acquisition of Chart represents a significant milestone in our journey to become a leading energy and industrial technology company. We see substantial opportunity in combining our portfolios, and we expect that the acquisition will enrich our differentiated technology offerings and enhance the value we deliver to customers across critical, high-growth markets. As we announced earlier this month, we are conducting a comprehensive evaluation of our capital allocation focus, business, cost structure and operations in connection with the pending acquisition of Chart. This evaluation reflects the disciplined actions we have consistently taken over the years to establish a proven track record of driving strong performance and represents a natural progression in our ongoing value creation strategy. We have made substantial progress in driving operational improvements, advancing our portfolio and delivering leading shareholder returns and we are confident that we have the right strategy to build on this momentum and continue creating long-term value for shareholders. Lastly, I want to take this opportunity to extend my sincere congratulations to Ganesh Ramaswamy as he embarks on his next chapter as our CEO. During the past three years, Ganesh has been an exceptional leader at Baker Hughes, successfully implementing our business system and leading the organization with purpose. To maintain continuity and sustained progress within IET, Maria Claudia Borras, a seasoned and highly respected executive at Baker Hughes will step in as Interim EVP of IET. With that, I'll turn the call over to Ahmed. Ahmed Moghal: Thanks, Lorenzo. Starting on Slide 9. As Lorenzo highlighted, we delivered another quarter of strong orders with total company bookings of $8.2 billion, including $4.1 billion from IET. Adjusted EBITDA increased by 2% year-over-year to $1.24 billion based on revenue growth of 1% as margins increased by 20 basis points to 17.7%. This performance continues to reflect the benefits of structural cost improvements and continued deployment of our business system, driving greater productivity, stronger operating leverage and more durable earnings. GAAP diluted earnings per share were $0.61. Excluding adjusting items, earnings per share were $0.68. We generated free cash flow of $699 million. For the full year, we expect free cash flow conversion of 45% to 50%, with a typical strong performance expected in the fourth quarter. Turning to capital allocation on Slide 10. Our balance sheet remains in a very strong position. We ended the quarter with cash of $2.7 billion and net debt to adjusted EBITDA ratio of 0.7x and liquidity of $5.7 billion. During the quarter, we returned $227 million to shareholders through dividends. Our near-term priority is to maintain the strength of our balance sheet in preparation for the closing of the Chart acquisition. On portfolio management actions, I'm pleased to report that we closed the acquisition of Continental Disc Corporation on August 7, the sale of precision sensors and instrumentation and the creation of the surface pressure control JV with Cactus are progressing as expected with closing anticipated early next year. When these two divestitures close, they will reduce annual EBITDA by approximately $150 million and generate around $1.4 billion in gross cash proceeds. Turning to the Chart acquisition. We were pleased to receive shareholder approval on October 6. We're currently working in a number of countries to achieve the customary approvals and continue to expect the deal to close in mid-2026. As stated in the Chart acquisition announcement, our objective is to achieve a net debt to adjusted EBITDA ratio of 1 to 1.5x within 24 months following the close of the deal. This reduction will be accomplished through a combination of existing cash balances, ongoing free cash flow generation and proceeds from continued portfolio management initiatives, which are anticipated to yield $1 billion of incremental proceeds. We have formed an integration management office and commenced integration planning with the team at Chart. In the near term, the focus is on harmonizing systems and processes, supply chain, commercial and operations structured across 14 dedicated work streams. This disciplined and targeted approach is designed to enable a seamless integration and position us to realize the full $325 million in anticipated cost synergies. Our early collaborations have demonstrated that both organizations possess aligned cultural values, prioritizing the customer at the core of all activities. The integration planning team is directed by the principle of making decisions that support the future enterprise and prioritize value creation while also acknowledging the strengths and capabilities of the legacy businesses. In addition to the significant cost synergies, we're excited about the commercial opportunities enabled by the combined product and technology portfolios. The combination expands Baker Hughes capabilities in key growth markets such as LNG, data centers, gas infrastructure, hydrogen and CCUS while also enhancing our ability to deliver differentiated value-added solutions to customers. Let's now move to our segment results, starting with IET on Slide 11. During the quarter, we secured IET orders totaling $4.1 billion, including more than $800 million of LNG equipment and a second consecutive record for Cordant Solutions. With a book-to-bill of 1.2x for the quarter, IET achieved another record RPO of $32.1 billion. This RPO level and a structurally expanding installed base provides strong revenue visibility for 2026 and beyond. IET revenue increased by 15% year-over-year to $3.4 billion, led by double-digit growth in Gas Technology Services, Gas Technology Equipment and Industrial Solutions. Segment EBITDA increased 20% year-over-year to $635 million as margins expanded by 90 basis points to 18.8%. This strong performance was led by record GTE margins and the highest Cordant Solution margins in the past four years. Turning to OFSE on Slide 12. OFSE revenue this quarter was $3.6 billion, up 1% sequentially. Well construction led growth with a 4% increase driven by drilling services. OFSE delivered EBITDA of $671 million, slightly above the guidance midpoint. EBITDA margins declined by 30 basis points sequentially to 18.5% as cost inflation and business mix were largely offset by cost-out initiatives and overall productivity improvements. In International, revenue declined 1% sequentially, where declines in Saudi Arabia, Argentina and the North Sea were largely offset by growth in Asia Pacific and Middle East, excluding Saudi Arabia. In the Kingdom, we see the potential for measured rig additions during 2026. In North America, revenue was up 6% sequentially. Onshore revenues increased slightly compared to the second quarter significantly outperforming the 6% decline in North America land rig activity due to our strong weighting towards production-related businesses. In SSPS, we continue to see positive momentum offshore, where we booked record orders led by significant subsea tree awards in Turkiye and Brazil. Moving to Slide 13. I want to provide an update on our outlook as well as the ongoing impacts of the trade policy changes. Starting with trade policy, the net tariff impact to EBITDA remained near prior quarter levels. We now project this net impact will be at the low end of our $100 million to $200 million range. We continue to execute several mitigation actions to minimize the financial impact and these measures will continue to play a critical role in managing ongoing exposure. Note that this assumes no further trade policy escalation, including retaliatory tariffs and continued success of our mitigation actions across both segments. We are also monitoring the evolution of U.S.-China trade policies, particularly with the 90-day pause potentially ending on November 10. Next, I would like to update you on our outlook. The ranges for revenue, EBITDA and depreciation and amortization are shown on this slide, and I'll focus on the midpoint of our guidance ranges. For the fourth quarter, we anticipate total company adjusted EBITDA of approximately $1.255 billion, primarily driven by sustained growth and margin expansion within IET. Specifically, IET's fourth quarter performance is expected to reflect ongoing momentum supported by strong revenue conversion from the segment's record backlog and continuous productivity improvements through our business system. As a result, we project IET EBITDA of $680 million, implying more than 100 basis points of the year-over-year margin increase. For OFSE, we anticipate fourth quarter EBITDA of $650 million. This projection reflects the potential for tempered year-end product sales across offshore and international markets as well as anticipated E&P budget constraints affecting U.S. land. Now turning to our full year guidance. We have updated the ranges to include actual year-to-date results and the fourth quarter guidance. Accordingly, we are raising the midpoint of total company adjusted EBITDA to $4.74 billion. For IET, we are raising the guidance range for both revenue and EBITDA, increasing the midpoint for revenue to $13.05 billion from $12.9 billion and EBITDA to $2.4 billion from $2.35 billion. Additionally, we're increasing the midpoint of the IET orders guidance range by $500 million to $14 billion, reflecting robust year-to-date results and anticipated incremental LNG and power generation orders in the fourth quarter. The major factors driving our guidance ranges for IET will be the pace of backlog conversion in GTE, the impact of any aeroderivative supply chain tightness in gas technology, foreign exchange rates and trade policy. For OFSE, we're increasing the midpoint of revenue by $150 million to $14.35 billion and holding the EBITDA midpoint relatively unchanged at $2.62 billion. Factors driving our guidance ranges for OFSE include execution of our SSPS backlog, the impact on near-term activity levels in North America and international markets, trade policy, foreign exchange rates and pricing across more transactional markets. Looking ahead to 2026, we remain focused on delivering profitable growth alongside continued margin expansion. In IET, we anticipate continued EBITDA growth even with the PSI divestiture taken into account. This positive outlook is supported by a record backlog and another year of strong margin improvement. We remain firmly committed to achieving 20% IET margins next year. In OFSE, we expect operator activity to remain subdued throughout much of 2026, suggesting a modest reduction in global upstream spending due to softening oil fundamentals. Taking into consideration the deconsolidation of SPC's results, we anticipate positive SSPS momentum into 2026 driven by strong backlog levels. Against this backdrop, we will continue to prioritize margin resilience and closing the gap with peers. Before turning the call back to Lorenzo, I also wanted to briefly highlight the key financial commitments of our Horizon Two strategy, which we laid out in September at the Barclays conference. We are targeting total company margins of 20% by 2028, representing a substantial increase from our 2025 implied margin guidance. Over the next three years, we also aim to secure at least $40 billion in IET orders which highlights our strong market visibility and robust technology portfolio. Lastly, we remain committed to achieving at least 50% free cash flow conversion by 2028. These targets do not factor in the expected accretive benefits from churn. In closing, we are proud of our strong third quarter operational results, which further demonstrate our commitment to delivering long-term value for our shareholders. Looking ahead, we remain focused on driving sustainable improvements in both financial performance and operational efficiency, ensuring that our actions consistently translate into attractive returns and ongoing value creation for our shareholders. With that, I'll turn the call back to Lorenzo. Lorenzo Simonelli: Thank you, Ahmed. Our strong third quarter performance represents clear evidence of the consistent execution and operational discipline embedded across the organization. We have fundamentally changed the way we operate. And today, Baker Hughes is in its strongest position since the merger nearly a decade ago. Through Horizon One, we have delivered substantial operational improvement, expanding adjusted EBITDA margins by 320 basis points, while achieving tremendous commercial success. Looking ahead to Horizon Two, our focus remains on continued margin expansion, targeting a 20% margin for total company adjusted EBITDA by 2028. As we pursue our Horizon Two targets, it is important to recognize the broader context in which we operate. Baker Hughes sits at the convergence of the energy and industrial ecosystems at a time when their interdependence has never been more critical. The rise of AI is a transformative force driving both productivity and energy consumption. Combined with the rising energy demand in emerging economies, this reinforces our conviction that natural gas will play a central role in the global energy mix going forward. This is the age of gas, and Baker Hughes is well positioned to benefit. The Chart acquisition further expands this runway and is expected to enhance both our revenue growth profile and long-term margin expansion opportunity. We have outlined the significant commercial opportunities ahead as well as delivers to continue driving margin expansion and ultimately delivering stronger shareholder returns and meaningful sustained value for our customers and shareholders. As we look to the future, we are encouraged by the breadth of the opportunity in front of us with our disciplined strategy, expanding technology portfolio and teams fully aligned we believe Baker Hughes is well positioned to deliver long-term value at the intersection of energy and industrial markets. To conclude, I want to thank the entire Baker Hughes team for once again delivering outstanding results. Your passion, discipline and pursuit of excellence continue to push the company forward. With that, I'll hand it back to Chase. Chase Mulvehill: Operator, we can now open for questions. Operator: [Operator Instructions] Our first question comes from David Anderson from Barclays. John Anderson: So power has been a huge theme over the last quarter. It kind of seems to be ramping up in the last month or so. I was wondering if you could please talk about some of the various opportunities you're seeing today and over the next several years in power generation. Obviously, the data center demand for your NovaLT is getting a lot of attention. But the Dynamis order today shows how distributed power is also a growing in store in the oil patch. Then you mentioned the geothermal opportunities and then also offshore. I was wondering if you could kind of put that all together for us and talk about kind of the size and the duration of these opportunities, but also what else is out there in terms of end markets for power generation? Lorenzo Simonelli: Yes, Dave, definitely. And it's an exciting time when you think about power generation at the broad side of what's happening in the world. And really, it's a demand growth across power generation solutions, and it's definitely beyond just the NovaLTs for data center applications. When you think of Baker Hughes, we've got an equipment offering that includes generators, synchronized condensers, electric motors and geothermal solutions that really serve across power and industrial and oil and gas markets. And in addition, obviously, we've got the aeroderivatives and heavy-duty gas turbines that are available for the oil and gas power applications. And as you mentioned, we booked a significant order from Dynamis this quarter. So if you think about this award, and this quarter, we booked $800 million of power generation-related orders this quarter. And looking ahead, the pipeline is very strong. And I think it's important to note that it's not just data center, but it's really across oil and gas and industrial markets. And when you think about it, it's accelerating across the oil and gas sector. When you look at some of the basins, specifically U.S. shale basins, electrification, grid constraints are driving a steep change in the need for distributed power demand and you saw that example by the Dynamis Award, and we see that continuing also in the downstream markets. And as you look at data centers, we continue to see strong momentum. Year-to-date, we've booked approximately 1.2 gigawatts of data center power solutions. We remain confident that we'll achieve the $1.5 billion of data center orders ahead of the original 3-year time line that we mentioned. And you mentioned that as well, geothermal power generation and very pleased with the relationship that we have with Fervo and others and the award for the organic ranking cycle that we announced 300 megawatts of power and that's enough to power 180,000 homes. And as we look forward, there's continued opportunities as well with our OFSE business and the relationship we have with Fervo on the subsurface drilling production technologies, gas leak lines and really an integrated solution that we can offer that leverages both OFSE and IET capabilities. So as we think about it, in summary, there's going to be strong performance going forward on the IET side as well as the integrated solutions. The power generation business is going to be continuing to be a key contributor and really allows us to show the diversification of the solutions that we have across the total portfolio. And importantly, this continues to expand our installed base. And as you know, that turns into services business and calories as well with a long margin durability and reoccurring revenue for Baker Hughes going forward. So exciting times as the world continues to need more energy. Operator: Our next question comes from the line of Arun Jayaram from JPMorgan. Arun Jayaram: My question is wondering if you could talk a little bit about some of the key financial targets in Horizon Two and kind of give us -- Lorenzo, I meant some of the building blocks you see that are necessary to get to the 20% corporate adjusted EBITDA target by 2028 and maybe some thoughts on achieving $40 billion of IET orders over this time horizon. Lorenzo Simonelli: Yes. Sure, Arun. And let me start off with maybe the order side of the $40 billion, and then I'll pass it over to Ahmed. I think he can cover the margin progression and -- as you highlighted, we're on pace to, again, book just over $40 billion of IET orders during Horizon One, and we're extremely confident in our ability to deliver at least that level over Horizon Two, which is what we stated as the goal going forward out to 2028. And importantly, it's -- you got to remember that does not include the Chart acquisition, obviously, at this stage. And what's giving us confidence is a really strong visibility to the project activity, the pipeline that we see and the versatile technology portfolio we have across multiple areas of LNG, power generation, industrial and new energy. So if you take them one by one, if you think about LNG, we estimate 25 MTPA of FIDs that are going to take place during the course of the next 15 months to really reach our 3-year target of 100 MTPA. And that will take us to the 800 MTPA by -- that we announced for 2030. And then as we look going forward, there's going to be more FIDs taking place. And as you saw from the prepared remarks, installed capacity rising to 950 MTPA by 2035. And so as we look at the LNG space, continued order momentum going out in the next few years. And that provides with it also the opportunity for strong upgrades and service activity across our installed base as well. If you look at gas infrastructure, again, durable long cycle opportunities. As you think about natural gas and you think about gas being a prominent energy mix in the future, you're going to need more gas infrastructure as you think about the elements of being able to get the gas from out of the ground and the compression and the pipelines. We see a growing opportunity for that gas infrastructure going forward. On power generation, I mentioned it before, again, the step function change in demand for distributed power cogeneration and also geothermal solutions that we mentioned previously also to Dave. And if you look at another theme of data centers, again, emerging as one of the key new end markets, and we've secured several awards for our NovaLTs and we expect $1.5 billion target to be achieved ahead of schedule. And let's not forget new energy. And as you look at this year already, we booked $1.6 billion of orders already at the high end of our 2025 guidance, and we expect this momentum to continue across hydrogen, geothermal and Carbon Capture and Sequestration going forward. And lastly, digital. You're applying productivity and efficiency across all of this and our Cordant solutions and the capabilities we have around iCenter and really tracking over 2,000 turbomachinery assets across the globe continuing to be an opportunity as we go forward in enriching the installed base. So if you look at those factors, and it gives us a lot of confidence that the $40-plus billion of IET orders in Horizon Two out to 2028. And with that, I will hand it over to Ahmed to go through the margin. Ahmed Moghal: Yes. Thanks, Lorenzo. So look, Arun, as we look at the construct to that margin target and looking at '25, our guidance implies EBITDA margins slightly below 17.5% for the total company. So total 20% company margins represents about 250 basis points of margin improvement over those next three years. So just as a reminder, that 20% margin target does not include the expected accretion from the pending Chart acquisition. And when we step back and look at it to achieve this margin target, there are two broad buckets at the overall company level. And then maybe I'll give some color on the segment dynamics. So at the total level, continuous improvement, we continue to do that through the Baker Hughes business system. And that will always remain a cornerstone of how we execute our strategy, consistent execution, cost control and leverage and process discipline. The other piece to that, and we haven't talked about this much, but AI, I think when we look at it, it allows us to unlock new levels of efficiency and productivity. And we see that as a good tailwind over the next few years. And that goes all the way from enabling functions as well as optimizing supply chain, engineering, logistics and so forth. So this is a really exciting area for us. And then you've heard us talk about portfolio optimization, and that will remain a key lever. So over Horizon One and specifically, when you look at this year, we've made meaningful progress, and we intend to build on that momentum as we enter the horizon Two until the next three years or so. And in Horizon Two specifically, we're targeting at least $1 billion in proceeds from noncore asset sales going through the structure that we laid out in terms of how we assess that with a focus on reducing that exposure to more cyclical OFSE markets and shifting that increasing our presence in more industrial-like higher-margin areas. So that's at the overall company level. And then when you look at the segments, some color on that. For IET, first and foremost, our near-term focus is to ensure that we hit the 20% IET margins next year, so 2026. And then beyond that, we see further upside given the structural growth of the installed base that you're seeing with the book-to-bills of IET over the last few years, and the strong services pull-through that will allow for as well as the strong margin rates that are sitting in backlog, and we continue to drive that through the book-to-bills. And then in OFSE, Just to round it out, while it's a more challenging upstream market, our priority is to make sure we preserve the margin rates in the near term, as we continue to work the cost out actions, and we've been doing that over the last few years and continue to do that this year. And the focus will be continue to close the margin gap with the peers in this area. And so once -- the other thing I'd say is once Chart is closed and integrated, we expect it to be accretive to that 20% margin target. So hopefully, that gives you a little bit of color on the building blocks to the margin target. Operator: Our next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: So you have the Chart merger pending, and you've done a tremendous amount over the last five years, really reshaping the portfolio. And then in early October, you had a press release out and you mentioned this earlier about performing a comprehensive evaluation of capital allocation, the business costs and operations in general. Can you talk a bit more about what this entails and what we should expect to hear from Baker over the next couple of quarters? Lorenzo Simonelli: Yes, Stephen, and thanks for the question. We've been focused on enhancing shareholder value and accelerating our transformation into a differentiated energy and industrial technology company. The pending acquisition of Chart represents a major strategic milestone in that journey. And with the shareholder approval now in hand, this is the right time to evaluate additional value creation opportunities and importantly, like you said, this approach is not new to us. Over the last several years, we've consistently been taking action to drive value for our shareholders and the -- this disciplined approach has translated into tangible results during Horizon One, with EBITDA margins up over 300 basis points, while EBITDA has increased by approximately 60% which has helped us to drive significant outperformance for our shares. So we think there's still meaningful upside ahead and we'll continue the evaluation as we've been, which reflects the ongoing disciplined approach to unlocking additional value creation opportunities. And as you think about what's next, ourselves with the Board will continue to explore all the path to drive shareholder value, carrying out the -- as previously announced, comprehensive evaluation of our capital allocation focused business cost structure and operations. And I think importantly, we want investors to know that we're not resting on our laurels of recent outsized returns. We believe that there's substantial value to be recognized in the near, intermediate and long term for Baker Hughes shareholders. And we won't speculate today, but we'll keep working through the evaluation and make sure that we continue to increase shareholder value. Operator: Our next question comes from Scott Gruber from Citigroup. Scott Gruber: It's been a couple of months since the Chart acquisition announcement. You mentioned the integration planning underway. But can you provide some more color on what you can do now through the early close period to really accelerate the time to full synergy capture and accelerate the timing to full integration of Chart into IET? Lorenzo Simonelli: Definitely. And Scott, let me start by reiterating why we continue to be very confident in the strategic and industrial logic of the acquisition. And we believe that this combination is going to significantly enhance the value we can deliver to customers. It really aligns with the IET segment, adding key thermal management and air and gas handling solutions to our portfolio. The combination also expands IET's capabilities in key growth markets, unlocking commercial synergies by offering customers value-added solutions. The breadth and diversity of the combined portfolio is going to allow us to go after aftermarket potential. And again, the aftermarket service opportunity is significant also with digital opportunities. And so I feel very good about the combined portfolio being more industrial and less cyclical positioning the company to be able to deliver more resilient and consistent long-term performance. And that's going to provide significant revenue synergies as we go forward in the future. And I'll let Ahmed speak to some of the progress to date in setting up the integration team. Ahmed Moghal: Yes. Scott, as we look at the integration itself, the focus, as you said, is really the progress we can make before deal close. So we formed the integration management offices and the teams have a very strong operating rhythm. What we've seen very clearly are the cultures are very closely aligned customer at the core of all activities, which allows us to really drive some of that commercial synergy work. So in the near term, across those 14 work streams that are dedicated individuals across the board, they're focused on systems integration architecture, all sorts of systems, supply chain, commercial go-to-market and operations. So a lot of work there. And as we progress, we're keeping a very clean sort of view on that swift integration and making sure that we can realize the full $325 million in anticipated cost synergies. And just as a reminder, for the integration itself, it's now going to be led by Jim Apostolides, who's our Chief Infrastructure and Performance Officer. And he's got 25 years of operational and multi-industry leadership experience. And then specifically, when it comes to integration work at both GE prior to Baker Hughes, and at Baker Hughes. He's led many complex projects in the past and led those post-acquisition leadership teams. And so as an example, the GE separation across the enterprise that he was involved in. So he's been already working closely with the integration team given that many of the areas in the interim are, of course, focused on areas that fall under his supply chain scope. So we're really pleased on the momentum we're driving there. And with respect to timing, obviously, we mentioned the shareholder vote and the approval from Chart shareholders and we remain focused on all customary approvals that are in the queue now. So from a timing perspective, we feel good about expecting to close the deal in mid-2026. Operator: Our next question comes from the line of James West with Melius Research. James West: So I wanted to dig in on the OFSE business and particularly the margin because you guys significantly outperformed the peer group on the third quarter. You've given guidance for 4Q for a little bit more degradation, but not a lot, which is differentiated. And so I'd love to hear about the moving pieces on the margin, what you're doing to kind of address and kind of maintain high margin rate. And then -- and if you could also expand on maybe next year as you think about -- you've given kind of the -- your guidance on what you think exploration and production spending will be for next year, down slightly what do you expect for the margin to do in that segment as we go through the year? Ahmed Moghal: Yes, James, I'll take that. So look, we're pleased with how the OFSE team has performed given these market conditions and the resilience that they've been able to drive. So maybe what I'll do is I'll give an overall and then go a little bit in 3Q, 4Q and then a look forward into '26. So at the midpoint of our '25 guidance, OFSE margins, we're expecting them to be down 10 basis points despite an 8% decline in revenue. So that just shows the resilience of the work the team has been doing on cost-out initiatives that they started late last year and the continued simplification that Amerino has been driving as part of the overall OFSE organization. So that's what's really helped deliver that year-over-year margin outperformance relative to the peers in this area. And then when I look at the third quarter specifically, that modest margin decline was really driven fundamentally by business mix and a little bit of cost inflation coming through, but the team was able to offset most of that by cost-out initiatives and overall productivity that they're driving through the fields and the shops. So that again goes back to the resilience. The fourth quarter, as you mentioned, the midpoint of our guide points to both modest revenue and margin declines. And that's really built up through, I would say, a couple of things. One is typical seasonality in the Eastern Hemisphere and the other thing is tempered year-end product sales across both offshore and international markets. And then lastly, what we see as some E&P budget constraints affecting U.S. land specifically. So that wraps up the year. And then when you look into '26, as we mentioned, we expect operator activity to remain subdued throughout most of the year, and that would suggest a modest reduction in global upstream spending due to what we see as a softening of oil fundamentals. But within SSPS, as an example, our strong backlog levels, we expect to drive positive momentum into 2026, excluding the effects of, of course, the SPC deconsolidation that will happen at the beginning of the year. So stepping back, when I look at this against this macro backdrop, we're going to continue to emphasize what we've been doing, which is cost efficiency, pricing discipline and upselling opportunities and ultimately prioritizing margin quality over volume. So that is the work that's ongoing to make sure we close the gap with the peers in this area. So hopefully, it gives you some color, James. Operator: Our next question comes from the line from Marc Bianchi with TD Cowen. Marc Bianchi: I wanted to ask about NovaLT, you had a really good first half year for NovaLT, but it seems like 3Q didn't have much. What are you expecting for NovaLT in 4Q and into 2026? And what's the lead time look like for customers placing those orders? Ahmed Moghal: Yes. Marc, I'll take this one. So as we've noted, third quarter year-to-date, we've seen a sharp increase in orders for our NovaLT turbines this year. And that's across not only data centers but also traditional and emerging industrial markets. So the diversity of this industrial gas turbine is one that's really strong. So in total, when I step back and look at it, we probably expect to book over $1 billion of NovaLT orders in '25 with oil and gas applications being roughly 1/3 in data centers and broader industrial making up the difference. And of course, that's a record orders year for Novas by a wide margin and the pipeline we see is quite strong. So as we highlighted, the demand for power gen applications is really broad, and we expect it to be quite strong going forward. So in terms of capacity and how we're supporting this growth, we're -- we've been significantly increasing our manufacturing capacity. And we continue to make targeted investment in enhancing the actual performance of the industrial gas turbine in Nova, including expanding its power range and reducing startup time. So there's a piece around the actual product efficiency but also overall capacity. So we're seeing strong demand for delivery slots well into '28 and beyond. And so the durability and resilience of the market is quite strong as we can see from the backlog as well as demand signals we're looking at. And then, of course, the NovaLT that allows us to drive substantial potential for aftermarket services growth, given its industrial gas turbine. As I mentioned, new capacity going in, both on the production side but also supplying spares. And as we expand that installed base, that's going to be a key area. So that recurring revenue opportunity, that new unit pipeline is one that we're very excited about. And we see quite a lot of potential in this specific area. So hopefully, Marc, that helps you a little bit. Operator: That was our last question. I will hand you back to Mr. Lorenzo Simonelli, Chairman and Chief Executive Officer, to conclude the call. Lorenzo Simonelli: Thank you to everyone for taking the time to join our earnings call today, and I look forward to speaking with you all again soon. Operator, you may now close out the call. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.
