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Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to VolitionRx Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, November 14, 2025. I would now like to turn the conference over to Louise Batchelor, Group Chief Marketing & Communications Officer. Please go ahead. Louise Batchelor Day: Thank you, and welcome, everyone, to today's earnings conference call for VolitionRx Limited. Before we begin, I'd like to remind everyone that some of the information discussed on this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations in our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. We do not undertake an obligation to update any forward-looking statements made during the course of this call. Cameron Reynolds, Group Chief Executive Officer, will open the call providing a business update. Dr. Jake Micallef, our Chief Scientific Officer, will present research highlights from across our product pillars. Terig Hughes, our Chief Financial Officer, will then provide a financial report before handing back to Cameron to close with a discussion of upcoming milestones. We will then open the conference call to a question-and-answer session. And with that, I'll turn the call over to Cameron. Cameron Reynolds: Thanks, Lou, and thank you, everyone, for joining Volition's Third Quarter 2025 Earnings Call today. We very much appreciate your time given the busy earnings season. 2025 efforts for Volition have focused on commercializing our groundbreaking Nu.Q platform in the human diagnostic market, and we were excited this quarter to sign not 1 but 2 agreements, a research license and exclusive commercial option rights agreement for antiphospholipid syndrome, APS, with Werfen and a co-marketing and service agreement with Hologic. Both are multibillion-dollar companies and worldwide leaders in their specialized fields, and we are delighted to report that both have very much hit the ground running. Now taking each in turn. Werfen is a global leader in the field of in vitro diagnostics for hemostasis and thrombosis, among others, where neutrophil extracellular traps, NETs play such an important role. And of course, we have the only approved test to measure NETs. So this agreement fits extremely well into our strategy of leveraging the installed base of machines, specific disease knowledge and customer reach of our partners, combined with our unique NETs platform. Under this agreement, Werfen will gain access to the components of Volition's proprietary Nu.Q H3.1 NETs assay and will investigate its clinical utility in the management of APS patients on its platforms. Werfen also has an option to negotiate terms with Volition for it to launch the product commercially under an exclusive license. We have already successfully transferred the Nu.Q NETs assay to their ACL AcuStar platform. Early results in NET levels detection in APS patients with Nu.Q test are encouraging. Werfen are excited to validate further and complete a clinical utility study to determine the potential role of this marker as a risk indicator of thrombosis in APS patients, allowing a better management of this very complex syndrome. This could open the possibility to enlarge Werfen's portfolio in APS testing. Just to provide a bit of background about the condition as we haven't previously discussed this in detail. APS is a complex disorder of the autoimmune system affecting around 4 million people worldwide. It causes increased risk of blood clots and their associated complications such as stroke, heart attack, pulmonary embolism or deep vein thrombosis. It is also associated with the recurrent miscarriages and pregnancy complications. It is currently diagnosed through a panel of blood tests requiring 2 positive results at least 12 weeks apart and is often a lifelong condition requiring regular monitoring. Emerging evidence suggests increased net formation appears to be a central mechanism in thrombosis in APS and that targeting NET pathways could provide future therapeutic avenues for thrombotic complications. We believe that Volition's Nu.Q NETs test is the first CV -- IVD assay being investigated in APS and could provide not only improved diagnostic information to aid clinical decision-making and personalized care, but also a low-cost test to continue to monitor these patients throughout their lifetimes. APS diagnosis and monitoring represents a total addressable market of approximately $85 million annually. So it is a very good early target for our NET platform. It is exciting to achieve this major milestone with Werfen, and we are already working with them on study design, et cetera. The second agreement we announced this quarter is with Hologic Diagenode for the co-marketing of Volition's Nu.Q Discover service. The Nu.Q Discover service provides drug developers and scientists with a range of state-of-the-art assays for rapid epigenetic profiling in disease model development, preclinical testing and clinical studies from discovery to being market ready. Hologic has extensive experience recording revenues of over $4 billion in 2024 from a large client base and international reach, providing tools to biotech and pharma companies and also to academic and government organizations. We have seen strong growth in interest from our Nu.Q Discover services and believe this partnership with Hologic will further accelerate the expansion of Nu.Q services to a wider base of customers to drive revenue. The inclusion of our nucleosome-based biomarkers in Hologic's portfolio demonstrates a strong validation of their value in clinical development. The Hologic team have really hit the ground running and have already presented the Nu.Q Discover offering at several international conferences, have launched a digital marketing campaign, including e-mails and LinkedIn advertising and have a webinar planned for next quarter. They have also received a lot of inbound interest from existing customers, so definitely an exciting start to what we hope will be a long and fruitful relationship. We are continuing our discussions with around 10 of the world's leading diagnostic and liquid biopsy companies and are at various stages of this process across our different pillars, ranging from due diligence to tech transfer to evaluation of clinical samples to term sheet and contract negotiations. We are very confident of further licensing deals with a range of large companies, and we'll update on progress as they are completed. We believe that our positive emerging clinical evidence supports the broad applicability of our Nu.Q technology in critical areas such as cancer and sepsis, including as a biomarker of interest to epigenetic drug development and expanding area of focus for big pharma. Beyond licensing, as discussed on our previous calls, another prong of our Nu.Q NETs commercialization strategy is to leverage our granted CE Mark approved in the EU for any NETosis-related diseases with the product under valuation in 14 hospitals in 5 European countries. As Dr. Andrew Retter has discussed on previous calls, NETs are implicated in a wide range of diseases. We anticipate the presentation and publication of results regarding the clinical utility of the Nu.Q NETs H3.1 assay across a range of diseases in the coming months and quarters. So please keep an eye out. In fact, we have made significant progress on several publications in recent months and anticipate peer-reviewed publications across all pillars in the coming quarters. One such paper just recently submitted for peer review, concerns our groundbreaking Capture-Seq technology. We believe the ability to concentrate chromatin fragments and therefore, tumor DNA has the potential to be a game changer in the liquid biopsy field. It is an exciting prospect from a licensing perspective, and I am pleased to report that we are currently in active discussions with third parties. But to provide more detail, I'm delighted to pass over to Dr. Jake Micallef, our Chief Scientific Officer, to share a more thorough update on scientific and clinical progress. Jake? Jacob Micallef: Thanks very much, Cameron, and good morning, everyone. I'd like to start by providing a little more color and detail to the Capture-Seq project. We've recently submitted a paper on this describing an entirely new liquid biopsy method to analyze blood samples to find DNA from cancer cells. This is not a new way to target the same cancer-derived DNA targeted by other tests. Instead, we target an entirely new class of cancer-derived DNA. This represents an entirely new class of cancer biomarkers with hundreds or possibly thousands of new targets, all of which are ignored by current methods. We have isolated this previously ignored DNA from blood and removed the background DNA. This is important because background DNA is the single biggest problem in current liquid biopsy methods and nobody has ever previously managed to remove this background; however, our new method isolates just the DNA we are looking at with 180-fold concentration. That's an 18,000% enrichment and removes more than 99.5% or almost all of the background DNA. This is a great result, but it would be easy to throw away the baby with the bathwater. That didn't happen. We retained 48% of the target material for analysis with almost all the background DNA removed. This is the first. It's never previously been achieved in liquid biopsy. Our new Capture-Seq method is extremely exciting, and I personally believe it may become commonly used worldwide, both in the detection of cancer and in cancer patient management. The focus of the paper we've submitted is scientific rather than clinical and showcases what we believe is a revolutionary new liquid biopsy method for detecting cancer DNA in blood. So how is it revolutionary or different to existing biopsy methods? Well, the vast majority of DNA circulates in the blood as nuclear proteins called nucleosomes, and most of this is actually background; however, small amounts of DNA also circulate bound directly to epigenetic regulators called transcription factors. And this DNA, as I say, it's ignored by present methods is our target. Some transcription factors bind to different DNA locations in the genome or DNA sequences in the cells of cancer patients; however, their isolation from blood has never previously been successful. And consequently, the different transcription factor binding that occurs in cancer has never previously been measured in blood samples. We have now succeeded in isolating transcription factors from blood plasma and found hundreds of transcription factor bound DNA sequences in the plasma of cancer patients that are not present in the plasma of healthy people. As I said, these new sequences represent an entirely new class of cancer biomarkers with hundreds or maybe thousands of new targets available to science for the first time, and Capture-Seq is an entirely new way to analyze blood samples to find them. So the next step was then to establish a proof of concept for cancer detection by transcription factor occupancy measurement in blood using Capture-Seq. The technical details will be published in the paper when it comes out, but the transcription factor we've worked on is called CTCF, and we've shown in a small number of patients that a panel of plasma CTCF ChIP-Seq results identified patients with cancer with 100% sensitivity and specificity. In lay terms, we detected all the cancers with no false positives. That was very encouraging, and we have good reason to believe Capture-Seq will be accurate and economic in routine use. Although we focused on one particular transcription factor, CTCF, this may be a pathfinder for many other similar tests using other transcription factors that are important in particular cancers. An easy example would be the estrogen receptor as a transcription factor in breast cancer. And perhaps most importantly, this new transcription factor DNA method may be used alone or in combination with other existing methods to bring multi-omics cancer DNA testing to patients for patient management and for early cancer detection. As Cameron mentioned, we're in many confidential discussions, and this is certainly proving a hot topic. So scientifically, a great step forward and hopefully, one which will translate into real-world clinical benefits for patients. We will, of course, update you more fully once the paper is out. I also wanted to take the opportunity to update you on a few other Q3 activities. I was very fortunate this quarter to visit our key collaborators in our lung cancer product development programs. In August, I met with Professor Chen and his team as well as the screening program leaders at the National Taiwan University Hospital in Taipei. During the visit, the IDS-i10 analyzer, which is the automated platform for our tests, was installed in NTU's laboratory and training was provided by 2 of our team to progress their validation study for lung cancer screening. They've also performed some analysis regarding use of the Nu.Q H3K27 [ TriMethyl ] test in prognostication of diagnosed lung cancer patients in studies similar to our previous collaborative studies in France. I also visited our colleagues in France who are continuing their work using Nu.Q [ H3K27 TriMethyl ] in lung cancer, and they're now expanding into other cancers. The clinical lung cancer patient management results in France are consistently excellent, and we're preparing for the introduction of Nu.Q [ H3K27 TriMethyl ] test in clinical practice in a group of hospitals in France. There will also be quite a few upcoming publications in cancer in the near future. In August, we also published a paper showing the utility and reliability of our Nu.Q NETs assay, and we expect further publications from ourselves and from collaborators over the coming months in NETs. So a lot of activity. And with that, I'll hand over to Terig for the finance. Terig Hughes: Thanks, Jake, for that thorough and exciting update. Now on to the finance report. Revenue for the third quarter grew 32% over the same quarter last year, coming in at $0.6 million. At this early stage of commercialization, revenues remain fairly lumpy and difficult to predict from one quarter to the next. So we will not be providing revenue guidance at this point in time. Operating expenses for the quarter were down 10% year-on-year and down 18% for the first 3 quarters, primarily reflecting lower personnel costs and lower research and development expenses. As a result of strong cost management, net cash used in operating activities was $3.6 million for the quarter, down 33% over the same period prior year. Net loss was down 8% for the quarter and down 20% for the first 3 quarters compared to the prior year. Receipts during this third quarter included $1.2 million from a registered direct offering, which included participation by some of our directors. And subsequent to quarter end, we received net proceeds of approximately $6.1 million from a confidentially marketed public offering, including partial exercise of the underwriters' overallotment option. This raise also included insider participation, demonstrating once more strong managerial commitment. So to summarize the quarter, revenues were higher by 32% versus prior year, total operating costs lower by 10%. Cash used in operations was lower by 33%, net loss improved by 8%. And as Cameron reported at the top of the call, we are excited to have signed our first agreements with Werfen and Hologic. One of our key financial goals is to be cash neutral, meaning income, including licensing receipts, matches expenditure on a cash basis. We have made significant progress on cost reductions. However, to fully realize our ambition, we need to execute several significant licensing agreements in the human space and secure existing milestone payments in the vet space. I'm happy to say we continue to make solid progress against each of these targets. And with that, I will pass back to Cameron for closing remarks. Cameron? Cameron Reynolds: Thanks, Terig. Before summing up, I'll provide a quick update on Nu.Q Vet. Expanding the global reach of our Nu.Q Vet cancer test remains a key priority, enabling veterinarians worldwide to improve canine cancer screening and outcomes. Our supply agreements with leading industry players, including Antech, part of Mars Science and Diagnostics, Fujifilm Vet Systems and IDEXX are instrumental in achieving this. To further accelerate revenue growth and ensure consistent delivery, we are focused on centralized lab automation. At the end of the first quarter, Fujifilm Vet Systems expanded their contract with us to validate and then implement a centralized automated platform using the IDS-i10 analyzer. I am delighted to report that the Fuji team have made great progress this quarter in validating and verifying the Nu.Q Vet cancer test on the automated platform. We believe the automation of centralized labs is crucial to accelerating our growth rate. So this is a particular area of focus for us. We aim to enable all our large customers to be automated so that they can easily and effectively handle the much larger numbers of tests that would result from having our tests in annual pet wellness panels. Putting our tests into wellness panels would greatly increase sales volumes and will be a key target for 2026. Notably, this automated platform is the same technology utilized for our human diagnostic products, Nu.Q Cancer, Nu.Q NETs and Nu.Q Discover, highlighting the inherent synergy and efficiency of our core Nu.Q technology. Terrific work from the Fuji team who continue to see steady growth in the use of the Nu.Q test in Japan. On the research and development front, we continue to make progress towards securing the final milestone payment of the $5 million related to our feline cancer product. In the second quarter, a peer-reviewed paper regarding pre-analytics was published, and we plan to present and submit for publication clinical data in the coming months. In drawing the call to a close, our goal is to secure a wide range of licensing agreements in the human diagnostics space, mirroring our successful strategy in the veterinary market and anticipate similar to the veterinary market, diverse deal structures with potential for upfront and milestone payments and future recurring revenue. We believe we have developed a unique and widely applicable platform that will be a big part of both oncology and NETosis for decades to come for hundreds of millions of people and animals worldwide. Cancer and sepsis diagnostics alone represent a combined total addressable market of approximately $25 billion annually, offering substantial revenue opportunities for Volition and our partners. I believe that these next few quarters will be transformative for our company. Our laser focus is on executing license agreements, and we will update you as they complete. Thank you for joining the call today. We very much appreciate it. We will now take your questions. Operator? Operator: [Operator Instructions] Our first question is from Justin Walsh with JonesTrading. Justin Walsh: Can you provide some additional color on the size of the antiphospholipid syndrome market and how it compares to other potential Nu.Q NET applications you guys are looking at? Cameron Reynolds: Yes, Justin, thanks. That's a good question. So obviously, the NET market is huge. If you -- the big ones are things like sepsis and AKI. And I mean, obviously, they're the biggest of the big. And for us the start of the program, the first cab off the rank, we're very happy that starting with these kind of diseases, which are big worldwide. There are 4 million people who have APS. So it's considerable. It's not one of the biggest markets, but that's a very good one to start with. And the TAM, we've calculated is something in the $85 million to $90 million per year. So autoimmune diseases are obviously very important for a whole lot of reasons and it's something which is very tough to diagnose. So we think this is a great first cab off the rank, something, as I said, $85 million or $90 million market -- sorry, TAM is a very good way -- market size to start with. And currently, the way it's diagnosed is far from ideal, and it is very much NETs related. And as you know, the Revvity is selling our assays in Europe now, and they're analyzing 21 different uses beyond APS. So there's a large range of ones coming up, but that's the size of the first one. And as we said, we strongly expect to see a range of others. Operator: Our next question is from Yi Chen with H.C. Wainwright. Yi Chen: My first question is, could you tell us whether the Werfen partnership has made any contribution to the third quarter revenue? And also, how do you expect the Werfen and the Hologic partnerships to shape the top line revenue trend in 2026? Cameron Reynolds: Yes. So Werfen have not accreted to the revenue. They're in the process of validating it on clinical samples for clinical utility. They absolutely hit the ground running. I think we'll end up with a broader agreement with Werfen. They've got it working on their machine. So -- and the machine is quite -- they're one of the biggest in the autoimmune space in coagulation. So I think they will be a big part of what we have going forward. I think our plan has always been and still remains to be that we will be on a range of different platforms. So these coagulation companies, companies like Werfen, Sysmex, [ Hologic ] are a very good way to start. They're all large multibillion-dollar companies, but are specialists in certain pieces of the NETosis market. So I think Werfen the first off the rank and they've hit the ground running, and I think we'll broaden the relationship. As far as Hologic, actually, I can announce today, they've actually made their first sale. Obviously, it's not in the last quarter's revenue because that's come and gone, but there will be some on this quarter's revenue. We could not be happier with that relationship as well. They've got a very -- well, compared to us, they're a multibillion-dollar company at Hologic, as you know. They're very excited about our epigenetics offerings. They presented at quite a few conferences. They've done a lot of social media and marketing. They've trained their workforce. They've also visited our laboratories in Belgium and in California already to really understand it. And as I heard today, they've made their first sale. So I think both are very important to our growth. I think the great thing with both agreements as well is we are in a lot of other discussions as we -- as you know, it does give everyone else a bit of a nudge to when you make deals with their competitors. So I think it's been transformative in our relationships with our -- the 10 other people we're talking to, have been taken so seriously by such large companies that obviously, they're very excited as well. So overall, I'm very, very happy with both the arrangements with Werfen and Hologic. And as I said a few times on this call, we're very active discussions with a bunch of others. I do believe very much going forward, the NETosis test, the oncology will be something which is taken by a very large number of people worldwide very regularly. And this is the start of that process that we expect to see a lot more in the coming months and quarters. Yi Chen: Got it. And with respect to those ongoing discussions with additional partnerships, how many do you expect to close in 2026? Cameron Reynolds: I guess one thing we've never really been on top of is the timing of which ones will happen when. It's always tough. These are very important deals for us. But if you are the largest company in the world or the largest companies in the world, they can speed up and slow down. But I'd strongly expect we'll have a range more, I do expect that we've got some very active discussions going and some of which are in hopefully, the latter and final stages. But exactly which ones will happen when, it's very hard to say. But I would be very surprised if there wasn't a bunch more through this year and through next year because I think what gives me that confidence, our NETosis test is the only way we know of measuring NETs. NETs are the next big things. They have been associated with dozens and dozens of different conditions and processes. On the oncology side, our basic Nu.Q platform in H3.1 and H3 K27 is the biggest seller in the Vet market. It's making a big splash in the lung market in France and Taiwan and moving to other countries. And as you've heard today, for the first time, again, very, very exciting. Our ovarian -- Dr. Micallef has cracked concentration of chromatin, which is just one of the holy grails in oncology. The issue with all the companies in the liquid biopsy space is a very rare target. So being able to concentrate chromatin fragments, and we started with transcription factors, which are the pinnacle of epigenetics. They are the most important factor and all that is just huge. So I think between all of that, I'm very confident we'll be getting some deals signed with different groups. We have something very special. But as we've said many times, it's bigger than us. There's no way we can commercialize all the different things we're doing. And I think, obviously, the first companies you've seen realize that. And I think it's really starting to pick up with the other companies as well. And the more we sign, the easier they've become to sign because our credibility and track record go up and up and up. Operator: Our next question is from Steven Ralston with Zacks. Steven Ralston: First of all congratulations on the traction you gained on the revenue line in the products and also on the significant reduction of expenses this quarter. And I'd like to dig into both of those. First of all, can you give some sort of breakdown of the product revenues? I know it consists of the Nu.Q Vet test and the Discover kits. In the vet, was there any like stocking for Fuji? Or was there some lumpiness in the Discover side? Terig Hughes: So this is Terig, Steven. Yes, there is still a lot of lumpiness, which makes it a bit difficult to predict and then discover is very project-based. So that's up and down each month and each quarter. What I would say is that, as you can see, both services and product revenue had a very good quarter. And on the pillar side, every pillar made some progress, and we'd expect to continue to make progress through the balance of the year. We don't provide individual growth numbers for the individual pillars. But I do expect that we'll see growth across all the pillars through the full year. Cameron Reynolds: And just one thing, Steven, I think to keep in mind, just to go through them one by one. The vet, obviously, we are the biggest selling oncology test in the veterinary market. But obviously, we'd like it to be much higher in the millions of tests and tens of millions of dollars in revenue. That is not going to happen until it's got a centralized lab machine working. But as you heard, that's something we have actually achieved this month with Fuji validating the i10. So the platform currently is on microtiter plates work fine. But as you can imagine, that's not an easy thing to do hundreds of thousands of tests on plastic plates. So having the i10 working, and it's -- obviously, it's made by Revvity, so a large, again, multibillion-dollar company is a massive breakthrough for us, and we're going to focus next year on trying to get -- getting the big companies to automate. And then there's a real prospect of them putting on this in wellness panels. So if you see them starting to go into wellness panels for the big companies, that means it's finally taking more of a vertical lift off with a steady sort of slow ramp, which we've been having. So we're very excited about that. Nu.Q Discover has actually outperformed what we expected. It's been -- we've had, I think, dozens of clients now for different uses, including all the research uses and the commercialization, the big companies. And Hologic getting their first customer is very exciting for us because they're out there. They've got far more rigs than we could ever have, of course, and they're taking it extremely seriously and very energized by this. And then on the Nu.Q Net side, they're very big companies and the big milestone payments take time. But in the meantime, the prong we have in Europe of all those different hospitals, 14 hospital networks using the system in 5 countries for -- I think it's 23 different net-related uses now. Now they're all just buying them now initially to work out a cutoff for what each use is, but we'd expect them to start the clinical utility in the next year as well. And so they should really start to take off as well and distributed by Revvity. So that makes it much easier. And we do expect the first clinical use of the oncology platform in Europe, in France, as we talked about in Lyon sometime in the next quarter or 2 as well. So everything is getting there. It's been -- it's one of those things. We've got a lot of things going on, and they always take some luck -- aeroplane taking off, sometimes it takes some time to get off the ground and then we're really hoping at least some of those happen in the next few months and quarters. And we can really turbocharge the revenue in the vet space, in the Discover space, in the net space and the lung space. And we're doing everything we can to put those things in place so that it comes from something where we're getting good sort of organic growth to a real lift off, which is what we all want. Does that make sense? Steven Ralston: I'd actually like to pursue the revenue line a little more because as an analyst, I have to do financial modeling, and I'm looking at it by product line and the addressable markets that they have. And I realize it's a very nascent stage in terms of revenue right now and it's -- but thinking about it long term, I mean, right now, 75% of -- well, actually over 80% of the revenues in this quarter were on the product line. And looking at accounting rules and that sort of thing, segments usually break down by when they achieve over 10%. Do you think there will be a time where you'll actually break it down that we'll see product lines like in the vet space and Discovery, each one of your pillars having a separate revenue line or subsegment revenue line? Terig Hughes: Yes. I think as the pillars mature and each revenue line becomes more meaningful, I think it would make sense to then provide that level of detail. At the moment, it's -- each pillar in and of itself