Jane Morgan: Good morning, and welcome to the Amaero Investor Webinar. I'm Jane Morgan, Investor and Media Relations Manager. And today, I have the pleasure of speaking with Hank Holland, our Chairman and CEO, who's going to be providing a company update. As usual, we will be taking questions throughout the presentation. So please use the Q&A function, which can be found at the bottom of your screen. Hank, I'll hand to you. Hank Holland: Thank you, Jane. Good morning, everyone. As you're aware, Amaero lodged its quarterly financial results yesterday. I'd like to highlight some of the information from the results. And then as always, we'll be happy to take questions as follows. It was quite a transition for Amaero. We reported revenue of AUD 4.7 million, an increase of 445% over the same period a year ago. This included AUD 4.1 million of powder revenue and about AUD 600,000 of revenue from PM-HIP manufacturing of large near net shape parts. During the quarter, we increased atomization by 240% over the prior quarter. Again, that is in the September quarter, we increased atomization by 240% over the June quarter. Notwithstanding the significant step function and increased manufacturing, we could not manufacture enough product to fill all of our orders. And thus, we carried it into the current quarter approximately AUD 0.5 million of order backlog. All of those powder orders have now been shipped that carried over into this current quarter. We ended the quarter with AUD 9.9 -- I'm sorry, excuse me, we used cash in operations of AUD 9.9 million during the course of the quarter. This included AUD 4.7 million of bar stock inventory purchases. We've been very mindful of the last 12 months to carry buffer stock, thus mitigating the risk of any trade disruptions or tariff risk, somewhat timely given the tip that arose about a week ago with the threatened heightened tariffs with China. We are in very good position as far as inventory in stock. We have 20 tons of titanium bar that arrive this week. We have another 20 tons -- another 40 tons actually that will ship before the end of the month. The threatened tariff was to take place in November. So again, we are in very good shape as far as buffer stock of inventory. We ended the quarter with AUD 50.9 million of cash. Moreover, 3 days into the quarter on October 3, we received USD 5.7 million or about AUD 8.8 million from EXIM Bank draw. This was from CapEx spent in the prior quarter. So as of October 3, we had a cash balance of roughly AUD 59.7 million after drawing on EXIM Bank. We've got about another USD 7 million or about AUD 10.8 million left to draw on the EXIM Bank loan, and we will draw that over the course of this fiscal year. Moving on, one of the real focuses this year, really, there will be 2 primary focuses: one, to continue scaling manufacturing production, our throughput and the other will be continue to scale our commercial contracts. Anyone that has been involved in manufacturing, scaling manufacturing is not easy. When you go from development to production, it's a very different process. In anticipation of this, in May of this year, we brought in a gentleman that I've known for many years, Eric Olson. Eric headed up manufacturing consulting at Accenture for 3 decades. I met him at a former portfolio company. We had a SWAT team in for about 6 weeks. They reviewed all of our processes, met with our entire staff, all of our quality controls, all of our safety controls, and they put forth a plan in anticipation of not only scaling from fiscal year '25 to fiscal year '26, but scaling from atomizer, which we had before all the way up to 4 atomizers, which is our plan. They had no shortage of input and recommended changes over time. In fact, there's about 42 items that they identified in our processes and our people and our staffing and various protocols, much of which has already been implemented and some more of which will be implemented in the coming months and/or years as we begin to further scale and automate, for example, the way that we handle and move powder within the facility to do so in a way that is more expedient, but also less risk of contamination and safer. As part of the changes they recommended, our operations over the prior 2 years had really been focused on building our facility and commissioning the equipment. Obviously, now we've transitioned a very different type of operations, which are centered around manufacturing. As part of this, we brought on a new VP of Manufacturing Operations, who is essentially now running our operations, Mark Struss. I'll talk a bit more about Mark later. Mark comes with 25 years of manufacturing experience, including in the auto industry, a much more complex manufacturing process or series of processes than we have here. But again, he has been very instrumental in helping us think about how we begin to scale, how we begin to change these processes. I'll come back to this in the last point here in a minute, but we've gone through a real step function in operations. To that point, we have ordered additional equipment, much of which was ordered earlier this calendar year, some of which arrived in the first quarter of the fiscal year, more of which will arrive in the current quarter and next quarter that will again continue to scale the processes beyond atomization. We have a 5-step process, the first step of which is atomization but a series of processes that follow and this capital equipment will help us further scale those processes. Over the prior quarter, and again, I repeat, over the prior quarter, we had a subsequent or sequential increase in powder shipments of 153% in a single quarter. We shipped about 5 tons of product in the fourth quarter of fiscal year '25. We shipped over 12 tons of product in the first quarter of fiscal year '26. We had a 240% increase in atomization from about 8 tons in the fourth quarter, the June quarter to 27 tons in the September quarter. We were operating in June one 8-hour shift, 5 days a week on a single EIGA. We finished September operating two 10-hour shifts a day, 6 days a week on 2 atomizers. So again, significant scaling over the course of the quarter. In anticipation and recognizing the transition period of which Amaero is in, my wife and my family and myself relocated to Chattanooga during the course of last quarter. We're thrilled to be here for 3 years. I've been traveling back and forth and with a new baby at home, did not want to continue to be away from the family and moreover, have very long days here. I get to the office about 6:30 in the morning. We have a 7:00 a.m. production meeting. It's a little bit after 8:00 p.m. now, which would be a typical day. So again, it gives me a chance to be here all day, every day and be less away from family as I travel. So thrilled to do so, work alongside a great group of colleagues. And one of the things I've always said is people around here can attest, I want to ask anyone to work harder than I work and that being said, there's plenty of people here working just as hard as I am, and it's a heck of a team. Some significant improvements during the course of the quarter from a qualification standpoint as well as ongoing material improvements. As you might recall, with Castheon and ADDMAN, we signed a 5-year preferred supplier agreement in April of 2024. We then qualified C103 in September of '24. This was a very big deal. The founder of Castheon, Dr. Youping Gao is the foremost expert in printing C103 and refractory alloys. ADDMAN owned by one of the leading private equity firms in the industrial space in the U.S. has been very active in additive manufacturing as well. And so qualifying with Castheon and Dr. Youping Gao is a very big deal. We then immediately did some additional work on refining chemistries and we announced in December of '24 that we have made some slight tweaks to C103 chemistry that had shown some improvements. And then we've been continuing since then to make some other refinements. We have completed that. Thrilled to say that we have qualified with ADDMAN on top of the qualifications that we've done before. We've achieved performance specifications that are rock-like. Much of additive manufacturing material is subpar to rock material properties. The prior supplier that Castheon had achieved rock-like material properties, and it was important that we achieve consistent properties with other supplier, and we've now done so. So another significant advancement both in our qualification standards as well as our relationship with Castheon and ADDMAN. We will continue to advance, particularly as it relates to propulsion systems and thermal protection systems. These important systems on hypersonics and space applications, and we'll work closely with Castheon and ADDMAN going forward. Also during the course of the quarter, as you know, we achieved qualification, which was a predicate condition with Velo3D. We achieved that with Auburn University's National Center of Additive Manufacturing Excellence. I'll announce later one of the interesting things, Dr. Jonathan Peck, who had been a senior technician at Castheon, very few people, again, understand and know how to print C103. He had left Castheon and gone to Auburn. That is who we worked with at Auburn. I'm pleased to say that Dr. Jonathan Peck will be joining Amaero at the end of this month and again, one of the important technical hires that we have made. During the course of the quarter, as everyone is aware, we completed a AUD 50 million Placement that was very well supported, strong institutional support and participation. We also had an SPP. The SPP was AUD 3 million, and I would say modestly supported AUD 470,000, same terms and same issue price as the Placement. The Board considered this very seriously and that we were fully funded before -- but the Board felt it was important given that we were 2 years into commercial engagement, go ahead and pull forward some growth initiatives that had been planned for fiscal year '27 and beyond as well as to make investment in Argon recycling that will further improve our cost -- unit cost advantage that we have over competitors and further uniquely position us not only as the largest capacity U.S. domestic producer of spherical refractory and titanium alloy powders, but also the lowest cost. Some important hires that we made during the course of the quarter. Brett Paduch, our Chief Financial Officer, has been fantastic, brings a great audit background in accounting as well as FP&A experience. Mark Struss, I mentioned before, essentially assuming leadership in the manufacturing operations. Dr. Jonathan Peck, I mentioned, has joined us as VP of Technology Development was at Castheon and then Auburn. And then Dr. Arun has been an amazing force at Amaero. He's been promoted yet again. This is actually a second promotion, and he is leading all of our applied research as well as process development and working hand-in-hand with Mark Struss as we continue to refine and develop our operating systems. Also during the course of the quarter, we gave updated financial guidance. Pleased to report for fiscal year '26, we anticipate revenue of AUD 30 million to AUD 35 million and we expect roughly 40% of that would be achieved during the first half of the fiscal year, roughly 60% of that to be achieved in the second half of the fiscal year. On the commercial side, we made progress on a number of fronts. As everyone is aware, we announced a 5-year exclusive supplier and development agreement with Titomic, ASX-listed company for refractory and titanium alloy spherical powders. One of the things that perhaps isn't as well appreciated in the ASX market is spherical powders are very different than angular powders, also very different gas atomized powder than, say, HDH powders. Also reactive or titanium alloys very different than nonreactive, such as nickels and so forth. And so Amaero plays a unique role in the supply chain and particularly when you're qualifying in parts. What Titomic was finding is that the defense primes came to them for development and production parts, mission-critical aerospace and defense applications, the defense primes required it be spherical powder. So they give very specific material specifications. And in some cases, will also define how the powder is manufactured. This is more true, for example, in medical applications, where it is most often plasma atomization or gas atomized powder. We've already begun working with Titomic on a project, and I would expect you'll hear more about that in the coming months. But again, important opportunity for us, I believe, for Titomic as well in the refractory space, in particular, and really scaling their expertise in cold spray applications. Knust-Godwin, we did not announce this as a stand-alone announcement in the course of the quarter. As people will know that have followed this company closely, we tend to be somewhat guarded with not announcing things unless we feel it has a very material immediate financial impact. That being said, Knust-Godwin is an important relationship for us. Knust-Godwin is located near Houston. They're a very pivotal integrated additive manufacturing and advanced manufacturing firm, primarily focused on the oil and gas industry, but increasingly focused on other areas, including aerospace. We work with them on the PM-HIP side of our business, and now we'll be working more closely with them on the titanium side of their printing business. They also use largely Velo3D machines. And obviously, with our partnership with Velo3D, it ties in here nicely with Knust-Godwin as well. During the quarter, we announced about a year ago, we received a contract a little bit over [ $1 million ] with the U.S. Defense Prime Contractor and that we expected to complete First Article parts. Those parts have now been completed. We said we expect to do that in September or October. We will continue to do some testing with our customer over the balance of this calendar year, expect to hopefully finish that by the end of December. And then that will be -- the acceptance of those First Article parts will be a very important milestone as we move forward to advance other development opportunities, but even more importantly, production part contracts with this customer. It also further validates PM-HIP manufacturing as a mature, what in the U.S. we call technical readiness level or TRL level, a mature and scalable alternative to large castings and large forgings, which is very important, particularly in the maritime industrial base, the submarine industrial base, but also in the oil and gas industry. And then finally, we announced in the quarter a development collaboration with a Boeing company. This also, I think, is a very important example of the benefits as well as the immediate insertion of PM-HIP. We are -- we've not disclosed the nature of the part that we're working on with Boeing, but it is a structural part in a next-generation aerospace application. And I would expect you'll hear more from us as well as Boeing as this collaboration advances. I thought it might be helpful to give investors just a representative list of some opportunities that we're advancing. We won't come out and essentially announce these or announce the counterparties until we have binding contracts. That's just our practice. But we are continuing to advance development and production opportunities that support the U.S. Navy and the maritime industrial base. We're continuing to advance C103 powder opportunities, specifically within Missile Systems. Tungsten powder opportunities for the munitions complex. Munitions, as those you might know, is a very significant opportunity given our depleted stocks. And tungsten, very, very important. Tungsten, as you might know, has got a characteristic as a heavy alloy it penetrates, but also it sharpens as it penetrates. And so it's a very important material that is used in munitions. Very few people and very few technologies. Tungsten has a very, very high melting temperature, and thus very few technologies can atomize tungsten. Zirconium opportunities, which are important for nuclear power as well as nuclear propulsion systems. Refractory powder opportunities for cold spray applications, as I mentioned with Titomic. I have been advancing a strategic supplier agreement with a large integrated additive manufacturer, continued to advance a strategic supplier agreement with a large multinational medical device company, investment tooling for a semiconductor large company in the U.S., production contracts for oil and gas, actually companies plural. We're working on an upcycling/recycling opportunity that takes titanium coarse powder and the stubs from our bar to upcycle and recycle that. Atomization and testing of development refractory alloy powders as a more cost-effective alternative to C103 for applications that aren't so mission-critical that they would insist on C103. And then finally, integration and/or co-location of adjacency manufacturing and processing capabilities. This is particularly important to the U.S. Navy. Part of the challenge that we have right now is parts on average are taking about 28 months to manufacture. And yet much of that time has been queued up as these parts travel all over the country for various processing. And so to the extent we could co-locate some of those adjacency processing, it would enable us to shorten the time of production as well as mitigate the risk and improve the resiliency of our production supply chains in the U.S. Jane, I hope that is helpful and would be more than happy to take any questions. Jane Morgan: Wonderful. Thank you so much for that, Hank. And if you could please send through your questions using the Q&A screen that would be great. We've had a few come through already. So let me jump into it. This one came through an e-mail actually, in fact. So one of Amaero's competitive advantages has been stated that the company can produce a far greater percentage of the high-value aerospace grade powder versus the low-value sort of off-spec powder than competitors. So from Amaero's production results so far, is the company achieving the advertised figures across the range of metals? And did this affect Amaero's ability to produce enough finished powder to fill orders this quarter? Hank Holland: Great. So kind of 3 questions in there. First, for those that may not be as familiar, the whole idea of yield. So when we start with the bar, we atomize that entire bar and we had a distribution of powder. And different applications use different particle size distribution. So we might have powder from essentially 0 micron to 400 micron. But in the case of laser powder fusion, which is the most valuable cut of powder, it will tend to be about 15 to 53 microns. Now what the question is referring to is the prior generation of EIGA technology got about a 25% or 30% yield of that 15 to 53 most valuable cut. Plasma atomization, again, a proven and very, very well-accepted form of atomization gets somewhere around a 30% to 35% yield. EIGA premium, the new generation of the technology that we're using is getting a 50% and 50% plus yield. And yes, we are -- we'll continue to improve our yield as we continue to dial in our manufacturing, but all the results that we're seeing today are consistent with what we would have expected. By the way, the other thing that I would say is there's other forms of atomization where you start with scrap and whether what's called HDH, which is a chemical process or other ways that you're making powder. And they might stipulate they've got a higher percentage yield than, say, that 50%. But that's implicit on starting with the correct size powder. That is if you want 15 to 53, you've got to start with 15 to 53 feedstock, right? So again, we're talking about 50% of the entire bar, right? So the EIGA premium has got the highest yield from a bar standpoint of any technology. It also uses half the Argon gas. And so again, our significant unit cost advantage that we drive. Jane Morgan: Wonderful. Thank you. So next one is, in the quarterly, you mentioned that you shipped to Velo3D 500 kilograms of C103 and 500 kilograms of Ti64. So were these included in the revenue performance for the quarter? Hank Holland: Yes. So over the course of the quarter, we had a pretty balanced distribution of revenue. In the course of the quarter, as you mentioned, we shipped C103 to Velo3D. We also had shipments of tungsten, TGM, I'm missing another alloy or two. But anyway, we had -- so we had C103, we had development refractory. We had what we call other refractory and then we had Ti64. So a broad portfolio of powders that were shipped during the quarter. And then as you know, of the AUD 4.7 million of revenue, about AUD 600,000 of that was PM-HIP. We actually had a couple of PM-HIP projects that got pushed into this quarter as part of that AUD 500,000. That AUD 500,000 back order was about half powder and about half PM-HIP, the powder of which that backlog has already shipped so far this quarter. So it was a nice balanced quarter as far as where the revenue came from. What I would say going forward, including the current quarter that we're in, I think that you'll see a consistent increase in the kgs that we ship. So the amount of powder that we ship, though it will be somewhat lumpy in revenue and there will be quarters, for example, we don't ship C103, right? Obviously, C103 has a price 20x higher than Ti64. So where we don't ship C103, that can impact the revenue. But I think you'll see a consistent increase in kgs that we're shipping quarter-to-quarter. Jane Morgan: Wonderful. And so next one is, you mentioned delivery of First Article parts to a defense contractor in September, October 2025. Have these been delivered? And if so, what is the process to progress from First Article to purchase orders or ongoing contracts? Hank Holland: Yes. So the First Article parts have been completed. They are back at our facility. Our customer has seen these parts. We will do some further testing with our customer on these parts through the end of the year. We hope to have it finished -- our customer hopes to have it finished before the end of the calendar year. And that will be a very, very important milestone. We understand from our customer, and I think it is fair to represent that in the area of PM-HIP, Amaero, and I really credit Eric Bono, Fred Yolton, Dr. Aman, we have absolutely have leading pioneering experience in this area and we hear this back from our customers as well. We are addressing some of the most difficult manufacturing challenges as far as parts that are not only bottleneck in the forging ecosystem, but are very difficult to make even with the forging and machining capabilities that we have today. So we feel very good, as does our customer about where we are. And the importance of having these First Article parts accepted is what is in the wings after this to follow is more development opportunities, but even more importantly, immediate production opportunities. And I think that, too, speaks to the technical readiness level and the maturity of PM-HIP as a manufacturing technology. Jane Morgan: Yes, absolutely. I think -- and this one has come through a few times actually, Hank. So what impact is the U.S. government's budget shutdown having on that sort of defense and aerospace contracts? Hank Holland: Yes. It's a very good question, and there's not an easy answer. So for those in Australia that might not be as familiar with the U.S. budget process, our federal budget fiscal year begins October 1 and goes through the end of September. So October 1 of this month, we began our fiscal year '26 budget. As you might recall, last year, a continuing resolution was passed through the end of fiscal year '25. So that expired September 30. And historically, what you would then do is you would pass a new continuing resolution that would be a short GAAP measure until the fiscal year '26 budget is passed, which typically has happened in December, if you look historically. Instead, the House and the Senate could not reach terms on passing a continuing resolution. The continuing resolution we had expired at the end of September. And today, we have no continuing resolution and no pass budget, thus, our government in the U.S. is closed down. Essential services continue to operate, but we are already hearing from customers. And when you -- even when you're in a CR, you can't have new starts or restarts, but this is not even a CR, right? You're just closed, if you will. And so we have not yet seen an impact on our business. We've not yet seen an impact on the immediate quarter or the immediate pipeline. But if this was to go on much longer, I believe this is already the second longest shutdown that we've had in U.S. history. I believe 42 days or 40 days thereabout is the longest. And here we are 23 days into it. If it goes on longer, a, it's not good for our country. It's certainly not good for our readiness as a country, and it will begin to have an impact at some point. So I wish I could give a more definitive answer. Stay tuned. Hopefully, we will -- it's not a great way to run a country. It's certainly not a great way to fund a Department of War. And hopefully, we'll get this resolved shortly. Jane Morgan: Yes. So great. So another one that's come through. So what progress are you making with nondefense, non-aerospace customers who need to buy U.S. sourced materials? You've previously spoken about potential customers in the medical center. Is there any progress happening there? Hank Holland: So one of the areas that we got lucky, if you will, was when we first invested in Amaer 3.5 years ago, a big part of our premise was anticipating that the U.S. would reshore defense industrial base. And obviously, we've seen that in spades. What we didn't anticipate was an administration would take policy actions such as the Trump administration is now to so resolutely reshape international trade policy. And obviously, in the U.S., we've done this with tariffs, and we've done this with other non-tariff trade policies. And what this has created is significant, and I say significant movement of particularly U.S.-based companies that are multinational that had offshored their manufacturing really from the early 90s onward. Obviously, much of that had gone to China and other lower production cost areas. And those companies that their end market is back in the U.S. So take a company such as Stryker, I think I've mentioned this before, 75% of their knees and hips, their orthopedics by value that they sell, they sell in the U.S. But today, 100% of those are manufactured in Ireland and 100% of their powder is sourced in Europe and Canada, right? So you're seeing a lot of companies like that now begin to reshore and better align the manufacturing footprint with their end markets. So a significant part of the opportunity that we're seeing in addition to the defense industrial base are these commercial markets. It's also important for us because we've got to work on immediate now opportunities and then be planting seeds for longer qualification period opportunities. For example, if you're going to qualify powder for a jet engine part, it could be 2 to 3 years before you qualify that material. If you're going to qualify an orthopedic for a medical device, it could be 12 to 24 months before you qualify that material. So we've got to find some now opportunities and then be planting the seed for these longer term, and that's the way we're approaching this. So when I say we're making progress, which I think we are, think of that as we've planted those seeds, we've commenced those commercial engagements, we provided them powder, and we're trying to advance that towards qualification internally. Jane Morgan: Thank you, Hank. Lots coming through, so bear with me. Okay. So is EIGA #3 still on track to arrive in calendar year '26? And are you confident you will have enough orders building to sort of fully utilize the 3 EIGAs into calendar year '27? Hank Holland: Yes. So our strategy has always been not to fully utilize. And this is part of what gives us the opportunity to go after some of these very large commercial accounts. If we were at full capacity utilization, imagine you're a 1 million square foot office building downtown Sydney and you've got a 95% occupancy rate, well, you can't attract a very large single tenant, right? So our strategy has been to be on our front foot making these investments and to operate in the early years at about 50% capacity utilization and thus have room that we could accelerate production further if we can land some of these large commercial accounts. And by the way, in our current plan, we don't assume any of that happens. We assume that we methodically absorb that capacity utilization over a 4-year period of time, right, between now through FY '30. If we do land some of these accounts, it will accelerate that. So that's the first part of the question. As far as timing, what we've announced is the first atomizer we commissioned in June of '24, and that's essentially dedicated to refractory. The second atomizer we commissioned in June of '25. That is in a separate production room much larger that has capacity for 5 EIGAs dedicated titanium. The third atomizer in total, the second one, which will be dedicated titanium is scheduled to ship from Germany in January and to be commissioned by June of '26, so next year. And then with the recent capital raise, we announced that we will go ahead and order a fourth EIGA. We expect to order that before the end of the calendar year, and then that one commissioned 1 year later than the third one. So we'll have a cadence of June '24, June '25, June '26 and June '27, commissioning the 4 EIGAs. Jane Morgan: Thank you. A bit of a different one here. So has Amaero considered atomization of low alpha, high-purity aluminum, which is used in the casing of silicon computer chips and currently produced by some of the largest Japanese manufacturers to obviously supply the next generation of semiconductor fabs being built in the U.S.? Hank Holland: Yes, it is a great question. And part of what I love about having so many great partners right here that are smarter than I am on various issues. If Eric Bono was on the phone, he would have an immediate a very thorough answer to that. I don't have an answer to that question. We are working right now with some semiconductor companies, both on the capital equipment side, which is really a PM-HIP opportunity, but also on advanced materials side. So there is interesting work being done there. I do not know specific to that material. If Jane, if you want to forward me the e-mail, I'd be happy to get to Eric Bono and we'd be happy to respond. Jane Morgan: Absolutely. Okay. Next one. Sorry, there are a lot coming through and a few double ups here. But okay, so looking at the quarterly, as production scales into the December quarter, will there be additional working capital requirements to further build input inventories? Hank Holland: So I'm not sure if the question means more than we have anticipated or simply working capital scales. Certainly, as we scale the business, working capital scales, right? So if you think about as you have more production, you need more feedstock, you carry more inventory. So absolutely, one of the things that we follow very closely is work in progress. And candidly, the immediate priority is scaling production. You kind of take this in sequential steps, if you will. As you scale production, then you'll want to circle back on optimization and you'll be then focused on, okay, we want to do certain things such as further enhance yield to the question earlier about getting to 50%, we actually think we can get materially higher than 50%. In doing so, you reduce your cost per kg. And there's other things that we can do to further reduce the cost per kg. So it becomes a bit of a circular process. But yes, naturally, as you scale the business, the working capital required for the business will also scale, and that is in our model and very much accounted for in the capital that we have on hand. Jane Morgan: Thank you, Hank. Sorry, that's come through. So let me just double check that there's nothing that's sort of been already covered. Look, I think that does cover most of the questions that have come through. I mean, finally, what kind of 3 key messages would you like investors to take away from today's webinar? Hank Holland: Look, I think what's most important for this year, and again, this will be a transitional and transformative year for the company as we transition into commercialization, and we begin to significantly scale production. So what am I paying the most attention to? What are we collectively in leadership, scaling production and scaling commercial contracts, right? That is going to be our focus over the course of this year and candidly, into fiscal year '27. So we hope to have more commercial announcements. Obviously, we had a cadence of long-term agreements and strategic announcements. We hope to have more of those. We certainly hope to have some progress with the U.S. Defense Prime that we've been working with. You can't really control when these things happen. And candidly, when you're working with the U.S. Navy, they don't really care about this quarter. They care about getting it right for a generation of our sailors, right? Getting it right for our next generation of submarine. And so on one hand, most important to us is to be a great partner and do great work. We want these things to happen as quickly as they can. A, it's not within our control; and b, candidly, it's not what's most important. What's most important is for this business to be successful long term. So I would say those would be the key takeaways. Follow our progress in scaling production, follow our progress on additional commercial contracts and scaling our revenue. Jane Morgan: Thank you, Hank. Well, that does look like we've answered all the questions for today. Should we miss anything, please feel free to reach out by the contact details on the bottom of our ASX releases. But thank you all for joining us. Hank Holland: Thank you very much, Jane. Thank you, everyone.