is still relatively small and like I said, quite lumpy. And so for the foreseeable future, I think this is how we'll report it. But as soon as I think we get some significant growth. So for example, as Cameron mentioned in the vet space, if that starts -- that gets adopted into the wellness plans and takes off, I think it would be good to split that out and report that pillar separately or likewise, any of the others when they cross certain milestones. But in the meantime, we're happy to give you a bit of color on these calls, but we're not splitting that further at this time. Cameron Reynolds: And to be clear, just to reiterate, on the revenue side, obviously, the product revenue is important in the short term, but we see more of kind of priming the pump proof of concept, proof of product to license. If this is going to be taken up worldwide and if NET is the biggest thing out there, which I think it could well become by 2030 or 2032, this could easily be in the hundreds of millions of tests per year as the TAM for NETosis. That's clearly not going to be us out selling that product, and we don't want that sales force. We don't want the process. So we're out now through our partners and licensees to sort of show that it works. But the bigger it gets, the less we'll end up doing and we'll make the money from the key components and the royalties and licensing revenues rather than the process. So I think if you look into how it fits together, in the short term, it will be more product-based because we're showing it works and these kind of relatively smaller sales. But once it really takes off, and I think I'm very, very excited with the potential in the oncology space and also in NETosis space, that's when it will -- the licensing revenue will drop the product revenue because these big companies have a reach that we're never going to want to have. So does that make sense, Steven? And so it will change from a lot of product revenue to overwhelming licensing revenue if it goes the way we expect. Steven Ralston: Moving on to the expenses. the -- well, actually year-over-year and the sequential improvement was dramatic, much more than I expected. And somehow I had some sort of an indication that like the second quarter relative expenses were like going to be the floor now, but you made such a huge jump here in the third quarter. And actually, it's kind of a prop, it's about like the 1-year anniversary since you announced the cost-cutting program. Do you think you've come to the end of the cost cutting and this is more of the baseline? Or is there still more to come? Terig Hughes: So I would certainly say it gets more difficult to beat the prior year because we started making progress in the third and fourth quarter of last year on the cost savings program. And so you're battling against a tough comparative. But yes, I certainly hope that we can continue to make progress, but it may not be as steep as we made year-to-date. Cameron Reynolds: And Steven, it's a lot been listened to our investors as well. Obviously, we've been having to raise money, and it's a tough market. So we really want to spend and we have -- I think we've developed some of the most remarkable technologies with that money, but we're also aware that the market is horrible at the moment. So we need to save every single penny. So Terig has been extremely good at. But it's a balancing act. You're not going to become a successful company just by cutting. You've got to deliver the deals and products, which we're in the process of doing. So we've drastically cut our workforce and our expenditures. But at the same time, we managed to launch a range of products. And that's a balance we take every day because -- I mean, the cutting has been crucial. We had to listen to the market and had to listen to what's going on. But we also have to deliver. So it's something we thread that needle every day. But yes, so we'll see how that goes on the deals being signed. But the big difference now, I think the value of the company now isn't necessarily from cost cutting. It's from delivering deals and licensing arrangements and sales. So -- but in no situation, are we going to allow the expenses to blow out. We've got to keep it tight. It's very hard to raise capital at the moment and as we all know. So we have to do as much as we can, the little, but we do have to deliver at the same time. So it's a balance. Steven Ralston: And last question, and hopefully, this is a short one. I noticed that in a recent conference, it was mentioned that some preliminary results from the ongoing lung cancer study were presented. Was there any new information there? Cameron Reynolds: No. That's -- there's actually a lot going to be presented at the conference in Chicago in December. North American... Steven Ralston: No, this is the one... Cameron Reynolds: In Chicago, yes. No, they're getting there. So there's a lot of new data being [indiscernible], and we expect it to be in routine use. This will be the first time our test to be in routine use in humans that's coming up in the short term. And the Taiwanese has done a lot of work as well. So expect to see it later this year and early next year, but there's nothing -- I believe nothing new, nothing new in that process. But they are -- that's not a lack of activity. They are in the process of doing a huge amount -- and so that's our basic Nu.Q platform, and then we hope to be able to add on arrangements in the more complicated -- slightly more complicated areas of capture and process, but both are progressing well. Operator: Our next question is from Bruce Jackson with the Benchmark Company. Bruce Jackson: So if we could start with the -- I know the terms of the agreements with Werfen and Hologic were confidential, but just broad brush, were there any upfront payments in those agreements? Cameron Reynolds: Yes, they were in Werfen, not as we've said, we start smaller and we expect them to get bigger and bigger with every deal. But yes, there were upfront payments and ongoing payments from Werfen. So to the earlier question, there were some not product income from them, but Werfen did have some upfront. I can't discuss that too much more. They're confidential, but yes, they were, and they are ongoing. And Hologic, it's a co-marketing, so it's not upfront, but they are very active and have made their first sales, so it will contribute to our revenue in the short term. Bruce Jackson: Okay. And then second question, the milestone for the feline cancer testing, where do you think that might hit? Cameron Reynolds: So it's in the process. So we're just in the final stages of getting the last caps, which has actually taken longer than we thought. Finding caps with cancer isn't an easy process, but we're getting there. So upon that, under the terms of agreement, it will be due on -- I'm not sure it's public. I'm not sure we can say the time scale, but the time scale is in the agreement with Antech. But as soon as the paper is published, that is a process where we can -- do you want to go through that, Terig? What can we say? I'm not sure exactly what that was... Terig Hughes: Well, what I would say is that the conditions to meet the milestone that we need to get a paper published and then the payment follows thereafter depending on, again, either the launch, the first commercial sale of a test or there's also a time line by which they have to pay to us. So what we'd hope that once we've completed the study, got the paper published that shortly after that, we would be looking for that milestone payment to be paid. Cameron Reynolds: It's up to the finishing the paper. And as you know, takes some time sometimes. But I'm very hopeful we are close to getting that across the line. And then yes, then we're in a position to ask for that payment. Bruce Jackson: So publishing the paper triggers the milestone. Is that correct? Cameron Reynolds: That's correct. Bruce Jackson: Then last question. There were some Series A warrants that were out there that were milestone-based. Has that milestone been met with the announcement of the agreements? Or -- what are the conditions for that? Cameron Reynolds: The conditions were an aggregate of milestone payments, which is higher than the milestone payments that we have. So it has not been triggered yet. Operator: There are no further questions. I would like to turn the conference back over to Cameron for closing remarks. Cameron Reynolds: So thank you, everyone, for coming on the call today. I really appreciate your time. There's obviously a lot going on at Volition in all of our pillars. Obviously, it's a very tough market at the moment for our shareholders, and we do understand that. So we're doing everything we can to deliver what's going to make us a very successful company. If we achieve them all, things we are making very strong progress. As said in the vet market, we've got the i10 validated now for centralized labs, which we're hoping will lead to other companies doing centralized labs and wellness tests, which would be transformative for our revenue in the vet space. The Nu.Q NETs, we're making a lot of progress in Europe with our fantastic partners at Revvity, who are selling them to 14 hospital networks now. They're working on the cutoffs in a range of a couple of dozen different uses for NET. We signed our first 2 human deals in the NET space, starting with APS, which, as we said, has like a $90 million-ish -- $85 million, $90 million TAM. So it's a good start, but we do expect a lot more. Jake, as announced, he has submitted for publication on the capture side, which is very exciting. We're making strong progress on the lung cancer side in both France and in Taiwan, and we expect it to be used in the first clinical sense in the short to medium term as well. So a huge amount going on, and I'd like to thank you all for having the interest in the company and keeping track of what we have. Expect to see a lot of news on all those fronts in the coming months as well as we continue to deliver on the commercialization plan. So thank you very much for your time today. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good morning, and welcome to Vallourec's Q3 2025 presentation hosted by Philippe Guillemot, Chairman of the Board and Chief Executive Officer; and Sascha Bibert, Chief Financial Officer. [Operator Instructions]. And now I would like to hand the call over to Connor Lynagh, Vice President of Investor Relations. Please go ahead, sir. Connor Lynagh: Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Vallourec's Third Quarter 2025 Results Presentation. I'm Connor Lynagh, Vice President of Investor Relations at Vallourec. I'm joined today by Vallourec's Chairman and Chief Executive Officer, Philippe Guillemot; and Vallourec's Chief Financial Officer, Sascha Bibert. Before we begin our presentation, I would like to note that this conference call will be recorded. A replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are also available for download here. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced on Slide 2 of today's presentation. These are also included in our universal registration document filed with the French Financial Market regulator, the AMF. This presentation will be followed by a Q&A session. I will now turn the call over to Philippe Guillemot. Philippe Guillemot: Thank you, Connor. Welcome, ladies and gentlemen, and thank you for joining us to discuss Vallourec's third quarter 2025 results. In the third quarter, we delivered solid results once again with group EBITDA margin rising to 23%, the highest level since the first quarter of 2024. With this, we have now maintained our EBITDA margin around the 20% level and generated positive cash flow every quarter for the last 3 years. Our strategic initiatives are paying off, demonstrated this quarter by the closing of the Tubes profitability gap versus our primary peer. You can see today's agenda on Slide 3. I will move to Slide 5 to discuss the highlights of the third quarter. Our third quarter results were in line with our expectations. EBITDA of EUR 210 million was at the midpoint of our guidance range. We recorded very strong net income of EUR 134 million. Our net income has recently been added by the execution of strategic projects, in this case, the sale of Serimax. Group EBITDA margin was 23%, driven by the robust performance in Tubes. Tubes EBITDA per tonne improved by more than 25% sequentially to EUR 621 Total cash generation was positive for the 12th straight quarter. We reduced net debt to EUR 140 million. Looking ahead, we expect fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Our full year outlook confirms the expected second half versus first half EBITDA improvement. We have seen some positive trends in the business despite a volatile macro environment. In the U.S., our fully integrated domestic operation is benefiting from high levels of customer demand. Recent bookings have been strong. In Brazil, we secured a major contract with Petrobras, which will expand our OCTG market share. This contract further demonstrates Vallourec's ability to deliver high-value solutions from our domestic manufacturing base. Meanwhile, in select markets in the Eastern Hemisphere, we have seen delays in some customers' activity. These delays will result in some orders being invoiced in 2026 later than initially planned. This delay is embedded in our fourth quarter outlook. Turning to capital allocation. We further optimized our capital structure in the quarter, redeeming 10% of our 2032 senior notes. In addition, today, we announced a special meeting for holders of Vallourec warrants. The key proposal will be to allow Vallourec to satisfy its warrants obligation with existing or new shares. The current terms of our agreement only allows the delivery of new shares. This will enable maximum flexibility in our capital return options over the next year. Let's move to Slide 6. The 2 goals of the new Vallourec plan were to crisis-proof our business and deliver best-in-class profitability. Today, I am pleased to announce that Vallourec has achieved another major milestone. In the third quarter, we fully closed the margin gap versus our primary peer. This is thanks to our core principle of value over volume and our relentless focus on operational excellence. We also continued our strong trend in return on invested capital in Q3. I assure that our journey will not stop here. We have many initiatives underway to further improve our return on invested capital. Let's turn to the current market environment on Slide 8. We start here with the U.S. OCTG market. While crude prices remain volatile, oil drilling activity bottomed in August. The oil rig count increased modestly through the third quarter. Gas directed drilling has stabilized at a healthier level after rebounding in H1. Recent strength in U.S. gas pricing could drive higher activity. OCTG consumption per rig is also a tailwind. Since 2015, OCTG intensity per rig has increased nearly 5% per year, as shown on the right-hand chart. The drivers are clear. Our customers are drilling longer laterals and rigs are drilling at faster rates. The push towards long laterals has driven strong demand for our high-torque connections. Because of this, one of our return-enhancing initiatives is the construction of our new training line in Ohio, which we announced earlier this week. This line will serve the strong and increasing market demand for high-torque connections with a high return on capital. Let's move to Slide 9. On the left side, you can see the import trend. While recent data is unavailable due to the U.S. government shutdown, we believe imports have started to decrease. This is particularly true for seamless products. Our order intake has been robust in recent months, reflecting healthy demand level and an improvement in our market share. This is likely at the expense of some of these imports. Seamless spot pricing was stable in Q3 with the latest survey showing a slight increase. We have seen divergence in welded versus seamless pricing in some recent industry surveys. This validates the differences in import economics we highlighted last quarter. Let's move to the international OCTG market on Slide 10. Demand, as measured by the rig count remains at a healthy level in most regions. On the left, we highlight that activity trends have not been uniform across key geographies. Middle East activity, particularly offshore, has shown a downward trend over the past several months. This was particularly driven by activity reduction in Saudi Arabia. Our premium portfolio is outperforming the overall market. Still, we have seen some delays in customer activity in select countries, especially in the Middle East and North America region. Meanwhile, activity in other international markets has moderated very slightly. Many of our core markets, such as Brazil, have been stable and look set for further growth. Market prices according to Rystad Energy are consistent with the change in activity. There has been softening in the Middle East relative to offshore markets like North Sea. Our product mix is skewed toward more premium grades and connection that is indexed. Our pricing has remained more stable, including in the Middle East. Looking at the long term, our key international customers continue to advance ambitious capacity growth plans. This will inevitably lead to higher drilling activity and higher OCTG demand well into the future. The structural shift towards increased gas and unconventional fields and the resilient development of deepwater basins is a tailwind. These resources require high-tech solutions, including new fit-for-purpose solution that we are developing today. Before I hand over to Sascha for his last participation to Vallourec's analyst call, I would like to warmly thank him for his contribution next to me to the successful execution of the new Vallourec plan, which I announced in May 2022 and that Sascha will recap in his presentation. We all wish him the best for his future challenge in Germany. Sascha Bibert: Good morning, everyone. Thank you, Philippe. Yes, I'm leaving with a lot of gratitude and also some pride when looking back on what we have achieved as a team. Under your leadership, Philippe, we have executed the new Vallourec plan, including the closure of plants and implemented a change in the business mix towards high value-add products, which allowed us to generate cash consistently. This opened the door for the refinancing and the initiation of shareholder returns. Meanwhile, our shareholder base has transitioned from Apollo and SVP Global towards ArcelorMittal and many global investment funds. Similarly, we have established a new banking group and are now fully transitioning towards an investment-grade balance sheet. In short, the chapter has closed and a new one is opening. The Vallourec team will go towards the next level of efficiency, continuing to further optimize our return on capital. This will offer new opportunities, but will also benefit from new skills and fresh energy. I will join the BASF Group to support them with the carve-out and IPO readiness of the Agricultural Solutions business. It was a fantastic journey with Vallourec, and I thank you all for your support during those years. Let me also highlight important changes in our Investor Relations team. Connor will continue to lead the team until early '26. however, then transition the IR leadership to Daniel Thomson, who recently joined us from Exane BNP Paribas. I think many of you know Dan. Sometime in H1 2026, Connor will then fully concentrate on his new responsibility as Finance Head for our North American operations. Furthermore, we have another addition to the IR team, Igor Le Blan, who brings with him lots of valuable experience from his former Vallourec roles, including for sales in Northern Africa. Let's start with Page 12. This slide shows the impact of the new Vallourec plan. As part of our premiumization strategy, we have changed the business mix and increased prices. We also worked hard on our cost, reducing fixed costs and thereby increasing our resilience to market cycles. The combination of higher prices and higher efficiencies have contributed to an EBITDA margin that is now consistently around 20% for the last 3 years. We additionally focused on the bottom line, both in the P&L and manage for cash. With diligent working capital management, we have improved contractual payment terms with our suppliers, focused on the cash profile of our customer contracts and are continuously optimizing our inventory levels. This has led to a balance sheet with basically 0 net debt and ample liquidity, giving us the flexibility to operate successfully in any market environment and allowing for attractive shareholder returns. On Page 13, you have the group KPIs. Q3 was another quarter that added to the execution track record I just referred to. Our EBITDA came in right at the midpoint of our guidance, though again, we had some foreign exchange headwinds. Let's look at our Tubes segment on Page 14. Tubes volumes increased sequentially and so did the average selling price. We have recently recorded some important customer wins, for example, in Brazil. The new LTA with Petrobras will lead to revenues starting in H2 '26 and then fully from '27 onwards. Tube's profitability is shown on Page 15. In line with our value over volume strategy, based upon a clear selection of where to play while making use of our premium capacity, we also increased profitability in the Tube segment to one of the highest levels in recent quarters. As Philippe outlined, we are now also closing the margin gap with best-in-class peers, though there are many more performance initiatives to come. Over to Page 16. Mine & Forest earnings reduced sequentially, but are still higher than the normal run rate we have guided at our Capital Market Day. Volumes were slightly down sequentially, while the quality of the ore sold remained high. As expected, cost went up slightly, though still leading to an attractive EBITDA margin for the segment of more than 40%. Moving to net income on Page 17. Net income was strong, additionally supported by a capital gain recorded as part of the Serimax disposal and a favorable tax rate. Looking at the right side of the chart, Vallourec has clearly moved away from being a company with a predominant capacity and top line focus towards managing for the bottom line, both in the P&L and in cash. Page 18 shows our cash flow. Total cash generation came in at EUR 67 million despite of a EUR 43 million increase in working capital. Restructuring charges and asset disposals offset each other in the quarter following the disposal of Serimax. Cash conversion was once again high. Page 19. In line with positive cash generation, net debt improved and also gross debt came down following the repurchase of 10% of our outstanding bonds. The reduction in gross debt will continue in the next quarter as accrued interest will then reduce subsequent to the payment of the coupon. Philippe, back to you. Philippe Guillemot: Thank you, Sascha. Let's turn to Slide 21 to discuss our outlook. Starting with our tubes business. In the fourth quarter, we expect volumes to increase slightly sequentially. EBITDA per tonne should remain similar to Q3. For Mine & Forest, we expect production sold to be around 1.4 million tonnes in the fourth quarter. The sequential decline is in line with typical seasonal patterns. We expect full year production of around 6.2 million tonnes. EBITDA in the Mine & Forest segment will be contingent on market prices for iron ore. That said, we have hedged a portion of our production, so our results will not be fully exposed to further price developments from here. At the group level, we expect our fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Looking at the full year, we confirm our prior year guidance for EBITDA improvement in the second half. Based on our Q4 outlook, full year EBITDA is expected to range between EUR 799 million and EUR 829 million. Let's conclude on Slide 22. We remain focused on improving our profitability and return on invested capital as we drive Vallourec towards operational excellence. We were very pleased to close the profitability gap versus our priority in the third quarter, but we will not stop there. Our vertically integrated U.S. footprint is paying dividend with customer demand remaining strong. Finally, we strive to be one of the most shareholder-friendly companies within our peer group. Today, we announced a key step to improve flexibility in our shareholder returns. By allowing our warrants to be satisfied with existing shares, including treasury shares, we can approach our shareholder return in 2026 in a more holistic way. Thank you again for your attention. Sascha and I are now ready to take your questions. Operator: [Operator Instructions] Now we have a question from Matt Smith from Bank of America. Matthew Smith: A couple, please, both reflecting on some of the prepared remarks. So I mean the first one would be around the international business. You commented on some delays to customer activity, sort of orders from 4Q into '26. I guess I just wondered if your confidence level that this is sort of simply order deferrals. I guess you already have visibility on that, but perhaps that sort of leads into some wider comments on the international business for '26 might be useful if you could, and you could talk to the visibility that you already have there from the order book. I think that would be useful. And then secondly, coming back to the warrants that proposed in those modifications to the terms today. I just wondered if you could talk to sort of the intention and what you would see as the sort of ideal outcome and resolution from all of this, please? Philippe Guillemot: Okay. Thank you for the question. Well, first, as you know, our long-term agreement with customers do not have quarterly volumes commitment. So we make an estimate of our activity levels in certain countries has been -- activities has been slower than forecast. In addition, customers have some control over when we deliver and invoice orders. So we have some highly contributed orders that push out of the year. So it's just a question of time. We have these orders. It's just a question of when customers will need the pipe so we can invoice them. And that's why what we don't invoice as expected in Q4 will be invoiced somewhere in 2026. Overall, about the market we are in, I think we are confident. I think our customers have capacity increase plan they are executing. And so far, we have no reason to think they won't do so, especially as you have seen that OPEC+ is ramping up production. So that's for your first question. As far as the second one is question, as we indicated, as I indicated, we want maximum flexibility in our return to shareholder. And with the change of terms of the agreement with the warrants orders, I think we will open the door, obviously, to potentially buy shares in order to have treasury shares that could be used at the time warrants will be exercised and not only to use new shares. Operator: Now we have a question from Guilherme Levy from Morgan Stanley. Guilherme Levy: Sascha, wish you, of course, all the best in your next steps. I have 2 questions, please. The first one, if I may, you commented on your perception of lower imports into the U.S. recently. So I was just curious to see how quickly you think that inventory levels can fall in order for you to see a more significant increase in terms of prices and margins on the back of the recent import tariffs in the country? And then the second one, thinking about this new investment in the dredging line in Ohio, could you perhaps share with us more examples of small-scale investments that you have in mind that you could make over the coming quarters? And how should we see your maintenance CapEx and also your total CapEx, including these small initiatives over the coming years? Philippe Guillemot: So yes, what we start to see is the impact of the tariff on the U.S. imports as even though there is no statistic available, it looks like imports are decreasing. By the way, one of the European player who used to sell to the U.S. has announced yesterday that they will go from 3 shifts to 2 shifts, so lower volume, which is a first clear indication that importing pipes in the U.S. given the tariff may not be as viable as in the past or as profitable as in the past. So this, as a consequence, favor domestic players. And I remind you that 100% of what we sell on the onshore market in the U.S., we make it in the U.S. from steelmaking to finishing that we are the second player on the seamless pipe OCTG business in the U.S. So as far as inventory is concerned, yes, they were up because of the imports in anticipation of the tariff, but now they are obviously slowly but surely depleted. And we think that we will see even more of this happening in 2026. That's the reason why, as I said, we see strong demand for our product and premium product, as I mentioned earlier. Trading line. So the trading line investment in the U.S., USD 48 million, we announced on Monday, and we had, by the way, a groundbreaking ceremony in Ohio to do so is a clear illustration of what we are doing First, value over volume. Here, we are talking about increasing capacity to deliver high connection to help our customers to generate productivity gains. So we are really at the heart of their success. Second, we invest with, obviously, a state-of-the-art line. But I can guarantee you that this is a good example of an investment that will further improve our return on invested capital. As far as CapEx is concerned, we stay very disciplined. And what we have in mind doesn't mean that we are going to increase CapEx envelope in the next few years. I think we are in the EUR 200 million range, and we have no intent to exceed this amount. By the way, talking about return on invested capital, which is a key metric we are focused on, and we will be even more focused in the next few years. Another example is our investment in Thermotite do Brasil, the thermo insulation business in Brazil. We more than doubled the value we can sell to customers. And I can already tell you that this acquisition, this new plant is already fully loaded for next year to thermization, to thermal insulate Vallourec pipes. So another good example of the investments we are making to further improve our return on invested capital. Sascha Bibert: Just adding one addition to what Philippe said on CapEx. for the current financial year, looking at what we have spent at the 9-month stage and acknowledging there's only the fourth quarter left, I think we will come out quite a bit below the EUR 200 million, i.e., in the Capital Market Day, we have mentioned maybe a long-term average of EUR 175 million. I think we'll be closer to that in this fiscal year. And thanks for your wishes, Guilherme. Operator: Now we have a question from Kevin Roger Kepler Cheuvreux. Kevin Roger: And first of all, Sascha, well done for everything that has been done in terms of financial, but also in terms of communication, frankly, it has been very appreciated by anyone. So good luck also for the next journey, wishing the best. The first question, if I may, just going back on the shifting of the volumes from Q4 to 2026. I was wondering if you can provide a bit of magnitude the impact on Q4 in terms of volumes. Making some math, I'm finding that maybe we are thinking about 30,000 tonnes of tubes that will be missed in Q4 compared to the previous expectations. So maybe some words around that, please? And the second one, sorry for this stupid accounting tax question. But implicitly with the new mechanism on the variant, you are telling us that potentially you would buy back some shares. In the current French tax environment that is evolving every day, can you just try to summarize and of course, I understand that it will be subject to what we have in terms of budget in the coming weeks, but what it would imply for the tax payment on any buyback for you, notably related to difference between the cash payment and the book value, et cetera, please? Philippe Guillemot: So going back to Q4 volume and invoicing. First, I remind you that we will invoice more in Q4 than Q3. And I won't give you any indication of how much we could have invoiced had customers ask to be delivered as we forecasted. And again, it's only a forecast. And every quarter, we have to forecast what customers will ask for. But again, I'm talking about orders we have. As far as warrants are concerned and tax treatment, I remind you that the tax in France is such on share buyback is such that if we don't cancel the shares, so we use them. And as an example, we can use them for management incentive plan. We -- they are not tax -- so we are immune to this. And as far as the amendments that have been voted at the parliament, what I understand is that it's not likely to be in the final budget as it is totally incompatible with European laws and other regulations. Operator: Now we have a question from Guillaume Delaby from Bernstein. Guillaume Delaby: Thank you, Sascha, for all your help over the past few years, especially if I remember between Christmas and New Year Eve a few years ago. Three questions, if I may. The first one is the -- two first ones, in fact, are for Philippe. So I've been impressed by your average selling price, which is up 8% sequentially, while globally OCTG prices have still remained flattish. We didn't have yet an increase in OCTG prices. So what has been your secret sauce during Q3? Is it a question of mix, more connection? If you can elaborate a little bit? That's my first question. My second question is on your 2026 outlook. Many services companies have provided a much more constructive 2026 outlook at the Q3 that what could have been expected. So just curious to see what is your -- whether or not your view on 2026 has evolved. You mentioned probably more drilling at some stage. And the third question is about the warrants. Sorry to be long, just to fully understand. So basically, what is going to happen? So the warrants are going to be exercised. So you are going to get some cash with additional shares. Am I understanding correctly? Or if not, please correct me. Philippe Guillemot: Okay. So our secret sauce, but now I think you start to see it in the numbers, value over volume. We are very serious about it. What we sell is high value-added products, which obviously give us some pricing power. And again, we don't only sell tubes. We sell solutions. We sell tubes and service associated. So this is a combination of all this. And as I've said since I joined, our focus is to develop the right portfolio of customers and markets that are in need of these high value-added products. So yes, definitely, what we sell, and that's what I mentioned when we compare our average selling price to the Hat index, nothing to compare. We are much more stable than what you see on that chart. So it's just an evidence that the strategy and the change of strategy I made when I joined is working. '26, I won't guide for '26. But as I said, U.S. market is good. We see demand -- very strong demand month after month. And so far, no reason to think it won't continue that way. And as far as drilling activity is concerned with some international customers or you see that Petrobras is obviously very active. They're even talking about exploration of the Amazonian area. And in Middle East, I think Aramco has seen some decrease in their rig count, but it may increase next year again. So again, so far, I think demand is still there for our high premium solutions. As far as -- so warrants, the question was... Sascha Bibert: Yes. Guillaume, your principal understanding is correct. Provided that the conditions are satisfied in the summer of '26, the warrants will convert, and this will lead to a capital inflow to the tune of EUR 300 million and a bit to Vallourec. There is no change to that. The change, if any, that we have announced today is that we want to create flexibility in how we serve the warrant holders with shares. The existing documentation allows us to create new shares and new shares only, while after the approval from the warrant holders, we would then also have the opportunity to deliver existing shares. Philippe Guillemot: So again, we stick to our return policy. We said we would return to shareholders between 80% and 100% of the total cash generation of the year before. So as you have noticed, we have year-to-date generated cash and obviously, even more at the end of the year. So all this cash is available and obviously, it is supposed to be returned to shareholders within our policy. So with the warrant agreement terms change, we have the flexibility to use existing shares once warrants will be exercised at the latest end of June next year. And obviously, we may decide to buy back shares in order to have them available in due time. Sascha Bibert: Philippe, when it comes to the secret sauce, maybe you also want to just remind people about the current stage of our North American onshore business, which I think is also doing quite well and added to the ASP development that we have seen. Philippe Guillemot: Yes. On the U.S. market, as you see and when we announced the investment on the [ ITO ] connection, it means that, yes, the mix we are selling in North America is more high value-added than it used to be. And as a consequence, lead to higher average selling price, too. So what we see -- what you see on the overall group average selling price is true in all regions. And same thing for Petrobras. The long-term agreement we have signed with Petrobras that will start to fall in our numbers in the second half of '26 is obviously with mix of products of high value added, including larger diameter, 18-inch and above that we, in the past, were not able to produce in Brazil, but now we are able to produce in Brazil, thanks to the investment, which were part of the new plan. Guillaume Delaby: Maybe just a follow-up on the warrant. It means that practically, you are likely or you have the option or the flexibility to buy back and to reduce some of the dilution which will be caused by warrants. Am I correct? Philippe Guillemot: You are correct. If all warrants are exercised and we deliver only new shares, it's roughly 15% dilution. So if we buy back shares and we use existing shares, obviously, we will reduce the dilution. And that's obviously the option we want to have. Operator: Now we have a question from Paul Redman from BNP Paribas. Paul Redman: I just wanted to delve a little bit down into the shareholder distributions for next year. So you've been paying out dividends for the past couple of years as part of the 80% to 90% -- 80% to 100%, sorry, of total cash generation paid out to shareholders. Is this new buyback possibility part of that 80% to 100%? Or does it go beyond it? And if it's part of the 80% to 100%, do you have a minimum level of dividend you would like to guide us towards and the rest possibly coming through buybacks? And then Sascha, I just wanted to ask you, you've been at the company and the company has changed a lot over the past few years. I wanted to ask, have you got any key highlights that you can say have been your biggest successes over the past few years? Philippe Guillemot: So before I hand over to Sascha, Yes, again, we will stick to our return policy. So we are very disciplined, as you know, in everything we do. So we will stick within the EUR 80 million to EUR 100 million. So we'll see how much total cash will be generated in '25, and we will use this to potentially execute any share buyback to, as I said earlier, reduce dilution at the time of warrant execution. But as you rightly said, we will cash in more than EUR 300 million end of June. And this cash, obviously, will have to be returned to shareholders within the same return policy we -- I stated earlier, 80% to 100% of total cash generation. Sascha, over to you. Sascha Bibert: Yes. Well, thanks for the question. But to be honest, I'm not sure whether I had too many successes. But as a team, we had a lot, and that's what we are proud of. I think ultimately leading to the establishment of a track record and therefore, the recreation of trust, I'd say, with many stakeholders, equity and credit alike. So I think it's the sum of many of the operational initiatives from the team, the refinancing, some work on the financial infrastructure that we have been doing that ultimately led to the stage where we are. But again, we don't get tired of hammering the point home that we have done a lot of good, but there's more to come. Vallourec will go into the next phase of optimization. And this is why, for me, the story is ending, but for Vallourec, it's just the beginning. Philippe Guillemot: Maybe Sascha is too modest, but you remember, we have refinanced our balance sheet in 2024. And it was obviously good to see that we managed to refinance it the way we did. On top, you remember that Fitch has awarded an investment-grade rating, and I hope more to come. So again, for a company that was almost bankrupt in 2021 being where we are today with all the -- obviously, the opportunity we have to further create value through a much higher return on invested capital than our weighted average cost of capital is very rewarding. And again, I thank Sascha for having been next to me to deliver this super performance so far. Operator: We have a question from Baptiste Lebacq from ODDO BHF. Baptiste Lebacq: First, Sascha, congrats for the very impressive job you have done, even if it's a job -- a team job, but very impressed by the way you did it and good luck for the future. One question regarding, let's say, working cap in Q4. You mentioned some delays in terms of deliveries. We have seen some tension in working cap already in Q3. How should we think about, let's say, working cap at the end of the year? And second question regarding your, let's say, optimization of Brazilian assets. Is it now fully on stream? And if I'm not wrong, you could sell some, let's say, lands in this country. How is it evolving? Philippe Guillemot: Well, as far as Q4 working cap, we expect a modest increase. So no big deviation versus where we are. As you know, since the beginning of the new alloy plan, I think we have been very focused on working cap. And as shown by Sascha in one of his slides, I think you can see that the working cap expressed in days sales has steadily decreased over time, and we continue and we see room for further improvement in the future. So you refer to maybe, yes, some -- first, as we are very focused, and this is what's going to drive the next 5 years till 2030, return on investment capital, we challenge every asset in Ball. And so that's the part of the challenge. So the forest, obviously, is an asset, as you know, that doesn't generate EBITDA, but is used to produce veg charcoal. So again, as any asset in Vallourec. And you remember when I said when I joined, there is no room for asset which is not generating cash. So each asset in Vallourec is challenged, and that's what just we do again and again. Operator: Now we have a question from Jean-Luc Romain from CIC Market Solutions. Jean-Luc Romain: Congratulations to Sascha and to Connor for his promotion. My question relates to the second phase of investment in the mine in Brazil. Could you update us on where you are there and when it should start? And what are the benefits you are expecting from this second phase of expansion? Philippe Guillemot: Yes. On the mine, thank you for the question. You remember at the Capital Market Day in September '23, we gave you some numbers on what we were doing and what we were expecting. And I'm glad to tell you that we delivered exactly what we said, even better. especially in H1 where we had the opportunity to extract high-quality iron ore from our mine. So the expansion is well on track, Phase 1, Phase 2, and we expect to deliver the EBITDA we mentioned at that time, so up to EUR 125 million between EUR 100 million and EUR 125 million as we go. So very pleased with the progress of the mine. And on the mine, I insist that we are applying the same secret sauce that we do on the tube business, value over volume, and that's the reason why tonnage may be less, but quality is higher. And the way we operate the mine enable us to extract more iron ore from existing room. So again, another good example of a value over volume strategy impact. Jean-Luc Romain: So as a follow-up, do you have in your mind kind of what do your geologists say better -- enough resources of better quality ore, which can help you continue increasing the value. That's what we should understand? Philippe Guillemot: No, we are -- Yes, obviously, iron ore is what it is in the mine, and it may change from where we export from over time. But the way we process the iron ore, that may lead to higher iron ore content, so salable value at the end of the day. So that's exactly what we are doing. I won't go into the details, but... Sascha Bibert: Jean-Luc just remind that we are externally selling the vast majority of our ore production. Philippe Guillemot: We deliver what we said we would deliver. But again, applying the secret sauce, value over volume, so less tonnage, but same EBITDA. Operator: Now we have a question from Jamie Franklin from Jefferies. Jamie Franklin: So 2 from me. So firstly, you mentioned the divergence between seamless and welded. And looking at the historical data, it actually appears to be the highest point on record, the gap between the 2. Can you maybe talk about whether you see any risk here in terms of substitution of welded for seamless given that the differential is so high? And secondly, if I can just push one more time on the Middle Eastern volumes. So I think previous expectation was that 4Q volumes would be substantially up in the third quarter in order to reach around 1.3 million tonnes in 2025. Now if we assume that 4Q is only slightly better than 3Q, we're going to get closer to 1.2 million for the full year. So can we assume that the entire delta there shifts into 2026? And finally, Sascha, congrats on the great job you've done at Vallourec, wishing you all the very best in your new role. Philippe Guillemot: Yes. I assume when you talk about divergence between seamless versus welded, you talk about the U.S. market. So yes, dynamic is -- again, we illustrated in our last quarterly communication, how these 2 markets diverge. Seamless imports are in proportion less than they are in welded. But at some point, it becomes noneconomical -- with the tariff, it becomes faster, noneconomical to import seamless and welded in a nutshell. And that's why we see in our business, which is only seamless, faster, the impact of the tariff on our business. Substitution, we don't think so because as we said, the market is more and more premium and this [ ITO ] connection are seamless pipes, and they will continue to be seamless pipes. As far as volume are concerned, yes, which -- again, we have a slight increase in volume, maybe not as much as we could have expected, thanks to our forecast. So they are delayed because customers ask us to deliver pipes later in '26. This will happen in '26. So we'll see what the volume will be. But as I said, we see drilling activity being back on the increase with some customers, to name one Aramco as an example, in Middle East. So we will see. But again, it's always a question, every quarter, we have to forecast what -- how much volume customer will call off from the orders we already have. It's a question of just delivering the order to match their needs. Operator: There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Philippe Guillemot: Thank you again for joining us for today's call. We are very pleased with the track record of execution since the launch of the new Vallourec plan in May 2022. We see further room to drive higher returns in our business. We will continue to optimize our capital allocation and capital return framework to deliver maximum value to our shareholders. Thank you again. Operator, you may close the call.
Operator: Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2025 Third Quarter Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead, Anna. Anna Hartley: I'd like to welcome you to our third quarter earnings conference call. Joining me on the call today is Ana Cabral, CEO of Sigma Lithium. Our third quarter 2025 earnings press release, presentation and corresponding documents are available on our website. I will now turn the call over to Ana Cabral. Ana Cabral Gardner: Good morning, everyone. It's a great pleasure to present Sigma Lithium's Third Quarter 2025 results directly from the Amazon, where COP30, the United Nations Climate Conference is being held. Sigma is here as a member of the Brazilian delegation. We have been engaged in high-level dialogues with other delegations from all over the world, and we are showcasing how we have implemented and executed on every single one of our targets of sustainability set out in 2017 when we made the original investment in the company. Since then, we have managed to build the most sustainable lithium beneficiation plant in the world, digitalized and using algorithms, the employee bots or AI to become more and more efficient in treating the mineralogy of our mines and increasing plant recovery. So our plan is where technology meets metallurgy meets mining and delivers sustainability, doing more with less. Please kindly read the disclaimers. We're going to make quite a number of forward-looking statements and projections and guidances as we go through this presentation. We're very proud of our accomplishments in the third quarter, especially considering the state of the lithium markets throughout the quarter. we have managed to increase the resilience of our business significantly, achieving the following 5 initiatives. First, we substantially increased our net revenues through optimum commercial strategy. We increased revenues by 69% quarter-on-quarter and by 36% if compared to the third quarter of last year. We have generated cash of $31 million, resulting from final price settlements of sales that happened throughout the year. In addition, we expect cash generation from sales of our processing, high-purity, high-grade middlings, which are the result of our sustainable efforts. We have approximately 1 million tons of those dry stacked high-purity materials. We are also in the process of successfully upgrading our mining operations. Our plant has already restarted this week, our mine is expected to resume operations within 2 to 3 weeks, and Sigma will operate the mine with equipment lease directly from the manufacturer. Lastly, we continue to maintain financial discipline, and that's demonstrated by deleveraging on our short-term trade finance debt by 43% this year despite the challenging lithium pricing environment. On this page, we showcased the financial highlights of the third quarter of '25 related to the increased cash margins and the deleveraging of our short-term trade finance debt. Our revenues have increased by 69% if compared to last quarter. More importantly, we increased revenues by 36% versus the third quarter of last year. Our pricing also increased by 33% versus last quarter. So the revenues increase are a result of our efficiency increase. Our margins also increased. The operating margin increased in 42% versus the third quarter, and the net margin increased 67% [Technical Difficulty] quarter of last year. Both margins also increased substantially versus the previous quarter. But by showcasing the increase versus last year, we demonstrate how we increase the resilience and the strength of the business. Our deleveraging is demonstrated by the decrease in trade finance. We managed to pay down export financing, short-term debt in 43% this year. The remaining balance is just $33.8 million as of November 13. Our cash has also increased by 42% versus last quarter, which is a trend very different from our peers, which had burned current cash. Our current cash today is $21 million plus $8 million of incremental trade receivables, all related to sales realized until the third quarter of 2025. On this page, we discuss our stellar record of 0 accidents. We have achieved 787 consecutive days without accidents with lost time injury. It's over 2 years with 0 records. This demonstrates our operational excellence in addition to managing to continuously decrease our costs. So we haven't cut costs at the expense of health and safety. Our TRFIR is 1.79 amongst the lowest in the world. This results in employee engagement and safety processes, a direct connection to the factory floor, which leads us to enhance performance and ideas for cost optimization coming straight from our employees. So it's a self-fulfilling circle where focusing on safety enables us to keep on getting better, both operationally by increasing efficiency, but also cost-wise by gaining ideas directly from employees on how to be lower cost. We're very proud of this. On this page, we're going to start to discuss our financial performance this quarter. On this slide, we demonstrate how Sigma achieved an optimum commercial strategy, which allowed us to price efficiently our material capturing the price cycle despite the price volatility that took over the metals market throughout the period that followed Liberation Day and the tariffs. You can see on this chart in red, the sales on provisional prices and in green, the sales on final prices. And it's visible that we were able to capture a much higher final price as we managed to authorize our clients to resell the products and settle our final prices. These adjustments resulted in incremental cash revenues for this quarter. So a picture is a thousand words. And here is how that translates into cash generation. This commercial success resulted in incremental cash from the final settlement with the trade partners. And you can see that by looking at the initial cash position at the end of the second quarter, the increasing cash from operations on a provisional price basis of $30 million, then the generation of trade receivables booked on sales up until third quarter on provisional prices of $20 million. That got converted into cash as of now, but that refers to sales with a cutoff on the third quarter. In addition to that, we had another incremental increase in trade receivables because of the extra increase in prices that we have been experiencing to date at $1,700 per ton. So that's another $8 million, which means that there were $28 million extra that resulted from our optimum commercial strategy. So when you observe our cash as of today, we have $21 million in the bank plus $8 million of settled trades at current market prices. Now in addition, we have $33 million of potential sale of lithium middlings, which are high-purity middlings or dry stack material that currently sits both at the port and at our plant at current market prices quoted at Shanghai metal markets of $112 per ton, net of transportation costs to port for part of it and to China for the material sitting at the port. So a significant cash boost coming from materials that have already been produced. But more importantly, a direct result of our investment in dry stacking our tailings and recycling and reprocessing and optimizing our lithium Greentech industrial plant. On this page, we show what that cash position enabled us to do. We managed to pay down our short-term trade finance 60% year-to-date to November. If you cut it off as of October, we paid it down 44%. That's a significant debt reduction, especially considering the down markets and the lithium prices volatility we experienced this year. So we had a cash increase, and we decreased our short-term trade finance expensive debt. That's a significant accomplishment in financial results for a year such as these in lithium markets. On this page, we demonstrate how the debt maturity profile will be lengthened further because all that's left now is essentially $10 million that we already paid down, plus $100 million that will be paid down next year in December, which relates to our shareholder debt, whose generosity has allowed us to get here to commission our Greentech plant and to continue to make improvements to achieve the stellar operational performance the plant has been delivering. So we are in a very comfortable debt position as of November 13. And we demonstrate here on this page all the short-term debt that we have managed to pay down or roll. This page demonstrates our low-cost resilience and the fact that we are a source of responsible lithium production in this industry. We have managed to maintain the highest sustainability and ethical sourcing standards throughout market pricing, meaning our resilience is here to stay. Even with the slight decrease in production, which is shown here in the little green over our regular costs, we're still lower than the lowest cost producer for nonintegrated lithium oxide concentrate in Africa. And this location to the very left of the nonintegrated supply curve is exactly where we plan to remain throughout the foreseeable future. On this page, we demonstrate how the lower production levels in September have not really affected our low-cost position. In other words, the slight increase in cost maintained this on guidance for the all-in sustaining cost, and that's demonstrated by the chart to the right, where we show the 9-month all-in sustaining cost versus the full year guidance we provided at the beginning of the year. This all-in sustaining cost includes interest, CapEx, maintenance, all of it, royalties, SG&A, environmental and social that is voluntary. So we're very much on track. We're issuing guidance of this all-in sustaining cost becoming $560, meaning lowering to $560 for 2026 based solely on production from the first plant. Now the increase in CIF cash costs and plant gate costs are easily corrected once we return to full production in the first quarter '26. So our low-cost position is unmatched and unchanged. On this slide, we basically outline the offtake agreements expected for this year. They're basically enabled by the significant commercial leverage and power we achieved by being an ethical producer and one of the lowest cost producers of lithium concentrate globally. Now what we've done, we tailored different types of offtakes to cater for different specific client needs across geographies. So this year, what we have is 3 different kinds of offtakes being discussed with 3 very different kinds of clients. The first kind is what we call the 3-month rolling offtake. They're done at market prices, and these are prepayment of upcoming production until March. The objective is to provide Sigma with low-cost working capital. The second kind of offtake is a 20,000 tons for 3 years for $25 million. It's a small long-term offtake and the use of proceeds will be to pay for the mining equipment that will help us upgrade our mining operations, meaning the larger-scale trucks and overall excavators and mining equipment. The third category is a conventional offtake or prepayment being negotiated with a global European trading company. So the use of proceeds is to deploy towards our expansion plans remaining on track for our growth strategy next year. We are in contract negotiation stages with them. Now for 2026, we still have another 120,000 tons of product uncommitted to be contracted into offtakes. The objective is to strike conventional offtakes for both amounts. The first amount for 80,000 tons will be assigned to a regular end user. And the objective is to repay the long-term shareholder debt that was generously enough offered to Sigma in December 2022 and enabled us to get here to this very strong operational position. We are in contract negotiations for that one. The second offtake is going to be achieved against an agent, meaning a trading company, which again, is going to be a typical conventional offtake, once again deployed towards building and delivering on our growth strategy, meaning building a second plot. And this offtake is under contract negotiation. So we're expecting to announce 3 offtakes still this year and 2 more next year. This page demonstrates our production and cost guidance for the upcoming years, 2026 and 2027. Our cash flow is poised to increase as our production efficiency increases with the execution of our strategic plan. With Plant 1 alone, we're bound to generate an all-in sustaining cost of $560 per tonne, and that includes everything, including interest expenses. Now at the current price levels of $1,000 per tonne, that represents a cash flow -- free cash flow generation of $132 million. Once we complete Plant 2 by the end of next year, we expect to have 550,000 tonnes of production throughout 2027, which will lower our all-in sustaining cost to $500 approximately that at current price points for lithium is expected to generate a free cash flow of approximately $270 million. So this page really demonstrates how by remaining the lowest cost producer globally, we are bound to