Operator: Good day, everyone, and welcome to Kimberly-Clark de México Third Quarter 2025 Results. [Operator Instructions] Please note this call is being recorded, and I will be standing by. It is now my pleasure to turn the conference over to CEO, Pablo González. Please go ahead. Pablo Roberto González Guajardo: Hello, everyone. I hope you're doing well, and thanks for participating on the call. We'll go straight to results, and then we'll make some brief comments about the quarter and our expectations going forward. Xavier? Xavier Cortés Lascurain: Thank you. Good morning, everyone. Results for the quarter were better, with net sales growing and gross and operating profits recovering. During the quarter, our sales were MXN 13.4 billion, a 2% increase versus last year. Hard rolled sales impacted total volume, which was flat and price/mix was up 2%. Consumer Products grew 5%, 1% volume and 4% price/mix, while Away from Home remained flat. Exports were down 15%, impacted by a 32% decrease in hard rolled sales, while finished products grew 7%. Cost of goods sold increased 3%. Against last year, SAM, resins and virgin fibers were favorable. Recycled fibers were mixed, while fluff compared negatively. The FX was slightly lower, averaging 1% less. During the quarter, our cost of goods sold reflected the higher prices of raw materials from prior months and very significantly, the much higher FX, including the hedges as those trickled down the inventory layers. Our cost reduction program once again had very good results and yielded approximately MXN 500 million of savings in the quarter. These savings are mainly at the cost of goods sold level and are generated by sourcing, materials improvement and process efficiencies. Gross profit was flat and margin was 38.7% for the quarter. SG&A expenses were 4% higher year-over-year and as a percentage of sales, were up 30 basis points as we continue to invest behind our brands. Operating profit decreased 4% and the operating margin was 21.3%. We generated MXN 3.4 billion of EBITDA, a 3% decrease, but within our long-term margin range at 25%. As mentioned, the benefits of better raw material prices and a stronger peso take time to show up on the actual cost of goods sold, due not only to inventories, but also to contract transit time and particularly in this case, the currency hedges. Having said that, our gross margin did improve 50 basis points sequentially from the second quarter to the third quarter. That improvement does not go down to the operating profit or EBITDA level because the SG&A remained constant and was, therefore, higher as a percentage of sales because the third quarter sales are traditionally lower than the second quarter sales. Cost of financing was MXN 404 million in the third quarter compared to MXN 287 million in the same period last year. Net interest expense was higher at MXN 401 million versus MXN 290 million last year, despite our lower gross debt because we earned less on our cash investments. During the quarter, we had a MXN 3 million FX loss, which compares to a MXN 4 million gain last year. Net income for the quarter was MXN 1.7 billion with earnings per share of [ MXN 0.56. ] We maintain a very strong and healthy balance sheet. Cash position as of September 30 was MXN 11 billion. We have no debt maturing for the rest of the year and maturities for the coming years are very comfortable. Net debt-to-EBITDA ratio is 1x and EBITDA to net interest coverage is 10x. Over the last 12 months, we have repurchased close to 50 million shares, around 1.5% of shares outstanding, which brings the total payout to shareholders to approximately 7%. And with that, I turn it back to Pablo. Pablo Roberto González Guajardo: So we continue to operate against a soft consumer backdrop, but we managed to increase sales and post EBITDA margin within the target range. Growth in Consumer Products was significantly better supported by innovations and commercial initiatives, together with a strategic decision to reduce spending during the heavy summer promotional season to protect the value of our brands as well as reduce the negative price effects. Volume was slightly ahead of last year, an important improvement, but consumers remain stretched and cautious given the increased uncertainty, job growth deceleration, remittances slowdown and overall lack of economic growth. We see no significant catalyst for this to change in the short term and are strengthening strategies accordingly. Still more relevant and differentiated innovation, more effective engagement with consumers efficient execution hand-in-hand with our clients, and importantly, relentless focus on our most important opportunities by category, channel and brands will guide all our actions. In a market that's not growing much, gaining share and playing in areas where we haven't participated at least not aggressively, will be key to accelerate our growth. We look forward to sharing more details on the strategies as we get into 2026. The same holds true for Away from Home business, and we expect exports of finished products to continue to grow and accelerate in the coming years, behind a concerted effort with our partner, Kimberly-Clark Corporation. With respect to costs, we have yet to see the full effect of lower input prices on results and lower sequential volumes typical of the third quarter meant we had weaker operating leverage. Despite these headwinds, margins remain strong. As we get into the final stretch of the year and particularly into next year, we will see lower costs reflected in our numbers. We expect lower pulp prices, stable recycled fibers, lower resins and superabsorbent materials plus a stronger peso to be tailwinds going forward. In summary, our results continue to improve. And despite an expected continued weak consumer environment, we're executing strategies that will translate into stronger results in 2026 and the years to come. With that, let's turn to your questions. Operator: [Operator Instructions] We'll take our first question from Ben Theurer with Barclays. Benjamin Theurer: Congrats on the results despite the challenging environment. So I wanted to follow up a little bit on just the consumer sentiment and what you've been seeing across the different categories. So maybe help us understand and kind of like getting a bit closer into that 4% price/mix change. How are you able to kind of like implement that and at the same time, actually get about a 1% volume growth, just given the consumer is weak, but it felt like a very good execution on price mix with volume growth. So that would be my first question. Pablo Roberto González Guajardo: Sure, thanks for the question. Look, as I mentioned, we see a stretched consumer. And this is [ not news of ] uncertainty. And as I mentioned, job growth has decelerated, remittances have slowed down. I mean overall, the economy is pretty slow and consumers' sentiment is not at its best, if you will. So consumers are being very careful in how they are spending. We do see a fork, if you will, with consumers that continue to spend on premium products, but there are those who are trending down from value to economy products, not at a very marked rate, but there's certainly something happening there given the -- how the consumer is stretched. So the way we were able to put all of this together -- and let me say, by the way, the growth in our categories is pretty muted. Some of them, the categories that don't have such high penetration like kitchen towels and others are growing at higher rates. But even those the rates have slowed down a little bit. And the more, if you will, mature categories are flat or slightly growing when it comes to volume. So what we did is, one, Remember, we decided not to play as aggressively on the summer promotional season. Because what we were seeing over the past couple of years is that when you did that, the price would take a hit not only within the promotional season, but then beyond that, because consumers ended up with some inventory on their hands. So then it was a little harder to move volumes forth. So we were very careful on how we manage that, and I think we were successful in doing so. Plus the fact that we are through our revenue management -- revenue growth management capabilities found certain instances where we could adjust pricing and move forth. So that's how we were able to keep prices going and then volume really helped because of innovation and all of our commercial activities during the third quarter. So it was really a combination of executing on price and innovations that allowed us to put together both growth in price and for the first quarter in the year, growth in volume. Benjamin Theurer: Okay. And then just one quick follow-up. You've called out the softer hard roll sales volume. Was there a technical issue? Is it a demand issue on the export side? What's been driving that? Pablo Roberto González Guajardo: Really, I think what's happening there is that there's a lot of supply of hard rolls in the U.S., a combination of companies with excess capacity sending it to the U.S. and then maybe a little bit of companies buying before some of the tariffs came into effect. So there's paper out there that I think the system is going through. And hopefully, that will become more normalized, if you will, in the fourth quarter, certainly, I think by the first quarter of next year. But overall, just oversupply in the market of hard rolls in the U.S. Operator: We will move next with Bob Ford with Bank of America. Robert Ford: Pablo, I also was impressed by the growth in consumer given your intent to stay away from some of the summer promotions. Can you give some examples maybe of some of the more successful innovation and execution of efforts that are enabling you to improve pricing and take share? And with respect to the export mix between hard rolls and finished products, can you give us a sense both in volume and value in terms of the breakdown of those exports? And then how should we think about current capacity utilization rates for both pulp and finished product? Pablo Roberto González Guajardo: Thanks, Bob. Thanks for your question. Yes. Look, I mean, when it comes to innovation, as I mentioned earlier in the year, we have strong innovations for all of our categories throughout the year. And by the way, we have a very, very strong pipeline for the coming years. So we're very excited about that. And a couple of particular examples are on the diaper front, where we pretty much improved on every single tier of our offerings. And when you take a look at our shares, we're -- even though the categories, as I said, pretty flat, we're gaining share in pretty much all of the channels given the -- all of the channels and all of the tiers, given the innovations that we were able to put into the market. And again, those have to do with better observancy core, better fit, better stretch, better softness. So depending on the tier, again, we improved every single one of them, and that's a category where we see our shares improving nicely. Also, for example, in bathroom tissue in the premium tier, where we've introduced a couple of new features and new sub-brands under Kleenex, Cottonelle, and we're absolutely convinced we have the best product in market and products that can compete with products anywhere in the world. and they've been very, very well received by consumers. And as well, we also made some innovations to our economic product, particularly Vogue in the -- or [ Vogue ] in the wholesale channel, and we've been able to gain ground with that product consistently and significantly. So again, innovation at the core of everything we do and very, very excited with what we see for the coming years when it comes to innovation. With respect to the breakdown of our exports, I mean, hard roll sales represent 46% of the sales and finished product, 54%. And hard rolls, as I mentioned, hopefully, volumes will stabilize here in the coming quarters, and we expect that to continue to be -- hopefully, be a tailwind and if not, certainly not a headwind going forward. And on the finished product, we're excited. I mean we've had a couple of meetings with our partner, and we're looking at opportunities in the coming years to further integrate our supply chain. We've done a good job here in the past couple of years, but many more things that we can do, and we're working very closely together to make that happen, and we're excited with the opportunities we see for it. And as we move and are able to turn more of our capacity into finished product, then certainly, our hard roll sales will decline accordingly because, as you know, what we do is our excess capacity is what we turn into hard rolled sales and sell outside. So as this plans with our partner materialize, a little by little, we'll start to see lower hard roll sales, but finished product sales increase hopefully significantly. Robert Ford: And that was actually the idea behind the question on capacity utilization is we agree. We see this massive opportunity in exports of finished product. And as a result, we're a little curious in terms of where you are right now in terms of capacity utilization, both for pulp? And then how should we think about where you are today on finished product and we can make some estimates in terms of what you need to add. Pablo Roberto González Guajardo: Yes. And it's a great question, Bob, and we -- let me put it this way. We have enough capacity to grow on finished products aggressively together with our partner in the coming years. And not only what we're producing right now, but we're putting plans together so that we can get more throughput through our equipment or through our machines. So we will be able to support growth with them. And I think we will still continue to be able to put a decent amount of hard roll sales out there in the U.S. So I think the combination over the coming years will certainly be a support our growth and support our margins going forward. Operator: Our next question comes from Alejandro Fuchs with Itau. Alejandro Fuchs: I have 2 very quick ones. Pablo, maybe I want to see if you can discuss a little bit about competition, right? How do you see competition today in Mexico, given the increase in price and sales mix, are maybe the competitors following? Are they being more aggressive promotionally? And if you can also discuss maybe your expectations into next year, hopefully, with a better consumer environment in the country. Maybe you can talk us about what do you expect going forward? Pablo Roberto González Guajardo: Sure, Alejandro. Look, when it comes to competition, I mean, you know our categories have always been very competitive. And we maybe are seeing a little bit more from some participants, not all when it comes to their promotional aggressiveness. I wouldn't say it's something that it's radically different, but a little bit more as, again, the pie is not growing, some are losing share. So they're trying to recoup some of that and are being a little bit more aggressive on it. But not -- again, not something that it's too surprising or too different from other instances. And the fact also that our retailers are, one, continuing to keep inventories and overall working capital under control, they're putting a lot of pressure on that. And two, trying to keep prices, it seems to me a little bit more consistent. I mean that helps in terms of the aggressiveness of promotions not being even more so that it could have been in other instances when the economy is not growing. So a little bit more, but really nothing marked, if you will. Coming into next year, I mean, we hope that a lot of the -- or at least some of the uncertainty that is hanging over the economy can be resolved or at least we get a clear direction as to where it's going. Certainly, the uncertainty that's coming from the USMCA revision or renegotiation and what will happen with that. I mean, you've heard -- we've heard that in a couple of weeks, we'll be hearing from our government as to some of the agreements they've come to with the U.S. administration. So hopefully, that will start to settle down, and we'll know a little bit better where it heads. Hopefully, as we get into the first -- or the workings of the judicial reform, we start to see how it how it works, and we start to see some decisions that support, again, giving more certainty to investment. And again, just hopefully, some of this uncertainties start to play out and we start to get a better sense of what's going on. We know then what to expect. And if that happens, I think the economy will be able to start growing again at a faster clip, maybe come back to what we were doing before all of this uncertainty, about a 1.5%, 2% rate, which at this stands would be pretty good. Not what we need certainly as a country. I mean, we really should be working hard to take all of the obstacles away from investments so that we can start growing at 3% or higher rates, but that's going to take some time and uncertainty is key for that certainty. So that will hopefully play out by '27, but at least by '26, if we can get some uncertainty out, we'll see greater economic growth and then we might see a consumer that feels a little bit better about things and then domestic consumption can start to pick up again. That's our expectation. But let's see how quickly we can -- how quickly it unravels and happens. Operator: Our next question comes from Renata Cabral with Citibank. Renata Fonseca Cabral Sturani: Congrats on the results. So my first question is still about the consumption environment, but specifically to understand if consumers are making the trade downs and if you see a bigger penetration of private label in the categories that the company has? And the second question is related to cost. In the initial remarks, I understood that the company expects that the raw material prices should maintain for the upcoming months. I would like just to confirm if that's the view. And for the fourth quarter, if the company has any hedges or the effects? Pablo Roberto González Guajardo: I hope I can answer your questions. You were not coming through too clearly, but if I don't, please let me know. Again, when it comes to consumers, we're seeing a divergence. Those that buy premium products continue to do so. Those consumers that are used to buy either value or economy products, we see a little bit of trade down to the economy segment. not a big trade down, but a little bit of trade down given how stretched they are. And tied to that, we are also seeing growth in penetration of private labels in the country. And it's a combination of the economic situation and retailers being a little bit more aggressive when it comes to pushing their private label. When it comes to costs, again, we already have seen in our purchases lower costs of most of our raw materials, excluding fluff. And that's just taking a little bit of time to reflect on our cost of goods sold, but we expect that to continue to -- start to happen certainly in the fourth quarter. And no doubt early in 2026. And our expectations for costs in the 2026 is that we will come in with, again, most of them on a downward trend and that will certainly be tailwinds for our cost together with the exchange rate, which will compare very favorably in the first half of the year. So that should be very, very helpful going forward. And when it comes to hedges, no, we have no more hedges during this quarter, and we don't expect to hedge going forward. Operator: We will move next with Antonio Hernandez with Actinver. Antonio Hernandez: Just following up on [ Renata's ] question, should we expect given that because of the tailwinds from FX and maybe raw materials and so on, that maybe EBITDA margin, at least in the short term has already hit rock bottom. Is that like you see basically upside on going forward? Pablo Roberto González Guajardo: Yes, absolutely. And it's interesting how you put it rock bottom when it's 25%, and it's still one of the best EBITDA margins out there for any Consumer Products company in the world. But yes, we probably have hit rock bottom. And going forward, we should expect better margins, no doubt. Antonio Hernandez: Exactly. Yes. I mean, rock bottom considering the 25% to 27%. Pablo Roberto González Guajardo: I understand. I just -- quite frankly, I just used it to make a point, sorry. Antonio Hernandez: Exactly. It's all relative in the end, but yes, pretty good margins. Just a quick follow-up. In terms of innovation and how you're also treating these consumers that are willing to buy these premium products. Maybe if you could provide any color on how much do they represent or innovation in terms of sales? Anything like that would be helpful. Pablo Roberto González Guajardo: Look, I think most of our growth really is coming from products that -- where we've innovated. And again, we're very, very excited with what we've done, but even more so with what we have coming. And early in 2026, we hope to share a little bit more of our strategies when it comes to areas -- main areas of focus and opportunities by category, channel and brands and also the -- what we see would be some of the very exciting innovations that we're going to be putting into the market. So let's hold on that until the first quarter of '26, and we'll be able to provide you more insight and details into what it's done and how we expect it to contribute to our growth going forward. Operator: [Operator Instructions] We will move next with Jeronimo de Guzman with INCA Investments. Jeronimo de Guzman: Start with a follow-up on the cost side. You mentioned that there's no hedges impacting the fourth quarter, but I just wanted to understand how much did the FX hedges impact the third quarter? Pablo Roberto González Guajardo: I would probably say they did impact about 50% of our purchases for the second quarter and for the first part of the third quarter. So assuming that what we saw on the third quarter was mostly based on those purchases. You could say that approximately 50% of our dollar-denominated purchases were impacted by those hedges in the quarter. I don't know if that made sense. Jeronimo de Guzman: But only half -- but only for half of the third quarter... Pablo Roberto González Guajardo: Yes, because of the -- no, I would say for the full quarter, about 50% of our U.S. dollar purchases, which are about 50% of our costs were hedged. Jeronimo de Guzman: Got it. Okay. And what was the average FX for those hedges? Pablo Roberto González Guajardo: [ 20 70 ] something. Jeronimo de Guzman: That will be a big improvement. And then just want to understand, given the much better cost outlook and the fact that these hedges are less of a headwind going forward or not a headwind going forward, how are you thinking about pricing going forward? Pablo Roberto González Guajardo: Look, we continue to take a very close look at each category and each tier and each channel to see where there are opportunities for pricing because, yes, we see tailwinds when it comes to costs of raw materials. We see headwinds in other costs, for example, on labor costs, which have been increasing in Mexico for quite some years. And when you compound their impact over the years, it's becoming a little bit more impactful, if you will, and some other issues. And plus we want to continue to generate important margins and profit so that we can further invest behind our brands. So pricing will not be as maybe in the past where you would just [indiscernible] we're going to increase 4% in the diaper category in March and period. It's going to be more of a strategic analysis, again by tier, by channel, et cetera, to determine where the opportunities are together with a very important push behind mix for our brands given the innovation we have. And so we will continue to look for opportunities to price and opportunities to improve our mix going forward. Jeronimo de Guzman: Okay. Yes, that's helpful. So the 4% that you had this quarter year-on-year, how much of that was mix versus actual price changes? Or was it just less promotions versus a year ago, I guess, which is kind of a... Pablo Roberto González Guajardo: It was about half and half. It was about 2% price, 2% mix. Jeronimo de Guzman: Okay. Got it. Great. And just one other question on the competitive environment. I wanted to get your sense on market share trends in general, kind of where -- in what areas are you seeing maybe more pressure on the market share side and where you're seeing more more of the market share gains that you're having? Pablo Roberto González Guajardo: Overall, I think we have a very stable market shares, maybe except on diapers, as I mentioned, we see that share growing. When you take a look at bathroom tissue, we're fairly stable. Napkins, we're growing share. kitchen towels, we're growing share. Wipes, we're growing a little bit on value, not on volume. But that's a category where we have lost a little bit of ground to not only private label, but a whole bunch of offerings coming from Asia and other parts of the world at very cheap prices. So we've got plans to attack there and recoup some of the share. And I would say about that, I mean, facial tissue is is flat at about 92%. I mean, our shares are pretty stable overall. Jeronimo de Guzman: Okay. Sorry, one more question on the new JV, the penetration, any updates on that? Pablo Roberto González Guajardo: On what, sorry? Jeronimo de Guzman: The new business, the pet, animal [indiscernible] Pablo Roberto González Guajardo: Pet business. No, thanks for the question. Yes, we continue to make inroads. I mean we're getting cataloged in more retail chains and improving our reach within them. So getting more SKUs in there and getting into more stores. And again, the consumer reaction so far has been very, very good. The retail reaction has also been good. So right on track where we wanted to be, and hopefully, that will accelerate in 2026. Again, this is a long-term play, but we should be this -- we absolutely should see this business accelerate in 2026. Operator: We will move next with [ Miguel Ulloa ] with BBVA. Miguel Ulloa Suárez: It could be regarding the CapEx for next year and any changes in the repurchase program. Pablo Roberto González Guajardo: Miguel, CapEx will remain very likely in the $120 million range. Could be a little bit more if some of the opportunities for exports capitalize, but nothing that would change significantly the capital allocation. For buybacks, this year, we will complete our EUR 1.5 billion program. Still too early to talk about next year. We will definitely have retained earnings from the net income this year to grow the dividend. And as usual, whatever we have left, we will devote to to buybacks. So that we'll have to see after we end the year. Miguel Ulloa Suárez: That's helpful. And just one, if I may, is regarding further investments or big investments in line for capacity in coming years? Pablo Roberto González Guajardo: Right now, it doesn't look like we need to do anything beyond that 120 average CapEx. Again, if we see more opportunity, we could see a couple of years of ramp-up. And even if at some point, we need a tissue capacity, which at this point, it doesn't look like, but hopefully, that changes, then we would see a couple of years of 150, maybe somewhere around that. Again, nothing that should change significantly the capital allocation. Operator: And this concludes our Q&A session. I will now turn the call over to Pablo González closing remarks. Pablo Roberto González Guajardo: Thank you. Nothing else to say just thanks for participating in the call. I hope you all have a terrific weekend. And since this is our last call before the year-end, I know it's early, but I hope you all have happy holidays and a terrific New Year's and look forward to talking to you early in 2026. Thank you. Operator: And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good day, and thank you for standing by. Welcome to the Gentex Third Quarter 2025 Financial Results 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, Josh O'Berski, Director of Investor Relations. Please go ahead. Josh O'Berski: Thank you. Good morning, and thank you for joining us today for our third quarter 2025 earnings conference call. I'm Josh O'Berski, Gentex's Director of Investor Relations. And with me today are Steve Downing, President and CEO; Neil Boehm, COO and CTO; and Kevin Nash, Vice President of Finance and CFO. Please note that a replay of this conference call webcast along with edited transcripts will be available following the call on the Investors section of our website at ir.gentex.com. As a reminder, many of the statements made during today's call are forward-looking statements that reflect our current expectations. These statements are subject to a number of risks and uncertainties, both known and unknown, including those detailed in our second quarter 2025 earnings press release and our annual report on Form 10-K for the year ended December 31, 2024 as well as general economic conditions. If one or more of these risks or uncertainties materialize or if our underlying assumptions or estimates prove to be incorrect, actual results could differ materially from those expressed or implied in our forward-looking statements. On a quick programming note, I would also like to call attention to the fact that Gentex will be hosting investor visits at SEMA and in San Francisco and Los Angeles, the week of November 3. If you are interested in attending, please connect with me after this call. I'll now hand the call over to Steve Downing for our prepared remarks. Steven Downing: Thank you, Josh. For the third quarter of 2025, the company reported consolidated net sales of Gentex and VOXX of $655.2 million, an 8% increase compared to net sales of $608.5 million in the third quarter of last year, which did not include VOXX. VOXX contributed $84.9 million of revenue while Core Gentex revenue was $570.3 million in the third quarter of 2025, which was a 6% decline versus the third quarter of last year. This is in comparison to light vehicle production in the company's primary markets that increased by approximately 2% versus the third quarter of last year. In terms of regional performance for the third quarter, North American OEM revenue increased approximately 5% quarter-over-quarter, supported by robust production schedules and increased content per vehicle. In Europe, revenue declined approximately 14% quarter-over-quarter. The decrease was driven by customer-specific production challenges and a weaker regional vehicle mix. In Europe, light vehicle production volumes moved to lower trim level vehicles that do not typically include higher-end Gentex features. In China, revenue totaled approximately $34 million, down 35% compared to the third quarter of last year. The decline reflects the ongoing impact of tariff and counter tariff actions. Despite the regional headwinds, Gentex delivered solid results through disciplined execution and incremental contributions from the VOXX acquisition. For the third quarter of 2025, the company's consolidated gross margin was 34.4% compared to a gross margin of 33.5% for the third quarter of last year, which did not include VOXX. The core Gentex gross margin was 34.9%, representing a 140 basis point increase compared to the third quarter of last year. The core gross margin improvement was driven by favorable North American customer and product mix, purchasing cost reduction and continuing operational efficiencies. The ongoing improvement in gross margin reflects the company's disciplined focus on cost control and productivity improvements. However, the gross margin was negatively impacted by approximately 90 basis points due to incremental tariffs in the quarter that were not offset through customers. Despite the incremental impact of tariffs on our business, the company has improved the overall gross margin to levels not seen in several years. Consolidated operating expenses during the third quarter of 2025 were $102.8 million compared to operating expenses of $78.3 million in the third quarter of last year, which did not include VOXX. The increase was primarily due to the VOXX acquisition, which accounted for $23.7 million of the increase. Gentex's operating expenses, excluding VOXX, were $79.2 million in the third quarter of 2025, compared to $78.3 million during the third quarter of last year. The increase in core Gentex operating expenses included $1.1 million in acquisition-related costs and Gentex-specific severance expenses. Consolidated income from operations for the third quarter of 2025 was $122.3 million compared to income from operations of $125.7 million for the third quarter of last year, which did not include VOXX. Gentex's income from operations, excluding VOXX, was $119.7 million in the third quarter of 2025, representing a 5% decrease versus the third quarter of last year. Total other loss was $1.8 million during the third quarter of 2025 compared to income of $19.7 million in the third quarter of last year. The reduction was primarily due to a $14.9 million gain included in the third quarter of last year related to the fair value adjustment of the company's original investment in VOXX. During the third quarter of 2025, the company