benefit with excess returns from this relative increase in lithium prices from $700 per ton at mid-third quarter to $1,000 per ton as of November 13. This page demonstrates how our Greentech Plant upgrade into the 3.0 version concluded and executed in November '24 was not accompanied with [Foreign Language] this page demonstrates how the upgrade in our Greentech Plant into a 3.0 version, which was concluded in November of '24 of last year, 1 year ago, was not followed by our mining operations. Here at Sigma, just to recap, we have 2 different operations, which are integrated. We have a mine that delivers raw material to a state-of-the-art industrial lithium beneficiation plant, the Greentech Plant. That is automated, digitalized and run by an algorithm. Throughout the first 9 months of this year, what we could demonstrate is that the plant outperformance was compensating for the mine. You can clearly see that in the chart at the bottom left of the slide, where we had an 11% increase in production in the first 9 months of this year. Now the chart above show and demonstrate the significant upgrade that took place in the Greentech Plant last year when from the beginning of '24 to the end of '24, the production went up 43%. In other words, the plant can produce 300,000 tonnes of lithium concentrate if properly fed with fresh rock, fresh spodumene ore. It processed efficiently because the plant recoveries are 70%. Now that made it clear that a mining upgrade was required. So we reassessed our mining plan and concluded that we needed larger equipment scale to basically ensure higher volumes that would be moved faster. More importantly, that would also ensure that we would maintain our stellar safety and health record at our operations. The chart on the right break down the 2 quarters, the second quarter '25 and the third quarter '25. And it clearly shows that the last month of the third quarter when the mining equipment provider was demobilized was where we had a significant production decrease because they were simply demobilizing and phasing down their efforts in operating and moving material at the expected productivity rates. This page shows what's the way forward. Well, we have mastered dense media separation technology, achieving 70% recovered. Let me go back to the beginning, pause, pause again. This page demonstrates our way forward in our operational plan. Clearly, we have mastered dense media separation technology for lithium processing, achieving 70% recovery rates. That's equivalent to flotation. We have demonstrated also greater efficiency and reliability throughout 2025. And now we're going to match it by upgrading our mining operations. First, our plant. It has already restarted. So it restarted processing high-grade material that's in our current operating site. The target for 2026 is to achieve full plant operational capacity of 300,000 tons of lithium oxide concentrated. We have been recurrently achieving unprecedented recovery levels throughout the year up until the third quarter. So that's where our confidence comes from, from this track record. Now on the feed of the plant. Clearly, a mining upgrade was required and is underway. We reassessed the mining plan and the geometry. So we observed that we have mined about 798,000 tonnes in July and 659,000 tonnes in August. We continue to mine waste and strip in order to optimize geometry, and that is something I talked about during our second quarter '25 announcement. The ore grade has been perfectly aligned with our mine plan with no significant dilutions. So we maintain the cadence of the ore grade fed to the plant. As a result, we're very well positioned to resume our mining operations within 2 to 3 weeks once we're able to mobilize large-scale equipment so that we can increase the volume mined and the operational speed at which we advance the geometry and increase mining volumes. So with those upgrades, we expect to evolve our production capabilities at the plant already in the first quarter '26, reaching 73,000 tonnes of lithium oxide concentrate produced. That's the guidance for the first quarter of '26. This slide demonstrates how by being the low-cost and most sustainable producer at large scale, we have been able to obtain significant support by our clients to execute our -- on our expansion plans. That's financial support and offtake support. We plan to reach 80,000 tons of lithium carbonate equivalent upon completion of our Phase 2 expansion next year. By just adding a third production line, which infrastructure is already on site, we expect it to achieve 120,000 tons of LCE equivalent of production. That is a consequence of Sigma already being a pillar throughout global lithium supply chains. So this underpins the financial support that we receive from our very large clients downstream in the lithium supply chain. So we also conclude by outlining how we're going to continue to deliver on our strategic plan for 2025. First, we're going to conclude our offtake agreements as we have outlined in the presentation. Second, we have achieved financial strength, but we're going to continue to do so by continuing to close final prices on the provisional price sales that we have achieved year-to-date until the third quarter and we'll continue to deliver throughout the fourth quarter. We have deleveraged and we'll continue to delever by basically paying down expensive short-term trade finance debt. We're also going to monetize existing lithium products that are currently sitting in our plant and in a port, taking advantage of the current robust pricing environment where demand for these products become actual. Currently, these products are priced at about $120 per tonne, which could bring the additional revenues of $33 million throughout the fourth quarter. Thirdly, we are going to upgrade our mining operations to increase the Greentech Plant production scale, more feed, more concentrate. So there's another advantage to that, which means we're going to lower the structural costs of this company by lowering the plant gate costs by increasing production volume and by actually decreasing the absolute number of mining costs, which represent 2/3 of our plant gate costs. Four, we're going to continue to partner with our very large clients with very large balance sheets to create commercial strategies that allows us to navigate lithium price seasonality, benefiting from achieving higher prices during the high seasonality. Number five, we're going to continue to increase the scale of our suppliers so that we can obtain working capital support. This is a strategy where we're simply matching or copying with the global leaders in downstream, including battery makers and carmakers receive from their own suppliers in the duration of their account payables. The average of the largest carmakers in the world is from 130 days to 180 days to 210 days. We've been barely doing 30 days of deadlines for suppliers. So we are lengthening that period by leaning on larger suppliers that are as large as us. I want to thank you for the opportunity to present to you our third quarter earnings. And I'm now going to open the floor for the Q&A questions that are going to be submitted to our moderator through the chat function of this Zoom. Operator: [Operator Instructions] Our first question comes from [ Bavida ] from Bloomberg. Thanks for the granularity on the cash balance. Based on Page 9, is current cash balance at USD 29 million plus USD 33 million or only USD 29 million. Ana Cabral Gardner: No. The current cash balance is $29 million. The $33 million are basically bids we received on the current lithium material we already have, and we were mentioning that exists in the port and at the plant. Operator: Our next question comes from [ Leanne Crozier ]. What is the region of lithium middlings from the process circuits? What is their LI 20 grade even as a range? Ana Cabral Gardner: Yes. These are typical materials that are processed through the DMS circuit. They are more valuable because the chemical structure of the particle hasn't been broken. In other words, it's a very different manner of processing lithium ore than the flotation plant. So the lithium grade goes from 1% to 1.3%. There's an official quote for these products at Shanghai Metals Market, which can be validated daily. So in current market environment, where it's actually a search for physical materials to close open positions in Guangzhou, we've been getting bids for these materials, 100,000 of which are at the port already, which makes their cost simply shipping to China, which is $40 a tonne. And then we have another 850,000 tonnes of these materials at the plant, which makes their costs approximately $85. So when we bank on $33 million, it's just pure profit, given that there are costs incurred in transportation. So the number is net of transportation. The current quote for these materials at Shanghai Metals Market is $120 per tonne. They are roughly 11-ish percent of current lithium oxide concentrate prices as of today, which is about $1,070 to $1,080 per tonne. Operator: Our next question comes from [ Armando Wolfrid ]. Could you please provide some more info on the 100 million shareholders credit and the status of your BNDES loan disbursement for Phase 2? Ana Cabral Gardner: Absolutely. Well, we're going to lean on our suppliers -- on our credit clients the same way we have been leaning on them for a number of advancements we've been doing here, including mining upgrade. There are a number of ways to basically disburse the BNDES loan. However, as we discussed earlier, we were awaiting for a quarter of lithium price stability given the highly volatile pricing environment we experienced this year. I mean we were one of the few companies to actually generate cash this year. Our peers were mainly cash burning. So our Board decided to wait for a quarter of stability so that we could basically green light purchasing equipment. Once we do so, it could happen as early as January or late January, given current price environment being very robust. So we're going to utilize the same structures we've been utilizing, which are large customer balance sheet support to basically disburse [Technical Difficulty] what are we doing about expansion is ensure [Technical Difficulty]. Operator: Ms. Ana, your connection just dropped in the middle of the answer, if you can repeat that part, please. Ana Cabral Gardner: Okay. Yes, so regarding the structure for this bus in BNDES, our Board was waiting for at least 1/4 of price stability given the volatility in lithium prices, the market experienced this year. So what we are planning to do if the lithium prices environment continue to be as robust as it is now is probably green light equipment purchasing as early as January, late January of '26. But more importantly, we have already disbursed a certain amount and file that with BNDES. So it's all basically ready to be deployed once we continue on equipment purchases, which is the plant portion of Phase 2. Now the key element in ensuring the timeliness of a potential 2026 commissioning of the plant was adjusting mine geometry so that we could feed the plant with the same geometallurgy that we are feeding our current Plant 1. So feeding Plant 1 and Plant 2 with the same geometallurgy would ensure a shorter ramping up period given that we would have more chemical certainty of the ramp-up. In other words, any ramp-up issues could be only narrowed to processing, which are relatively easy to fix. So the work on mine geometry would continue the same way we carried on geometry work throughout the second quarter despite the lithium prices volatility. Operator: Our next question comes from [ Habbou ]. Will production be fast-tracked if the lithium market tightness and the market price of lithium increase happily? Ana Cabral Gardner: Yes. That's exactly why we're carrying through the mining upgrade. You were spot on, meaning we know what the plant can't do. I mean we have a state-of-the-art Greentech lithium plant that can't do 300,000 tons of lithium oxide concentrate on its own. What we needed to do was to match mine to plant. And this is exactly what we're doing, taking advantage of the relatively muted lithium price environment that we observed on the third [Technical Difficulty] production a year. Operator: Ms. Ana, your connection dropped again. If you can repeat... Ana Cabral Gardner: Okay. So resuming, what we are doing is basically spot on. In other words, we are basically matching -- the reason to decide on the upgrade of the mine was exactly what you asked us. In other words, we know what the plant can do. The plant can deliver 300,000 tonnes of lithium oxide concentrate per year. If properly fed with fresh rock. So by upgrading the plant, by revisiting the mine plan and moving more material, what we're doing is making more product available for the robust lithium price environment that we were expecting in 2026. We took advantage of the muted price environment still in the third quarter to make that decision, and it was the accurate timing to do so because as we enter '26, we will already enter with an upgraded quarterly production, as we indicated, to 73,000 tonnes. Operator: Our next question comes from [ Benson Chen ]. What's your estimated CapEx for bringing Phase 2 and 3 online, respectively? And what could be the risk of further delays. Could you not utilize some credit lines to speed up the expansion and avoid delays? Ana Cabral Gardner: Well, we have a credit signed with BNDES, which is the best possible credit we can get. But to your point, the offtakes, as I outlined on the discussion that we had about them, and it was quite detailed, are meant for that. In other words, we have the conventional offtakes when we declare the use of proceeds is to fund the growth, what they will be doing is essentially closing that gap. As offtakes get closed this year, what we will do is redirect those proceeds for the plant Phase 2, given that the mining upgrade has been fully covered by our current clients. Operator: [Operator Instructions] Our next question comes from Joe Jackson from BMO Capital Markets. Please confirm as of today, how much production Sigma had at the mine in Q4 due far? And how much spodumene inventory there is as of today. Ana Cabral Gardner: Yes. What we are planning to do, Joe, is to issue guidance for fourth and first quarter together. We issued the first quarter guidance, and we're going to issue fourth quarter guidance soon when we show a remobilization plan. What we have, though, is the full cost to upgrade mining operations, which is $25 million, which has been fully covered by our clients. So what we need to do now is to just wrap up what we call the mobilization curve for large tonnage equipment, which is either twice the tonnage of what we got or probably 2.5x the tonnage of what we got. Depending on the mobilization curve, which will be announced promptly, we will be able to perhaps have a surprise for the fourth quarter. And we've given the first quarter guidance and the fourth quarter guidance will be given as soon as we wrap up the mobilization curve for the very large tonnage equipment that's been made available to us by the manufacturer directly. By the way, one more point that's very important. The $25 million are not going to be paid at once. They're going to be paid in very nice soft installments throughout 2 to 3 years at very low rates, SOFR plus under 1% or 1%, again, facilitated by our very supportive clients given that we are the pillars of global downstream supply chains. So you'll be like -- it'll be an offtake like any other. Operator: Our next question comes from [ Ricardo Fernandes ]. Are your volume contracts based on spot price or negotiated? How much of lag is there between spot and realized at prices? Ana Cabral Gardner: Well, it's spot essentially. We closed provisional prices at spot. Today, fortunately, there's a very liquid market for both chemicals and spodumene or we call lithium oxide concentrate. Shanghai Metals Market, Guangzhou, I mean, they're literally moving with significant volumes. I mean, just for example, last night, Guangzhou negotiated over 600,000 tonnes of LCE of open interest contracts. That's a term of global lithium demand. So there's [Technical Difficulty] quite precise pricing. Last night, prices hovered around $1,070 a tonne. So that level of liquidity allows for spot to be quite precise, meaning clients bid and hedge immediately into chemicals. So we believe pricing is becoming more and more efficient, which helps producers like us, given that there's less opacity, more transparency. And again, what we do though is depending on the season, we close at final, or we close at provisional. And what we've done this year, given volatility, we basically closed the provisional pricing. And now we're benefiting from having the clients to lean on and realizing final pricing. Hence, the cash boost we received from sales of the third quarter at the moment, as we explained in detail in our cash from operations section of this presentation. Operator: Our next question comes from Shiva Kumar. Are you getting any premium at all of the green lithium compared to the market price? Ana Cabral Gardner: No, unfortunately not. I'm here at COP30. That's been one of the frustrations. What the advantage is, though, is commercial power, meaning given that global supply chains are being rearranged, what we have is similar battery makers supplying carmakers globally in the West, in the East, all over. So there's a huge focus on traceability, on sustainability, on health and safety. And what we have is essentially a brand that safeguards us from any questions. I mean it's very easy to ascertain the Quintuple Zero advantage. And that's what we have, a commercial advantage, which translates into what we showcased so far. Our ability to negotiate provisionals when we believe it's reasonable to negotiate provisionals, our ability to lean on our clients' balance sheets for support for mining upgrades and so on and so forth. But unfortunately, there is no green premium. And we do not believe there will be a green premium. If -- hopefully, that could be, but it's years ahead. What there is, is a green [Technical Difficulty] commercial advantage. Operator: Our next question comes from David Feng. Ana, this is David from CICC Research, and thanks for the presentation. We can see that there is still over 30 kt of spodumene concentrate inventory by comparing year production and shipments. Just wondering how we expect all these inventories to be sold in 4Q '25? And what would your inventory management strategy if lithium price continues to rise. Ana Cabral Gardner: Yes. Thank you, David. We'll sell it all down. I mean at current prices, the plan is to basically monetize everything we have, including the -- what we call in China middlings, right? And we have high-purity middlings with an intact we call intact spodumene chemical structure because it comes from DMS, and it hasn't been affected chemically by the flotation nor by organic contaminants nor by the chemicals utilized in flotations. Hence, we can get a straight quotation for $120 even for middlings, which is -- which just shows that the current strategy is to monetize all the lithium we currently have. Operator: Our next question comes from [ John Christian ]. Can you quantify in U.S. dollars, how much working capital will be required to restart the mine in the first quarter 2026? And can you bridge the $6 million on third Q ending cash balance to $21 million today, considering your slide show $20 million debt paid down in the 4Q so far. Where did that approximately $35 million came from in the past 6 weeks? Ana Cabral Gardner: Well, no, we discussed that. I mean if you look at lithium price behavior, it came from the final price settlements. I mean the lithium prices have rallied considerably, RMB contracts for LCE and Guangzhou were close to $88,000, $87,000. So we were able to receive the final price settlement adjustment from the sales of product that took place up until the cutoff date of September 30, 2025. So that's where the adjustment comes from, from actual cash from these settlements. And more importantly, there's extra adjustments from the settlements that haven't been closed yet. We started to close settlements at $875, and we kept going until the latest ones, which were $1,035 just last week. But again, these were shipments material in boats in the water. We were literally shipping everything and selling everything. The other question you asked was about the $33 million. That's essentially middlings which are monetized their bids out. We are waiting to work out on logistics. The profit varies significantly on logistics because we have $100,000 at the port. That is simply $40 to China. $120 minus $40, that's net profit, pure profit, no cost associated with it. Then we have 850,000 tonnes of those middlings' high purity with chemical structure intact at the plant. The logistic costs there are different because we need to truck it to port. So what we're working on is to thinking through berthing the biggest ships we can obtain and therefore, lower the shipping cost to perhaps $25, $30, so that $120 minus $70 of logistics back-to-back plant to China. So essentially 2 different costs of logistics. These products are 0 cost to produce because they are middlings or what we call dry stacked high-grade lithium tailings. And that's the sustainability advantage. We are able to monetize it to a net of USD 33 million, which is a considerable sum. It's equivalent to a boat or a bit more actually, pure profit. Operator: [Operator Instructions] Our next question comes from [ Olin Chen ]. Could you please clarify the expected lithium concentrate production volume for the 4Q 2025 based on your current operational plans and the ramp-up schedule. Ana Cabral Gardner: Yes, we're not there yet. I answered a similar question. We issued guidance for the first quarter '26. And as soon as we wrap up the -- what we call the mobilization curve in terms of the scale of the large equipment being made available to us, it could vary from 60-tonne trucks to up to 95-tonne trucks, which is a significant increase from the small [Technical Difficulty] trucks we were [Technical Difficulty] 75-ton truck can move twice much material than a 40-tonne truck, a 60-tonne truck could move 50% more material. A 95 to 120-tonne truck, same access size can move 3x more material. Cost, not that dissimilar because it's diesel, one driver instead of -- I mean, it's 4 drivers per equipment. So we are decreasing the number of men involved, consumption of diesel, not that dissimilar. So overall, structurally lowering the cost of this operation. And this is the guidance that we plan to provide in detail as soon as we wrap up mobilization schedule for the equipment, which is currently taking place. I was in China for 2 weeks, just go back 1.5 days ago. And we're making progress in strides on that front. And we're delighted with the support we received from manufacturers, clients because we're pillars of 3 global supply chains actually, Europe, Asia and China. Operator: Thank you. This does conclude the Q&A section. I'll now return the floor to our CEO, Ana Cabral, for her final remarks. Please, go ahead, Ana. Ana Cabral Gardner: Well, we're very optimistic about 2026. It's been a year where volatility dominated the conversation. It's consensus now where lithium is headed. Now what's important to highlight is lithium is a commodity like any other, meaning prices will be where they are. We're not talking about price spikes. We're talking about prices being at $1,000, $1,100, which for low-cost producers such as Sigma with current plant gate costs of around $350 normalized is a fantastic operating environment. And so the key is to continue to be a low-cost producer. Hence, our efforts in upgrading our mining operations to match the exceptional industrial operations we have achieved throughout this year. So thank you all for listening. Thank you all for being with us on our journey, and we're going to be open for welcoming you all through my colleague, Anna Hartley, who is heading Investor Relations, and we'll be visiting some of you through conference calls in the next couple of days throughout the world. Operator: Thank you. This does conclude the third quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website at www.sigmalithiumresources.com. You can disconnect from now on and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Freehold Royalties Third Quarter 2025 Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Spyker, President and CEO. Please go ahead. David Spyker: Good morning, everyone, and thank you for joining us today. On the call with me is Rob King, our COO; Shaina Morihira, our CFO; and Todd McBride, our Manager of Investor Relations. So before we get started, I just want to advise everyone that certain statements on this call are considered as forward-looking information, and we caution the listener to review the advisory on forward-looking statements in the news release and MD&A found on our website. So for the quarter, we achieved production of 16,054 BOE a day with a liquids weighting of 65%. This represents a production increase of 10% from Q3 2024, reflecting the contribution from our Permian Basin acquisition in late 2024, in addition to continued drilling activity across our asset base. With the acquisition work, we have shifted to a much more balanced portfolio where 45% of our production in the first 9 months of 2025 is from the U.S., now representing 53% of our revenue. This is a material shift from the first 9 months of 2024, where 36% of our production was in the U.S. This balanced approach allows us to take advantage of stronger U.S. pricing with a realized oil price of $93.25 a barrel for the first 9 months of the year compared to $79.03 a barrel for our Canadian oil. It is a similar story on the natural gas side, where U.S. realized pricing was $2.72 an Mcf over the same period, twice that of our Canadian gas price of $1.34 an Mcf. So with a liquids-weighted North American portfolio, we're delivering best-in-class operating margins. In Canada, our heavy oil production grew 13% compared to the same quarter last year as producers continue to actively develop our lands in the Mannville heavy oil and Clearwater plays. Drilling activity in Canada picked up after spring breakup with 83 wells drilled this quarter. In addition to the heavy oil drilling, we are seeing an uptick in drilling activity related to the Belly River, Cardium and the light oil and liquids-rich Mannville section in Western Alberta. A number of our operators are having success in these plays with horizontal drilling applications. On the gas side, we see production down 6% compared to the third quarter of 2024, as the weaker gas pricing in Canada, it was $0.63 an Mcf AECO in the third quarter has kept gas-directed drilling rigs on the sidelines. As we head into winter with a stronger Canadian gas price outlook, we are seeing licensing activity and drilling activity pick up. Drilling activity on our U.S. lands continues to be concentrated in the Permian Basin with 92% of the quarter's activity focused there. Activity has been steady year-over-year as our large investment-grade payers such as ExxonMobil continue to execute their capital programs. ExxonMobil plans to grow their Permian production from about 1.6 million oil equivalent barrels daily to 2.3 million by 2030. Given Freehold's mineral title position in the Permian, this would reflect approximately 800 BOE per day growth from our ExxonMobil-operated lands, which is approximately a 20% increase from our current overall Permian production levels. This quarter, we have 4 large well pads, 63 gross wells in total on those 4 pads drilled in the Permian and all currently in various stages of completion. These large pads are operated by investment-grade operators and are a good reminder of the scale and scope of drilling and completion operations in the Permian. In the Eagle Ford Basin, as we've seen in previous years, production was lower quarter-over-quarter due to timing of drilling activity from our largest payer, ConocoPhillips. Exciting things that is going on in the U.S. right now is that we're seeing considerable infrastructure build-out underway to improve gas takeaway capacity out of the Permian Basin to feed the rapidly expanding Gulf Coast LNG export capacity and data center growth. Gas production from the Permian is growing at a faster pace than any other U.S. basin with the next phase of pipeline expansion expected to be in service late next year. Freehold has 11 million cubic feet a day of gas production in the U.S. and is well positioned to participate in the ramp-up of gas required to feed LNG demand and the data center power requirements. In support of the strong leasing activity we've seen year-to-date, particularly in the U.S., we just had a 4-well pad permitted on one of those leases, targeting the deeper Barnett Shale in the Permian, as operators continue to look to unlock the multiple reservoir benches in this resource-rich basin. Both sides of the border, we're seeing operators focusing on optimizing well placement in the reservoir, advancing drilling efficiencies and lateral lengths and enhancing completion designs. We continue to see a shift to longer horizontal wells in the U.S. with our average horizontal well length increasing 12% year-over-year. In 2025, almost 40% of the wells drilled on Freehold's lands in the Midland Basin are 3 miles or longer compared to only 30% in 2024. These continued improvements in accessing the reservoir have resulted in a 15% improvement on average production rates when compared to last year's averages. Similarly, in Canada, average well performance is up 25% compared to 2024 across our lands. So turning to our financial results. We generated $59 million of funds from operations in Q3 2025 or $0.36 a share. With this funds flow, we paid $44 million in dividends to our shareholders, we reduced our long-term debt by $9 million and we invested $5.8 million in acquisitions focused on purchasing undeveloped lands in the Permian Basin and select Western Canadian operating areas. Freehold continues to advance its ground game strategy of acquiring mineral title lands in the U.S. ahead of the drill bit. This approach enables us to acquire lands that are held in perpetuity in areas that have significant undeveloped resource and drilling inventory. On the Canadian side, we continue to partner with talented