had an effective tax rate of 16.3% compared to an effective tax rate of 15.7% during the third quarter of last year. The quarter-over-quarter change in the effective tax rate was primarily driven by lower tax benefits related to stock-based compensation compared to the third quarter of last year as well as a reduced benefit from the foreign-derived intangible income deduction. Consolidated net income attributable to Gentex for the third quarter of 2025 was $101 million, supported by higher overall sales levels, gross margin expansion and cost improvements. Net income in the third quarter of last year was $122.5 million. The quarter-over-quarter change was primarily due to the onetime gain in the prior period resulting from the fair value adjustment of the company's original investment in VOXX. Consolidated earnings per diluted share attributable to Gentex for the third quarter of 2025 were $0.46 compared to earnings per diluted share of $0.53 for the third quarter of last year, which did not include VOXX. Though VOXX was not consolidated in the third quarter of 2024, earnings per diluted share for that quarter were positively impacted by the onetime gain in the company's original investment in VOXX. I'll now hand the call over to Kevin for some further financial details. Kevin Nash: Thanks, Steve. Gentex's automotive net sales were $558 million in the third quarter of 2025 compared to $596.5 million in the third quarter of '24. The lower quarter-over-quarter automotive sales were largely the result of lower shipments of auto-dimming mirrors into Europe and China in the third quarter compared to the third quarter of last year. However, the lower unit shipments were partially offset by strong growth and advanced feature mirror sales in North America. Net sales from Gentex's other product lines, which includes dimmable aircraft windows, fire protection products, medical devices and biometrics were $12.3 million in the third quarter of '25 compared to $12 million in the third quarter of '24. VOXX net sales contributed $84.9 million during the third quarter of '25. The company continues to work through post acquisition transition with a focus on aligning product strategies, optimizing customer relationships and identifying operational synergies across both businesses. During the third quarter '25, the company repurchased 1 million shares of its common stock at an average price of $28.18 per share. for a total of $28.3 million. And year-to-date, the company has repurchased 9.8 million shares for a total of $230.5 million at an average price of $23.50 per share. And as of September 30 of '25, the company has approximately 39.6 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan. Turning to the balance sheet. Our comparisons today are based on September 30, 2025 versus December 31 of '24. Starting with liquidity. Cash and cash equivalents were $178.6 million, down from $233.3 million at year-end. This decline was primarily driven by the VOXX acquisition and share repurchases, partially offset by operating cash flow. Short-term and long-term investments totaled $267.2 million compared to $369 million at the end of '24. These investments include both fixed income, securities and our equity and cost method holdings. Accounts receivable stood at $384.7 million compared to $295.3 million at year-end. Of that, $320.4 million was attributable to Gentex and $64.3 million to VOXX. The increase in Gentex receivables was mainly due to higher sequential sales and the timing of those sales within the quarter. Inventories totaled $498.8 million, of which $386.9 million represented core Gentex inventory, down from $436.5 million at year-end, largely due to reductions in raw material inventory. The remaining $111.9 million reflects VOXX inventory. And consolidated accounts payable was $252 million compared to $168.3 million at year-end, including $169.8 million for Gentex and $82.2 million for VOXX. Preliminary cash flow from operations for the third quarter was $146.9 million compared to $84.7 million in the same period last year, primarily due to changes in working capital. And year-to-date operating cash flow was $461.6 million, up from $343.8 million for the first 9 months of 2024, also primarily due to changes in working capital compared to the prior period. CapEx for the third quarter was approximately $35.6 million versus $31.8 million last year, bringing year-to-date capital expenditures to $103.8 million, slightly higher than the $102.9 million last year. And depreciation and amortization expense for the third quarter was approximately $25.9 million compared to $22.9 million in Q3 of '24. And on a year-to-date basis, depreciation and amortization totaled $78.8 million, up from $70.9 million in the prior year. I'll now hand the call over to Neil for a product update. Neil Boehm: Thank you, Kevin. The third quarter of 2025 was another strong launch quarter. In the quarter, over 55% of the launches were advanced interior and exterior auto-dimming mirrors and electronic features. Similar to previous quarters, HomeLink and Full Display Mirror were the primary technology introduced. The launch cadence has been strong over the last several quarters, and I appreciate the team's focus on execution to make them successful. Full Display Mirror sales continue to be a key performer in Q3. Demand remains strong, and we are confident in our ability to sell 200,000 to 300,000 more units of FDM in 2025 compared to 2024, as we've previously stated. In the face of delayed or canceled EV platform launches, ICE and hybrid applications continue launching with Full Display Mirrors and consumer demand for our feature remains strong. A few notable FDM launches this quarter include the Ford Bronco, marking the first non-van launch of FDM at Ford. And the continued adoption of FDM in Europe on the DS No. 8 and the Vauxhall Combo. Additionally, we saw the rollout of FDM at Volvo as a dealer-installed accessory available on the majority of their lineup. Customer interest for dimmable sunroofs and visors continues to grow, and our teams have been working incredibly hard to continue moving this product from single unit production into more mass scale capability. As noted in prior calls, this is an incredibly complex and challenging manufacturing process. To date, we've been utilizing partners to execute part of the process while we get our larger scale production equipment in-house and operational. The target is to have this in-house operation running in late Q1 to early Q2 2026. As with any new product or process launch, there will be challenges. But with the manufacturing capability we have at Gentex, I remain confident in the team's ability to bring this product into the market in the next 1.5 years. Now for a quick update on driver and in-cabin monitoring product area. We continue to make great progress with our driver monitoring and in-cabin systems and remain on track to launch with 3 additional customers by the middle of 2026. The acquisition of Guardian Optical Technologies in 2021 set the stage for Gentex to be a premier player within this industry, and we've continued to grow our capabilities since the acquisition. These systems require substantial integration and coordination with our customers, and our teams have achieved high marks for their progress from our next launch customer. As we mentioned in the press release from this morning, we have been very focused on improvements of the Gentex -- of the core Gentex operating structure over the last 2 quarters. We've successfully executed early retirement incentives that were designed to lower operating expenses while not impacting our ability to continue to invest in technologies and products that will propel Gentex forward over the next several years. Additionally, since the closing of the acquisition of VOXX at the beginning of the second quarter, the teams have been working hard on the consolidation of systems, tools, back-office support, purchasing and logistics. So far, we've made great progress. As we look into the final quarter of 2025, there will be an even stronger focus on efficiency and optimization with a goal of having most plans implemented in the first half of next year. The VOXX teams have done a great job keeping the business moving in the right direction, and now we'll begin to collaborate deeper to drive longer-term improvements into the operation. As an innovation-driven technology company, the focus on R&D over the last several years has enabled us to generate a strong pipeline of both automotive and nonautomotive products and technologies. Now we need to keep the focus on the execution of these products and move them forward into production to support our growth objectives. I'll now hand the call back over to Steve for guidance and closing remarks. Steven Downing: Thanks, Neil. The company's light vehicle production forecast for the fourth quarter of 2025 and full years 2025 and 2026 are based on the mid-October 2025 S&P Global Mobility outlook for North America, Europe, Japan, Korea and China. Global light vehicle production for the fourth quarter of 2025 is expected to decline approximately 4% versus the fourth quarter of last year. Full year 2025 production in the company's primary markets is expected to be down 1%, while production in North America and Europe is projected to fall approximately 2% in 2025 compared to last year. Based on the updated light vehicle production forecast and actual results for the first 9 months of 2025, reduced demand in the China market, stemming from recently implemented counter tariffs and the expected incremental sales contribution from the VOXX acquisition, the company is making certain changes to its full year 2025 guidance. The following updated guidance reflects the anticipated impact of all known tariffs effective as of October 23 and can also be found in our press release from this morning. Consolidated revenue for 2025, including VOXX, is expected to be in the range of $2.5 billion and $2.6 billion. Consolidated gross margin is anticipated to be between 33.5% and 34%. Consolidated operating expenses, excluding severance, are forecasted at $380 million to $390 million. The effective tax rate is expected to be 16% to 16.5%. Capital expenditures are projected at $115 million to $125 million. Depreciation and amortization is expected to total $96 million to $99 million. The third quarter is best summarized as a continuation of the underlying economic environment of the last 1.5 years. Light vehicle production levels in our primary markets have improved versus previous forecast, but any progress is in contrast to the declining production levels experienced over the past few years. Additionally, the previous 2 quarters were impacted by mix weakness in Europe, Japan and Korea, as well as continued headwinds in China due to the ongoing tariff environment. While core Gentex revenue in the third quarter of 2025 was lower compared to last quarter and the third quarter of last year, our strong business discipline and operational focus enabled us to deliver another meaningful improvement in gross margin. The company's focus on business discipline, expense management and operational improvements has helped improve margins despite incremental tariff headwinds that were not reimbursed during the quarter. As we move into the fourth quarter, our teams will be focused on bringing the same type of improvements to the VOXX organization to ensure the combined entity is structured to support sustainable profitability and create shareholder value. That completes our prepared comments for today. We can now proceed to questions. Operator: [Operator Instructions] And our first question comes from the line of Luke Junk of Baird. Luke Junk: Steve, maybe if we could just start with the growth headwinds in Europe. Just trying to tease out how much of that was temporary, I would guess, some JLR-related impacts in the quarter versus things that might be more sticky in terms of true mix. And then as you kind of step into the fourth quarter for the company overall, any incremental trim mix impacts that you might anticipate? Steven Downing: Yes. I think -- if you look at the temporary impact, that was really probably $5 million, $6 million in revenue headwinds from one of the OEM shutdowns in Europe. So pretty minor there. If you look at the rest of it, it's really about mix. And really, what we're talking about is the only real growth. Most of the CD&E vehicles in Europe during the quarter were down pretty significantly. I think A and B, specifically B, I believe, was the only thing that really grew and that's where the strength was in the European market. And as you know, we struggle a little bit with content or at least the same level of content on those vehicles versus what we see in the CD&E segment. Luke Junk: And then into 4Q, other than the temporary piece, anything you'd expect to change in trim mix Europe or, I guess, North America, too? Steven Downing: No. I would say -- I wouldn't say it would probably be quite as drastic as what we saw in Q3 in terms of trim mix. But definitely, there -- I think with some of the economic challenges in the EU right now, we're definitely seeing a little lighter content than what we have been seeing over the last 18 months to 2 years. And so some of it, I think, will continue into Q4, but I think Q3 was definitely probably a hair overdone in terms of that -- how much that changed in one quarter. Luke Junk: Got it. Gross margin, yes, I appreciate the color on the tariff impact this quarter. Just be curious how you're thinking about approaching recovering those costs into the fourth quarter and ultimately into next year. And in terms of the fourth quarter specifically, is there anything incremental that you'd have a line of sight to in terms of costs that you need to recover? Steven Downing: No. I think what you're seeing right now, Q2 tariffs, we actually recovered probably 70%, 80% of the tariff costs of Q2 in Q3, and so what you're seeing is a step up in overall tariff from Q2 to Q3. We haven't been reimbursed those yet. We would expect to get most of that reimbursed in Q4, but there's definitely a lag effect as the tariffs have been ramping up over the last few quarters. Unfortunately, there's a lag and how -- when you incur the expense versus when you can recover it. Luke Junk: Got it. And then last question for me, just lots of discussion around Nexperia, of course. Just curious to the extent that you have any direct supply chain exposure there, Neil, and then just what you're hearing from customers real-time. Neil Boehm: Yes, absolutely. Yes, Nexperia, there is -- we do have some supply that we utilize from Nexperia. We do have some in-house inventory available. We've got -- unfortunately, if you go back a few years, we've been through this fire drill a few times on finding alternate supply, designing alternates in and doing it in a fast and expeditious way. So we are exercising that muscle again to find alternates and get the solutions moving to minimize any impact. Steven Downing: We're not expecting any significant impact in Q4, though. Neil Boehm: No. Steven Downing: At least not from our side. Obviously, OEM exposure could create challenges from other suppliers, but... Operator: Our next question comes from the line of Joseph Spak of UBS. Joseph Spak: Maybe to sort of just follow up on some of the European commentary, I know you mentioned sort of the different sort of segment levels, but it also sounds like there's maybe just overall more pressure in that market. And I guess I'm just wondering is in some of those higher segments that you mentioned where you tend to have more content, are you seeing any change in ordering patterns from your customers? Like any consideration to decontent you to maybe make some of those vehicles more affordable? Or is this really just a period where you mentioned AB vehicles really outperform some of those larger vehicles? Steven Downing: No, Joe, it's definitely both. I mean you're seeing some decontenting on higher-end vehicles as well as OEMs look to try to get overall cost points lower. And obviously, as tariffs have impacted OEMs, they're looking for other creative ways to try to get their cost structure lower. So unfortunately, optional content does become in scope for some of them. I would say it's kind of a mix between both of those, both what the vehicle mix is and segmentation changing and then also some decontenting to avoid -- to help lower cost structure. Joseph Spak: Okay. And then just maybe on the implied fourth quarter gross margin. I just want to -- it looks like maybe seasonally, the step down looks a little bit greater, if I'm doing my math right. And I just want to understand what's really sort of considered in that, whether there's still some -- I mean, I know you sort of just talked about some trouble getting reimbursements. Anything considered on like semi tariffs or anything else we should be thinking about? Steven Downing: No, if you look at the real impact and the step down, it's a couple fold. Number one is as a percent of total revenue, VOXX is going to be higher, which will have a little bit of a head -- put a little bit of a headwind on the overall weighted margin. And then the real big factor in the second half is the lower sales levels that we usually see in Q4, especially around the holidays. And so there's not like any structural changes or anything wrong with the cost structure. We actually think Q4 margin, if revenue were exactly the same, we would expect Q4 from a margin perspective to be very, very similar to Q3. Joseph Spak: Maybe just one last quick one. Sorry, if I missed this in the prepared remarks, but is there any update on FDM, especially since I know at least here in the U.S., we're seeing some likely lower demand for EVs. And I think like that was, I'd say, an above-average sort of feature on EVs versus sort of ICE vehicles. And so just how you're thinking about that, especially headed into '26? Neil Boehm: Yes, absolutely. Actually, Q3 was really good growth in FDM again. It's been strong and Q4 still looks really strong. So we -- I think last quarter, Q2 said we'd be 150,000 to 300,000 units above where we were in 2024. And so we just moved that to be 200 to 300 for the end of the year. So we still see us exceeding 2024 numbers by 200,000 to 300,000 units. Joseph Spak: Okay. And any preliminary views into next year on that? Neil Boehm: Not really. I mean, there's... Steven Downing: We're expecting to continue to grow, though. Neil Boehm: Yes, it's not -- we see growth. Absolutely. Kevin Nash: We'll give formal guidance coming in fourth quarter. Operator: And our next question comes from the line of Josh Nichols of B. Riley. Josh Nichols: Good to see the revenue and margin guidance for the year moving to the upper end of the range despite some of the European headwinds that you talked about. I just want to drill down a little bit into VOXX. We're about 2 quarters in now. Any updates on like synergy integration and the realization. Are you still on target to achieve those synergy levels that you previously kind of talked about 18 months after the close? Steven Downing: Yes, absolutely. I think if you look at the first -- through 2 quarters already, if you look at the overall numbers, it shows in this quarter that we -- that VOXX organization is positive on the net income side and accretive on the EPS side. And so that will be -- that was a little ahead of schedule, quite frankly. In that regard, we know the next couple of quarters, especially, there's a lot of work that has to happen to try to figure out where there's any redundancy or overlap between our 2 organizations. We're starting to really make great progress with that organization. And looking forward to what the next 12 to 18 months can look like. But there's no doubt in the overall cash generation side of what we think that business can look like that we don't see any reason why we can't achieve those original targets. Josh Nichols: Yes. And then just one follow-up, looking a little bit further out. Regarding the dimmable sunroofs and visors, you talked about, I think you said you expect to have those in market within 18 months, but operationally running in the first half of next year. What's left to be done in terms of achieving commercial viability for those today to really bring those to market? I'm just curious where you are or what's left to do? I know there's a lot of technicals that go into getting that OEM certified and just want a little bit of an update. Neil Boehm: Yes. Those are still some of the bigger challenges, the requirements of taking that technology into automotive and meeting the environmental temperature, all of the above process requirements as well as when you have really large pieces of glass with a darkened surface, it's easy to see small issues in the process that the dimming materials put down. So that's the big part of the Q1 into Q2 of next year as we are getting that capability in-house so that we can get better control on that process quality. So with those, I think those are some of the biggest hurdles that we still got in front of us. There's a lot of little challenges that we fight every day, but the team has been doing a great job keeping those down and trying to get focus on some of these bigger ones. Operator: Our next question comes from the line of Ryan Brinkman of JPMorgan. Ryan Brinkman: Is there any update you can provide on the place sort of retail consumer fire protection business? I realize it's only been a few months now in the Home Depot stores, but curious what -- any early feedback might be? Steven Downing: Yes. I think probably the most telling portion of that has been so far, the consumer feedback has been really good in terms of ease of install, app integration, what that looks like, ease of use. So I mean, that was our big focus right away. Wasn't just the overall sales levels, but the real focus was, hey, really for our first time going direct-to-consumer with something especially that's feature-rich and app-heavy, how do we make -- do we do a good job executing that app and the interaction side. And so far, I mean, fingers crossed, that all looks like it's going really well in that launch initially. And we never expected necessarily DIY to be a big home run in terms of sales volume. And so the growth over the next couple of years is really going to be focused on how do we get direct to builders, how do you start working on additional channels beyond just big box retail. And so that's where the team is actively focused right now is, first focused on making sure the product was robust and the app was robust. And then secondly, we got to start focusing and looking at how do we get into additional channels that are, quite frankly, new for us. But one of the things we have going for us in this regard is the -- some of the synergies on the VOXX side of the business. They have a lot more experience than we do in terms of how to market direct-to-consumer these type of products. And so we're working really hard with that team on how do we take advantage of the skill sets that they have to help us with the sales channels of that product. Ryan Brinkman: Okay. And then just lastly, on the VOXX side, you got one question already about the, I guess, the opportunity from consolidating sort of the Gentex and VOXX people and systems and public company costs. Maybe just remind us of the targets there and of the cadence, too, because it seems like so far, like a lot of the early retirement announcements have been really on the Gentex side. Is that fair to say? And in terms of the size of the opportunity, is it as simple to just kind of look at the relative difference in the gross margin profile and the operating margin profile of the 2 businesses and say that, that much can really be achieved? Or how much can you achieve and over what period of time? And what have you achieved so far? Steven Downing: Yes, I'll start with the overall target when we kind of got into this. We believe, given that level of revenue that it was absolutely possible to achieve kind of $40 million or so in free cash flow off of their business on a per annual basis. And that's still our goal. We've kind of targeted that to be in about 18 months post acquisition. And we still believe we're on the same timetable to make that happen. I'll let Kevin jump in with a few of the -- what we've kind of accomplished already and where we're at currently. Kevin Nash: Yes. So if you look at some of the audit costs, I mean, we have reduced that overlap, insurance costs, I mean, you're -- between those 2, you're in the low $2 million to $3 million a year, plus you have some of the executive team overlap, those team -- they had run off. But they had already accounted for that prior. So that's why I don't see some of the severance expense coming from those things or the transition expense. But all told, we're over $10 million of annualized savings when you add up all the different things, and we continue to make progress beyond that every quarter. Operator: And our next question comes from the line of James Picariello of BNP Paribas. Unknown Analyst: This is [ Srikanth ] on for James. You guys put a pretty great gross margins in the quarter, especially considering some of the headwinds you saw in Europe. So how should we think about that really going to next year? Are these sustainable? Or are there any other puts and takes we should keep in mind? Steven Downing: ' Yes. I think as we head into next year and like we joke all the time, this is a big fingers cross moment as well. Hopefully, tariffs stabilize from this year going into next year. That would be the one big variable that obviously we can't control and don't really have a lot of insight into other than what's publicly available currently. The other ones start to become more normal puts and takes. So you got pricing at the beginning of the year to our customer base and then what we can get out of the supply chain. Historically, for us, if we can try to offset or make those offset each other, then we got a really good opportunity to maintain the margin profile. And that's what our current stance is heading into next year is that we believe that if we could get up to this kind of high 34%, 35% range on gross margin leaving this year, that we'd be in really good shape to maintain that heading into next year. And we still believe that what our outlook looks like. And that obviously factors in, in terms of overall sales levels and some of the things that are a little unpredictable right now in terms of what happens geographically and with our primary customers all over the world. But as we stand here today, we feel like we're in a really good spot that we've executed most of the cost control mechanisms we needed to internally to get to where we had predicted we would end this year at. And so as we're -- the disciplines there, the efficiencies that we put in place. These are not onetime experiences. I mean these are recurring benefits that we'll see rolling forward. And so if I had to do a way too early version of what the margin will look like next year, I'd say it's really close to where we're at right now. Unknown Analyst: That's helpful. And then it's nice to see you guys have some good news point to in China. Do you think there's more room for improvement, should the trade situation stabilize a little bit more? Steven Downing: Yes. I would never say that it couldn't. I would say, right now, as we look at the China market, there's definitely a trend from OEMs there to go with domestic suppliers over international suppliers. And so we're seeing that trend kind of play out longer term. And so we're constantly looking at new products and saying, hey, it's a real market, significant. How do we try to make sure we have the right product offering to be competitive in that space. But I think there'll be a little more headwinds as we head into the next 18 months in the China market. And so we're kind of preparing ourselves for that. Operator: Our next question comes from the line of Mark Delaney of Goldman Sachs. Mark Delaney: I was hoping to circle back to the content challenges in trim mix issues that the company was speaking about that you've seen in the European market. I guess, first on that topic, as you think about what you've seen, especially the decontenting element and even in some of those CDE segment vehicles. As you think about that category, are there steps you think Gentex can take to get back to growth over market within Europe even with those -- within those segments? Or is it going to be more a function of you just need the market to recover for that category vehicle? Steven Downing: No, there's definitely -- I think there's definitely features. If you look at some of the new technology we've been working on, getting those into the marketplace, in-cabin monitoring, driver monitoring and then longer term, the stuff that Neil is referencing in terms of visors and large area devices, those products, in particular, have ASPs that are well above our current ASP and all have the potential to help us outgrow the marketplace even if it is in a declining market. And so one of the reasons why you've seen such a focus on higher end tech over the last couple of years is preparing for these types of moments. I mean, I think this one is a little more drastic than even we had anticipated a couple of years ago in terms of the total impact of trade relations and what that's done from a margin compression standpoint for us. And so we're trying to make sure we have the right skills, the right products to make sure that we can find a growth opportunity. And what we assume to be initially is probably just a flat market but it's actually become more of a declining market than what we even anticipated. And so the team stays really focused, and that's why you see us continuing to double down on the new tech development because that's the only really way to grow in this market currently. Mark Delaney: And then just in terms of the breadth of the challenge, I mean, is it 1 or 2 OEMs in Europe where you've seen this effect? Or is it kind of a wider range of your customers there have been looking to find savings and you've seen the decontenting? Steven Downing: It's really -- it kind of comes down to a couple of OEMs. I mean everyone's been impacted in terms of -- a lot of OEMs have been impacted in Europe based off their volume and overall trim level, like what they're building and how -- what price point of vehicles they're selling. But the decontenting, I think, is really limited to a couple of OEMs in the European market. Mark Delaney: Okay. And then I guess on this topic, kind of assuming on a global perspective, I mean, cost challenges and tariffs, I mean that's not isolated to Europe. And so I'm curious, do you think there's the risk or have you heard anything from customers this kind of thing may happen in Asia or the U.S.? It sounds like it's only been in Europe, but I'm hoping to kind of think about whether this would or would not occur elsewhere? Steven Downing: Yes. I mean, it's possible. I mean it's really -- that becomes more a function of where the vehicles end up, I believe, it's not just limited to European OEMs per se, but they definitely have -- they have more exposure to the overall European end market. I mean if you look at our primary customers in Asia, you're looking really at [ Honda ] and Toyota as the bulk of that revenue. And fortunately for us, both of those OEMs have held up very well through all this. And so we continue to find growth opportunities with both those OEMs. Mark Delaney: Got it. That's actually my question, nice to see the progress this year with the FDM growth and everything you're working out with the large dimmable area devices, we'll keep an eye on that going forward. Operator: [Operator Instructions] Our next question comes from the line of David Whiston of Morningstar. David Whiston: On guidance, is there any chance of material upside in light of the October 17, the proclamation expanding the parts rebate on U.S. assembly? Or is that pretty much all baked in? Steven Downing: No. I think from a supply standpoint, I don't think it's going to change or impact a whole lot of what you're seeing. I mean if anything, what it does allow us to do, hopefully is it should lessen some of the controversy on tariff recoveries. David Whiston: Okay. And then I guess, could you talk a bit about what's the resistance on FDM for the automakers that haven't yet adopted it? Are they just waiting for future vehicle programs and they know they want to do it? Or are there still some cost or logistical issues beyond that? Steven Downing: Well, you definitely always have the cost side. I mean, that's one that's -- with every OEM that we've been successful with, it's one of the obstacles you have to get past. Beyond that, I think the slow adopters at the beginning were the German OEMs. And I think that was really the only real hold out. If you look at most other OEMs, they had adopted the product to some level. The biggest challenge right now is how do you get it beyond small take rates into more mass market. And the teams have made some real good progress on that in terms of what does standard equipment look like or close to standard equipment on high-level vehicles and have an optional content on lower-end vehicles. And that's where we're starting to see a lot of the revenue growth come from. It's not just pure number of nameplates you're on. It's more about what are those take rates. Operator: I'm showing no further questions at this time. I would now like to turn it back to Josh O'Berski for closing remarks. Josh O'Berski: Thank you, everyone, for your time and questions. We hope you have a great weekend. This concludes our call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to the USCB Financial Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Luis de la Aguilera, Chairman, CEO and President. Please go ahead. Luis de la Aguilera: Good morning, and thank you for joining us for USCB Financial Holdings Q3 2025 Earnings Call. With me today reviewing our Q3 highlights is CFO, Rob Anderson; and Chief Credit Officer, Bill Turner, who will provide an overview of the bank's performance, the highlights of which commence on Slide 3. The third quarter of 2025 continued to reflect disciplined financial performance across all key metrics, marking our third consecutive quarter of record fully