technical teams to fund their drilling programs in exchange for a royalty and a drilling commitment. So our portfolio offers investors exposure to the premier oil and gas basins across North America, including our growing heavy oil segment in Northern Alberta, the lighter oil plays in Southeast Saskatchewan, exposure to Gulf Coast pricing with our Eagle Ford assets and the growing light oil and natural gas production contribution from the Permian. Our U.S. portfolio is driving 33% higher pricing when compared to our Canadian asset base, benefiting from light sweet oil production, close to markets and strong U.S. natural gas pricing supported by the aforementioned LNG build-out and growing demand for natural gas-fired power generation to feed data centers. We continue to deliver a monthly dividend of $0.09 per share with a payout ratio of 72% through the first 9 months of 2025 and sustainable to prolonged USD 50 WTI price levels. So with that, we're pleased to take your questions. Thank you. Operator: [Operator Instructions] And I have a question. Our first question will be coming from Jamie Kubik of CIBC. James Kubik: I just had a couple of questions for you on the U.S. business. It looked like net drilling was down year-on-year despite the increase in asset heft, I suppose, after the acquisition that you completed last year. Can you just talk about some of the nuances in that? And then can you also talk about the NGL volumes in the U.S., what you're seeing on that side? It looked like a pretty big number again this quarter. Robert King: Jamie, it's Rob here. I'll answer the first part, and Shaina will answer the second part. So on our U.S. drilling in Q3, I think a lot of it was probably more related to our Eagle Ford asset. When we look at our Permian drilling, which was clearly the key focus of our acquisition activity in 2024, that we've sort of certainly seen the expectation in the drilling results sort of in line with, say, what our expectations were. On the Eagle Ford side, that's probably more of a timing issue that we've observed with our key payer in the Eagle Ford being ConocoPhillips in that activity that we expected to see in Q3 looks like it's been pushed into Q4. And then on the NGL question, Shaina will touch on that. Shaina Morihira: It's Shaina. So just a little more color around the NGL volumes that we are seeing. So we have seen an increase in the NGL yields that we're recognizing on some of those 2024 acquisitions. The challenge is the timing of when we get recognized by some of our operators for those assets. So there is a bit of a lag in the U.S. compared to what we would see here in Canada. So we did have some adjustments that came through tied to those higher NGL yields. We're not expecting that to continue going forward, as we trued up a lot of those balances in the third quarter. James Kubik: Okay. And then maybe a bit of a different question here. But can you just talk about the capacity increase in your credit facility? What you look to do with the increased capacity, and how you're thinking about capital allocation here? Shaina Morihira: Sure. So I can take that one, Jamie. So yes, we did increase our existing credit facility to $500 million from $450 million, just to provide greater financial flexibility. We still plan to live within cash flow, but I think having that extra capacity makes sense for Freehold. We also extended the credit facility by a year to a tenure to November of 2028. So I feel that it gives us options, and as I said, that additional kind of financial flexibility going forward. James Kubik: Okay. And then maybe last one from me is just on the NCIB. I didn't see any activity from Freehold in the quarter. How are you thinking about that capital allocation option going ahead? Shaina Morihira: Sure. I could take that one as well. So I think, first and foremost, we are -- we remain committed to our current dividend. And so we see that as being sustainable kind of through a prolonged USD 50-barrel environment. So with the lower commodity prices, we have increased our payout ratio, so sitting around 72% year-to-date. So that does exceed our target dividend payout ratio of 60%. However, we still believe kind of under mid-cycle pricing, 60% remains competitive. So in terms of alternate uses of capital for the available funds from operations, we continue to be excited about our Permian ground game and other Canadian opportunities where we can get kind of high-teen, low-20 return. So in terms of the NCIB, it continues to remain in place as an option, but it is a tool available to us, not something we've initiated on at this point. Operator: And I'm showing no further questions at this time. I would like to turn the call back to Dave for closing remarks. David Spyker: Okay. Well, thank you all for joining our call today and allowing us to share with you our enthusiasm for business and all the things that we have going on in our business today. So thanks again, and have a good weekend. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to H&R Real Estate Investment Trust 2025 Third Quarter Earnings Conference Call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts or projections and the remarks that follow may contain forward-looking information, which reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward-looking information. In discussing H&R's financial and operating performance and in responding to your questions, we may reference certain financial measures, which do not have a meaning recognized or standardized under IFRS or Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows and profitability. H&R's management uses these measures to aid in assessing the REIT's underlying performance and provides these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks and uncertainties that could cause actual results to differ materially from the statements in the forward-looking information and the material factors or assumptions that may have been applied in making such statements together with details on H&R's use of non-GAAP financial measures are described in more detail in H&R's public filings, which can be found on H&R's website and www.sedarplus.com. I would now like to introduce Mr. Tom Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter. Thomas Hofstedter: Thank you, and good morning, everyone. With me today are Larry Froom, our CFO; Emily Watson, President of Lantower Residential. We get a lot to talk about today. So I think I'll just jump in and hand it over to Larry, followed by Emily and then Q&A. Larry? Larry Froom: Thank you, Tom, and good morning, everyone. As at September 30, 2025, the value of our real estate assets broken down between our segments are as follows: Residential is our largest segment at 50%; industrial 19%; office, 16%; and retail 15%. By geography, 71% of our real estate assets by value are now located in the United States. Overall, given the headwinds we faced with multifamily supply concerns, a weak office market, the tariff war creating general market uncertainty and a weaker Canadian economy, we are very pleased with our results and in particular, the 2.1% growth in same-property net operating income on a cash basis for the 9 months ended September 30, 2025, compared to the same period last year. For the 9 months ended September 30, 2025, FFO was $0.90, same as the 9-month period ending September 30, 2024. An amazing result considering net property sales of approximately $500 million over the 21-month period from January 1, 2024 to September 30, 2025. Breaking down our same-property net operating income on a cash basis between the segments, Residential was down 3.4% for Q3 2025 versus Q3 last year and was up 1.2% for the 9 months 2025 versus the same period last year. Emily will provide more details on Lantower's results shortly. Our Office segment same-property net operating income on a cash basis increased 0.5% for Q3 versus Q3 last year and was up 1.5% for the 9 months 2025 versus the same period last year, primarily due to the strengthening of the U.S. dollar. Our office occupancy at September 30, 2025, was 96.9% with an average remaining lease term of 5.3 years. Our Office portfolio now consists of 15 properties and comprised 16% of our total portfolio. Retail segment same-property net operating income cash basis increased 5.3% for Q3 2025 versus Q3 last year and was up 7.3% for the 9 months 2025 versus same period last year due to occupancy gains at River Landing and [ ForEx ]. Industrial segment same-property net operating income decreased 7.5% for Q3 2025 versus Q3 last year and was down 1.9% for the 9 months 2025 versus the same period last year. Industrial occupancy decreased from 98.9% at December 31, 2024, to 89.9% at September 30, 2025. During the quarter, we leased our newly constructed 122,000 square foot industrial property at 6900 Maritz Road. This lease will commence in December 2025. In addition, a further 108,000 square feet of vacant industrial space was leased with these leases commencing in Q4 this year and Q1 next year. Our FFO payout ratio was a healthy 50% for the 9 months ended September 30, 2025, and our AFFO payout ratio was also healthy at 61.3%. Our balance sheet remains strong. Debt to total assets at the REIT's proportionate share at September 30, 2025, was 47.3% and debt-to-EBITDA was 9.3x. Our unencumbered property pool totaled approximately $4.1 billion. With that, I'll turn the call over to Emily for an update on the Lantower Residential segment. Emily, please go ahead. Emily Watson: Good morning, everyone, and thank you for joining us. I'll begin with an overview of our third quarter performance and the operating environment across our multifamily platform before turning to market trends and development progress. While the broader economy continues to navigate a mixed landscape, including slower job growth, rising tariffs and fiscal uncertainty, our portfolio once again demonstrated its resilience. Occupancy, collections and resident retention remained solid through the quarter, and we saw steady leasing momentum even as pricing power moderated across many sunbelt markets. The quarter underscored the strength of our operating fundamentals. Our residents remain gainfully employed, wage growth has held firm around 4% and affordability remains a competitive advantage. With average rent-to-income ratios around 20%, that positioning gives us access to a wider and financially stable space, supporting consistent collections and healthy renewal trends. We are seeing early signs that the most supply-heavy markets are beginning to rebalance. Deliveries of new competitive units are declining each quarter and forward-looking forecasts show an expected reduction of roughly 54% or about 79,000 units in 2026 compared with 2025 levels. As the pace of completion eases and job growth normalizes, we anticipate regaining pricing traction and achieving more balanced fundamentals across our footprint. Our diversified presence across high-growth markets, combined with a deliberate focus on expense discipline and technology adoption continues to support performance through the cycle. Even in areas where lease-up activity remains elevated, we've taken proactive steps to preserve occupancy and mitigate revenue drag through targeted concessions and digital leasing efficiency. From a long-term perspective, we remain confident in the structural underpinning of our business. Housing affordability challenges continue to steer demand toward quality rental housing and with less than 10% of move-outs tied to home purchases, retention remains high. Taken together, we believe the ingredients are in place for a gradual reacceleration in revenue growth through 2026 and beyond. Our operating results reflect both resilience and realism. Some same-property NOI from residential properties in U.S. dollars decreased 4.6% on a cash basis for the 3 months ending September 30, 2025, primarily due to the decrease in rental income in H&R's sunbelt properties, including higher concessions being offered to tenants and higher operating expenses, including repairs and maintenance, leasing and marketing and utility expenses, which were partially offset by lower property taxes and insurance expenses. Same asset occupancy ended the quarter at 94.6%, an improvement of 50 basis points from prior year and 90 basis points from Q2. Same-asset sunbelt occupancy closed at 93.8%, up 40 basis points quarter-over-quarter, supported by steady renewal demand and moderating new deliveries. Same-store blended lease trade-outs were negative 1.6% in Q3 with new lease trade-outs negative 8.9% and renewal lease spread at 4.4%. October trends improved further to a blend of negative 1.2% with new lease negative 9.6% and renewal at 4.7%. While industry broadly continues to experience slower rent growth, our fundamentals remain intact. Demand is underpinned by population inflows, resilient employment and the enduring affordability gap between renting and owning, which today sits near all-time highs in favor of renting. These conditions reinforce our conviction the durability of multifamily performance even amid softer near-term pricing. Innovation continues to be a differentiator for us. Our AI-driven leasing platform ensures 100% coverage of calls, e-mails and text as nearly 1/3 of all inquiries are initiated outside of traditional office hours. Our centralized platform has allowed the days between application to lease sign dates to be cut in half and the time from lease approval to lease execution has decreased to 3%. At the same time, rigorous identity and income verification protocols have reduced bad debt in half post centralization. These tools allow our teams to focus on higher impact relationships and revenue-generating activities, effectively amplifying our workforce productivity. We also continue to make headway on portfolio-wide WiFi initiatives, which improve both resident satisfaction and margin potential. We have one community scheduled to go live with property-wide WiFi by year-end with an additional 6 installations planned through 2026 that are projected to deliver an estimated 86% return on investment. Our sunbelt portfolio fair market value is supported by a third-party appraisal and recent market transactions, thereby maintaining a weighted capitalization rate of approximately 4.97%. This level remains consistent with Q2 and reflects our ongoing institutional confidence in the sector. High-quality multifamily assets across the sunbelt continue to trade at cap rates, driven by the region's compelling long-term fundamentals, including robust population, employment growth, business-friendly environments and durable migration patterns that underpin lasting value creation. Turning to development. Our new Dallas assets continue to progress well. Lantower West Love is 83% leased and is expected to stabilize by April 2026 as supply pressures ease in the market. Lantower Midtown is 82% leased on track to stabilize in early Q1 of 2026. Both communities are outperforming competitive market absorption, averaging 21 leases per month versus industry averages of roughly 14 per month since initial move-ins. Each was completed on time and on budget, underscoring the discipline of our development execution. Our REDT projects remain on budget. We are on schedule to receive first move-ins at Lantower Bayside in Tampa in March of 2026 and first move-ins at Lantower Sunrise in Orlando in April, with completion expected in mid-2026 for both assets. In addition, Lantower currently has 9 sunbelt developments in the pipeline totaling approximately 2,900 suites at H&R's ownership interest. Multiple sites are fully permitted and ready for construction, and we are advancing design, drawing and permitting on the remainder. These projects reflect our conviction in the long-term growth of sunbelt markets and our ability to capitalize on favorable land positions as construction costs stabilize. In summary, our third quarter results highlight a portfolio that remains fundamentally sound, operationally agile. We've maintained stable occupancy and record high collections and continue to invest in technology and innovation that expands margins and strengthens resident loyalty. While near-term market conditions remain mixed, the long-term setup for multifamily housing is compelling, moderating new supply, favorable demographics and strong affordability advantages relative to homeownership. We expect these factors, coupled with disciplined execution and our culture of innovation to drive sustained growth in NOI and value creation as we move into 2026. Finally, I want to recognize our exceptional Lantower team. Their focus, adaptability and commitment to excellence continue to be the foundation of our success and our ability to navigate evolving market conditions with confidence. And with that, I'll turn the conversation back to Tom. Thomas Hofstedter: Thank you, Emily. Operator, please open the call for questions.. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. And the first question comes from Sam Damiani at TD Cowen. Sam Damiani: Obviously, a disappointing outcome. I wonder if you could talk about the stages of the various sale transactions that aggregate $2.6 billion, the difference between the assets that are held for sale and the assets that are not. Thomas Hofstedter: So I guess it's a precursor to everybody will be asking the same question. We're not going to get into details of what we're selling. We're not because we're currently in negotiations to try to conclude them. We have confidence that they will get done. Some have been approved by the Board, some haven't. So that's where we have a list of assets held for sale and the others that are not in there because we just haven't had approval from the Board yet. So stick with us, what we're really saying is that we hope this is all finished by the end of the year, which is short enough, hopefully sooner than that, because we are confident that will get done, but we're in the final throes of it. So I really can't get involved into any details on this. It's sensitive to the negotiations that we're having with the post-buyers. Sam Damiani: Okay. And what about the use of proceeds, Tom? I mean, it would be obviously selling over. Thomas Hofstedter: Yes, good questions. The use of proceeds, what's the quantum of the use of proceeds? So I can't -- obviously, we pay down debt, we have a debenture that's coming due. So that's priority #1 would be pay down debt. If you do $2.6 billion, you have excess funds, and we really haven't addressed that nor at the stage to identify what the -- how we'll use the proceeds because we don't know what the proceeds are. So again, same answer. You have to stick with us for a couple of weeks, hopefully, no longer. Sam Damiani: Yes, it's a theoretical question. Obviously, you've stated the plan. And so I was just wondering what the priorities are if you $2.6 billion. Thomas Hofstedter: Yes, pay down that, number one, get our balance sheet in order. And then if there's any excess funds depending on the quantum, obviously, an NCIB would be high -- maybe giving back unitholders and an NCIB would be high. Okay. Larry, do you want to jump in too or... Larry Froom: I think Tom said it, I mean, there's quite a bit of proceeds that will come in and it would hopefully come in, in stages. So the first sales for sure will be going to pay back down debt. And then as we get further down and we're comfortable with our balance sheets and everything, then we'll look and it will be a Board decision then what to do with the excess cash? Do we buy back units or do we distribute to our unitholders. Sam Damiani: Okay. Last one for me. Some of the dispositions are clearly some higher cap rate assets and even deleveraging is often dilutive. Just wondering on your thoughts about the sustainability of the current distribution. Larry Froom: So you are correct, Sam, that it would be dilutive to FFO as the sales because some of them are higher cap rate sales, and we've taken the write-downs before that. So -- but our FFO payout ratio is only 50%. So we have a lot of room to work with. And I think the distributions are quite safe right now. Thomas Hofstedter: And any scenario, I can envision the distributions being challenged. I don't think that's the issue. I think we have plenty of cash. It's just a question to distribute and pay out. Debt is obviously number one. But after we do that, as I said beforehand, it's NCIB or distribute. Under no scenario, do we see any challenge to cutting distributions. Operator: The next question comes from Fred Blondeau at Green Street. . Frederic Blondeau: Just one quick for me. The fair value adjustment is quite sizable. I was wondering if you could give us a bit more color on what would be the breakdown of the adjustment between that $2.6 billion that's for sale and the core portfolio? Larry Froom: I mean if you look -- you're quite right, we've taken sizable write-downs -- not only this quarter, but in the 9 months, $830 million. To help you give you a sense of size, I will just comment on the assets that we have marked as held for sale, that is $865 million there. We probably comprised almost the majority of that -- of the write-down this quarter. So we had $482 million, and most of it was in office through Hess, Front St. and [ Shepherd ]. So most of that write-down from the office came from there. It wasn't solely there. There were other office properties that were written down. But I'd say just over 50% was from that. Operator: The next question comes from Mario Saric of Scotiabank. Mario Saric: Just a couple of questions on the process. Firstly, is there any -- are you willing to provide any color on the pricing level of the nonbinding bids that were received during the process? Thomas Hofstedter: Again, the answer is going to be no. We were subject to confidentiality, and we really don't want to get into there because it's complicated. It depends on the mix of the scenarios, the players who were involved in and why -- and it never got to the final stage anyhow which was accept the special committee. So I'd rather decline from answering that question. Mario Saric: Okay. And then I guess, somewhat related, did the Board ever consider kind of putting the bids received to unitholder vote? And if so, I guess, what are some of the drivers behind not doing so? Thomas Hofstedter: The committee did not get to the stage where they had -- the answer is no. They not up to the stage where they had an acceptable offer to present at a price that they were would suggest going forward with. Mario Saric: Okay. Maybe switching to the asset sales. On the $2.6 billion that are expected, do you have a sense of the potential required kind of special distribution if they were all to be completed within a calendar year? Thomas Hofstedter: You're talking about taxes. Larry Froom: Yes, there would be substantial Canadian sales there, obviously. I mean the retail announced is part of it. The Canadian retail is definitely part of it. So there would be a special distribution that would be required to be made. But again, I would just say we will give more details as each sale becomes firm, we will put out more detail -- full details of the disclosure of the price, the NOI we expect to lose from those sales and potential tax implications. Thomas Hofstedter: I might add that the tax implications are not for 2025. The would be closings, although we have nonbinding agreements we expect sometime this year, closing would take place in 2026. Mario Saric: Okay. And then I guess you talked about the mix being up for debate. But if we step back before the strategic review was announced and the potential kind of bids coming in, the intent was really for the organization and for the REIT to become more focused on U.S. residential and industrial. When we look at the $2.6 billion that's under consideration, would it be fair to say that you would substantially make your way towards that previous objective by doing so? Thomas Hofstedter: Yes. I can't get involved too great details, but obviously, what will be left with either 1 of the 2 buckets you mentioned or one of the buckets, but definitely office would be brought down and retail will be brought down. In other words, this is somewhat in line with our original strategic plan, but I think the completion of this initiative, the strategic plan will be fine-tuned. Operator: The next question comes from Jimmy Shan at RBC Capital Markets. . Khing Shan: So just on -- when you did the full auction process, you mentioned there were parties that was interested in some specific assets. So of the $2.6 billion essentially comprised of those assets in which you got interest in? Thomas Hofstedter: Yes. . Khing Shan: I'm sorry. Was that yes. Larry Froom: The answer is yes. Khing Shan: Okay. All right. So are there any residential or industrial in -- that's currently under negotiation to sell? Thomas Hofstedter: Again, as I mentioned before, we really don't want at this time to get involved in that level of detail. But again, as I said beforehand, we hope to have this all wrapped up soon enough. Khing Shan: I guess maybe the broader question is kind of what is the go-forward strategy? Is it to stick to the original strategy, sell what you can and just trying to step back and say, okay, what is -- what does H&R look like on a go-forward basis? . Thomas Hofstedter: Well, I guess the overall strategy was a declutter. We were too many divisions. We mentioned that the overall strategy was to get more focused on industrial/U.S. residential. They're healthier -- although they're not necessarily healthy, they're healthier asset classes than office. So the original strategy was declutter, and that's exactly what we will be doing. How far are we going? Will it end up being an industrial REIT or a residential REIT or both? I don't know at this stage, again, again, it's a little too early to tell. But the overall goal was to become less of a diversified REIT, and that's for sure what we will succeed to do. Khing Shan: Okay. And then in the past, you've talked about condo land for condo development being pretty tough. I mean you do have 145 Wellington, you do have the Front St. ones. I guess what's changed? Thomas Hofstedter: Well, it's interesting. What changes is 2 things. The office market got better, the residential market got worse. So our initiative to rezone our commercial properties was not for the here and now in either was to have some -- when the market does improve some optionality is whether it's office or residential. At this stage of the game, it looks like the office market is recovering faster and the winner of the races are going to be remaining is office rather than residential. I would say that in all cases other than 55 Young, the status quo, whether it's Union St. or Front St. or 25 [ Shepherd ] -- sorry, or 145 Wellington is always going to be commercial rather than residential. Khing Shan: And then on the use of proceeds, I know it's hypothetical, but in the past, you've been averse to doing substantial issuer bid, but it does look like it's going to be a decent sized number. Would you contemplate doing that? Thomas Hofstedter: I don't think so. We haven't run the Board give, but our objection to a substantial issuer bid is you can probably achieve the same goal by doing an NCIB at probably 17% less. I was never a fan of it. I'm still not a fan of it, but we can have offline in discussion convince me otherwise. Khing Shan: But it's safe to say that beyond paying down the debt, there'd be a [indiscernible] to a buyback. Thomas Hofstedter: You can do a special distribution cash instead of an SIB and you wouldn't have to worry about excess money in your bank account. Khing Shan: Okay. Sorry, last question, just in terms of -- since the original solicited bid wasn't -- or didn't get to the finish line or wasn't presented to the unitholders, like what did the special committee consider to be acceptable in terms of terms and pricing? Thomas Hofstedter: I wasn't on the special committee. I don't know. The experience tells me there was a moving target. If you had a real offer that was really acceptable that they can bring forward, I can maybe answer more, but they never -- they didn't have that at the end of the day. But again, I wasn't -- I was not in the special committee. I don't know what the answer to that question is. I'm sure it was a range. Operator: The next question comes from Matt Kornack at National Bank. Matt Kornack: Just with regards to the tax implications, I understand if you sell Canadian assets, you can kind of push that through to unitholders in a special distribution. But for the U.S., if you can't take advantage of the 1031 exchange, do you think there would be a cash tax component? Thomas Hofstedter: There would be a minor tax cap for minimum tax, but we have tax loss carryforwards. So we'd be utilizing those. I don't see any U.S. tax leakage -- any material tax leakage. Matt Kornack: Okay. And then just in terms of the quarter itself in terms of the sequential NOI, Larry, was there anything seasonality-wise in terms of the NOI reduction or there would have been a recovery or something to that effect? I know the portfolio has changed. So there may be a little bit more seasonality in it, but I was a little surprised with the move there. Larry Froom: No, there was -- I think this is a normal run rate. When I say normal run rate, I mean, we saw residential was down a little, and that's showing some weakness. But other than that, which is expected to recover, other than that, there was nothing unusual. . Matt Kornack: Okay. And then going back to the sale, I know you aren't talking specifics, but could you give kind of a broad sense as to what the disposition cap rate would be? And then also in terms of where your line of credit is in terms of current interest expense on that? Thomas Hofstedter: Well, listen, I'm not going to give specifics and without that, it's pretty hard to answer your question. If you have an office building that's leased hypothetically, obviously, and it falls off, it's not a cap rate discussion. In many cases, it's the present value of the residual cash flow plus dollar at the end, which represents by the pound. So cap rates would kind of be a useless discussion if I can't identify and not willing to identify the specific asset that we're talking about. And you're talking about Lantower, you can talk about a 5% cap and that's easy. In the sunbelt, you use 5.25%, whatever number you want, you can't do that in office. If there's a 7-year WALT and it all comes to a balloon at the end, that's going to be substantially different than something that has a longer-term cap rate. So I can't really discuss cap rates. But we will give you all the color in a couple of weeks, hopefully. Matt Kornack: I understand the dynamics there, but we don't have the same level of detail that you guys do. So more based on... Thomas Hofstedter: No, I know. Fair enough. But not giving the asset, it's very hard to give you -- have an intelligent conversation as to the impact without identifying the asset. Matt Kornack: Okay. Fair enough. But Larry, just in terms of the variable interest rate, where would that stand today on your line of credit? Larry Froom: Well, we disclosed that the average weighted rate is 4%. But the variable rate today is on our credit line, just about just 3.9%, something like that. Matt Kornack: And presumably, you have a lot available there, which is good. You have the flexibility to pay it down. What would be the next kind of pieces of debt that you would pay off with the proceeds? Larry Froom: Well, we've got $250 million coming up next year in a bank term loan. So that will be the next. We have another debenture later on in next year. That will be the next to be hit to be taken off the debt list. And from there, we will see. Matt Kornack: And is it mostly unencumbered portfolio or the $2.6 billion slated for sale? Larry Froom: Well, I can tell you that the assets held for sale that we're showing of $860, whatever, $5 million, that's totally free of any debt. It may be pretty much totally free of debt and the 2.6... Thomas Hofstedter: Well, in a nutshell, our Lantower and our industrial divisions have debt on it. The rest we don't have debt on it. So Larry is trying to answer your question as best as he can. But if it's not in the Lantower and industrial buckets, it's debt free for the most part. Larry Froom: Sorry, Matt. And just a correction on what I said. There is one mortgage on our assets held for sale, and that is on the Front St. property. That's about [indiscernible] million. Matt Kornack: Okay. Last one for me. And again, maybe that's too specific, but it sounds like these skewed to more Canadian asset sales. So you're becoming predominantly a U.S. REIT. Is that a fair point after this? Or how should we think about that? Thomas Hofstedter: Well, I'll let you answer the question. We are right now. Operator: Next question is from Sam Damiani at TD Cowen. Sam Damiani: Just a follow-up. I believe, Tom, in an answer a few minutes ago, you said that you don't see any material tax leakage from U.S. asset sales. Is that correct? Larry Froom: That's correct. . Sam Damiani: So that would suggest that the sales that are being contemplated are not those with inherent gains. Is it fair to take that away from that comment? Thomas Hofstedter: Well, yes and no, you have tax loss carry forward. So I don't know. That would not be correct. I don't believe what you're saying. You can have the gains, but we wouldn't be paying the taxes on them. We have significant tax loss carry forward. Sam Damiani: Okay. And then just the other one for me. I'm not sure this may have been asked, but the fair value marks taken in Q3, I think the language was to reflect the bids for the stuff that's held for sale, the $865 million. Does primarily, sorry, of course. So how much of that would still need to be taken based on the remaining $1.7 billion of the $2.6 billion planned? Larry Froom: Not, very little. If any, I don't think -- I think we've marked down -- as I said, we've taken our hits and we've taken them now and in the previous quarter. If we were to do the $2.6 billion, we would not be expecting to take anything major on that. Operator: The next question comes from Tal Woolley at CIBC Capital Markets. . Tal Woolley: One of the questions I've been trying to get an answer for investors about is that I think like when we're thinking about the process that there probably could be some agreement on what asset values are that there might not be that wide a bid-ask spread, but the problems sort of come up in affecting the transaction and that there are maybe transaction costs or tax implications that we can't see from the outside. You guys have the deferred tax liability on your balance sheet, but it's just -- can you -- is there any sort of sense you can give around what beyond that might be the cost? We've seen this come up with other diversified REITs going through processes like Cominar in the past. Thomas Hofstedter: I don't really understand the question. Larry Froom: I don't think there'll be -- it depends on the price, obviously, for deferred tax, how much ends up paying. But assuming it was even at our fair market value that we're holding it at, all that will be paid is the deferred taxes on our balance sheet. So that would end up becoming payable if everything was sold at the prices we are carrying them at. Other hidden costs would probably be like change of control payments and that kind of thing, which are normally not substantial in any deal. And I don't think ours would be any different in that -- to that effect. Operator: Next question comes from Mario Saric of Scotiabank. . Mario Saric: Just one quick follow-up. You mentioned that the $2.6 billion will be effectively done in stages. In terms of communication with the market going forward, coming back to Jimmy's question a little bit in terms of what is H&R going to look like over the next 2, 3, 5 years? What is the expectation for communication with the Street in terms of updated strategy, where you're going versus maybe just individually announcing the asset sales as they come up? Thomas Hofstedter: So the assets they come up, first of all, just for clarification, it will be lump that will be done by the end of the year rather. Closing will be probably over the first quarter, Q1 2026. So you'll have a pretty good handle on what in totality we're selling. You'll have a pretty good handle on -- we will announce at that point in time, but that was before the years out what our revised strategy is pending on the actual completion of these sales. So it's pretty hard to answer these general questions without -- in a vacuum because $2.6 billion is lumpy enough that it will formalize our strategy going forward. So I'm sorry for being evasive all the time, but it really -- you're going to know soon enough. You don't have to wait for 2026. One way or another, we expect by the end of this year to give you the answers to those questions. Mario Saric: And just to clarify again, Tom, I think you mentioned that you don't see a scenario unfolding in which the existing distribution is unsustainable. Is that correct? Thomas Hofstedter: That is correct. That is correct. Under no scenario do I see that being the case. Operator: Next question from Fred Blondeau at Green Street. Frederic Blondeau: Just a quick follow-up. It looks like the REIT will be quite different, of course, in '26 than what it is now. I was wondering if you -- we should expect some sort of management restructuring or major management changes or any announcements in that regard that before the end of the year or in the beginning of next year? Thomas Hofstedter: Not the end of the beginning of next year, could well be depending on how -- in other words, hypothetically, let's assume that we become 100% Lantower and life changes. And obviously, management -- the need for management over here changes. I think we can't answer that question again until we formalize the sales, formalize the strategy and then we'll see then management will follow with the residual what's left in our company. Operator: Next question from Sam Damiani at TD Cowen. Sam Damiani: I really appreciate this. But just trying to get some clarity and certainty on this $2.6 billion. I mean your comments, Tom, are pretty clear. You're very confident and you're telling everybody to wait and you're going to hear all the details by the end of the year. But what can you tell us today that gives us comfort that, that's -- that this is kind of a done deal in terms of getting across the finish line, getting these agreements signed and binding and then closing in early next year? Thomas Hofstedter: So just to be clear, one way or other, we're going to conclude that whatever this quarter, whether it happens or happens, I'm not develop telling you that it's going to happen or won't happen, but the special committee is done. They're closed up for shop. It now is back to the Board. We either execute on these deals or we don't. We have a pretty good understanding throughout this lengthy process of our company and where to go from there. So I think we'll be able to give you a high degree of comfort by the end of this year, by the end of December as to what the future strategy is going to look like, what our cash position is going to be and if there will be any further sales. Sam Damiani: I guess, but on the $2.6 billion specifically, are you saying just there that there is not -- like there's a chance that they're not -- like they don't get signed, they don't close. Is that what you're saying now? Thomas Hofstedter: Well, the signs get closed, there's definitely a possibility that it doesn't -- the deals don't happen. In this world today, in real estate, the deal is not done until it's done. You know that. It's a very tough environment out there. Sam Damiani: Yes. And so this is sort of the direction... Thomas Hofstedter: None of the players that we're dealing with have the deals that this helps you are contingent on financing. They all have their equity, they all have -- they don't need any debt or they all have their debt done already. So none of those -- it's not confidentiality, it's just getting to the finish line. Sam Damiani: Okay. And the path that the REIT is on now, having wound up the special committee, like this $2.6 billion of asset sales, this is not the finish line. Is that right? There's still further asset sales to achieve to get to whatever this goal is. Thomas Hofstedter: That I can say definitively, yes. That won't be done through the special committee, but there will definitely be a formalization of the strategy, whatever that is to conclude -- to get there will involve future sales. Operator: Next question from Matt Kornack at National Bank. . Matt Kornack: One quick follow-up, and I don't know if you will answer it. But are management or insiders part of the bidding for any of this $2.6 billion . Thomas Hofstedter: No, they are not. . Operator: Next question from Jimmy Shan at RBC Capital Markets. . Khing Shan: Sorry. Two more quick questions. So just going back to the $2.6 billion, I guess what determines an asset that makes it to the assets held for sale versus not? Larry Froom: Jimmy, we put the assets held for sale in that category because they've already been approved by our Board. The rest of the sales have not been approved by the Board yet. Khing Shan: Okay. So the determination is Board approval only. And why were they not approved by the Board yet? Larry Froom: For IFRS, it's a bit more. It's approved by the Board and highly confident that they will conclude within a year. That's the IFRS mandate of putting them into that bucket. Khing Shan: Okay. And so the other assets that are not on there, what -- I guess, it's just a matter of timing being not approved by the Board? Larry Froom: Yes. There's still negotiations and pricing hasn't been finalized. Khing Shan: Okay. And then in terms of the full auction process that was done post July, can you give us a sense of kind of how many parties looked under the hood and sort of how far did the parties get far -- how far did they go? Thomas Hofstedter: How far did they go in what? -- due diligence? Khing Shan: In terms of like how many parties were left at the table if there were any when you did the full auction process or is there none at all. Thomas Hofstedter: This has always been -- we're a diversified company. This is diversified. As it's diversified. I don't -- I think it's fair to say that it would be very hard for one player to come up and absorb the entire company. This was always a club deal. And there were various players within the clubs in and out as the asset composition changed. Towards the end, the player that was -- there was -- I don't know, round numbers, very generally speaking, there was 4 or 5 that looked at the entire company, but there were club deals in different partnerships. There was one that was much more -- spent more time and remain there throughout. But at the end of the day, there was no -- at the end of the day, there was nobody there left for the entire company at a price that the special committee wanted to take forward and bring forward to unitholders. And needless to say, this whole exercise has taught us, I guess the conclusion is that the sum of the parts are greater than the whole. And in a diversified company, it's a club deal anyhow, maybe it's better off just to do it by ourselves. That's one of the options we have. So we don't have to go to our strategy, be industrial, residential being residential being industrial. We could just continue to sell and achieve a higher price. I think that's something you can't abandon, but that's definitely the potential. We'll get clarity -- again, we'll have clarity on that before the year is out. Khing Shan: And to Matt's question, was management part of any of those such club deals? Thomas Hofstedter: Sorry, I couldn't hear what . Khing Shan: Was management also part of some of the club deals that may or may not have happened in the past? Thomas Hofstedter: Management were there, management was there to plug some holes where we didn't have a player. But at the end of the day, management was not there. Well, there was no deal at the end, but management could be there if there's -- for example, in all cases, there are certain assets that just nobody wanted or we needed in order to finish off a price for everything, management could step in or would step in. But at this stage, again, that management is not there at all. There's no necessity for management to be there. We're not giving you one price. There's no bidder for the entire company. Operator: We have no further questions at this time. I will turn it back over to management for closing comments. . Thomas Hofstedter: Thanks, everybody. Stay tuned. We hope to be back with you years out. Have a good day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Welcome to Stantec's Third Quarter 2025 Results Webcast and Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer; and Vito Culmone, Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the Investors section at stantec.com. Today's call is also webcast. Please be advised that if you have dialed in, while also viewing the webcast, you should mute your computer as there is a delay between the call and the webcast. All information provided during the conference call is subject to the forward-looking statements. qualifications set out on Slide 2, detailed in Stantec's management discussion and analysis and incorporated in full for the purposes of today's call. Unless otherwise noted, dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded. With that, I'll turn the call over to Gord Johnston. Gordon Johnston: Good morning, everyone, and thank you for joining us today. I'm pleased to announce that Stantec delivered robust performance in the third quarter, generating organic growth across all our regions and business operating units. Global trends across water, transportation, energy transition and mission-critical sectors continue to drive strong demand for our services. And our diversification across sectors and geographies creates resilience within our operations. Net revenue grew to $1.7 billion in the third quarter, an increase of almost 12% compared to Q3 of last year, driven by organic and acquisition growth, each over 5%. Most notably, our Water business delivered almost 13% organic growth, Energy & Resources delivered nearly 10%. We grew adjusted EBITDA by close to 18% year-over-year with a record margin of 19%. We also delivered adjusted EPS growth of 17.7% compared to Q3 2024. Looking at our results in each of our geographies. In the U.S., net revenue increased over 14% in the third quarter, which was driven by 4.6% organic growth and almost 9% acquisition growth. In our Buildings business, net revenue increased by more than 40% in Q3 and over 20% year-to-date, driven by our acquisition of Page and continued organic growth. The integration of Page is going very well, and already, we're seeing many revenue synergies from the acquisition. We expect to have completed the financial integration into our systems by year-end. Private and public sector investments, particularly in mission-critical, Science and technology and Civic supported growth in buildings. Organic growth was also driven by our Water and Environmental Services businesses. Large public sector water supply and wastewater treatment projects contributed to double-digit growth in water. In energy transition, mining and infrastructure sectors as well as the continued work for a large utility provider supported growth in environmental services. In Canada, net revenue grew 7.6% in the quarter, driven completely by organic growth. We delivered double-digit growth in our Water and Energy & Resources businesses and high single-digit growth in infrastructure. The continued momentum on major wastewater projects contributed to over 20% organic growth in Water. Continued work on major industrial process projects also drove double-digit organic growth in Energy & Resources. Solid growth in infrastructure was supported by land development projects in Alberta, airport sector projects in Quebec as well as transit and rail projects and bridge sector work in Eastern Canada. Public sector investment drove growth in buildings, primarily in our health care and civic markets. Finally, our global business delivered net revenue growth of almost 11% in the third quarter, achieving 5.5% organic and 2.8% acquisition growth, along with positive foreign exchange impacts. Our industry-leading water business continued to deliver consecutive double-digit organic growth through long-term framework agreements and public sector investment in water infrastructure across the U.K., Australia and New Zealand. The ramp-up of new projects in Chile and Peru drove double-digit organic growth in Energy & Resources as the growing need for energy transition solutions continues to drive demand in mining for copper. We also achieved double-digit organic growth in our German infrastructure business due to continued momentum on a major electrical transmission project and increased volume on transit and rail projects. Now I'll turn the call over to Vito to review our third quarter financial results in more detail. Vito Culmone: Thank you, Gord, and good morning, everyone. We are very pleased with Stantec's third quarter financial results, which demonstrate the continued momentum of our business and the resilience of our operating model. Robust demand for our services, combined with favorable global trends allows us to continue achieving record-setting results. In Q3, we achieved gross revenue of $2.1 billion and net revenue of $1.7 billion, an increase of 11.8% compared to Q3 of 2024. This was driven by 5.6% organic growth and 5.2%, acquisition growth. As a percentage of net revenue, our project margins once again remained in line with our expectations at 54.4%. We achieved an all-time high adjusted EBITDA margin of 19% in the quarter, a 100 basis point increase compared to Q3 of last year. The increase in margin primarily reflects lower administration and marketing expenses as a percentage of net revenue due to our disciplined management of operations and higher utilization. And our adjusted EPS in the quarter increased 17.7% to $1.53. Turning to our cash flow, liquidity and capital resources. Our year-to-date operating cash flows are up 86% compared to 2024 from $296 million to $551 million, reflecting strong revenue growth, strong operational performance and continued strong collection efforts. DSO at the end of the third quarter was 73 days, a decrease of 4 days compared to year-end 2024 and in line with our Q2. Our net debt to adjusted EBITDA ratio at September 30 was 1.5x, reflecting the funding of our recent acquisition of Page. This remains within our internal range -- target range of 1 to 2x and positions us well for continued M&A. And as we have stated before, we are comfortable going above this range for a period of time for the right acquisition. Gord, I'll now hand the call back to you. Gordon Johnston: Great. Thanks, Vito. At the end of the third quarter, our contract backlog stood at $8.4 billion, an almost 15% increase year-over-year, representing approximately 13 months of work. Backlog continues to grow organically and is up 5.6% year-over-year. Organic backlog growth has been driven primarily by our U.S. and global operations, which achieved 6.6% and 6.8% growth, respectively. The acquisitions we've completed in 2025 contributed to 6.8% growth in backlog, primarily within our Buildings and Water businesses. Over the quarter, Stantec was awarded a number of significant project wins across each of our 5 business verticals, each project varying in size, scope and complexity. I'll highlight just a few of these wins. Stantec was selected as owner's engineer for Manitoba Hydro's $7 billion high-voltage direct current reliability project. The project aims to secure continuous grid reliability for communities across the province. And we've worked with Manitoba Hydro on power delivery projects in the province for over 50 years, and we look forward to continuing our work with them. Stantec's Infrastructure team was selected for a $745 million project to widen the SC-90 corridor in South Carolina. Our team will be responsible for shaping the overall project vision and layout, focusing on traffic operations, access management, bicycle and pedestrian infrastructure and impact minimization. And in Western Australia, our buildings team was selected to deliver specialist engineering services for 2 hospitals, one of which will be over 94,000 square meters in size and valued at nearly $1 billion. The second project includes refurbishment and expansion work at the Osborne Park Hospital valued at over $250 million. These projects will enhance health care for women, children and families. Given our solid third quarter results, our net revenue growth guidance for the full year, while increasing our adjusted EBITDA margin outlook to 17.2% to 17.5% on the strength of our operational performance and discipline in cost management. We maintain our mid-single-digit guidance for U.S. organic growth given persistent slower procurement cycles in the region. However, we remain optimistic that these are simply near-term challenges as we continue to see strong demand driven by the ongoing needs and the priorities of our clients. In Canada and in global, we still expect organic net revenue growth in the mid- to high single digits. Growth in Canada is expected to be driven by continued strong demand and elevated backlog levels. Following the release of Budget 2025 last week, we're encouraged to see the federal government prioritize infrastructure investments across various sectors. And while we don't expect immediate spending, the budget signals strong long-term support for our industry. In global, growth is supported by ongoing high levels of activity in our water business under the AMP8 program in the U.K. and other framework agreements in Australia and New Zealand. Strong demand for infrastructure in Europe and positive demand fundamentals in Energy & Resources are also supporting growth in our global business. Considering all of these factors, we expect growth in adjusted EPS to be in the range of 18.5% to 21.5% for the year and adjusted ROIC is expected to be greater than 12.5% -- given our uniquely diversified business, Stantec remains resilient amid evolving market conditions across all of our regions. We continue to progress towards the targets we laid out in our 2024 to 2026 strategic plan, including delivering net revenue of $7.5 billion by the end of next year. And with that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] And our first question from today comes from the line of Sabahat Khan from RBC Capital Markets. Sabahat Khan: Knowing it's kind of close to the end of the year, a good organic print this quarter. Just wondering if you're able to share at a high level how you're thinking about 2026? Just maybe -- and I know you guys provide guidance at Q4, but just given some of the moving pieces this year, any color you can provide either by major end markets or by region would be helpful. Gordon Johnston: Great. Thanks, Saba. And certainly, this is something we spend a lot of time talking about as well. And you're right, we're going to provide our formal guidance for 2026 in February. But directionally, we see really strong momentum going into next year. In global, the AMP8 programs in the U.K. are going to continue to ramp up as well as the frameworks in Australia and New Zealand. So we see continued strong support in our water business going forward. The need for copper to support grid strengthening, energy transition keeps continuing to support growth in our mining teams, particularly in South America, where I actually was down and visited with our offices last month. here in Canada. The federal budget that was recently released provides continued support for infrastructure really across the company -- country, sorry. And we see a lot of opportunities in the major projects that Prime Minister Carney announced last week and even those that he announced previously. And we're already working on a number of those projects, and we're in discussions and participating on a whole bunch of other ones. In the U.S., a little period of uncertainty, but we see that the macro fundamentals really are still strong there. Aging infrastructure, climate-related impacts, reshoring of manufacturing, data centers, mission-critical facilities. So all of those things, whether it's global, Canada, the U.S. are strong. And then I think one thing that we've talked about a lot, too, is that around the globe, certainly a lot of discussion for increased spending on defense work. And for that, that's -- for us, that's ports, that's dry docks, that's aircraft hangers and runways, housing, all sorts of various types of infrastructure. So we're actually really positive on the prospects and the momentum going into 2026. Sabahat Khan: Great. And then maybe if you could just dig in on the Canadian side, obviously, a large part of your business. Obviously, we saw [indiscernible] come out thus far. Can you just share some thoughts on -- is it just kind of the broad infrastructure programs in Canada that the Prime Minister is announcing that you're getting involved with? Or is it more kind of the energy base I know historically, some of the pipeline work in Western Canada was a big part of your business. Are you seeing maybe some of those opportunities as being more meaningful? Just curious kind of where within those buckets is Stantec exposed? Gordon Johnston: Yes. Great. Thanks, Saba. I think in both of those fields, both the opportunities that Prime Minister Carney has announced, and we see great opportunities. But you've seen the really solid organic growth that we've seen in Canada all year, really 8.5% year-to-date organic growth in Canada. And that's, of course, absent any of those projects that Prime Minister Carney had mentioned. So when we look at Canada, we've seen a lot of strength actually in Western Canada, in particular, in land development. We've seen great opportunities in transportation. A number of the projects we're working on bridge jobs in Toronto and a lot of sort of roadway projects here in Western Canada. But water has been incredibly strong all year for us. And we see really no slowdown of the -- both public sector work that we're doing. We've talked about the work we're doing with Metro Van in Vancouver, in Winnipeg and other locations, but a lot of private sector work coming along as well, advanced manufacturing, data centers and that sort of work. So that's very, very robust. And then, of course, as you said, the energy sector, we've seen some opportunities there as well as that group working on a number of -- the work that we do on industrial projects also comes out of that. And we've talked in previous quarters about some work that we're doing in Eastern Canada on some industrial projects. So Canada, pretty strong, pretty broad-based. And we're feeling pretty good about Canada overall and as we go into next year. Operator: And our next question comes from the line of Yuri Lynk from Canaccord Genuity. Yuri Lynk: Gord, I just want to push a little bit more on the outlook. I understand things are strong right now, but that's generally reflecting work that was booked 12, 18 months ago in some cases. Can you just talk about some of your forward most looking indicators? And I'm thinking, if you look around Canada, I know there's lots of good headlines, but the current economic data is pretty weak. Australia is soft outside of water. AMP8, one of the biggest customers there is struggling financially. The U.S. government shutdown. There's a whole bunch of worrying signs out there. So are you seeing any of that in proposal or RFP or whatever you look at on the most leading edge of your outlook? Gordon Johnston: Yes. No, great question. Maybe I'll address a couple of them individually there. So in the U.S., without question, there's been a confluence of factors that we've seen there caused a little bit of uncertainty and kind of slowed that -- the procurement cycles. I mean, certainly, that's not unique to Stantec, and you've seen that throughout the industry. So in the U.S., we've -- and you'll see that our backlog in the U.S. has been flat year-to-date. And a lot of that is -- we've been verbally awarded a number of projects, but we haven't been able to get them signed and contracted. So they haven't showed up in backlog. A little bit slower start on some of the things. Environmental Services in the U.S. and maybe a little bit slower so far waiting for some of those things to pick up. We're encouraged by the fact that the government is back at work now. We're also keeping a pretty close eye on that, that might only be for a couple of months until we have to go through this again. But the macros haven't changed in the U.S., whether it is the aging infrastructure and