diluted earnings per share. For the quarter ended September 30, 2025, the bank posted net income of $8.9 million or $0.45 per diluted share, up from $6.9 million or $0.35 per share in the third quarter of 2024. During the third quarter, our profitability metrics remain among the best in our peer group. Return on average assets increased to 1.27% compared to 1.11% a year ago. Return on average equity improved from 15.74%, up from 13.38% last year. Our efficiency ratio strengthened to 52.28%, reflecting disciplined expense management and operating leverage. Net interest margin expanded to 3.14% compared to 3.03% in the same quarter last year. Net interest income before provision for credit losses was $21.3 million, up $3.2 million or 17.5% from the prior year, supported by solid balance sheet growth and prudent pricing discipline. Total assets reached $2.8 billion as of September 30, 2025, representing a 10.5% year-over-year growth. Total deposits ended the quarter at $2.5 billion, marking a robust 15.5% year-over-year increase. Growth was broad-based across business and consumer segments. Our diversified deposit-focused business verticals, namely Association Banking, Private Client Group and Correspondent Banking now account for $672 million or 27% of total deposits. These deposit-focused verticals are highly scalable. And in the past year, we have added new production personnel to further support our growth plans. Liquidity remains strong and well above policy limits, providing ample flexibility to support loan growth and capital initiatives. Loans held for investment grew to $2.1 billion, an increase of more than $199 million or 10.3% from $1.9 billion on September 30, 2024, reflecting steady customer demand and solid credit quality. Again, as consistently focused -- again, we consistently focus on credit quality and diversity, and our loan book has significantly diversified in composition as 42% of our loans are now non-CRE. Credit performance continues to be exceptionally strong. Nonperforming loans declined to just 0.06% of total loans, down from 0.14% last year. The allowance for credit losses totaled $25 million at year-end, representing 1.17% of total loans. During the quarter, we completed a successful $40 million subordinated debt issuance, providing efficient capital at attractive terms. Most of the proceeds were used to repurchase approximately 2 million shares at a weighted average price of $17.19 per share, underscoring our confidence in the intrinsic value of our stock and our commitment to returning capital to shareholders. Following these transactions, tangible book value per share grew to $11.55, 6% higher than the prior year. Our capital position remains a key strength. As of September 30, total risk-based capital ratios were 14.2% for the company and 13.93% for the bank, well above regulatory minimums. Overall, the third quarter's record performance reflects the strength of our business model, our focus on relationship-based growth and our commitment to deliver long-term value to our shareholders, customers and employees. On the following page is self-explanatory, directionally showing 9 select historical trends since recapitalization. Profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering. So let's now draw our attention to our specific financial results and key performance indicators, which will be reviewed by our CFO, Rob Anderson. Robert Anderson: Thank you, Lou, and good morning, everyone. Looking at Pages 5 and 6, I would describe the third quarter of 2025 as a highly successful quarter for USCB. In fact, it was another record for us. Net income was $8.9 million or $0.45 per diluted share, and that's up 29% over the prior year. Return on average assets was 1.27%. Return on average equity was 15.74%, and these metrics benchmark incredibly well when compared to peers. The most notable activity in the quarter was the $40 million sub debt raise and repurchasing 2 million shares or 10% of the company. The weighted average price per share of the buyback was $17.19. While the 2 million share repurchase happened on September 4, the weighted average diluted share count for the quarter was marginally impacted to 19.755 million shares versus the ending share count of 18.1 million. On a pro forma basis, assuming the repurchase happened on day 1 of the quarter with the same $8.9 million of earnings would have equated to an EPS amount of $0.49. This number should help you when updating your estimates for 2026. While the summer months cooled off our loan growth for the quarter, we put excess cash to work in our securities portfolio. As a reminder, our securities portfolio is still reflective of the COVID era, yielding 3.03%. As discussed in previous calls, this represents a tremendous opportunity for us to improve go-forward earnings. I will elaborate more on this in a bit. With the sub debt raise and the excess cash on the balance sheet and in anticipation of loan demand, the NIM retreated slightly to 3.14%. The efficiency ratio was steady at 52.28%. Tangible book value per share was $11.55 and reflects the impact of the share repurchase. And last, credit metrics remain benign. So with that overview, let's discuss deposits on the next page. Average deposits increased $166 million or nearly 29% compared to the prior quarter and are up $380 million or 18% year-over-year. During the quarter, we issued $100 million of brokered CDs, which were used as hedging instruments as we put on an interest rate collar to mitigate interest rate risk. These are 3-month CDs, which will be renewed every quarter at market rates over the next 2 years. The cap rate on the collar is 4.5% with a floor rate of 1.88%. The swaps have a duration of 2 years at inception. While average DDA balances declined $10.6 million from the prior quarter, DDA still comprised 23% of total deposits. Interest-bearing deposit costs remained stable at 3.29%, down 47 basis points from the same period last year. Total deposit costs increased slightly by 7 basis points, primarily due to the decrease in DDA balances and the higher proportion of interest-bearing deposits. While this mix shift puts some pressure on the cost of funds, we anticipate improvement in our funding base in the fourth quarter as more liabilities reprice with rate cuts. Despite the temporary shift, we remain optimistic about deposit growth and continue to execute our business plan in niche verticals to support sustainable growth in core operating accounts and low-cost deposits. So with that, let's move on to the loan book. On a linked quarter basis, average loans grew by $41.6 million or 8% annualized. Compared to the third quarter of 2024, we grew $220.8 million or 11.8%. Both growth metrics are within our stated guidance. Alongside this growth, loan yield decreased 2 basis points to 6.21% and was negatively impacted by the payoff of consumer yacht loans during the quarter. Excluding the effect of the consumer yacht loan payoffs, the yield would have been 6.25%. On a point-to-point basis, the loan book increased $19 million. As you can see from Page 9, our new loan production was lower than our last 4 quarters, but with a strong pipeline and the summer sluggishness behind us, we look to get on our normal run rate in Q4. New loan production had a weighted average coupon of 6.43%, 22 basis points higher than the portfolio's average yield. On Page 10 is a snapshot of our business verticals. 2 are loan-oriented and 3 are deposit-oriented, namely Association Banking, Private Client Group and Correspondent Banking. All business verticals are led by very seasoned experienced bankers and are pivotal to our branch-light model. As Lou mentioned, they are highly scalable. And in the past year, we have added new production personnel to further support growth. Moving on to Page 11. Net interest income increased by $240,000 or 4.5% annualized compared to the prior quarter and was up $3.2 million or 17.5% year-over-year. Our net interest margin for the quarter was 3.14% and was affected by the higher cash balances, the issuance of $40 million of sub debt at 7.625%, delayed loan production and increased funding costs driven by lower DDA balances. Additionally, we received prepayments on yacht loans, which negatively impacted loan yields and the NIM for the quarter. However, looking ahead, we expect improvement in the NIM as we put excess cash to work in loan volume late in the quarter, added to our securities portfolio and cut deposit rates in September. In fact, the NIM for the month of September was 3.27%. All these items are good tailwinds heading into Q4. With that, let's move on to the ALM model on the next page. In the past several quarters, the strategy has been to prepare for a lower rate environment. And according to our ALM model, the balance sheet is liability sensitive and well positioned for the current rate environment. With rate cuts expected in the short term, we anticipate this will benefit our funding costs and overall margin and the effect of these rate cuts will be seen more predominantly in the fourth quarter. For instance, the ALM model contains a deposit beta assumption of 60%, but we have outperformed this beta over time. With the September rate cut, we achieved a 70% beta on our $1.2 billion money market book, which translates into an $840 million repricing fully at 100% or 25 basis points. On the flip side, we have $2.131 billion in our loan book and 62% or $1.3 billion is variable rate or hybrid in nature. 40% of that book or $620 million will reprice in the next year. In short, our liability sensitivity will be dependent on our ability to reprice our money market book faster than our loan book reprices. With that, let's take a look at our securities portfolio. Total holdings stood at $480 million at quarter end with 67% classified as available for sale and 33% as held to maturity. The portfolio yield has improved compared to the previous year, reaching 3.03%. This represents an increase of 42 basis points compared to the same period last year. A significant portion of this yield enhancement is due to our net purchase of $76 million in bonds during the first 9 months of the year, which carry a yield of 6% and an average duration of 4 years. The modified duration is 5.1 and the average life is 6.4 years, reflecting our strategy to purchase longer duration bonds in anticipation of lower interest rates. 79% of the portfolio is invested in agency, mortgage-backed securities, boosting liquidity. Looking ahead, we expect to receive $14.4 million in cash flows from the portfolio for the remainder of 2025 at current rates and approximately $76.4 million in 2026 with a runoff rate of about 3%. These cash flows provide us with significant optionality. They can be reinvested at higher yields, whether in loans or other investments or used to let go of more expensive funding sources. In this way, our investment portfolio should be viewed as a strategic tool for the upcoming quarters, supporting both margin improvement and balance sheet flexibility as we navigate the evolving rate environment. So with that, let me turn it over to Bill to discuss asset quality. William Turner: Thank you, Rob, and good morning, everyone. As you can see from Page 14, the first graph shows the allowance for credit losses is at $25 million at the third quarter end and at an adequate 1.17% of the portfolio. We made a $31,000 provision to the ACL that was driven mostly by the $18 million in net loan growth with no new classified loans and no loan losses in the third quarter. No significant losses are expected in the fourth quarter. The remaining graphs on Page 14 show the nonperforming loans as of quarter end steady at $1.3 million and remained at 0.06% of the portfolio and are well covered by the allowance. No losses are expected from these nonperforming loans. Classified loans also decreased during the quarter to $4.7 million or 0.22% of the portfolio and represent less than 2% of capital. No losses are expected from the classified loans. The bank continues to have no other real estate. On Page 15, the first graph shows the diversified loan portfolio mix at third quarter end. The loan portfolio increased $18 million on a net basis in the second quarter to $2.1 billion. Commercial real estate represents 57% of the portfolio or $1.2 billion segmented between retail, multifamily and owner-occupied. The second graph is a breakout of the commercial real estate portfolios for nonowner-occupied and owner-occupied loans, which also demonstrates their collateral diversification. The table to the right of the graph shows the weighted average loan to values for the commercial real estate portfolio at less than 60% and debt service coverage ratios are adequate for each portfolio segment. The quality and payment performances are good for all segments of the loan portfolio with the past due ratio at 0.38% and nonperforming loans at 0.06% remain below peer banks. Overall, the quality of the loan portfolio is good. Now let me turn it back over to Rob. Robert Anderson: Thank you, Bill. Noninterest income continues to improve with a variety of different revenue streams. Both wire and swap fees increased over the prior quarter. And as mentioned in previous calls, all loans are booked with prepayment penalties. So in the event of an early payoff, we receive compensation. These fees are booked under the other line item and service fees. Noninterest income was 14.8% of total revenue and 0.52% to average assets. Let's take a look at expenses. Our total expense base was $13 million, and while up from the prior quarter, contained $188,000 in onetime expenses. This includes legal fees for the S-3 filing and the administration expense related to the interest rate collar. Since the end of the first quarter, we have added 5 new sales associates with 3 of the 5 in deposit aggregating business verticals. The efficiency ratio was 52.28% and noninterest expense to average assets was stable at 1.85% and consistent with recent quarters. Looking forward, we expect the quarterly expense base to be at this level and gradually increasing due to additional new hires and potentially adding to the incentive accrual with improved company performance. Let's go to capital. In August, the company issued the $40 million in subordinated notes and used most of the proceeds to buy back 2 million shares or approximately 10% of the company. The impact of these 2 transactions can be seen on all capital levels. In fact, all capital levels remain comfortably above well-capitalized regulatory guidelines. And last, I'll note the ending share count for the quarter was 18.1 million. So with that, let me turn it back to Lou for some closing comments. Luis de la Aguilera: Thanks, Rob. Before we open the call for questions, I want to take a moment to put our results in the context of the broader environment here in Florida because the strength of the state's economy continues to be a key driver of our success. Florida remains one of the most vibrant and resilient economies in the nation. In 2025, real GDP growth is tracking around 2.4%, outpacing national averages and underscoring the state's enduring fundamentals. Population growth remains strong with over 23 million residents and continued positive net migration that fuels housing, business formation and consumer spending. Business confidence across Florida also remains high. From Miami to Tampa to Orlando, the economic landscape is driven by diversification in financial services, trade, health care and technology, which continues to create opportunities across our client base. The moderate normalization we have seen in interest rates and inflation trends has also contributed to a more stable, predictable operating environment. For USCB, this economic background aligns perfectly with our strategy. South Florida's growth in middle market business, real estate development and professional services continues to generate high-quality loan and deposit opportunities. Our ability to serve these sectors with a personal relationship-driven approach positions us exceptionally well within this expanding marketplace. In short, Florida's strength is USCB strength. The combination of a resilient economy, disciplined execution and a focus on long-term relationships allow us to continue growing at a steady, sustainable pace while delivering strong results to our shareholders. Thank you again for your time and your confidence in USCB Financial Holdings. So operator, we are now ready to open the line for questions. Operator: [Operator Instructions] The first question comes from Woody Lay with KBW. Wood Lay: Just a question on the yacht payoffs you saw in the quarter. Could you just -- and sorry if I missed it in the opening comments, but could you just quantify the amount of payoffs you saw in that division in the quarter, and when in the quarter they occurred? Robert Anderson: Yes, I'll take that one, Woody. It was a little over $10 million, and that happened in August, and that impacted our loan yields in August and our margin in August. Wood Lay: Got it. Okay. And then it looks like a majority of the loan production came in September. That will obviously be a strength for the NIM next quarter. But just looking into that production, is it a sign of sustained loan momentum entering the fourth quarter? Or was it September just a strong month? Luis de la Aguilera: No, I believe it is. Historically, we always see a seasonal dip in Q3 as vacation time, school stop, school starts. We had the same situation last year and the previous year. And you're right, September was a record-setting month for the year. As we look forward, the go-forward pipeline is absolutely in line with what we've seen over the last 5 quarters. And I just attended with Rob and Bill a pipeline meeting a couple of days ago. We have enough dry powder, I think, to have a very good fourth quarter. Wood Lay: Yes. And then what are you seeing on the loan competition side, especially on pricing? It looks like the yields on new production came down a little bit, but that was to be expected with the rate cut and that can be driven by mix shift. So any thoughts on how competition is impacting pricing? Luis de la Aguilera: Well, without a doubt, this is a very competitive market. There's no question about it. We price to relationship. We price deposits and an overall relationship. We are not a transactional lender. So every deal is priced based on opportunity and based on existing loan balances and deposit balances and overall relationship. We've been very active on the swap side as rates have gone down, there's been a lot of opportunity for that, and we continue seeing the same for the coming quarter. Robert Anderson: Yes. And even while it was down from the previous quarter at 6.43%, that's still 22 basis points above the portfolio average. I would say, I think our yacht loans are priced right around 6.25% right now. We're probably seeing the majority of our new loan production at 6% to 6.50%. Operator: 00:25:51 The next question comes from Feddie Strickland with Hovde. Feddie Strickland: Just wanted to start on the margin, digging a little deeper here. I appreciate the detail on that 3.27% and the discussion on yields and where yields are going. But given that we have a little bit of additional cost, I guess, coming in from the sub debt in the fourth quarter, does the quarter still, I guess, end at that 3.27% -- I'm just trying to figure out if maybe more of that is coming from the cost side for you to kind of land at recovery in the margin there? Robert Anderson: Yes. On the margin, I mean, it came back to 3.14%. August was a month where we had a lot of cash sitting on the balance sheet because we were anticipating a strong pipeline, but all of the loan demand came in, in September. So -- and then we had payoffs on the yacht portfolio that exasperated that issue in August. But 3.27%, I think, is a good go-forward number for the fourth quarter. We had a rate cut in September. There's like a 97% probability in October. We've already done a round of rate cuts on our money market book. We've lowered CD rates. So I think 3.27% or slightly better for the fourth quarter is still a realistic number. Feddie Strickland: Appreciate that. And just wanted to dig in a little bit on the swap fees as well. Obviously, great to see those come up. Is that still a good new run rate going forward? I'm just trying to get a sense for kind of where we could have noninterest income. And within that same vein, what are you seeing on the SBA side, keeping in mind the government shutdown fees? Robert Anderson: Yes. In fact, I'll start with the SBA. We probably had $200,000 that got slow walked at the end of the quarter that will fall into the first quarter. But that's definitely impacting on the SBA side. But we're seeing a lot of activity on the wire fees, predominantly in our correspondent banking group and our Private Client Group. The swap fees specifically with rates being lower, there's a lot of activity on swaps, and I would anticipate a somewhat similar number, maybe between Q2 and Q3 could repeat again in the fourth quarter. So a lot of the loan volume right now, as Lou mentioned, we saw the pipeline. We see what's in there at either fixed rate, variable rate, what's on swaps, et cetera. So there's a fair amount of swap volume in there, too. Feddie Strickland: Perfect. If I could just squeeze one more in. I just wanted to ask about the opportunity set on the condo association banking business line? And just how much do you think you can grow that segment in terms of loans and deposits over the next couple of quarters? Luis de la Aguilera: We're very bullish about the association banking vertical. I think it's one of our greatest opportunities for scale. Just to put things in perspective, there's a 27,500 condominium associations in the state of Florida, 48% of that is in between Miami-Dade and Broward County. And of the overall condominium inventory, 60% of that falls between 30 to 40 years, and they're all subject to 30- and 40-year recertifications. So we, right now, in the current pipeline have more HOA business than we probably have seen in any one quarter. So we are very bullish on this area. It gives us great opportunities for low-cost deposits, shorter-term C&I lending. We hired about 2 quarters ago, a new production officer, which joined us from one of the largest management companies here. She's doing quite well, and we believe that this is an area that we could probably double the book of business in the next 18 months. Operator: The next question comes from Michael Rose with Raymond James. Michael Rose: Rob, maybe I just want to go back to the margin. I think you said that the September margin was 3.27%. I know you guys are liability sensitive and it looks like loan growth is going to reaccelerate. So is 3.27% kind of a good starting point to think about the fourth quarter? And then I would expect as we move through what appears to be, if I use the forward curve, a few more cuts from here, further expansion as we go ahead? Or at some point, do the forces of deposit competition and lower loan rates went over at some point? Robert Anderson: Yes. No, the September was -- on the margin, it was 3.27% and that -- and we had a full month of the sub debt costs embedded in that month. As Lou mentioned, we really had a record month in terms of loan volume. So we put on some securities. We put on loan volume in the month of September. And I would say that's a good starting point. We profile as liability sensitive. We have been aggressive on the rate cuts on our money market book. We've already cut some rates in anticipation of the October rate cut on what is it the 29th and next week, we'll get another update from the Fed, I believe. So I think we're well positioned for the next -- this rate environment and any further cuts. So we would expect expansion on the NIM. The other thing that we mentioned, too, is our securities portfolio. I mean that's still reflective of a COVID era yield. And I think there's a lot of opportunity on the securities portfolio to either rebalance that. There could be a securities trades in there as well. But we have $480 million yielding 3%, and we're earning just under 16% on our equity. If that securities portfolio moved up 100 bps, I mean, that would give us tremendous earnings power and expansion in our margin. So I think we have a lot of opportunity as we go into 2026 with the rate environment going down, a steeper yield curve and our ability to fix our securities portfolio over time. Michael Rose: That's very helpful, Rob. And then maybe just going back to expenses. I think you mentioned relative stability near term, but obviously balancing that with some investments as we move through next year. I know maybe a little bit early, but is rate of inflation, let's call it, 2%, 3% plus GDP plus or something like that a good way to think about expenses for you guys? Or is there going to be some more concentrated efforts to hire folks and maybe we could be thinking or contemplating something a little bit higher for next year? Robert Anderson: Yes. I mean, right now, our efficiency ratio is 52% in our expense to average assets. I always kind of use a benchmark around peers is if we're under 2, I think we're performing well. I think both metrics benchmark well. In terms of the pure number, we've added some sales-facing FTE. I think we've added 5 since the end of the first quarter, all in sales type roles. Lou mentioned the one in HOA. We've got one on the Private Client group. We have other business development and some business banking personnel as well. Sometimes those get a little costly with some upfront money to get that personnel. But I would anticipate the run rate of $13 million a quarter to be at that level to increase slightly throughout next year. But I would say low 50s in terms of efficiency ratio. And it could dip into the below 50. But I would say right now, I'd say low 50s in the near term, but the pure $13 million could inch up in the fourth quarter and then into next year as well. Michael Rose: Very helpful. And maybe if I could just sneak one last one in. Just going back to the comments that you made on the securities portfolio and where capital is at this point. Have you guys given any updated thoughts on any sort of potential restructuring would that make sense for you guys at this point, maybe not right now, just given the use of capital and cash for the repurchases. But would just be curious as to any thoughts you have. Robert Anderson: I mean that strategy is always on the table. We're looking at it every month in terms of the viability, in terms of payback and what that would be. Certainly, with rates coming down a bit, we'd like to see if we could get out of this without doing a restructure. But certainly, I think $480 million at 3%. If we could move that up significantly to even 100 basis points, that would give us tremendous earning power going forward. So I think that strategy is always on the table and should be. I think well-run companies look at it and can act on it from time to time. Right now, we used a lot of our excess capital or dry powder on the repurchase, which I thought was a unique opportunity to repurchase 10% of the company. We bought that back probably at 1.5 tangible book value, but on a forward earnings basis on 2026, it was probably relatively cheap compared to peers in terms of where we trade and how we perform on a performance basis. So I'd say it's clearly on the table. And whether or not we act upon it will depend upon interest rates, earn back, a lot of different factors. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Aguilera for any closing remarks. Luis de la Aguilera: Thank you again to everyone joining us today. As we conclude the third quarter, I want to emphasize how proud we are of the consistency and strength demonstrated across all aspects of our business, our record earnings, loan and deposit growth, strong credit quality, our direct results of disciplined execution and a commitment to long-term strategic priorities. Looking ahead, we remain confident of our ability to sustain this momentum into 2026. The fundamentals of our business are solid. Our markets are vibrant. Our balance sheet is strong, and our team remains focused on building lasting relationships with our customers and communities. We continue to invest and capabilities that will enhance our growth and efficiency while maintaining prudent risk management and delivering value for our shareholders. As always, thanks to our employees for their hard work, to our customers for their trust and to our shareholders for their continued support. Thank you, and we will be talking at our next earnings call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2025 Third Quarter Results. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you, Anders. And also from my side, a good morning. Happy to present results for the third quarter '25. So -- and when I summarize the quarter, we can state that SCA continued to deliver a solid result in a rather challenging environment. Our high degree of self-sufficiency in strategic areas continued to be an important factor to mitigate higher costs, not the least related to wood raw materials. Our EBITDA reached SEK 1.64 billion and by that, an EBITDA margin of 33% for the third quarter. In Q3 '25, we had substantially lower prices in the Pulp segment in comparison with the same period last year. Our planned maintenance stops in pulp and containerboard were also considerably more extensive compared to the same quarter last year. Delivery volumes in the Containerboard segment increased this year compared with the same quarter last year, driven by the continued ramp-up of our Obbola containerboard mill. The uncertain market situation, mainly dominated by changing tariffs continues to affect market conditions. The forest industry in general is momentarily challenged by a weaker -- with a market with soft underlying demand in many product areas. Turning over to some financial KPIs for the third quarter '25. As already mentioned, our EBITDA reached SEK 1.64 billion in the quarter, which corresponds to a 33% EBITDA margin and a 22% EBIT margin. Our industrial return on capital employed came out just over 6%, counted for the last 12 months. And the leverage was at 1.7x with our -- while our net debt to equity reached 11.2%. I will now make some comments for each segment, starting with Forest. Higher harvesting levels from our own forest have not the least contributed to stable supply of wood raw materials to our industries during this period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs as can be seen in the graph on the bottom left. Regarding pulpwood, we have now passed the peak, I guess, and the prices have started to come down during this quarter. Demand for sawlogs continues to be high, especially for spruce logs. When one compares Q3 '25 with Q3 '24, sales were up 14%, while EBITDA was up 17%, mainly due to higher prices for wood raw materials. Turning over to Wood. In general, we still have a slow underlying market for solid wood products. As said before, we have noted signs of improvement in the repair and remodeling segment this year in comparison with the last year, but the uncertainty in general economic development continues to affect the market recovery negatively. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce. Stock levels at customers continue to be on the low side. The volumes in both production and deliveries were good for SCA during the quarter, resulting in a close to unchanged stock level of sawn goods. The price for solid wood products decreased by 5% in the third quarter of '25 in comparison with the second quarter of '25. This development is in line with what I said when I presented the report for the second quarter. As expected, the cost for sawlogs has increased from the second to the third quarter, and we also expect them to continue to increase going into the fourth quarter. Sales were in line with the same quarter last year. EBITDA margin decreased from 19% to 15% due to higher raw material costs and a negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA level is rather normal. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been on a normal level during the first 8 months of '25. In the diagram to the top right, we can note that the price decreased during the third quarter. The decrease in pine has been larger in comparison with the spruce products. Going into the next quarter, I estimate that prices on average again will decrease by up to 5%, somewhat more for pine and somewhat less for spruce. And this is driven by the momentarily high availability of pine products. In the construction sector, we can conclude that start of new buildings continues to be low. As said before, uncertainties are still present, but we see improved consumption in the repair and remodeling sector. The level of duties now put in place on wood products from Canada delivered to U.S., about 45% in comparison to the level for wood products from European Union, delivered to the U.S. about 10% has strengthened the competitiveness for EU producers in comparison with Canadian producers. And I guess it's likely that the price level in U.S. will increase when stock levels are coming down from today's high levels. So over to pulp. When comparing Q3 '25 with Q3 '24, sales were down 21%, mainly due to lower prices, a lower delivery volume and a negative currency effect. EBITDA was down 57%, compared to last year, mainly due to lower prices, a negative currency effect and higher cost for wood raw materials. The cost for the planned maintenance stop was SEK 83 million this quarter compared to SEK 35 million in Q3 '24. Global demand for pulp was at a healthy level during the first quarter of '25. During the second quarter, the market changed with reduced demand and prices came under pressure, much due to uncertainty related to U.S. tariffs. During the third quarter, prices on NBSK pulp were stable at low levels. On the demand side, we saw increased activity in China during the quarter. The weakening of the U.S. dollar in relation to the Swedish krona, which started already in Q1, continued to have a negative impact on the pricing in SEK also in Q3. Tariffs on NBSK pulp from the European Union to the U.S. were removed during the third quarter, and this allows us to maintain a competitive offering in the U.S. Looking at CTMP, prices have been unchanged in Asia at low levels and have decreased slowly in Europe during the third quarter. Inventories of softwood and CTMP have been increasing in July and August, as you can see in the diagram and are now on the high level. Hardwood inventories on the contrary were stable during the third quarter. Moving over to Containerboard. Sales were up 10% in Q3 in comparison with the same period last year, driven by higher delivery volumes and higher prices, somewhat mitigated by a negative currency effect. EBITDA was down by 39%, very much driven by long planned maintenance stop with a cost of SEK 204 million versus SEK 87 million in Q3 2024. Higher costs for wood raw materials and a negative currency effect also had an impact. We have seen a softer box demand during the last quarter, but still with a positive development on a year-to-date basis. The retail business remains on a positive driver. On the other side, we continue to see a weak European manufacturing industry, which, for the moment, drives the demand in a negative direction. After a stable first half of the year of European demand of containerboard has started to decrease in Q3, due to the current turbulent macro environment, it's difficult to have a view on the long-term demand. In Q3, we have seen additional supply coming on stream with the vast majority coming in testliner. We do not expect further capacity increases in Q4, except from the ramp-up effect of newly started machines. Kraftliner inventories remain above average level in Q3, as you can see in the graph. During Q3, the availability of OCC has been good, driven by the lower demand in the quarter, which in its turn has led to decreasing prices of OCC. Moving into Q4, we see the availability of OCC to be stable and expect prices to be more or less unchanged. Prices for brown kraftliner in Central Europe has during Q3 decreased with EUR 20 per tonne, driven mainly by slow demand and reduced prices of OCC. White kraftliner has remained stable. Finally, I will say some words about renewable energy. In this area, we have had a weaker quarter compared to the same period last year, mainly due to lower prices in wind power and solid biofuels. Continued improvements in ramping up Gothenburg biorefinery are partly compensating for this. The market for solid biofuels in Northern Sweden continues to be weak due to warm weather and low electricity prices. This factor increases our export share and by that, reduced margin. For liquid biofuels, we have seen higher margins compared to previous quarters. The main reasons are tighter supply due to maintenance stops in biorefineries, European countries implementing RED III and better control mechanism within the EU regarding imported feedstock. We expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both from -- both in HVO and SAF. Electricity prices were low during the quarter, which impacted on our wind business negatively, but it is good, of course, for SCA as a net buyer of electricity. SCA's land lease business is stable at 9.7 terawatt hours, which is equal to 20% of installed capacity of wind power in Sweden. Installed capacity on our land is expected to reach 10.5 terawatt hours by the end of the year. And by that, I hand over to you, Andreas. Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I'll start off with the income statement for the third quarter. Net sales decreased 5% to SEK 5 billion, driven by negative currency effects and lower prices, which was partly offset by higher delivery volumes. EBITDA decreased 18% to SEK 1.6 billion, driven by negative currency effects, lower prices and higher costs for planned maintenance stops. EBIT decreased to SEK 1.1 billion and financial items totaled minus SEK 103 million. With an effective tax rate of just below 20%, bringing net profit to SEK 0.8 billion or SEK 1.19 per share. On the next slide, we have the financial development by segment and starting with the Forest segment to the left. Net sales decreased to SEK 2.4 billion, driven by lower delivery volumes compared to the previous quarter due to several planned maintenance stop at SCA's industries. EBITDA decreased to SEK 912 million due to seasonally lower harvest from SCA's own forest. In wood, prices decreased compared to previous quarter, while the cost for sawlogs continued to increase. Net sales decreased to SEK 1.5 billion, driven by lower delivery volumes and lower prices compared to the previous quarter. EBITDA decreased to SEK 232 million, corresponding to a margin of 15%. In pulp, net sales decreased to SEK 1.65 billion, driven by lower delivery volumes and lower prices. EBITDA decreased to SEK 242 million, corresponding to a margin of 15%. Higher costs for planned maintenance stops and lower prices were offset by lower costs. We had lower energy and raw material costs in the quarter, and Q3 is also a low-cost quarter for indirect costs in all segments, which had a positive impact. In Containerboard, net sales decreased to SEK 1.8 billion and EBITDA decreased to SEK 194 million, corresponding to a margin of 11%. Result was negatively impacted by planned maintenance stops in both Munksund and Obbola of SEK 204 million. The market for renewable energy continued to be weak. EBITDA decreased compared to previous quarter and amounted to SEK 79 million, corresponding to a margin of 21%. The decrease was mainly driven by lower deliveries of solid biofuels. On the next slide, we have the sales bridge between Q3 last year and Q3 this year. Prices decreased 2%, driven by lower pulp prices. Volumes increased 1%, driven by higher volumes in containerboard, which was also offset by lower volumes in pulp. And lastly, currency had a negative impact of 4%, bringing net sales to SEK 5 billion. Moving on to EBITDA bridge and starting to the left. Price/mix had a negative impact of SEK 99 million and higher volumes had a positive impact of SEK 14 million. Higher costs for mainly wood raw materials had a negative impact of SEK 57 million, which was mitigated by our highest degree of self-sufficiency. We had a positive impact from energy of SEK 37 million and a negative impact of currency of SEK 169 million. This was impacted by higher costs for planned maintenance stops. And in total, EBITDA decreased to SEK 1.6 billion, corresponding to a margin of 33%. Looking at the cash flow. Operating cash flow increased to SEK 1.1 billion for the quarter, and SEK 2.5 billion for the first 9 months. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Looking at the balance sheet. The value of the forest asset totaled SEK 108 billion. Working capital decreased compared to previous quarter and totaled SEK 5.6 billion. Capital employed totaled SEK 160 billion and net debt decreased compared to the previous quarter to SEK 11.7 billion. And we have now almost finalized our large ongoing investment projects. Equity totaled SEK 104 billion and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf. Ulf Larsson: So thank you, Andreas. And well, just to summarize, I mean, as I said, we have continued to deliver a solid result in a rather challenging environment. . I guess the market has bottomed in more or less all areas except from solid wood products. On the other side, we will see a cost pressure coming in our solid wood business, wider price for pulpwood has now stabilized and are on its way down, I would say. In pulp and kraftliner, I guess, the market is going sideways now, and we are 100% focused on what we can have an impact on ourselves, which is meaning that we are focusing on the ramp-up of our big projects. And they are going very well -- did go very well during the third quarter. So by that, I think that we open up for some questions. Operator: [Operator Instructions] And we will now take our first question from Ioannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: I've got 3 questions, if I may. I'll take them one at a time. First on pulpwood costs. Given the small decline that you show in your slide deck for Q3 and the typical lag in your business, what should we expect for cost development in your industries in Q4 this year and also Q1 2026? Ulf Larsson: You asked about pulpwood. And as I said, I mean, we see that now that prices for pulpwood is coming down in the market. But as you say, we have a lagging effect. And I could say that we have -- it's around 6 months or less. Andreas? Andreas Ewertz: Yes. So in the fourth quarter, I mean, fairly flat, maybe we're talking about 1% decline in pulpwood prices. So fairly flat, while the cost for sawlogs will continue to increase a bit into Q4. Ulf Larsson: And in the beginning of next year? Andreas Ewertz: Then I think that pulpwood will slowly continue to decrease. But as I said, I would say, it's around 6 months of lag effect in the terms of sawlogs. I think they will start to peak also around maybe Q1, Q1 next year. Ioannis Masvoulas: And then going back to pulp, looking at NBSK inventories on days of supply were pretty much at the top of the historical range, do you see the recent temporary curtailments among your peers to help rebalance the market in the short term? Or do we need to see more aggressive supply response? Ulf Larsson: It's hard to say, I mean, maybe I didn't say that, but I mean we are still at a very high operating rate in NBSK, and we should because we have a very low cash cost, of course. But on the other hand, we see announcements now from many areas where they have started to take curtailments. I guess also in the statistics that you see now, we haven't included the typical longer maintenance stops that we have had now during the autumn. So I guess that the inventory will come down. And as always, it's a question, it's a supply-demand issue. And I guess we will see a better balance, but I mean, underlying, we have to wait for an increase in consumption before we can say that we have a stronger market. Ioannis Masvoulas: Understood. And then just last question for me on the FX hedging. Looking at your disclosure, you seem to have brought down your USD hedge ratios for the next 4 quarters. Is that a conscious decision to avoid locking in an unfavorable FX rate? And could these ratios come down further in the coming quarters if spot FX rates persist? Andreas Ewertz: We use statistical model for our hedge strategy. So we have -- for the next 6 months, we hedge around 50% to 85% of our net exposure and then it goes down. But then it depends on statistically how favorable the currency is. So we use model and for the U.S. dollar currently in the low range of that while for euro, we are on the normal range. Operator: And we'll now take our next question from Linus Larsson of SEB. Linus Larsson: Couple of questions on use of funds. It seems to me that you have a very strong balance sheet. Cash flow is robust through the cycle. You're running at high operating rates, like you say, your competitiveness is strong. How do you look at buybacks in this context, given where your share price is trading and given your investment plans for the time being? Ulf Larsson: If we start with the investment plan, as I said, we are just now 100% focused on ramping up what we have started, and we feel that we are doing that in a good way. As I've also said, I mean, just now, we sit on our hands. We will not start up new big projects. And I guess, as all other companies, we also try to -- yes, not do too many current investments because we have an uncertain market coming going forward, I mean, that's the position we have just now. And the question about buybacks, I mean, that is more question for the Board, honestly. So let's see. We are now focused on ramping up what we have started. And by that, as you said, we expect that we will increase our cash flow capacity substantially. Linus Larsson: Yes. Yes. No, that's great. But I mean, principally, how does the Board look at buybacks? Is there like a principal view on whether or not buybacks is part of the toolbox? Ulf Larsson: Again, that's a question for the Board. But as far as I understand, we have no principles in this matter. I think we have done since the split 2017, I mean, we have invested 20% of the net sales in the company every year. For us, that's a lot of money. For all companies, it's a lot of money. So we are more focused just now to realize the cash flow that we suppose -- that we will have from these ongoing investments, so that's our focus now. Linus Larsson: Yes. No, that's clear. And just to finish off that, what's your CapEx guidance for 2025 and 2026, respectively? Andreas Ewertz: If you look at CapEx for '25, I think that current CapEx will be around SEK 1.5 billion. We might have some spillover to next year, so SEK 1.4 billion, SEK 1.5 billion. And then in terms of strategic CapEx, also depending on timing of some payment, but around SEK 1.3 billion, SEK 1.4 billion. So maybe SEK 2.8 billion in total for current and strategic, but it depends on certain timing of certain payments. For next year, strategic CapEx will go down. We have some payments left in the ramp-ups, but strategic CapEx will come down. And then I would guess that current will be slightly higher than this year since we have some spillover from this year to next year. Linus Larsson: But how much will the strategic CapEx go down? Is it SEK 0.5 billion or SEK 1 billion or around the backlog? Andreas Ewertz: It depends on some timing, but I would guess we have a couple of hundred millions left on our current projects. Operator: And we'll now take our next question from Charlie Muir-Sands of BNP Paribas. Charlie Muir-Sands: I wanted to start on the round wood market. So you mentioned obviously log prices are high and if anything, still slightly moving up due to high demand. But equally, it sounds like the wood products market in general is still quite soft. So I'm just trying to understand, is this a demand that's for other uses? Or are you basically saying this is more of a supply issue for the market? And if so, is this just of a hangover from the spark beetle delivery from prior years? Or is there any other reason why we could expect some better balance coming back on the supply side soon? And then just on the pulpwood cost side, very helpful the detail you've given so far. But just in terms of the timing effects, the changes in pricing of pulpwood hit the forestry and then the industrial segment at the same time? Or is there a phasing effect whereby the P&L benefit on forest is reduced before the cost tailwind on the industrial segments come through or anything like that to be aware of. Andreas Ewertz: Yes. So if you look at the pricing, I mean we base our internal prices of what the Forest division pays for its sourcing and a lot to buy on stumpage. So you buy the right to harvest. And then, I mean, you optimize the harvesting to try to have some larger areas to have efficient harvesting. So it can be vary. I mean, some of these -- what the harvest is couple of months. You bought it for some might be 3 months ago or 6 months ago. And then that average price is what the industry gets to pay. But the pricing is -- when the prices goes down, the industry will get a lower price, but then, of course, our Forest division will earn less money on their own harvest. But one day, what they source externally that they get paid for. And then the second question -- the first question was around the demand for sawlogs. Ulf Larsson: The coming demand. I mean, as we see just now, we have, as you saw on the graph in Sweden and Finland, the production is still on a normal level, even if we know that the price -- log prices are very, very high. And profitability in the business is, in general, rather low. We feel rather confident with the profitability we have in our own Wood division. But I mean we -- up until today, we haven't seen any signs of decreasing log prices actually. Andreas Ewertz: And also -- it's also difference between pine and spruce sawlog. On spruce sawlog, you have much lower supply compared to pine sawlog, sort of pricing and demand difference there. Charlie Muir-Sands: And then just on the wood products side, you mentioned the relative competitive advantage for EU exporters to the U.S. now versus Canadian. Can you just talk about the relative profitability of your U.S. business compared with your European business today? How big an opportunity might this be? Ulf Larsson: Yes. First, if we take the tariffs, I mean, as I said, the tariff just now going from Europe over to U.S. is 10%, and coming from Canada over to U.S., then the tariff is 45%. As it is just now, in U.S., the stock level is on the very high side. So, so far, we haven't seen any impact on the, let's say, the local price in U.S. But I guess when the inventory level is coming down, then, of course, customers, they have to start to buy and then they can buy some volume from Europe and they have to buy some volume from Canada. But then I guess that prices can in a short while, increased quite dramatically. We don't have a big volume for U.S. We do, let's say, 80,000 cubic meter per year. But again, it's a global market. So if we start to see better trade in U.S., I mean, that will, of course, have also an impact on the European market and also the Asian market and so on and so on. So we have to wait and see. But I mean, as it is just now, I guess, it's more a question of time. We will have a slow fourth quarter, as we always have. And I guess it will be rather slow also in the first quarter. But then I guess, in the beginning of the second quarter next year, then we might start to see something. Charlie Muir-Sands: But Canadian volumes can't get displaced into other parts of the world or even coming into Europe to offset that benefit? Ulf Larsson: Yes, not really. I mean, of course, you will see some Canadian volumes in China and you might -- I don't think you will see too much of it in Europe. Again, it's -- you have the distribution cost and many of those sawmills, they are located inland. And so it's also a question of distribution, inland distribution cost within in Canada so I guess if this remains, which you never know, I mean, then you probably will see further closures and capacity reductions. And honestly, I don't know really how the U.S. -- I mean, we know that U.S., they need a lot of solid wood products coming into U.S. So I guess it might be so that we see some further changes going forward now. Also when it comes to tariffs and things like that. So I mean, it's -- but all these -- I think we had a question before. But I mean, tariffs, we are not directly too much impacted by tariffs. We can handle that in a good way. But I guess that this discussion has created uncertainty globally. And that's the reason also why we have a rather slow demand in Asia in more or less all product areas. And so I mean that is the -- I guess the worst thing with tariffs is it is creating some kind of uncertainty in all areas and globally. Operator: We'll now take our next question from Robin Santavirta of DNB. Robin Santavirta: Thank you very much. Firstly, I have a question related to the Containerboard business. Looking at the delivery volumes now this year, they have been quite steady, but it seems still Obbola is not running at full capacity. And now you had the log maintenance shut. So could you give some guidelines on volume outlook for that segment in Q4 and early 2026? Should we expect a bit of a step change or more of a slow gradual ramp-up during the end of the year and next year? Ulf Larsson: When it comes to Obbola, we have said that Obbola will produce 600,000 tonnes this year, and they will do so if nothing expected will happen in the fourth quarter. Then it is a tough market in kraftliner. So we have seen during the third quarter, increasing inventories in kraftliner. And so that's the case. And as you said, we also had a rather long maintenance stop in Q3. So that also had an impact on deliveries. But production-wise, Obbola will reach 600,000 tonnes next -- this year. And then the plan is to reach 700,000 tonnes next year. Robin Santavirta: Okay. Okay. Can I ask about this EU deforestation regulation? How do you view that? Will that have any kind of impact for your businesses in Europe either way, what is your view? Ulf Larsson: I mean, it has also created a lot of uncertainty. But I guess for us, we can manage EUDR, but of course, it would be an administrative burden, which we don't like. But we can handle it. Robin Santavirta: But what about your competitors? Could it be a setup where some pulp had been imported from some countries or some paperboard that has been imported from Asia or Americas, they could end up in a bit of difficulty to do so in the future? Or will this impact trade flow at all in your view? Ulf Larsson: Yes, it's very hard to predict. I mean, we have been working quite hard to find out a system which will not create a lot of administration. And I mean, typically, we are for free trade. I think that's good. And I think that EU in the long run, they will benefit from a free trade. We don't know what -- how this will be implemented in the trade up till today. So again, this is also another thing that really creates uncertainty. But the honest answer is we don't know how that will -- this will play out. The only thing we can do is to focus on our own ability to meet the requirements that might come. Robin Santavirta: Yes, for sure, for sure. Follow-up question related to the pulp market. What is going on in the softwood pulp market? There's a lot of curtailments now during early autumn. Certainly, Finland, some in Sweden as well, I understand some in Canada as well. And historically, when you do that, you tighten up the market quite quickly. Now we're not seeing that. Is this a bit of a substitution into hardwood pulp? Is it some Chinese volumes that -- I mean, historically, they do not produce a lot of softwood pulp. Now I understand there is some production going on in China as well. So why is not the market tightening despite the quite significant production curtailments in the Northern Hemisphere? Ulf Larsson: I guess the first thing is that the underlying demand is weak. So that's the first explanation. The second thing is substitution. I don't think that we will see more of substitution today than we did last year. I mean, it's not as easy as that. And we have always had a delta between hardwood and softwood prices. So I mean, if possible, I guess, it would have already been done. So I haven't heard anything -- no structural changes in that area. What we know is that a lot of capacity in pulp is -- will be built up in China. And that, of course, sooner or later, that will -- might have an impact. As it is just now, we are more considered about the CTMP volumes. And as we have understood, I mean, the board market is very weak. And while companies in Asia while they closed down the converting and stop producing boards, I mean, they still produce CTMP, and that will, of course, give a surplus in the market. Then also, I guess, that the statistics that we also saw on our side was from August, Andreas, and I guess we will see some other figures now coming into September, October and so on. We also have had a lot of big maintenance stops in pulp. But you're right. I mean, we also hear that companies, they are taking curtailments now. So far, no big changes. But I mean -- and the prices maybe -- I guess that the price has already bottomed because at this level, we see that curtailments are taken instead of continuing to produce and of course, creating a negative cash flow. So we have reached the bottom. I guess we will see some result of actions taken now later this year. But again, the fundamental challenge is the underlying demand that must come back. Robin Santavirta: Thank you very much. Operator: And we'll now move on to our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three questions for me, if I may. The first one is just on the lower wood cost. You mentioned this in the Pulp division sequentially, but not in containerboard, sorry, not lower pulp costs, lower wood costs, having a positive impact on pulp, but it didn't seem to have it on Containerboard. What's the reason for that? Should I go on with the other questions? Andreas Ewertz: No, we take 1 at a time. So I mean, we have maybe 1% lower pulpwood prices in both Containerboard and in Pulp. In Pulp, we had a better yield in the quarters, we had lower consumption of both energy and wood and they generally have low cost quarter. But I would say it's more on the consumption side that we have lower cost on pulp in this quarter. Oskar Lindström: And in Containerboard, was it just the maintenance stop that sort of... Andreas Ewertz: The Containerboard, we had large maintenance stop both in Munksund and Obbola, the cost around SEK 20 million. So that quarter was impacted by that stop. Oskar Lindström: Right. Moving on to cash flow. You say that you will increase your cash flow significantly in 2026, and I presume beyond as well, while CapEx looks as if it's going to come down quite a bit. If we only look at the ramp-up of Obbola, can you say anything about what kind of contribution you expect from that 2026 versus 2025? If you reach the 100,000 tonnes, could you put a monetary value on that? Andreas Ewertz: Currently, I would say it's hard to put the money on the excess volume because you said that currently have a weaker market, and that means that the extra volumes you would place on -- you have a worst customer mix and country mix on those extra volumes that will, of course, depend on how the market develops. If you have a stronger market, I mean, those volumes would be placed in customers in Europe and places nearby. And that will have a larger impact. But if you have a weak market, of course, then we'll have to put it further away. So it depends on how the market develops. Ulf Larsson: And also to add, I mean, if you have -- yes, maybe that was exactly what you said. I mean, if you have an additional volume already this year, if you go from a little bit over 400 up to 600, I mean that puts a pressure in a tough market that puts a pressure on the market side, of course. So I mean you also have a -- you have ramp-up production-wise, but you also have a ramp-up in the market. So of course, we have to find markets overseas not at least as it is just now. Oskar Lindström: Of course. And my third question is, I mean, we've seen other companies in your sector announcing cost savings and even structural changes as a consequence of the tough market, which both they and you seem to feel is not about to change anytime soon. I mean, do you see any need for you to take actions if demand does not improve, either cost-saving actions or structural changes? Ulf Larsson: I mean, if we go back to 2017, as I said, we have been invested 20% of the net sales more or less every year. And by that, we have also top-class sites as it is just now. We have also, during this period, closed down our publication paper business. and we are focused on pulp, containerboard and also solid wood products and to some extent, also renewable energy. And step by step, I mean, as soon as we see that we can reduce the manning or if we can do something else to improve our cost position, we will do that. So for me, it's -- I don't like those programs because that means that you haven't done your work -- your ongoing work, so to say. Andreas Ewertz: For the last one and half year we had a program to reduce our personnel at our pulp division with around 80 people and has gradually begun to give an effect. Ulf Larsson: And we reduced the manning by 800 people when we closed down the publication paper business. So I mean, if you have structural changes, then, of course, you have to follow up with personnel reductions, but otherwise, that is something that you have to do. That's the everyday work. Oskar Lindström: My final question is on CapEx, which you talked a little bit about here. You say that you expect next year for current CapEx to be -- I can't remember the exact wording, but slightly higher. And then how much higher is that? And then you said the strategic CapEx will be a couple of hundred million. How many couples of hundreds of millions are we talking about? Is it possible for you to be a little bit more precise? I'm just wondering. Andreas Ewertz: It depends, of course, on what overspill we have to next year, and then it depends. I mean, we have our base CapEx for next year. And then we have some potential projects, and it depends on which of them we go through with which timing, but if we go around 1.5 this year, then you're talking maybe SEK 100 million, SEK 200 million more next year on current CapEx. But again, it depends on what projects we do. And also on the strategic side, it will -- I mean, it will be between 0 and SEK 1 billion but it depends on the timing of our strategic CapEx. For example, we have 1 payment that would either go at the end of this year or the early next year, which is around SEK 150 million, and we have a couple of hundred millions next year. So it depends. But just to give a rough figure. Ulf Larsson: But CapEx will come down. Andreas Ewertz: Yes, CapEx will come down, yes. Oskar Lindström: Thank you very much. Those are my questions. Operator: And we'll now take our next question from Martin Melbye of ABG. Martin Melbye: Given tariffs and new volumes to place, could you give some hints on prices for Pulp and Containerboard at volumes heading into Q4 quarter-over-quarter? Ulf Larsson: I mean, we don't know. That's the honest answer. But as I said, we -- I guess, we are in Pulp at the bottom level just now. I mean, as we -- as I said before, I mean, we have seen substantial curtailments taken now. And so I guess, Pulp prices will -- if they -- the only way from this point, I guess, is upwards. When will that come? Well, remains to see, I guess. I think for Containerboard, we have more capacity has come on stream during the third quarter. No additional capacity will come on stream, but we will see some ramp-ups. I guess we will see some closures in testliner going forward. The balance for kraftliner is much better, of course. I mean, the only additional volume coming in now is our own from the ramp-up in Obbola. On the other side, the inventory level is on the high side coming down a little bit now when we had the new statistics. So it's always -- it's a question of supply-demand balance, of course. But my best guess is sideways, maybe we will start to see upward trend in Pulp and maybe sideways in Containerboard. And as I already said, I guess, we will see somewhat decrease in prices in solid wood products, I guess, another 5% in the fourth quarter and then the first quarter is always -- it's tricky to increase prices in the first quarter. If something is happening now in U.S., that might have a faster impact on the pricing for solid wood products. But otherwise, I think we have to wait for the second quarter next year. Andreas Ewertz: And in terms of volumes, forest, you harvest a bit more from our own forest in the fourth quarter. In solid wood products, I sort of mentioned, you seasonally weaker quarter compared to the summer months so they have lower delivery volumes. In Containerboard, it will be slightly higher since we had a big maintenance stop in the third quarter, which we won't have in the fourth. And in Pulp, I would say it's slightly up or flat. Operator: Thank you. And we'll now take our next question from Cole Hathorn of Jefferies. Please go ahead. Cole Hathorn: I'd just like to ask what do you see would be the positive catalyst for each of your segments and like to take it in turn. But maybe starting on Pulp. What do you think is truly needed exit the demand? Do you think it's going to be capacity closure potentially something out of Canada considering they've got elevated wood costs and you see a sawmill go down and then pulpwood closure that tightens the market. Wood product, is it ultimately just a demand that's needed rather than any form of supply response? And Containerboard, I'm just wondering what are you looking for in the market for kraftliner. Is it -- do we need to rely on the recycled closures and to follow that? Or are you seeing the ability to kind of keep this premium versus recycled considering the less imports from the U.S. and much better supply-demand balance in... Ulf Larsson: If we start with pulp, I guess, it's again, it's about demand. The tissue business is rather slow, of course, it might be impacted by closures also, again, it's a supply-demand issue. And it might be so that just my speculation, but I mean, if we will have a tough -- if tariffs will remain in Canada for solid wood products that will have a negative impact on the raw material supply to the pulp mills that might have an impact over time, of course. Otherwise, it's demand and mainly then in the tissue segment. In wood, as already said, I mean, we are in the slower season just now in Q4 and Q1. I guess that sooner or later, Americans, they have -- they must start to buy solid wood products. And if the tariff level from Canada over to U.S. will remain of 45%, that definitely will mean that we will see increasing prices in solid wood products even if you're not a big supplier to U.S., which we are not, but still, that will have an impact on the global trade rather immediately, I would say. And then we know that it can start to move quite fast. But I guess if you look at the inventory level in U.S., we have to wait for at least a quarter before we can see something. In Containerboard, I mean, we look at the box consumption, and we feel that we have a slow demand from the industry while I mean, in other businesses for food and yes, maybe trade and that part -- that is going quite in a normal pace. So -- but the industry for us, I mean, heavy-duty spare parts and things like that where we typically can find a premium for kraftliner. My -- I don't know, but my guess is also that we will see closures in testliner, I guess that the main part of testliner produces just now, they don't make money. And I guess we have a chicken race on the testliner side as this just now. The balance both for Containerboard, kraftliner and also for NBSK, it's much, much better than for recycled-based production. Cole Hathorn: And then maybe just following up on capital allocation. You were clear that you're ramping up your projects, your past peak CapEx. And beyond that, you've got flexibility for consider capital returns via dividends and buybacks. But you didn't mention anything on M&A, and I'm just wondering how you think about that? And what are your