roadways related to and support from IIJA, and we still see those supports coming to some of the reshoring that we're seeing in the private sector. So we see some positivity there. You talked about AMP8 and one of the largest customers there is certainly having some financial difficulty, and we all read about that in the papers. But that really has no impact on our business because the way that the AMP cycles work is the water company commits to doing certain amount of capital spend in order to justify rate increases and so on and improvements in the overall operations. So that work has to get done. And people have said, well, what if that particular client was to get nationalized? Well, for us, we wouldn't want to see that happen. But if it did, the work still has to get done. And we've worked with Thames Water and all -- and for a number of successor companies for the last 200 years in the region. So we do see that regardless of what shakes out there, that AMP8 work is going to continue. So it certainly is a little bit of a cloudy environment out there, not all rays of sunshine, but we do see the demand drivers in our business being pretty strong. Vito Culmone: The only thing I'd add to that, Gord, is it's hard to argue with the points that you bring forward. But the diversity of our platform, I think, is an incredible asset and you're starting to -- you see it manifest itself through our year-to-date results and I think you'll continue to see that both geographically and across our segments. So notwithstanding, you're going to see pluses and minuses through it all. I think net debt to Gord's opening comments here, we will be positive moving into 2026, no doubt. Yuri Lynk: Okay. Good to hear. Second and last one for me. Just any update on the M&A pipeline? I understand over the last year or 2, there's been some large private players maybe working themselves towards a sale? Just any change in the pipeline? Gordon Johnston: Yes. It's a pretty robust industry right now, lots of discussions ongoing. You certainly read in the papers about some of these private firms coming to market. You also heard rumors about big firms in our space having discussions. And of course, we can't comment on any of those things other than to say we maintain very, very positive on M&A in general and specifically for Stantec. Our Board is supportive. The -- our investor community is supportive. We're supportive and the opportunity set is there. So we're continuing a number of conversations and look forward to bringing something forward at the appropriate time. Operator: And our next question comes from the line of Ian Gillies from Stifel. Ian Gillies: Following on some of the previous commentary and maybe just hit the nail on the head. With organic backlog growth in the U.S. supply year-to-date, you don't believe that impinges on your ability to generate some amount of organic growth in the U.S. as we go into next year? Vito Culmone: Yes, that's absolutely correct, Ian. We do not envision our year-to-date backlog being flat as an indicator of organic growth going into next year. We'll be positive in organic growth next year. We'll give guidance again at the appropriate time, but our expectations at this time, and you heard Gord echo opening comments around the U.S., including the U.S., we feel pretty good about it. Factors that are contributing to the year-to-date. First of all, backlog is generally lumpy. And obviously, we expect it to build here as we move into the first half of the year. Our year-to-date backlog, though, even in the U.S., our year-to-date, which is probably a better comparison or equally important comparison -- excuse me, our year-over-year is up 6.6%, I believe it is or over 6%. So overall, notwithstanding the confluence of factors that we've talked about that our peers have talked about, we clearly expect organic growth in the U.S. as we move into next year. Ian Gillies: Understood. That's very helpful. And maybe along similar lines and most of the other engineering firms have been asked about this, so I'll ask as well is, do you have any concerns about IIJA funds not being released like with some certainty, like, for instance, does your U.S. team still feel quite confident that the bulk of those funds will come out over the next, call it, 4 to 5 years and should continue to be that long-term tailwind and not be canceled? Gordon Johnston: Yes. And so I think our answer would be similar to what you've heard from some of our -- from the others who have reported as well that we have no indication that program like the IIJA would be canceled or funds would be withheld. We still see the continued momentum on that. And no, we think that, that program remains intact. Operator: And our next question comes from the line of Krista Friesen from CIBC. Krista Friesen: Maybe just thinking about your margin, obviously, a pretty impressive quarter and raising and narrowing the god for the remainder of the year. Can you speak to what's changed on that front relative to the beginning of the year when you first issued your guidance? Vito Culmone: Krista, yes, it's Vito. You're absolutely right. We're really pleased with a lot of hard work across all of the teams, of course, across our organization in delivering an EBITDA margin. Year-to-date, 17.7%, 100 basis points ahead of prior year or more than that actually. So really, really pleased with it. It all -- I sound like a broken record a little bit with this, but it all starts with project margins. So right customer, right project, right pricing, right risk profile. We spend a lot of time with that, and our professionals are excellent in the delivery of that. So our project margins year-to-date are 0.1% ahead of where we were last year. So without that, that's the fundamental. And then what you're seeing, of course, is admin and marketing as a percentage of NSR come down. So on a year-to-date basis, 37.6% versus 38.6% last year, again, 100 basis point improvement. And that's driven by a number of things. Clearly, scale is a big part of that. So as we grow and organic growth is a significant component of that, the ability to obviously deliver against that base in a more efficient way, that's important for us, and that's contributed meaningful to our year-to-date results. Our utilization, our utilization is another area that has contributed positive to it. Our occupancy costs are also contributing positively on a year-to-date basis. So net-net, you've got -- this business has significant operational leverage attached to it. And with continued organic growth, continued acquisitions contributing to, obviously, the net revenue growth, it provides a continued opportunity for EBITDA margin expansion going forward. While at the same time, very importantly, ensuring we continue to invest, invest in our people, invest in our offerings and invest in the market. That's equally, if not more important as well as we move our way through here. Krista Friesen: That's great color. And just a last one for me here. You mentioned the Page acquisition integration is progressing well and starting to realize some synergies there. Can you just provide us with a little bit more detail there? Yes. Vito Culmone: Not much more to add to the Gord's commentary. We knew Page very, very well coming into this acquisition. We work with them. And we have to say that everything post that close of the acquisition has just reconfirmed just an incredible team and really hit the ground running from an integration perspective. I think the pace to which we're seeing some of the opportunities, both in market and some of the efficiency reflects the fact that we knew each other so well and had spent a fair bit of time in these sorts of discussions well in advance. But Gordon, any additional comment on Page? Gordon Johnston: No, it's as we've really started working through the integration, everything that we thought was there has really shown itself to be true and then some. So it's actually been very, very positive. A lot of great project-based and pursuit based synergies there. So actually feeling really good about Page. I wish we could find another 5 Pages to join us. Operator: And our next question comes from the line of Benoit Poirier from Desjardins. Benoit Poirier: Yes. Great performance on the margin front and also great color that was provided on the previous question. So looking at 2026, could you provide maybe some comments whether the pace of improvement we've seen so far this year is sustainable going into 2026. And what are the puts and takes when looking at margins going into next year? Vito Culmone: That's a sneaky way of asking me for guidance already there, Benoit. But so we'll do that in February. I mean, I think when you look at the last several years, there's been steady year-over-year improvement, 0.3, 0.4, 0.5 -- this year, to your point, a little bit outpacing our historical track record, which is wonderful. One of the big factors in EBITDA margin expansion clearly is connected to a lot of what this call has been about, which is the pace of organic revenue activity in the business. So that is a big driver of obviously what you can deliver bottom line. But when you sort of zoom out, notwithstanding where we may be here in 2026 and what, which, again, we feel fairly comfortable with at this point and you look at a 2- or 3- or 4-year picture with the macro demand and whatnot, I think you can expect obviously continued EBITDA margin expansion. We're just going through -- we're entering our third year of our 3-year strat plan where we committed to 17% to 18%. Obviously, we're in the higher end of that range as we sit here in 2025. We expect to be at these levels or better, obviously, as we move into 2026, and we'll refine that next year. But it's the commercial activity that enables in large part for us to really lean into these margin expansions, and we expect that to continue. Benoit Poirier: Okay. That's great color. And maybe, Gord, you made some great comments about the opportunities you foresee in terms of defense. So I would be curious if you could on what is your exposure to defense right now? And how material could it be given the opportunities you see out there? I would be curious to see how it would compare to the opportunities with data center, let's say? Gordon Johnston: Yes. No, that's great. The beauty of the Stantec model is in that diversification piece. And so when you look at even in the U.S., where we do a lot of dry docks and aircraft hangers and those sorts of things, our exposure to the U.S. federal government overall is still in that 5-ish percent range. And so it's-- that's the beauty of the diversification model. I think you would see in other countries around the world, it's probably sub-5%, what we would be doing in that. But again, a lot of this is just our bread-and-butter infrastructure work just with a little bit different instead of a hangar for a commercial aircraft, it's for a military aircraft. And so this is stuff that we're all very, very comfortable with. And we don't expect that while there's been a lot of commitments to increasing spending on defense and some of these infrastructure things, we don't expect it's going to pop right away. It's going to take a while to build. And that's fine. We're spending a lot of time with our clients and ensuring that when they get the budget and they're ready to go that they're thinking of us top of mind. So I think we'll see it continue to grow, but I'm not sure that it will be -- that we'll see it being material. Benoit Poirier: Okay. That's great. And maybe last one for me. In terms of free cash flow, Vito, very strong performance in the quarter. It looks like that you were able to maintain DSO while typically they go up a bit sequentially from Q2 to Q3. So just wondering what is the matter of a stronger collection efforts? Is it a matter of business mix? Or what about the expectation, let's say, for Q4? Was there some pull forward in terms of free cash flow? I would be curious to get some thoughts around the strong free cash flow performance. Vito Culmone: Yes. And again, Benoit, I take you to there. You're right, free cash flow can be lumpy quarter-to-quarter, and this Q3 was outsized year-over-year gain. But clearly, the trend has been incredibly positive for us. As you heard in my commentary, our prepared commentary, our year-to-date numbers are up significantly. That's driven by, of course, the business and the expansion of the business, first and foremost. But clearly, our working capital management has -- it remains to be seen, but it looks like we've made a significant one-step onetime sort of move here that is continuing to stay with us. Our DSOs now are at 73, 74. We had an internal target of 80 for the longest time. I think we're getting pretty comfortable saying that perhaps the mid-70s is the new starting point for us. But we'll give ourselves another quarter before we do that. And I just need to -- we've made some changes internally. It's an area of focus for us primarily and just a huge shout out to all of our project managers across all of the entire network that are managing aggressively to that while obviously keeping our commitments to our clients and whatnot. So really, really pleased with it. Might give some back in Q4. I'm not worried about that in any way, shape or form. But full year will continue to be well ahead of where we were in the prior year. So very pleased with our working capital management. Operator: [Operator Instructions] Our next question comes from the line of Michael Tupholme from TD Cowen. Michael Tupholme: Gord, you've talked a fair bit about the water business, obviously, over time, but also I mentioned it this quarter, very strong organic growth. Often talk about the contribution from the U.K. AMP program and what that's meaning for our organic growth. I'm wondering if you can talk a little bit more about what you're seeing in Canada and the U.S. I think you've touched on it a little bit, but I'd be curious what kind of organic growth rates you're seeing in Water in those regions? And maybe you can talk a little bit about the drivers you're seeing as well? Gordon Johnston: Yes. Well, so in the U.S., really, really strong growth in water as well. Just trying to look on the number here, but it's definitely well into the doubled. Was it 20% in the quarter, Vito? Vito Culmone: In the U.S.? Gordon Johnston: But we'll grab that. Yes. No, I've got certainly double-digit growth in the U.S. in Water. And what's interesting whether it's -- and it's over 20% in Canada. But what's really interesting is that we've talked about it in sequential quarters, like we've had continued organic growth in our Water business, like all the way back to early 2019, and it just continues and continues to strengthen. So in... Vito Culmone: It was 10%, Gordon, in the U.S. Gordon Johnston: 10%, okay. So like in Canada, the type of work that we're doing are big public sector wastewater projects and water projects in Metro Vancouver, where we're working on the Iona Island relocation there, big biosolids project in Winnipeg that we've talked about $1 billion. So there's just a lot of big projects like that. Toronto continues with basement flooding enhancements and such. In the U.S., we see the same. A lot of it is municipal type work, water supply, water treatment, water scarcity type issues and some areas. And in the Gulf, certainly, it's flooding in excess of water. And so it's all just that sort of that core fundamentals that just keeps going with our water business where -- so whether it's not enough water, and we're working on water reuse and recycle, too much water and flooding and so we're doing big projects like the big pump station we did in New Orleans several years ago. We're currently working on shoreline protection type work, sea-level rise type work. Regulation like PFAS continues to provide opportunities in the short, but more so in the longer term. And then just the advanced manufacturing and reshoring of some of that, that, of course, you read about in the papers all the time. And very often, the first thing that clients need is water, access to water, water allocations, the treatment of high-purity water for manufacturing processes. So really, really strong drivers in water, and we don't see them slowing down in any way. Michael Tupholme: That's very helpful. The second question I wanted to ask is just about data center activity. Wondering if you can provide a bit of an update on activity levels and in that area, I guess, also curious what percentage of the revenue of the company is that represented by today and how you see that evolving and looking into 2026 as far as share of revenue contribution relative to 2025? Gordon Johnston: Yes. So we're currently working on over 100 data centers, mission-critical facilities ranging in size from 20 megawatts all the way up to a gigawatt. So a lot of projects on the go, but a pretty robust pipeline as well. I think right now, it would represent, Vito, I'd say like 3% 2%, 3% of the overall net revenue of the company. And do we see that growing? Yes. I mean that's growing at a bit of an outsized, but would it get to 4%, maybe 5%, but we don't see that we'd want it to go a lot more than that. We don't want to become 15% exposed to any sort of a high-growth area like that because just in the -- as we've talked about our diversification over time. So we feel good in that 3% to 5% range if data center is mission-critical, we're in that area, but certainly a high-growth area for us. Operator: And our next question comes from the line of Chris Murray from ATB Capital Markets. Chris Murray: Gordon, you mentioned earlier the 3-year financial targets hitting, I guess, the $7.5 billion by the end of next year. And so maybe just a couple of thoughts here. I mean, I'm looking at consensus right now, it's about 7.2, which means that you probably have to find some acquisition growth, I won't say in a hurry, but soon. But there's also, I guess, some questions. I think we kind of heard on the call about the whole idea behind being able to maintain a 7% CAGR because even if we go back a couple of years ago and what we've actually experienced over the last couple of years, hitting 7% next year on a 3-year CAGR is going to require just a stupid lift, which is probably not reasonable. So I guess the question I've got for you is the rest of the other metrics that we're seeing up and down, things like adjusted EBITDA, some of the financial metrics are all looking okay. Are you -- I guess the question I've got for you is like are you married to that 7.5% as a target? Or is it just more kind of aspirational and we can kind of think about how the game is going to play because the environment is shifting, and we could be heading into some choppy waters. So just thoughts on how those targets are set and how you're actually aiming at them. Vito Culmone: Yes, Chris, maybe I'll take that one, and Gordon, you can jump in if you -- the $7.5 billion was established, $7.5 billion was established obviously years ago based on exactly what you're describing, Chris, it was based on a CAGR of 7% organic. And then obviously, the rest of it filled in by acquisition. You're right. When you look at that 7% CAGR now relative to obviously what we did -- we're doing here in 2025, it's going to be hard probably for us to get 7% CAGR. But obviously, again, we'll stop just short of 2026 at this point. We'll see how the next few years. clearly expect organic growth next year and expect a good year there. And so we're not married to the 7.5%. It's not something that at the end of the day, we're linked to. This company is all about just obviously continued diversification, organic growth and M&A strategy. When you look at the pace of our M&A, you sort of say we expect to obviously be in market, expect to continue to do acquisitions. And as a result, that's what contributed, I think, to Gord's comment around our ability to be in that 7.5% range. But I would say the number itself isn't driving our activity. It's our strategy that's driving the activity, and it's proved out really well at this point. Gordon Johnston: No, absolutely right, Vito. And Chris, while you're -- if organic growth does slip below that 7% CAGR, there's some great optionality on the acquisition side that we would never rush anything or do anything that we didn't feel was the right thing to do long term in order to hit that 7.5 target. But it's a pretty robust environment right now. So feeling optimistic about some things that could happen there. Chris Murray: Okay. That's helpful. The other question, and I know this is something that we haven't looked at in a while, but Vito, I'll throw it out at you is just getting back into the market and maybe buying back stock again, we haven't really seen that. I know that the multiple has been fairly high, but now it's starting to come maybe back to what I would call a more normal range. Is maybe getting into a regular cadence on the NCIB is something that you guys are maybe more open to? Or is that something that you're just going to stay kind of full bore pressed on M&A as a use of capital? Vito Culmone: Yes. No, I take you back to our capital structure objectives. Obviously, we're going to generate a significant amount of free cash flow. We will continue to do that. Our capital allocation priorities are obviously, first and foremost, funding our internal capital needs, which are fairly modest. Our capital expenditures have been in the area of $100 million on an annual basis. This year, we'll be actually fairly below that. And then obviously, we have a dividend in place. We'll continue to respect that dividend and likely grow it as we have in the last several years. And then the NCIB there and M&A -- and M&A is there. Again, we see an incredible opportunity for this organization going forward with the right acquisitions, a fragmented market to prioritize acquisitions. And that also contributes to organic growth, right? I mean acquisitions are a big part of also across revenue synergies and whatnot to drive inorganic growth. But M&A is lumpy. Like when you're looking at M&A, over the years, you can't sort of predict it. So clearly, we'll continue to use the NCIB. You're absolutely right. We have been muted on share buybacks in the last couple of years, I think, now. But we'll continue to use the NCIB and have it on the shelf as required. And opportunistically, we wouldn't hesitate to get in the market and buy back our shares if required. But M&A is, we think, a really significant value creator for this organization going forward as is our stock buyback program. Operator: And our next question comes from the line of Maxim Sytchev from NBCM. Maxim Sytchev: Gord, maybe the first question for you and just turning back to the U.S. I mean one of the things that we're hearing is that the procurement methodology has changed a little bit from the federal government that is a bit more book-and-burn sort of less visibility, but work is still coming through. Is this also something that perhaps explains that dichotomy between backlog and organic growth, which still remains pretty robust? So just any color you can provide with this, that would be so helpful. Gordon Johnston: Yes. Without question, the overall procurement cycle and process for a number of federal, state and local governments have changed with some of the executive orders that have come from President Trump. And so that was a little bit slowness there the first part of the year. Now we've been awarded a number of projects, and we're just waiting to get them signed. And certainly, the shutdown slowed things down there. So I think as we see, hopefully, folks start to come back and gain to work through the -- they work through the backlog of paper on their desk, we get some things signed and then they'll turn into backlog for us and others in the industry. So I think we're still long-term bullish on the U.S. market there, a lot of good opportunities, and we'll just keep working on it. Maxim Sytchev: Yes, for sure. And then do you mind providing a bit of color in terms of the environmental services organic growth? I mean we're seeing a bit of a slowdown while water is actually accelerating. So do you mind maybe talking about the puts and takes in terms of what explains that divergence as well? Gordon Johnston: Yes, absolutely. So a couple of things there. One is that even more than other groups, our ES group has got a number of large U.S. federal projects that we've been awarded just waiting for signature. So we do see those coming. No question of discussion of cancellation or deferral. We just need to get some signs that we can get them going here early in the early in the new year. So I think longer term, we see both in Canada. Canada, we've got some good projects that are going to be starting up in the near term as well in the U.S., too. So I think we've seen a little bit of a slowness in ES this year or organic growth really quarter-over-quarter has been kind of low single digits. I do think we'll see a bit of an acceleration in that as we move into 2026. Maxim Sytchev: Okay. Super helpful. And then last question, if I may. You called out the German market, which is obviously sort of a recent beachhead for you guys seeing very nice growth. Do you mind maybe talking about what is driving that? I presume some of that is defense, transport, but any incremental color would be more helpful. Gordon Johnston: Yes. So our group in Germany, incredibly well managed with lots of opportunity, particularly since the government took off the debt break there and investing another EUR 500 billion. So some of the work that we're doing now in addition to the typical work that we do, which is roadways and bridges and rail projects. We're working a lot of folks on right now on a big electrical transmission project. And there's a real north-south need for electrical transmission in Germany as well. So -- and that's a market that we've just begun to move into probably over the last 6 to 9 months. So I see a lot of growth there. So in addition to the strength of our existing business, which is growing really, really well. We're absolutely looking for other opportunities to bolt on to the beachhead the foothold that we've got now in Germany and continue to grow it. Good market, predictable well-run companies. So we're looking to look for opportunities to continue to expand. Maxim Sytchev: Okay. And sorry, does that imply sort of inorganic growth as well. That's how we should be interpreting this? Gordon Johnston: Yes. I think we -- certainly was going to see a lot of organic growth, and we're absolutely looking at inorganic opportunities as well. Operator: Our next question comes from the line of Jonathan Goldman from Scotiabank. Jonathan Goldman: If we think back to the commentary on the last call, I think in the U.S., you called out in July, you had seen high single-digit organic growth. I'm just curious how things progress sequentially through August, September, October and November? And if there's been any reversal in the trend because, I guess, with the 4.6% in the quarter, it does seem like it's deteriorated August and September. Vito Culmone: Yes, Jonathan, you're absolutely right. We did call out, obviously, that July number. We ended up where we ended up, which was just under 5% there. So it wasn't a big drop from July. And I wouldn't say there's further deterioration at this point. All the commentary with respect to the U.S., we sort of made it here today. I don't have anything else to add. The only other thing, one small tidbit here, it's not a bigger picture -- piece is -- clearly, as we go into Q4, we have a very significant comp that we're cycling here with Q4 for the year, and U.S. organic was a part of that where I believe we were 10% or so last year or just under 10%. So that's just the reality of what we need to cycle. But overall, no additional commentary in the U.S., as we've mentioned, and we wouldn't say there's actually deteriorating. If anything, over the last little bit, the last few weeks, a month or whatnot, maybe just a bit more buoyancy, quite frankly, and you've seen that reflected in our commentary. Jonathan Goldman: Okay. That's good color. And then I guess maybe switching to the margin guidance. If you take the full year guide and by my math, if you back it out, it looks like you're implying Q4 margins would be down year-on-year, something in the range of 30 to 40 basis points. Clearly, that's not year-to-date trend. And obviously, there's moving pieces. But why would margins be down year-to-date given all the improvements in the business you've undertaken? Vito Culmone: Yes. I don't know that margins are going to be down going into next year. That's not what necessarily what we're predicting. Obviously, you do have we will see the page integration manifest itself fully next year with next quarter with our with our financial integration, you always can have some ups and downs with the financial integration. Again, nothing concerning, but that could impact margins. And the only other thing I'd say is back to that or the consolidated organic growth that we had last year, clearly, depending on where we're at, just cycle in a big quarter, that ends up manifesting itself through a margin back to operational scale and one up. But no, we're very, very pleased with our margins and don't expect any significant pullback in the trends and thematics that we've talked about when it comes to EBITDA margin expansion. Jonathan Goldman: Okay. That's helpful color. And I guess last one. If we're looking at M&A, at this point, I guess, maybe relative to other periods, what would be the main bottleneck at the moment? Is it valuations culture fit, maybe a paucity of attractive targets? And how does the cycle time from identification to closing late now versus other historical periods? Gordon Johnston: Yes, sure. I'll start and then Vito will be able to chime in if you like. But I think, Jonathan, we there's really nothing slowing the process down right now. It's just very robust, a lot of conversations on the go. Cycle times vary from discussion to discussion. Sometimes we work with a client or a company partner with them for 5 or more years before we finally decide, hey, you want to do this? And then because we know each other really well, it can proceed pretty quickly. Other times, there's an established process that can take 3, 4, 6 months. 