criteria there? Would you consider anything in Central Eastern Europe if a very low-cost asset came available? Are you staying with your production base in Sweden? Just like your thoughts. Ulf Larsson: I mean, typically, we are a company based on organic growth. And typically, we are a company focused on Sweden where we have our own forest. We don't like to stay in countries where we can see a higher risk really. So I guess we are -- but on the other hand, you shall never say no. But typically, we are based on -- and focused on organic growth as it is. Andreas Ewertz: And as Ulf mentioned before, currently, I mean, we're focusing on our ramp-up of our current project before we add some too much complexity. Operator: And we will now move on to our next question from Andrew Jones of UBS. Andrew Jones: Can you hear me okay? Andreas Ewertz: Now, we hear you. Andrew Jones: Sorry, apologies, I missed the start of the call. So if you've mentioned this, my apologies. But on the actual solid wood products, what usually give a bit of the sort of guidance range in terms of pricing? I mean, how do you look at pricing going into the fourth quarter on -- in the Wood division? And then also, I think on the last quarter, you sort of gave us like a percentage changes you expect in the Forest division in both logs and then pulp. What sort of percentage changes are you sort of thinking about in the Forest for those 2 categories? Ulf Larsson: The first one, yes, we did mention that one. And as I said, I mean, we lost 5% in terms of price from -- in the third quarter in comparison with the second quarter. And I guess that we will lose another 5% in the fourth quarter. And that is mainly a seasonal effect as the demand always -- we always have a slower demand in the fourth quarter and in the first quarter. Forest, Andreas, you can... Andreas Ewertz: Yes. So Forest, pulpwood, I mean, they have peaked. We saw a very slight decrease here in the third quarter, maybe 1%, and we expect fairly flat, maybe 1% down in Q4 because of this lag effect. In terms of sawlogs, they will continue to increase a bit in the fourth quarter, maybe 5% compared to Q3, but that's also because you saw that the logs were quite flat within Q2 and Q3. But that's more of a mix effect. We had lower dimension on the logs, which have a lower prices. So we didn't get that so underlying, the prices increased also in Q2 to Q3. But since we had that mix, we didn't see that increase. But now we'll get that in Q4 so maybe 5% up. Andrew Jones: So it sounds like a pretty tough quarter, fourth quarter if you're sort of saying price is 5% down, log import prices 5% up. And you're probably seeing some seasonal volume weakness, I guess, maybe and it's about 5% last year. So anything to mitigate or offset those moving parts? Andreas Ewertz: Yes. So but on the solid wood products, I mean, as Ulf said, the prices will go down 5% and also the log will continue to increase a bit, but of course, continuing to focus on cost and what we can affect. Andrew Jones: Okay. And just 1 question just about the structural change. On kraftliner, I mean, you've kind of talked about the market being more balanced in kraftliner, obviously compared to testliner, but I mean, how -- why can the actual premium kraftliner and testliner fee in the medium term given the sort of substitution potential, I'm curious like to see whether that premium can be maintained in the near-ish term. Ulf Larsson: It's hard to say. I mean, the delta just now is EUR 280 or something like that. So that is a rather wide gap. And I guess if customers -- if they can substitute, they will substitute. And we see the same trend in -- we have the same question always in softwood and hardwood pulp. But the same answer, I mean, if customers, if they can substitute, they will do it because if something is cheaper, of course, they will use that instead. So I guess my perspective is more that I think we will at least remain on rather high delta between testliner and test recycled products and base products and virgin-based products as virgin fiber will be a scare resource going forward. So strategically, I guess, we will widen this gap, which we have also seen in the past years. So I think that will remain, honestly. And also, when you look at the capacity increase. I mean, the absolute main part capacity is coming in the recycled business. But in order to get raw material to the recycled business, you must have some virgin-based production. Operator: And we'll now take our next question from Pallav Mittal of Barclays. Pallav Mittal: Pallav Mittal on behalf of Gaurav Jain. So a few questions. Firstly, you and your peers have all highlighted good availability of pulpwood because of which we are now seeing this decline in pricing. And now given demand is weak and there are a number of production curtailments, how do you think these pulpwood costs could change if you start seeing some sort of improvement in demand? Ulf Larsson: Then, of course, it might be so that you have bottleneck again in raw material supply. So again, to have a stable long-term increase in the market, then the consumption must come up, the demand must come up. So that's the simple answer. And I mean, then it might be so that if -- when sawlog prices, if they come down, but pulpwood prices, when they come down, then it might be so that you see additional capacity coming on stream. And by that, of course, the supply will increase for a while. And if then the demand is not picking up, then, of course, you will have a pressure in the market again. So it is as easy as that. It's always a question about supply-demand. Andreas Ewertz: And your question on -- I mean, of course, if demand for the finished product goes up and the production goes up, that will, of course, increase the demand for wood raw material, which is already has been tight. Pallav Mittal: Sure. And then if I can ask something on CTMP. So you did mention that CTMP prices have declined in Europe, and now we are seeing new capacity in China as well. But does that impact your CTMP ramp-up? Ulf Larsson: I mean, as it is just now, we have a rather profitable business within Europe in CTMP. But as you say, I mean, we have very -- the margin is not too big in Asia. So yes, in that perspective, we are maybe in -- it's always a marginal calculation. So if we have days with high electricity price or if not now, but before when we saw that we had scarce situation when it comes to pulpwood. I mean then we -- of course, the first production site, we took containers in was in Ortviken and CTMP. So as it is just now, we are a little bit more focused on fine-tuning, I mean, also try to validate products for the European market and so on. So it is very small or from time to time, negative market going from Sweden over to Asia in CTMP as it is just now. Operator: Thank you. That was our last question. I will now hand it back to the host for closing remarks. Ulf Larsson: Thank you, and that concludes our presentation of the third quarter results. We'll come back in January for our full year report. Thank you for watching, and thank you for listening.
Operator: Good morning. My name is Audra, and I will be your conference . At this time, I would like to welcome everyone to the Stellar Bank Third Quarter Earnings Call. Today's conference is being recorded. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the conference over to Courtney Theriot, Chief Accounting Officer. Please go ahead. Courtney Theriot: Thank you, operator, and thank you to all who have joined our call today. Good morning. Our team would like to welcome you to our earnings call for the third quarter of 2025. This morning, the earnings call will be led by our CEO, Bob Franklin; and CFO, Paul Egge. Also in attendance today are Steve Retzloff, Executive Chairman of the company; Ray Vitulli, President of the company and CEO of the bank, and Joe West, Senior Executive Vice President and Chief Credit Officer of the bank. Before we begin, I need to remind everyone that some of the remarks made today constitute forward-looking statements as defined in the Private Securities presentation Reform Act of 1995 as amended. We intend all such statements to be covered by the safe harbor provisions for forward-looking statements contained in the act. Also note that if we give guidance about future results, that guidance is only a reflection of management's beliefs at the time the statement is made, and such beliefs are subject to change. We disclaim any obligation to publicly update any forward-looking statements, except as may be required by law. Please see the last page of the text in this morning's earnings release, which is available on our website at ir.stellar.com. For additional information about the risk factors associated with forward-looking statements. At the conclusion of our remarks, we'll open the line and allow time for questions. I will now turn the call over to our CEO, Bob Franklin. Robert Franklin: Thank you, Courtney, good morning, and welcome to the Stellar Bancorp's Third Quarter Earnings Call. I'm pleased to report that we delivered solid results, including increasing our net interest income and our net interest margin. Our balance sheet expansion was driven primarily by deposit growth, reflecting our bankers' emphasis on getting the full client relationship. Credit quality has found its way back into the headlines. While we experienced some charge-offs in the quarter, they were spread over several small credits, most of which were already identified and appropriately reserved. We feel comfortable at our present level of reserve based on our portfolio and the markets that we serve. We have little exposure to nonoriginated credits and only have 3 shared national credits, all with long-standing and additional business ties to the bank. Overall, credit trends remain favorable and our market's stable. Paul will provide more detail on our expenses during the quarter, including some onetime expenses and some increased advertising spend. As we continue to strengthen our capital position, we have repurchased shares, and we have paid down $30 million of our subordinated debt just after quarter end. Our well-capitalized position gives us valuable flexibility and we remain committed to deploying capital in ways to enhance our shareholder value. We are focused on growing our company. We believe that if we continue to be disciplined in building quality assets protecting margins and focusing on full balance relationships, we will drive long-term value for our shareholders. Now I'll turn the call over to Paul Egge, our CFO, for more content. Paul Egge: Thanks, Bob, and good morning, everybody. We are pleased to report third quarter 2025 net income of $25.7 million or $0.50 per diluted share as compared to net income of $26.4 million or $0.51 per share in the second quarter. These -- represent an annualized ROAA of 0.97% and an annualized ROATCE of 11.45%. Key highlights of our third quarter performance were improvements in our net interest income and margin on incrementally larger interest-earning assets. Our balance sheet growth was driven by strong deposit growth, and we feel great about our liquidity, capital and overall balance sheet positioning. So during the third quarter, net interest income was $100.6 million, representing an increase from the $98.3 million booked in the second quarter, largely due to higher earning assets and net interest margin for the quarter. This translated into the net interest margin of 4.2% relative to 4.18% posted in the second quarter. Purchase accounting accretion in the third quarter was $4.8 million, down from $5.3 million in the second quarter. So if you were to exclude purchase accounting accretion, tax equivalent net interest income increased by slightly more to $95.9 million from $93.1 million in the prior quarter, and that change in net interest margin, excluding purchase accounting accretion, was also greater going from 3.95% in the prior quarter to 4% in the third quarter. We're really proud to get NIM excluding purchase accounting accretion back to a 4% level, and we continue to feel good about our ability to defend and perhaps incrementally improve on our top-tier margin profile by focusing on staying true to our core relationship banking model. Walking further down the income statement, we booked a provision for loan losses of $305,000 in the third quarter, which was driven primarily by an increase in our allowance for unfunded commitments and growth in that category. While we did experience $3.3 million in net charge-offs in the third quarter relating to over 10 relationships, most of these were previously identified and already specifically reserved for, therefore, not impacting our quarterly provision. For a year-to-date perspective, our net charge-offs totaled $3.7 million or approximately 7 basis points annualized. Our allowance for credit losses on loans ended the quarter at $78.9 million or 1.1% of loans, which is down slightly from $83.2 million or 1.14% of loans at the end of the second quarter. Moving on to noninterest income. We earned $5 million in the third quarter versus $5.8 million in the second quarter of 2025. This third quarter decrease was mostly due to approximately $445,000 of write-downs on foreclosed assets and other -- lower other noninterest income during the quarter. On to noninterest expense. Our expense increased to $73.1 million from $70 million in the second quarter, primarily due to an increase in salaries and benefits into a lesser extent, increases in professional fees and advertising. Salary benefits expense included severance expenses reported relating to 2 upcoming branch closures in the fourth quarter, which totaled about $0.5 million as well as elevated medical insurance expenses relative to prior quarters. We view our third quarter expenses as an outlier, and we expect fourth quarter expenses to be closer to our run rate for the first half of the year. So all of this drove solid bottom line results of $25.7 million in net income, which continues to fuel our track record of internal capital generation and our very strong capital position. Total risk-based capital was 16.33% at the end of the third quarter relative to 15.98% at the end of the second quarter. Year-over-year tangible book value per share increased 9.3% from $19.28 to $21.08 per share and that is after the effect of dividends and meaningful share repurchases. I should note that our share repurchases in the third quarter was lighter than prior quarters, totaling just under $5 million relative to a total of approximately $64 million in share repurchases year-to-date. In closing, we really like where we sit, both financially and strategically. Even more so, since recent M&A disruption in Texas accentuates our key differentiation among the only truly focused franchises with scale in a competitive landscape comprised of increasingly larger out-of-state competitors. We've built a strong balance sheet that can support quality growth and with growth, we're positioned to deliver positive operating leverage through adding scale to the Stellar Bank platform, while maintaining the financial flexibility to be opportunistic. Thank you, and I will now pass the call back over to Bob. Robert Franklin: Thank you, Paul. And operator, we're ready for questions. Operator: [Operator Instructions] We'll take our first question from David Feaster at Raymond James. David Feaster: I just wanted to start on -- let's start on the growth side. I know somewhat of the decline is strategic, and we've talked about that given your focus on a balanced approach. But I just wanted to get a sense on, first off, what's driving the payoffs and pay downs. How much of that is competition versus just asset sales and those kinds of things? And then just how do you think about the growth outlook as we look forward? I mean, Texas is a very competitive market on 1 hand. And that's -- maybe that could be a headwind. But at the same time, you talked about the disruption and that creates a ton of opportunities, just given the strength of your franchise and your relationships. Just wanted to kind of taking that all together, like how do you think about growth? And just any insights you can provide on that? Ramon Vitulli: Sure, David. yes. So I'll start maybe a little bit with what's impacting the growth when we talk about the payoffs, like you asked the color around that. So payoffs this last quarter were about $50 million more than the previous quarter. So we talked about a run rate of around $300 million of payoffs. They were $330 million in last quarter. Year-to-date, about 44% of our payoffs are related to sale of collateral sale of business. About 25% is kind of in that competitive area of refinance elsewhere. So -- and those are the things that we take a look at around 1, and as Bob already mentioned, us remaining disciplined around full relationships. So some of that, it will go away. But on that refinance elsewhere, if we put our best foot forward to try to keep some of that, but that's some of what we're faced with. On the other component of that in the waterfall is, we call it -- we've talked about it before, but what we call our carry, which is our advances versus our paydowns and scheduled payments. And as Paul mentioned, we had a reserve related to unfunded that continues to grow, but we're still not seeing the lift from that. So compared to the previous quarter, that was almost another $50 million of increase in the payments and paydowns exceeding the advances. So I mean that's an area where we think we will get a lift as we continue to originate loans. We're really pleased with the originations last -- third quarter, we originated almost $500 million of loans compared to $640 million the previous quarter. But the real thing that I think we want to make sure we communicate is just overall year-to-date or compared to last year, first 3 quarters, we're up 62% of loan originations and the mix that we like with a little bit more C&I in that mix. So things are headed in the right direction. We just have to continue to convert on our pipeline. And pipeline remains healthy. I think a little bit of the originations that were down compared to the previous quarter were really due to -- in some cases, it's competitive, obviously, but also just some things that are going to get pushed into the fourth quarter. But the pipeline remains healthy, and we're really pleased with where we stand there. David Feaster: That's great. Maybe touching on the credit side a little bit. Concerns are -- they've gotten heightened in the industry right now. I guess, first, I was hoping you could maybe touch on -- what are you seeing on the credit front? Is there anything that you're seeing broadly that's causing you any concern? And then secondarily, I was just hoping you could maybe touch a bit on your approach to credit. Collateral management, stress testing and ongoing monitor. It seems like some of those are what maybe the investors are concerned about in the industry. So just was hoping you could elaborate maybe a little bit on your process and your approach to managing credit. Paul Egge: Yes. I think -- the best way to manage credit is when they come in through the front door, David. I mean so that's how we manage that most of the time. However, we do stress testing. We do all the things that folks do to monitor portfolios. And we're moving our portfolio from what those 2 smaller community banks into a larger community bank. And it has a different look. I think you see that on our balance sheet as we've gone from where we used to run our banks that say 90% to 100% loan to deposits, we're now down about in the low 80s, we feel comfortable there. We're able to make money there. We're changing the mix of debt. To try to have a little more emphasis on stickier C&I credits. Now -- we do -- we are very careful about how we approach C&I and how that's getting monitored and what we do to make sure that we have solid results around C&I. But we also continue to do real estate loans, and those things have been good to us over the years. We're in a market that continues to grow. And so real estate continues to be a good active place for us to put money. So we're -- I think we would be more concerned, if we are in a less dynamic market, but we're in a very dynamic market all the things that are affecting the world, for that matter, of tariffs and the various things that are happening today, I think, are being absorbed pretty well in Houston and Dallas and the markets that we're in [indiscernible]. So we feel supported by our markets and I think it's about decision-making with them, and that's kind of how we approach it. David Feaster: Okay. That's helpful. And then just wanted to maybe switch gears to the deposit side. I mean your growth was really strong this quarter, cost decline. Just wanted to get a sense of some of the drivers behind that how much of that is new clients versus increasing liquidity or relationships with existing clients? And then just, again, with the liquidity build, I mean, even after paying down borrowings and buy a little bit of security. Just kind of curious what your plans are for some of that excess liquidity going forward? Ramon Vitulli: David, I'll touch -- well, let me touch a quick. On the deposit growth piece. So really pleased there, as we've already mentioned. So of our new deposits that were onboarded in the quarter 51% were to new customers that have not been here before. And we've seen that kind of hover in that 40% to 50% all year, which we really like. And we think that's really a reflection of continued brand awareness of Stellar, our bankers that are really having good success with market share gains. We've had improvement in our Net Promoter Score, really getting into like a best-in-class area there and customer satisfaction is all heading in the right direction. I think that just points to the fact that we continue to bring new customers to the bank as well as this expansion of our existing customer base, which represents that other 50%. But -- so really, the growth is really around those new accounts and the deposits associated in that, that are well exceeding in dollar amount the closed accounts and our carry was nice and gave us a little lift. Robert Franklin: Yes, David, we just feel very strongly that low-cost deposits is something that everyone is going to be fighting over, and it's something we put a big emphasis on in any relationship that we have. And so we're going to continue to do that. I think we've seen some success as we did this quarter. And hopefully, we'll continue to see that as we keep the push on that going forward. We are building some liquidity. And I think deploying that, both in loans and securities is something that we intend to do in the future. But we want to grow the loan portfolio. We want to -- that's where we grow customers and that's how we continue to grow the bank. And it's important to us to continue on that block. A lot of turmoil in our markets, a lot of M&A going on, a lot of -- so it's given us opportunity for customers. It's given us opportunity for new employees and people to join our company, which is great. I think it's -- but it's also had some negatives to it and that you have new players in that want to buy the market, and you're seeing some interesting things around not only pricing, but covenant packages and sort of credit light. And we're not going to join that party. That 1 doesn't fit us and if we have to retreat a little bit we'll do it. But we've been operating in a competitive market for a long time. We feel like we know how to do that. We'll get our share. And if we continue to do the right things, which I think we are, from a customer acquisition standpoint, we'll continue -- we will grow the bank. So that's kind of how we're approaching it. Operator: We'll move next to Stephen Scouten at Piper Sandler. Stephen Scouten: Just following up on the deposits quickly. You've tended to have some seasonal strength in the fourth quarter. Is that something you would expect here this coming quarter as well? Paul Egge: We talk about that all the time because we do have seasonal strength of some of our government banking deposits. And in fact, last year, we had about a $200 million deposits that came in, in the last day of 2024. It's kind of hard to predict as it relates to that. We'll keep you guys abreast, if there's anything that majorly kind of create a meaningful deviation from norm as we did, I think, last year. And [indiscernible] checked how much represents what we would call seasonal excess. So we'll note that when we report the third quarter -- fourth quarter, I should say, if and when some of that tax revenue seasonality comes in before year-end. A lot of it really hits in January and February, and it's kind of gone by March. But sometimes in last year was a great example, where sometimes it comes in right before the end of the year. Robert Franklin: But that's not reflected in this quarter's deposit growth. It doesn't happen until late in the fourth quarter in most government deposit. Paul Egge: Precisely. Stephen Scouten: Perfect. Great. That's great color. -- when you were talking a little bit about the expense ratio, saying it looked like this was maybe a bit of an outlier this quarter and can get back to that $70 million level. What makes this quarter more of an outlier. I know there was the severance payment in there in salaries. But what makes this an outlier? And do you think that kind of $70 million range is the level you can hang around in '26? Or should we see just some kind of general inflation build from here? Paul Egge: I'll say to be more specific. I said that we'll see fourth quarter earnings closer to our first quarter -- or first half run rate than what we posted in the third quarter. So it might not be just as great as the $70 million per quarter we were posting in the first half of the year, but definitely closer to that than the $73 million we posted in the third quarter. Separately, we will see some inflation. I mean as you guys know, we've been focused on holding the line, where we can and really being focused on just that. We feel great about how we've been able to kind of stop the creep in expenses, particularly as it relates to a lot of what we had to build in crossing over the $10 billion threshold. We're in optimization mode on a go forward, and we've been really pleased at how we've been able to do just that, while remixing kind of with attrition and things along those lines in our human capital base. So we feel really good about where we sit. And the goal is to continue optimizing and holding the line as much as we can going into 2026 and beyond. Operator: Next, we'll move to Will Jones at KBW. William Jones: So Paul, maybe just sticking with you and moving to the margin discussion. I mean, if you exclude purchase accounting, we've kind of hit that 4% and those on that felt like kind of the overarching near-term target for you guys. And I go back to your comments on the call about feeling good about the ability just to defend that level, if not even improve from here, but as we think about this next period of Fed easing, will that ability to defend will that really be more of just some tailwinds from fixture pricing? Or do you intend to be relatively aggressive lowering deposit costs from here? Paul Egge: We're going to be focused on lowering deposit costs, where we can that predominantly is going to be on more of your specials and exception level pricing. That's where we've got some index pricing for certain deposit products that we're going to get immediate benefit from when rates change. So we feel really good about kind of the initial repricing dynamics. And then separately, there is some tail trends that are helping us in how our securities and loans reprice. So we're still in a kind of a pretty good backdrop to defend that margin. As the deck get reshuffled at every rate cut, there could be some timing distinctions. But we feel like we've got the benefits are likely to sufficiently mitigate the drawbacks of how those reprices go on. So we're feeling good about the pending. Actually, we're pleasantly surprised to have gotten the 4% NIM, excluding purchase accounting accretion as fast as we did. We certainly did not promise that to the market and do not expect it necessarily to materialize as quick, but we're really pleased that we were able to do that, notwithstanding being a little less loaned up than what our budget and forecast are in our plans to drive loan growth really, are. William Jones: Yes. I mean well done there. And could you just remind us, is there a kind of a terminal interest-bearing deposit beta that you guys are trying to manage to through this cycle? Maybe just as you look at what you were able to accomplish on the uprate cycle? Paul Egge: We don't necessarily think of it in terminal basis, we're trying to gain as much ground as we can where we can. So just like on the upswing, where we didn't -- we weren't as mean, as aggressive and necessarily moving a lot of our kind of base sheet rates. And we're more focused on, okay, how do we manage this exception population and what -- in this index population, how do you really manage your most price-sensitive customers on the deposit side and we're going to continue to do that on the way down. And it's a nuanced approach. We feel like we're approaching it with more discipline than we really ever have in having a game plan for every rate cut and being ready to manage all those conversations and really get the highest beta out of our most -- out of our largest absolute value exception customers. And that's all a reasonable ask and so far has functioned pretty well in the September rate cut. So we'll follow the same game plan as we go forward. William Jones: Yes. Okay. And then maybe to follow-up, when we talked about deposits and the growth that's happened there and kind of the excess liquidity that you have as a result, if we do continue to find the paydown bug a little bit and to the extent loans don't really ramp up in growth meaningfully in the near term. Could you look to be a little more opportunistic adding to the bond book from here? Paul Egge: It's definitely an option. And it's something that we talk about every day, really what is the right size of the bond book, how do we manage our balance sheet best. We feel awesome about the fact that we're building an even more fortress-like balance sheet with strong capital, strong liquidity and a really nice foundation to grow upon. So we think that flexibility can allow us to be opportunistic, when more meaningful loan growth presents itself or when other strategic opportunities can present themselves. So we are very pleased to be having a very healthy and strong balance sheet. Operator: [Operator Instructions] We'll go next to Matt Olney at Stephens. Matt Olney: I want to circle back on the loan growth discussion. And we talked about the elevated pay off few months ago. I'm just curious, when do you expect this to slow? I mean we're seeing rates move lower in the fourth quarter and expectation that continues now for a little bit more. I would think that would just create more payoffs, not less. But just curious what your expectations are as when we could see this pressure ease up? Ramon Vitulli: Matt. So 1 of the things that we will get a lift we will get a lift from our advances exceeding our paydowns and payments. And that's -- when we go back and look at our history of when we were getting a lift, it patterns kind of that it matches up with our loan originations. So as I said, we -- loan originations were up 62%, but we will get some lift there, whether that's -- we may be a couple of quarters away from that, helping us and not taking away from loan growth. So that's kind of in the good news category, I think we're going to have to manage through the fact that we've got the way the portfolio the nature of the portfolio of this $350 million of payoffs that we have, and we'll do our best to try to limit that through some of those loans that refinancing elsewhere to put our best foot forward. But the real story is going to be on that side is going to be the funded portion of the new loans that we originate. So our -- again, our pipeline is healthy. If we're in this like last quarter, $600 million of origination, that's getting us closer to where that will give the fundings even with the payoffs to get us -- as you know, last quarter, we had a slight gain or slight increase in net funded loan balances. So it's just -- it's a matter of delivering on that pipeline and continuing on the path that we've seen in the last couple of quarters and really year-to-date, we said before that we thought growth would manifest in the second half of the year. Of course, we still have the fourth quarter. But going into '26, we feel good that we will pivot to that. Matt Olney: Okay. Appreciate that, Ray. And also want to get the updated thoughts around M&A. We're definitely seeing more M&A deal announcements in your backyard. Just curious about the conversations you're having with strategic partners and expectations for finding a partner for Stellar Bank? Robert Franklin: Yes, Matt, we continue to own conversations. We've talked to a lot of folks. I think you've seen some transactions that we have some interest in and some not. But I think the thing to remember and the thing that we want everyone to understand is that we're very protective of the balance sheet that we've built and the deposit base that we've built. And as we look at partners out there and how they've structured their funding, it would be -- it would not behoove us to join somebody that takes away from the funding base that we have just to be larger. So I think what we want to do is make sure that we find the right partners that think about the world the same way we do and find themselves in a similar fashion. So -- we continue to have conversations. I think there's a possibility that we could be active in this space, but we're going to be careful about how we approach it. Matt Olney: Okay. Thanks for the commentary and I agree, it's a high-class problem to have protecting the balance sheet. And just lastly for me, I guess, over to Paul. Paul, I heard you mention the purchase accounting accretion in the prepared remarks, looking for the updated fair value mark on that portfolio? Paul Egge: I believe that $58.1 million of what's left of the loan discount. Operator: And that concludes our Q&A session. I will now turn the conference back over to Bob Franklin for closing remarks. Robert Franklin: Thank you very much for joining our call today. And with that, we are adjourned. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Jane Morgan: Good morning, and welcome to the Amaero Investor Webinar. I'm Jane Morgan, Investor and Media Relations Manager. And today, I have the pleasure of speaking with Hank Holland, our Chairman and CEO, who's going to be providing a company update. As usual, we will be taking questions throughout the presentation. So please use the Q&A function, which can be found at the bottom of your screen. Hank, I'll hand to you. Hank Holland: Thank you, Jane. Good morning, everyone. As you're aware, Amaero lodged its quarterly financial results yesterday. I'd like to highlight some of the information from the results. And then as always, we'll be happy to take questions as follows. It was quite a transition for Amaero. We reported revenue of AUD 4.7 million, an increase of 445% over the same period a year ago. This included AUD 4.1 million of powder revenue and about AUD 600,000 of revenue from PM-HIP manufacturing of large near net shape parts. During the quarter, we increased atomization by 240% over the prior quarter. Again, that is in the September quarter, we increased atomization by 240% over the June quarter. Notwithstanding the significant step function and increased manufacturing, we could not manufacture enough product to fill all of our orders. And thus, we carried it into the current quarter approximately AUD 0.5 million of order backlog. All of those powder orders have now been shipped that carried over into this current quarter. We ended the quarter with AUD 9.9 -- I'm sorry, excuse me, we used cash in operations of AUD 9.9 million during the course of the quarter. This included AUD 4.7 million of bar stock inventory purchases. We've been very mindful of the last 12 months to carry buffer stock, thus mitigating the risk of any trade disruptions or tariff risk, somewhat timely given the tip that arose about a week ago with the threatened heightened tariffs with China. We are in very good position as far as inventory in stock. We have 20 tons of titanium bar that arrive this week. We have another 20 tons -- another 40 tons actually that will ship before the end of the month. The threatened tariff was to take place in November. So again, we are in very good shape as far as buffer stock of inventory. We ended the quarter with AUD 50.9 million of cash. Moreover, 3 days into the quarter on October 3, we received USD 5.7 million or about AUD 8.8 million from EXIM Bank draw. This was from CapEx spent in the prior quarter. So as of October 3, we had a cash balance of roughly AUD 59.7 million after drawing on EXIM Bank. We've got about another USD 7 million or about AUD 10.8 million left to draw on the EXIM Bank loan, and we will draw that over the course of this fiscal year. Moving on, one of the real focuses this year, really, there will be 2 primary focuses: one, to continue scaling manufacturing production, our throughput and the other will be continue to scale our commercial contracts. Anyone that has been involved in manufacturing, scaling manufacturing is not easy. When you go from development to production, it's a very different process. In anticipation of this, in May of this year, we brought in a gentleman that I've known for many years, Eric Olson. Eric headed up manufacturing consulting at Accenture for 3 decades. I met him at a former portfolio company. We had a SWAT team in for about 6 weeks. They reviewed all of our processes, met with our entire staff, all of our quality controls, all of our safety controls, and they put forth a plan in anticipation of not only scaling from fiscal year '25 to fiscal year '26, but scaling from atomizer, which we had before all the way up to 4 atomizers, which is our plan. They had no shortage of input and recommended changes over time. In fact, there's about 42 items that they identified in our processes and our people and our staffing and various protocols, much of which has already been implemented and some more of which will be implemented in the coming months and/or years as we begin to further scale and automate, for example, the way that we handle and move powder within the facility to do so in a way that is more expedient, but also less risk of contamination and safer. As part of the changes they recommended, our operations over the prior 2 years had really been focused on building our facility and commissioning the equipment. Obviously, now we've transitioned a very different type of operations, which are centered around manufacturing. As part of this, we brought on a new VP of Manufacturing Operations, who is essentially now running our operations, Mark Struss. I'll talk a bit more about Mark later. Mark comes with 25 years of manufacturing experience, including in the auto industry, a much more complex manufacturing process or series of processes than we have here. But again, he has been very instrumental in helping us think about how we begin to scale, how we begin to change these processes. I'll come back to this in the last point here in a minute, but we've gone through a real step function in operations. To that point, we have ordered additional equipment, much of which was ordered earlier this calendar year, some of which arrived in the first quarter of the fiscal year, more of which will arrive in the current quarter and next quarter that will again continue to scale the processes beyond atomization. We have a 5-step process, the first step of which is atomization but a series of processes that follow and this capital equipment will help us further scale those processes. Over the prior quarter, and again, I repeat, over the prior quarter, we had a subsequent or sequential increase in powder shipments of 153% in a single quarter. We shipped about 5 tons of product in the fourth quarter of fiscal year '25. We shipped over 12 tons of product in the first quarter of fiscal year '26. We had a 240% increase in atomization from about 8 tons in the fourth quarter, the June quarter to 27 tons in the September quarter. We were operating in June one 8-hour shift, 5 days a week on a single EIGA. We finished September operating two 10-hour shifts a day, 6 days a week on 2 atomizers. So again, significant scaling over the course of the quarter. In anticipation and recognizing the transition period of which Amaero is in, my wife and my family and myself relocated to Chattanooga during the course of last quarter. We're thrilled to be here for 3 years. I've been traveling back and forth and with a new baby at home, did not want to continue to be away from the family and moreover, have very long days here. I get to the office about 6:30 in the morning. We have a 7:00 a.m. production meeting. It's a little bit after 8:00 p.m. now, which would be a typical day. So again, it gives me a chance to be here all day, every day and be less away from family as I travel. So thrilled to do so, work alongside a great group of colleagues. And one of the things I've always said is people around here can attest, I want to ask anyone to work harder than I work and that being said, there's plenty of people here working just as hard as I am, and it's a heck of a team. Some significant improvements during the course of the quarter from a qualification standpoint as well as ongoing material improvements. As you might recall, with Castheon and ADDMAN, we signed a 5-year preferred supplier agreement in April of 2024. We then qualified C103 in September of '24. This was a very big deal. The founder of Castheon, Dr. Youping Gao is the foremost expert in printing C103 and refractory alloys. ADDMAN owned by one of the leading private equity firms in the industrial space in the U.S. has been very active in additive manufacturing as well. And so qualifying with Castheon and Dr. Youping Gao is a very big deal. We then immediately did some additional work on refining chemistries and we announced in December of '24 that we have made some slight tweaks to C103 chemistry that had shown some improvements. And then we've been continuing since then to make some other refinements. We have completed that. Thrilled to say that we have qualified with ADDMAN on top of the qualifications that we've done before. We've achieved performance specifications that are rock-like. Much of additive manufacturing material is subpar to rock material properties. The prior supplier that Castheon had achieved rock-like material properties, and it was important that we achieve consistent properties with other supplier, and we've now done so. So another significant advancement both in our qualification standards as well as our relationship with Castheon and ADDMAN. We will continue to advance, particularly as it relates to propulsion systems and thermal protection systems. These important systems on hypersonics and space applications, and we'll work closely with Castheon and ADDMAN going forward. Also during the course of the quarter, as you know, we achieved qualification, which was a predicate condition with Velo3D. We achieved that with Auburn University's National Center of Additive Manufacturing Excellence. I'll announce later one of the interesting things, Dr. Jonathan Peck, who had been a senior technician at Castheon, very few people, again, understand and know how to print C103. He had left Castheon and gone to Auburn. That is who we worked with at Auburn. I'm pleased to say that Dr. Jonathan Peck will be joining Amaero at the end of this month and again, one of the important technical hires that we have made. During the course of the quarter, as everyone is aware, we completed a AUD 50 million Placement that was very well supported, strong institutional support and participation. We also had an SPP. The SPP was AUD 3 million, and I would say modestly supported AUD 470,000, same terms and same issue price as the Placement. The Board considered this very seriously and that we were fully funded before -- but the Board felt it was important given that we were 2 years into commercial engagement, go ahead and pull forward some growth initiatives that had been planned for fiscal year '27 and beyond as well as to make investment in Argon recycling that will further improve our cost -- unit cost advantage that we have over competitors and further uniquely position us not only as the largest capacity U.S. domestic producer of spherical refractory and titanium alloy powders, but also the lowest cost. Some important hires that we made during the course of the quarter. Brett Paduch, our Chief Financial Officer, has been fantastic, brings a great audit background in accounting as well as FP&A experience. Mark Struss, I mentioned before, essentially assuming leadership in the manufacturing operations. Dr. Jonathan Peck, I mentioned, has joined us as VP of Technology Development was at Castheon and then Auburn. And then Dr. Arun has been an amazing force at Amaero. He's been promoted yet again. This is actually a second promotion, and he is leading all of our applied research as well as process development and working hand-in-hand with Mark Struss as we continue to refine and develop our operating systems. Also during the course of the quarter, we gave updated financial guidance. Pleased to report for fiscal year '26, we anticipate revenue of AUD 30 million to AUD 35 million and we expect roughly 40% of that would be achieved during the first half of the fiscal year, roughly 60% of that to be achieved in the second half of the fiscal year. On the commercial side, we made progress on a number of fronts. As everyone is aware, we announced a 5-year exclusive supplier and development agreement with Titomic, ASX-listed company for refractory and titanium alloy spherical powders. One of the things that perhaps isn't as well appreciated in the ASX market is spherical powders are very different than angular powders, also very different gas atomized powder than, say, HDH powders. Also reactive or titanium alloys very different than nonreactive, such as nickels and so forth. And so Amaero plays a unique role in the supply chain and particularly when you're qualifying in parts. What Titomic was finding is that the defense primes came to them for development and production parts, mission-critical aerospace and defense applications, the defense primes required it be spherical powder. So they give very specific material specifications. And in some cases, will also define how the powder is manufactured. This is more true, for example, in medical applications, where it is most often plasma atomization or gas atomized powder. We've already begun working with Titomic on a project, and I would expect you'll hear more about that in the coming months. But again, important opportunity for us, I believe, for Titomic as well in the refractory space, in particular, and really scaling their expertise in cold spray applications. Knust-Godwin, we did not announce this as a stand-alone announcement in the course of the quarter. As people will know that have followed this company closely, we tend to be somewhat guarded with not announcing things unless we feel it has a very material immediate financial impact. That being said, Knust-Godwin is an important relationship for us. Knust-Godwin is located near Houston. They're a very pivotal integrated additive manufacturing and advanced manufacturing firm, primarily focused on the oil and gas industry, but increasingly focused on other areas, including aerospace. We work with them on the PM-HIP side of our business, and now we'll be working more closely with them on the titanium side of their printing business. They also use largely Velo3D machines. And obviously, with our partnership with Velo3D, it ties in here nicely with Knust-Godwin as well. During the quarter, we announced about a year ago, we received a contract a little bit over [ $1 million ] with the U.S. Defense Prime Contractor and that we expected to complete First Article parts. Those parts have now been completed. We said we expect to do that in September or October. We will continue to do some testing with our customer over the balance of this calendar year, expect to hopefully finish that by the end of December. And then that will be -- the acceptance of those First Article parts will be a very important milestone as we move forward to advance other development opportunities, but even more importantly, production part contracts with this customer. It also further validates PM-HIP manufacturing as a mature, what in the U.S. we call technical readiness level or TRL level, a mature and scalable alternative to large castings and large forgings, which is very important, particularly in the maritime industrial base, the submarine industrial base, but also in the oil and gas industry. And then finally, we announced in the quarter a development collaboration with a Boeing company. This also, I think, is a very important example of the benefits as well as the immediate insertion of PM-HIP. We are -- we've not disclosed the nature of the part that we're working on with Boeing, but it is a structural part in a next-generation aerospace application. And I would expect you'll hear more from us as well as Boeing as this collaboration advances. I thought it might be helpful to give investors just a representative list of some opportunities that we're advancing. We won't come out and essentially announce these or announce the counterparties until we have binding contracts. That's just our practice. But we are continuing to advance development and production opportunities that support the U.S. Navy and the maritime industrial base. We're continuing to advance C103 powder opportunities, specifically within Missile Systems. Tungsten powder opportunities for the munitions complex. Munitions, as those you might know, is a very significant opportunity given our depleted stocks. And tungsten, very, very important. Tungsten, as you might know, has got a characteristic as a heavy alloy it penetrates, but also it sharpens as it penetrates. And so it's a very important material that is used in munitions. Very few people and very few technologies. Tungsten has a very, very high melting temperature, and thus very few technologies can atomize tungsten. Zirconium opportunities, which are important for nuclear power as well as nuclear propulsion systems. Refractory powder opportunities for cold spray applications, as I mentioned with Titomic. I have been advancing a strategic supplier agreement with a large integrated additive manufacturer, continued to advance a strategic supplier agreement with a large multinational medical device company, investment tooling for a semiconductor large company in the U.S., production contracts for oil and gas, actually companies plural. We're working on an upcycling/recycling opportunity that takes titanium coarse powder and the stubs from our bar to upcycle and recycle that. Atomization and testing of development refractory alloy powders as a more cost-effective alternative to C103 for applications that aren't so mission-critical that they would insist on C103. And then finally, integration and/or co-location of adjacency manufacturing and processing capabilities. This is particularly important to the U.S. Navy. Part of the challenge that we have right now is parts on average are taking about 28 months to manufacture. And yet much of that time has been queued up as these parts travel all over the country for various processing. And so to the extent we could co-locate some of those adjacency processing, it would enable us to shorten the time of production as well as mitigate the risk and improve the resiliency of our production supply chains in the U.S. Jane, I hope that is helpful and would be more than happy to take any questions. Jane Morgan: Wonderful. Thank you so much for that, Hank. And if you could please send through your questions using the Q&A screen that would be great. We've had a few come through already. So let me jump into it. This one came through an e-mail actually, in fact. So one of Amaero's competitive advantages has been stated that the company can produce a far greater percentage of the high-value aerospace grade powder versus the low-value sort of off-spec powder than competitors. So from Amaero's production results so far, is the company achieving the advertised figures across the range of metals? And did this affect Amaero's ability to produce enough finished powder to fill orders this quarter? Hank Holland: Great. So kind of 3 questions in there. First, for those that may not be as familiar, the whole idea of yield. So when we start with the bar, we atomize that entire bar and we had a distribution of powder. And different applications use different particle size distribution. So we might have powder from essentially 0 micron to 400 micron. But in the case of laser powder fusion, which is the most valuable cut of powder, it will tend to be about 15 to 53 microns. Now what the question is referring to is the prior generation of EIGA technology got about a 25% or 30% yield of that 15 to 53 most valuable cut. Plasma atomization, again, a proven and very, very well-accepted form of atomization gets somewhere around a 30% to 35% yield. EIGA premium, the new generation of the technology that we're using is getting a 50% and 50% plus yield. And yes, we are -- we'll continue to improve our yield as we continue to dial in our manufacturing, but all the results that we're seeing today are consistent with what we would have expected. By the way, the other thing that I would say is there's other forms of atomization where you start with scrap and whether what's called HDH, which is a chemical process or other ways that you're making powder. And they might stipulate they've got a higher percentage yield than, say, that 50%. But that's implicit on starting with the correct size powder. That is if you want 15 to 53, you've got to start with 15 to 53 feedstock, right? So again, we're talking about 50% of the entire bar, right? So the EIGA premium has got the highest yield from a bar standpoint of any technology. It also uses half the Argon gas. And so again, our significant unit cost advantage that we drive. Jane Morgan: Wonderful. Thank you. So next one is, in the quarterly, you mentioned that you shipped to Velo3D 500 kilograms of C103 and 500 kilograms of Ti64. So were these included in the revenue performance for the quarter? Hank Holland: Yes. So over the course of the quarter, we had a pretty balanced distribution of revenue. In the course of the quarter, as you mentioned, we shipped C103 to Velo3D. We also had shipments of tungsten, TGM, I'm missing another alloy or two. But anyway, we had -- so we had C103, we had development refractory. We had what we call other refractory and then we had Ti64. So a broad portfolio of powders that were shipped during the quarter. And then as you know, of the AUD 4.7 million of revenue, about AUD 600,000 of that was PM-HIP. We actually had a couple of PM-HIP projects that got pushed into this quarter as part of that AUD 500,000. That AUD 500,000 back order was about half powder and about half PM-HIP, the powder of which that backlog has already shipped so far this quarter. So it was a nice balanced quarter as far as where the revenue came from. What I would say going forward, including the current quarter that we're in, I think that you'll see a consistent increase in the kgs that we ship. So the amount of powder that we ship, though it will be somewhat lumpy in revenue and there will be quarters, for example, we don't ship C103, right? Obviously, C103 has a price 20x higher than Ti64. So where we don't ship C103, that can impact the revenue. But I think you'll see a consistent increase in kgs that we're shipping quarter-to-quarter. Jane Morgan: Wonderful. And so next one is, you mentioned delivery of First Article parts to a defense contractor in September, October 2025. Have these been delivered? And if so, what is the process to progress from First Article to purchase orders or ongoing contracts? Hank Holland: Yes. So the First Article parts have been completed. They are back at our facility. Our customer has seen these parts. We will do some further testing with our customer on these parts through the end of the year. We hope to have it finished -- our customer hopes to have it finished before the end of the calendar year. And that will be a very, very important milestone. We understand from our customer, and I think it is fair to represent that in the area of PM-HIP, Amaero, and I really credit Eric Bono, Fred Yolton, Dr. Aman, we have absolutely have leading pioneering experience in this area and we hear this back from our customers as well. We are addressing some of the most difficult manufacturing challenges as far as parts that are not only bottleneck in the forging ecosystem, but are very difficult to make even with the forging and machining capabilities that we have today. So we feel very good, as does our customer about where we are. And the importance of having these First Article parts accepted is what is in the wings after this to follow is more development opportunities, but even more importantly, immediate production opportunities. And I think that, too, speaks to the technical readiness level and the maturity of PM-HIP as a manufacturing technology. Jane Morgan: Yes, absolutely. I think -- and this one has come through a few times actually, Hank. So what impact is the U.S. government's budget shutdown having on that sort of defense and aerospace contracts? Hank Holland: Yes. It's a very good question, and there's not an easy answer. So for those in Australia that might not be as familiar with the U.S. budget process, our federal budget fiscal year begins October 1 and goes through the end of September. So October 1 of this month, we began our fiscal year '26 budget. As you might recall, last year, a continuing resolution was passed through the end of fiscal year '25. So that expired September 30. And historically, what you would then do is you would pass a new continuing resolution that would be a short GAAP measure until the fiscal year '26 budget is passed, which typically has happened in December, if you look historically. Instead, the House and the Senate could not reach terms on passing a continuing resolution. The continuing resolution we had expired at the end of September. And today, we have no continuing resolution and no pass budget, thus, our government in the U.S. is closed down. Essential services continue to operate, but we are already hearing from customers. And when you -- even when you're in a CR, you can't have new starts or restarts, but this is not even a CR, right? You're just closed, if you will. And so we have not yet seen an impact on our business. We've not yet seen an impact on the immediate quarter or the immediate pipeline. But if this was to go on much longer, I believe this is already the second longest shutdown that we've had in U.S. history. I believe 42 days or 40 days thereabout is the longest. And here we are 23 days into it. If it goes on longer, a, it's not good for our country. It's certainly not good for our readiness as a country, and it will begin to have an impact at some point. So I wish I could give a more definitive answer. Stay tuned. Hopefully, we will -- it's not a great way to run a country. It's certainly not a great way to fund a Department of War. And hopefully, we'll get this resolved shortly. Jane Morgan: Yes. So great. So another one that's come through. So what progress are you making with nondefense, non-aerospace customers who need to buy U.S. sourced materials? You've previously spoken about potential customers in the medical center. Is there any progress happening there? Hank Holland: So one of the areas that we got lucky, if you will, was when we first invested in Amaer 3.5 years ago, a big part of our premise was anticipating that the U.S. would reshore defense industrial base. And obviously, we've seen that in spades. What we didn't anticipate was an administration would take policy actions such as the Trump administration is now to so resolutely reshape international trade policy. And obviously, in the U.S., we've done this with tariffs, and we've done this with other non-tariff trade policies. And what this has created is significant, and I say significant movement of particularly U.S.-based companies that are multinational that had offshored their manufacturing really from the early 90s onward. Obviously, much of that had gone to China and other lower production cost areas. And those companies that their end market is back in the U.S. So take a company such as Stryker, I think I've mentioned this before, 75% of their knees and hips, their orthopedics by value that they sell, they sell in the U.S. But today, 100% of those are manufactured in Ireland and 100% of their powder is sourced in Europe and Canada, right? So you're seeing a lot of companies like that now begin to reshore and better align the manufacturing footprint with their end markets. So a significant part of the opportunity that we're seeing in addition to the defense industrial base are these commercial markets. It's also important for us because we've got to work on immediate now opportunities and then be planting seeds for longer qualification period opportunities. For example, if you're going to qualify powder for a jet engine part, it could be 2 to 3 years before you qualify that material. If you're going to qualify an orthopedic for a medical device, it could be 12 to 24 months before you qualify that material. So we've got to find some now opportunities and then be planting the seed for these longer term, and that's the way we're approaching this. So when I say we're making progress, which I think we are, think of that as we've planted those seeds, we've commenced those commercial engagements, we provided them powder, and we're trying to advance that towards qualification internally. Jane Morgan: Thank you, Hank. Lots coming through, so bear with me. Okay. So is EIGA #3 still on track to arrive in calendar year '26? And are you confident you will have enough orders building to sort of fully utilize the 3 EIGAs into calendar year '27? Hank Holland: Yes. So our strategy has always been not to fully utilize. And this is part of what gives us the opportunity to go after some of these very large commercial accounts. If we were at full capacity utilization, imagine you're a 1 million square foot office building downtown Sydney and you've got a 95% occupancy rate, well, you can't attract a very large single tenant, right? So our strategy has been to be on our front foot making these investments and to operate in the early years at about 50% capacity utilization and thus have room that we could accelerate production further if we can land some of these large commercial accounts. And by the way, in our current plan, we don't assume any of that happens. We assume that we methodically absorb that capacity utilization over a 4-year period of time, right, between now through FY '30. If we do land some of these accounts, it will accelerate that. So that's the first part of the question. As far as timing, what we've announced is the first atomizer we commissioned in June of '24, and that's essentially dedicated to refractory. The second atomizer we commissioned in June of '25. That is in a separate production room much larger that has capacity for 5 EIGAs dedicated titanium. The third atomizer in total, the second one, which will be dedicated titanium is scheduled to ship from Germany in January and to be commissioned by June of '26, so next year. And then with the recent capital raise, we announced that we will go ahead and order a fourth EIGA. We expect to order that before the end of the calendar year, and then that one commissioned 1 year later than the third one. So we'll have a cadence of June '24, June '25, June '26 and June '27, commissioning the 4 EIGAs. Jane Morgan: Thank you. A bit of a different one here. So has Amaero considered atomization of low alpha, high-purity aluminum, which is used in the casing of silicon computer chips and currently produced by some of the largest Japanese manufacturers to obviously supply the next generation of semiconductor fabs being built in the U.S.? Hank Holland: Yes, it is a great question. And part of what I love about having so many great partners right here that are smarter than I am on various issues. If Eric Bono was on the phone, he would have an immediate a very thorough answer to that. I don't have an answer to that question. We are working right now with some semiconductor companies, both on the capital equipment side, which is really a PM-HIP opportunity, but also on advanced materials side. So there is interesting work being done there. I do not know specific to that material. If Jane, if you want to forward me the e-mail, I'd be happy to get to Eric Bono and we'd be happy to respond. Jane Morgan: Absolutely. Okay. Next one. Sorry, there are a lot coming through and a few double ups here. But okay, so looking at the quarterly, as production scales into the December quarter, will there be additional working capital requirements to further build input inventories? Hank Holland: So I'm not sure if the question means more than we have anticipated or simply working capital scales. Certainly, as we scale the business, working capital scales, right? So if you think about as you have more production, you need more feedstock, you carry more inventory. So absolutely, one of the things that we follow very closely is work in progress. And candidly, the immediate priority is scaling production. You kind of take this in sequential steps, if you will. As you scale production, then you'll want to circle back on optimization and you'll be then focused on, okay, we want to do certain things such as further enhance yield to the question earlier about getting to 50%, we actually think we can get materially higher than 50%. In doing so, you reduce your cost per kg. And there's other things that we can do to further reduce the cost per kg. So it becomes a bit of a circular process. But yes, naturally, as you scale the business, the working capital required for the business will also scale, and that is in our model and very much accounted for in the capital that we have on hand. Jane Morgan: Thank you, Hank. Sorry, that's come through. So let me just double check that there's nothing that's sort of been already covered. Look, I think that does cover most of the questions that have come through. I mean, finally, what kind of 3 key messages would you like investors to take away from today's webinar? Hank Holland: Look, I think what's most important for this year, and again, this will be a transitional and transformative year for the company as we transition into commercialization, and we begin to significantly scale production. So what am I paying the most attention to? What are we collectively in leadership, scaling production and scaling commercial contracts, right? That is going to be our focus over the course of this year and candidly, into fiscal year '27. So we hope to have more commercial announcements. Obviously, we had a cadence of long-term agreements and strategic announcements. We hope to have more of those. We certainly hope to have some progress with the U.S. Defense Prime that we've been working with. You can't really control when these things happen. And candidly, when you're working with the U.S. Navy, they don't really care about this quarter. They care about getting it right for a generation of our sailors, right? Getting it right for our next generation of submarine. And so on one hand, most important to us is to be a great partner and do great work. We want these things to happen as quickly as they can. A, it's not within our control; and b, candidly, it's not what's most important. What's most important is for this business to be successful long term. So I would say those would be the key takeaways. Follow our progress in scaling production, follow our progress on additional commercial contracts and scaling our revenue. Jane Morgan: Thank you, Hank. Well, that does look like we've answered all the questions for today. Should we miss anything, please feel free to reach out by the contact details on the bottom of our ASX releases. But thank you all for joining us. Hank Holland: Thank you very much, Jane. Thank you, everyone.