6 would be an outlier, I would think. But -- so they're really -- they're all over where -- in terms of timing and where we would see them. But certainly, a number of ongoing discussions and both exclusive and through processes that are in play right now. So yes, I think it's just a normal cadence here. And when the time is right, if the stars aligned, we'll be glad to share news with you guys. Vito Culmone: Not much more to add there, Gord. Each one has a life of its own. That's it. Jonathan Goldman: Anything to say on valuations. I think you referenced maybe store organic growth could also translate into a silver lining on valuations. But how have those trended year-to-date versus, I guess, last year or maybe the last couple of years. Vito Culmone: Yes. No major changes on valuation. I mean, obviously, it's sometimes a little bit sector dependent and significant areas of growth in one sector obviously have a higher valuation, which is quite obviously expected and implicit obviously in the valuations of us and our peer groups. So I don't think valuations in any way, shape or form are an issue. We look at these things clearly from a strategic perspective, always above value creation over a reasonable period of time, revenue synergies, the valuation isn't getting in the way at this point for us. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Gord Johnston for any further remarks. Gordon Johnston: Great. Well, thank you, operator, and thanks to everyone for joining us this morning. We're really pleased with our Q3 results. And certainly, if you have any follow-up questions following the call today, please read out to Jess Nieukerk Newkirk, our VP of Investor Relations. So thanks again, and look forward to catching up with everybody in the next little while. Operator: Thank you. Ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 14, 2025. [Operator Instructions]. I will now turn the call over to Bill Jones, Investor Relations. You may proceed. William Jones: Thank you, operator. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Ceci Welch. . As a reminder, today's call and webcast as well as answers to investor questions include forward-looking statements which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect, plan and project and similar words identify and express forward-looking statements. These statements are made based on the beliefs, assumptions and information currently available to management as of today, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of such risks and uncertainties, which affect future performance, please see Risk Factors in the company's annual report, Form 10-K as filed with the SEC. Listeners are cautioned not to place undue reliance on such forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after today's call. And now with that, I'll turn the call over to Mike to begin. Michael DePasquale: Thanks, Bill, and thank you all for joining us today. After my remarks and CC's financial review, we will open up the call to investor questions. From a big picture standpoint, we reported revenue of approximate $1.55 million in Q3 '25, roughly in line with revenue in the first 2 quarters this year, and we reported year-to-date revenue of slightly under $5 million. The roughly $600,000 decrease in both the third quarter and year-to-date revenue in 2025 compared to last year. It is largely due to quarter-to-quarter variability resulting from the timing of some larger customer orders. We had particular strength in last year's third quarter from 2 large orders, one from a long-time banking customer, which was more of a catch-up for expanding their deployment and another one from an ongoing rollout of solutions by a long-time defense industry customer. Both customers are still very, very active. And the defense customer had a $140,000 order after the quarter closed in October that we really expected to get in the third quarter rolled over to the fourth quarter. And we continue -- and we expect continuing deployments in orders even this quarter and beyond. In addition, we expect our large banking customer to renew their contract, their subscription contract in early 2026 on their steadily expanding deployment of our solution. The customer has over 29 million users enrolled in our solution with the potential for meaningful future additions. They made a major expanded investment in our solutions in 2023 and 2024, including a $900,000 upgrade to our fingerprint only biometric customer identification technology. And this option or solution allows them to identify clients with just a single fingerprint scan eliminating the need for any other identifiers, including a card or an ID number. And that, in essence, is saving them approximately 30 seconds per transaction, which time is money, which is meaningful for them. Their current annual license fee is now over $1 million scheduled for renewal in early 2026. And whether they choose a 1- or a 2-year contract, we expect that we'll see $1 million to $3 million in business and renewal in the first quarter. Across the board, and this is general within our business, we enjoy very high renewal rates in excess of 90%, meaning our churn rate is in the single digits. The lumpiness that we see in our quarter revenues is more of a function of timing of renewals, new deployments, our large customer expansions, and there can also be true-ups for additional software licenses. Q3 is generally a seasonally slower period for us, particularly in Europe due to the summer holiday period. But we expect to close out the year very strong as we advance our channel sales efforts in the broader Europe, Middle East and Africa regions, where we are now focused solely on BIO-key branded solutions. Additionally, we're in the final stages of developing new marketing messaging for our website and our business development. This messaging and collateral should be implemented during the fourth quarter to get us well positioned for the start of the new year. To support this project, we engaged an external marketing firm earlier in the year to work with us on our new website content and targeted marketing strategies. We're finalizing a major website overhaul, focused on improving again the content, the navigation with a plan released prior to the Gartner IAM Conference, which is held mid-December. We also plan to release a significant update to our PortalGuard identity platform. PortalGuard operates as a single MFA, multifactor authentication user experience providing a broad set of 17 factors of authentication, including, of course, our identity-bound biometric options to meet virtually any use case. Version 7, which is the new version represents our most significant update ever. It features major platform modernization, enhanced configurability with improved deployment capabilities. Development is expected to conclude within the coming weeks, after which we'll undergo rigorous internal and third-party security testing. The time line for general availability is late Q1 or early Q2 in 2026. Also in Q3, we introduced our new FBI FAP 20 certified EcoID III fingerprint scanner, which is aimed primarily for the regulated industries. Although BIO-key is primarily a software company, providing a total solution, including state-of-the-art hardware is essential in supporting our annual recovering revenue software model. The EcoID III reader pairs encrypted device to host communications with liveness detection for faster, more secure authentication. We've delivered initial volume EcoID III orders for defense and government customers in Q3. We also expect government-related and highly regulated industries like financial services, higher education and health care to gravitate towards our new reader. Our PortalGuard platform, our IDaaS, Passkey:YOU solution, all pair very, very nicely with the new EcoID III fingerprint sensor. As I mentioned on our call last quarter, we launched our cyber defense initiative in response to increased global defense spending, particularly in Europe and the Middle East, and our success with some significant high-profile deployments in these markets. Incorporated in these rising defense budgets is a significant emphasis on cyber resiliency and security as a priority. Today, two of the top four largest global defense agencies by spending are using BIO-key technology to secure all of their critical information. We are well positioned to capitalize on these growing defense budgets and spending and are advancing a growing pipeline of opportunities based on the deployment of our solutions by some of the most respected military security and defense ministries and agencies. Supporting this initiative, we are adding select resources to engage with contractors who will help us expand our market reach. We expect to see a growing base of new contract activity from these efforts, building on deployments this quarter and beyond. A primary factor in defense industry deployments is our ability to support critical infrastructure and access to sensitive environments with advanced biometrics and our multifactor authentication technologies without reliance on mobile devices or hardware tokens. Biometric authentication is better suited than these engagements given its enhanced security, accuracy, convenience and ability to better prevent fraud and unauthorized access compared to traditional methods. Biometrics minimize false positives and improve the precision of access control. In addition, uniquely tying individuals to actions and access events, aids in monitoring traceability and insider threat management or improved accountability and audit trails. Streamlining access processes also reduces time spent on logins and boost productivity for defense personnel while maintaining strict security. For defense agencies managing highly sensitive data and infrastructure, we believe biometrics are growing as a preferred choice over traditional methods alone. And our references in that space gives us a unique competitive advantage. We are gaining momentum, as I just described in the defense sector as well as in banking, government, higher education as the rising incidence of security incidents highlight potential cybersecurity vulnerabilities. In addition, growing regulatory requirements and increasingly stringent cyber insurance underwriting standards requiring MFA adoption helped create opportunities for our superior biometrics and portable authentication options. We are excited about the growth prospects into next year. And though given our size, and as I just described, the variability of our business, our business may continue to fluctuate on a quarterly basis based on the timing of larger orders. But as we work to build the business, we'll continue to keep a sharp focus as well on our cost structure, seeking to reduce our breakeven levels and support our goal of positive cash flow and profitability. Ceci will walk through the numbers but let me highlight that we have been able to reduce our operating expenses by over 10% through the first 9 months of 2025, while at the same time, expanding our global reach and suite of solutions. Finally, as far as funding our runway to profitability after the close of the third quarter, we were able to raise approximately $3 million net of fees and related expenses through a warrant exercise transaction priced at $1.02 per share. This funding significantly expands our cash liquidity, puts us in a stronger position to pursue growth. And as we expect, they close a strong close to 2025, we are in a very, very good position from a financial perspective to be able to grow our business and actually overachieve our objectives coming into the new year. With that, let me turn the call over to Ceci to review the financials, and then we'll take questions. Cecilia Welch: Thank you, Mike. We released our results this morning, and we plan to file our 10-Q later today. Let me walk through some of our highlights. Our Q3 '25 revenue was $1.5 million versus $2.1 million in Q3, down approximately $595,000 year-over-year, principally due to the large orders Mike referenced in Q3 2024 that we did not have in this quarter. Those orders accounted for approximately $665,000 of year-over-year difference, offset by some new orders. As a result, our license fee revenue was $918,000 in Q3 '25 versus $1.4 million in Q3 '24. Service revenue increased slightly to $268,000 in Q3 '25 versus $267,000 in Q3 '24 as growth of recurring service revenue more than offset the decline in customer service revenue, supporting large customer upgrades in Q3 '24. . Hardware sales declined to approximately $364,000 in Q3 '25 from $436,000 in Q3 '24 due to the timing hardware shipments in support of ongoing customer rollouts. Partially offsetting the timing difference was the sale of fully reserved inventory in Q3 '25. And now we have approximately $2.8 million remaining in fully reserved inventory for which we have several potential customers. Q3 '25 gross margin remained strong at 77% compared to 78% in Q3 '24 as the absence of third-party license software offset a lower portion of our license revenue. BIO-key may further inroads in trimming operating expenses, which decreased 8% to $2.1 million in Q3 '25 versus $2.3 million in Q3 '24. This reflects a 13% or $208,000 decrease in SG&A expense, offset by a 5% or $31,000 increase in research, development and engineering expenses required to support the generation product introduction, including the EcoID III and our forthcoming PortalGuard upgrade. Reflecting lower revenues tempered by lower operating expenses, BIO-key Q3 '25 net loss was $965,000 or $0.15 per share as compared to $739,000 or $0.39 per share in Q3 '24. For the first 9 months of 2025, our net loss was $2.9 million or $0.50 per share as compared to a net loss of $2.9 million or $1.69 per share a year ago. Per share amounts were based on 6.6 million and 1.9 million weighted average shares outstanding in Q3 '25 and Q3 '24, respectively, and 5.8 million and 1.7 million for the first 9 months of 2025, respectively. Reflecting shares issued for warrant exercises and other finance-related activities. As of September 30, BIO-key had current assets of $3.7 million, including $2 million in cash compared with 2024 year-end current assets of $1.9 million and $438,000 in cash. Accounts receivable and different factor increased 21% to $959,000 at September 30, 2025 from $792,000 at year-end 2024. BIO-key also secured gross proceeds of $1 million for working capital and to support ongoing operations with the September 30 issuance of a senior secured promissory note. As Mike mentioned, subsequent to the close of the third quarter, we generated net proceeds of $2.9 million from the exercise of warrant agreements to purchase BIO-key shares at an exercise price of $1.02. Accordingly, the cash proceeds of the financing were not reflected in our Q3 balance sheet, '25. And with that, all of you, operator, let's proceed with the question-and-answer session. Operator: [Operator Instructions] And your first question comes from [ Dan Khamis ], a private investor. Unknown Attendee: Well, it's been about 10 months, I think, since you announced the Bank of Egypt win, was that a recurring revenue deal? Or were the permanent licenses? And are you expecting similar revenue from that client customer in 2026? . Michael DePasquale: Absolutely. Yes, the answer to that question is that was an initial deployment that we announced just about a year, give or take, 10 months ago. And we are expecting an expanded deployment and that may even happen here in the fourth quarter. So the answer to that question is, yes, that is a growing. deployment. . Unknown Attendee: I see. And a follow-up on that is, since you partnered, I think, with Raya on that, does that mean your margins are lower on that project? . Michael DePasquale: Not at all. Our gross margins on software are 90-plus percent, and so they remain 90-plus percent from a gross perspective. I'll make a comment about partners just as kind of an aside. You may have noticed over the last month or so, we've made a number of announcements with partner companies that are bringing us into local markets throughout the Middle East, in Africa and in Europe, and you're going to see even more coming in the near term. That's a force multiplier. These are very significant. If you read these press releases that we've made, these are significant players who have significant resource in the local markets and have influence in particular industries, some in government, some in banking, health care and so forth. And what you get there is you get local cultural support, you can influence, and given that 90-plus percent of business in EMEA, in general, that's Europe, Middle East, Africa comes through partners. This growing base in our -- what we call our CAP Program, right, Channel Alliance Program is going to pay significant dividends for us as we proceed forward. And every one of these partners that we've signed like Raya comes with a deal, right, historically, right? Partners get signed and then you go out kind of license to hunt, try to find an opportunity. What's happening here, particularly again in EMEA, is that we're signing these partners because they have a deal. We've already been working with them and they want to go out and represent what they perceive to be the most unique and capable identity and access management, biometrically enabled platform that's available. And you can see, again, based on all those announcements that we're getting, we're making very, very good progress. Unknown Attendee: Yes, that's helpful. Just on the Bank of Egypt still, the first step was to handle the NBE employees, right, and then move on to B2B and B2C. Are we looking at non-employee expansion as a, say, 2027 target? Michael DePasquale: Well, I think 2 things. Number one, the initial deployment was I believe, in the range of 20-or-so thousand users, and that was not the full employee base. So there is still an expansion in the existing enterprise employee base. And the answer to the second question, which you see what we call CIAM, Customer Identity and Access Management, the answer to that is, yes, there is definitely an opportunity to take this to customers. Similar in nature to what we do with Capitec Bank in South Africa, where they're utilizing our biometric technology not only internally for employee and employee access, but for customer access. . Unknown Attendee: Okay. So -- but is that 2027? Is that by any chance next year? Michael DePasquale: I think all of this is on the table for some -- again, the employee expansion is on the table for this year. And I believe in 2026, they'll begin looking at the CIAM deployment. Unknown Attendee: On the defense side, I think in the second quarter CC, you mentioned iterating to multimillion dollars with your largest defense ministry. Last week, you announced one of the largest Middle East sector deployments in the region. With another unnamed defense organization. Is this contract on the same scale as this longer-term defense ministry? Michael DePasquale: It's even bigger. It has bigger potential. So the answer is yes, they're very large. Most of these defense ministry opportunities, depending upon the size of the country are large opportunities. And they have a really good expansion potential because usually, you're starting with a base population so that they can get going and then they're expanding out to additional users and enrolling additional users. So these are large deals, and they have a really long tail, and they're very sticky, meaning once you get involved, they do a lot of betting they look at a lot of different options. But once you get involved, you're there for a significant period of time. Unknown Attendee: Sounds really good. With all these bank and defense wins, do you have any kind of feel for what your current ARR is, the recurring revenue? Michael DePasquale: Our ARR is growing. I would say we certainly are in the because you have to back out when you look at our total number includes hardware and software. But I think our ARR base, including renewals on our traditional contracts, right, the traditional PortalGuard business that we purchased probably are in the $6 million to $7 million range right now. And our churn, as I mentioned in my prepared remarks, is in the single-digit range as well. So I would say that's a good number. . Unknown Attendee: Yes, that's a remarkable churn. Your Echo III ID or EcoID III release said the price point, high-quality scanners was significantly reduced. Is the price lowered relative to EcoID II? Or does this third version compete with a different quality of scanner? Michael DePasquale: Definitely competes with a higher-quality device. We sell to, what I call, FBI-certified PIV-certified readers. One is called the PIVPro, which we've been selling for many, many years. That's a very high-quality optical device, glass platinum. The EcoID III competes with that device at a lower price point. So it's $49.99, list price quantity 1 versus the PivPro, which is in the high 60s, low 70s. That's number one. Number two, the new EcoID III is much higher quality and carries liveness detection and full encryption on device. The EcoID II did not have that capability. So the EcoID II was priced a little bit lower at $44.99, but it didn't have encryption and it did not have liveness detection innate in the device like the EcoID III does. We sold, I guess, initial order is about 7,500, a little under 10,000 units to one of our defense customers out of the gate as soon as we were able to deliver the product in Q3. Unknown Attendee: Okay. It's been a year about since you received the boomerang stock. I assume the 9-month put period is over and you didn't return the stock. Is there any update on the value of that asset now? Michael DePasquale: I think we'll be looking at that as we do our audit for calendar 2025, fiscal 2025. But I know they've made a number of small acquisitions and I know they're involved in some strategic scenarios, nothing that I can speak to, but it appears that, that value is certainly intact. . Unknown Attendee: One more question, I guess, for this round here. I think your -- have you done any research into -- well, I mean the stock is trading anywhere from 1x to 100x the flow for the last 3 weeks, any research you've done to figure out what's driving that kind of action? . Michael DePasquale: It's a tough question to answer. First, I think announcements typically drive volume, right? And so we've seen significant volume in the stock on some of the announcements we've made. Why our stock would trade 450 million shares on 1 single day and turn $400 million in trade value is it's almost cereal, and I don't have a particular answer for that. I think there's a lot of interest in our space. There's an awful lot of interest in security. And in particular, we have a very unique offering in a very strong niche in defense and banking, and we have great references. So if you look at where we are today from a market capitalization perspective, if you look at the numbers, we're very undervalued. . And so perhaps there's interest in investing and taking a position in a potential company that has a lot of upside. But those are only theories and I can't really say and understand at any level why we see those days with that kind of volume. Unknown Attendee: Okay. Is there anybody else in the queue right now? Michael DePasquale: Operator? Operator: Yes. We do have another questioner in. Unknown Attendee: Okay. I'll get off then. Operator: And your next question comes from Jack Vander Aarde are with Maxim Group. . Jack Vander Aarde: Mike, I'm juggling a few conference calls this morning, so I had to join this call a little late. So I apologize if I'm being redundant, the guidance, this is something new that popped up. And so I just want to know what kind of led to your decision process to feel confident enough to install a formal guidance parameters. And then can we expect formal guidance framework for 2026 on the next earnings call? . Michael DePasquale: Thanks, Jack. First of all, I appreciate you're pretty busy today. Yes, we're pretty confident in our position right now. I think, again, you've seen the announcements. You've seen that we're starting to see the results of the investments we've made, in particular, in this, I described partner network that we've been building. So we have more confidence because typically, these deals are RFP or they're very large opportunities that are being worked and their competitive. And you'll know a couple 3 months before you get the contract signed that you actually won the order and won the business. So the pipeline now is pretty solid, and we feel good about that. So that's the reason behind that. . I'd love to be able to give guidance and as we get more predictable, we'll do that. But look at this quarter, look at the third quarter. Quite frankly, we expected at least $200,000, $250,000 more in business that didn't materialize not because the business went away, but just because of the timing, one of our customers, one of our defense customers had to change budgets. And so it caused 1.5 weeks delay in processing the order. That's an order we expected in the third quarter, wound up falling to the early part of October. Nothing to do with the business or the efficacy of that contract just timing. So that's what makes it difficult for us, Jack. And I hope that we'll be more predictable in the beginning part of the year, we'll be able to do that. . Jack Vander Aarde: Okay. Great. Two more questions there, Mike. I guess the first one was, I recall, a large renewal that was coming up, I think, in 1Q, '26. Is this still on track? And is that the case? . Michael DePasquale: Yes. . Jack Vander Aarde: Okay. Great. And then just, obviously, there's -- we just had the longest government -- U.S. government shutdown in history, had that -- does that have any impact on your business in the fourth quarter? Or just any of the growth initiatives or just anything operationally did that have an impact? . Michael DePasquale: Not at all. Not at all. We didn't see any impact at all. Typically, we're flying way above that in the context of security. And so it's kind of a mandate. And we've never really seen any of that impact anything that we do. Just doesn't...... Jack Vander Aarde: And then can you just touch on maybe as you look at 2026 outside of the large renewal in 1Q '26. Are there any other major upcoming renewals throughout the year that I should be aware of? And then also any expansion opportunities that you see coming up throughout the year? Michael DePasquale: Well, I think there's a lot of that on all sites. In particular, again, our pipeline of new deals, new opportunities that are spawning as a result of our footprint growing in both defense and banking, in health care. So you're going to see a lot more happen over the coming over the coming months and coming quarters. You're going to see renewals from, again, that large banking and finance contract that we've had, we've had for years and continues to grow and expand. And you're going to see expansions like we discussed in the last question period with customers like the National Bank of Egypt and others that are continuing to expand their existing deployments, right? Not only for employees or internal use, but also ultimately out to customers. So I think there's an awful lot of that on the horizon. And I go back to the point that I was trying to make with Dan, and that is the expanding partner network is a force multiplier for our company. That is going to have a huge impact in our ability to double and triple our business in the coming quarters and the coming years. Jack Vander Aarde: Great. Maybe just one more follow-up. Speaking to your channel partners, can you just give us an update on all the various channel programs you do have. The Channel Alliance Program, I recall, was a major growth area, a couple of years ago, and I just haven't gotten a clear update on that. What's the status of the Channel Alliance Program and some of your other partnerships? . Michael DePasquale: Yes. Well, again, in Channel Alliance Program, you've seen a number of announcements we've made just recently. I won't repeat that. But those are all partners that are part of the Channel Alliance Program that we have. We have distributors. We have MSPs, what we call, managed service providers. We have MSSPs, managed service security providers, right, or managed security service providers. We have resellers. So there's various components within the CAP Program for different types of partners that service end user customers. And that is just continuing to grow. But more importantly, it's not quantity, it's quality. What you want are significant players who have a cultural and a local expertise who deliver services to large companies, mostly large companies and do it over a period of time where they have credibility. And when they come in and recommend the solution, the customer takes a look at it. So that's what we're driving. We're not trying to drive quantity anymore. We're trying to drive quality. Jack Vander Aarde: Yes. No, I'm happy you said that. And I think just another part of that though is, are they -- are any of your channel -- are your Channel Alliance Partners, or is there a portion of them that are exclusively reselling and pushing BIO-key? Are they also servicing other or providing other vendors support as well. How does that kind of, I guess, break out within the Channel Alliance Program? . Michael DePasquale: Yes, that's a great question. We do have some partners that exclusively sell the BIO-key IAM solution. But most of these players sell all the core broad software like Microsoft and Oracle, and you name it, and all of the network security, Cisco and so forth. They typically provide all of that to an end-user customer and the security piece is one component of their overall solution or service for that client. So it really depends. But as it relates to security, we have some that exclusively sell BIO-key and some that sell other solutions as well. But remember, our unique competitive advantage, and I don't care if you look at Okta, SailPoint, Ping, ForgeRock, it doesn't really matter. We have the biometric component that they don't natively have. So that's our differentiator. So even if we're not exclusive, we tend to be exclusive because they don't have what we have. Jack Vander Aarde: Got it. Great. And then I guess I'll ask one more. And Ceci, maybe this is a question for you as well. Just the margins were really strong again for the licensing revenue, which is great to see. I think that's helping the breakeven case. I look at the operating expenses and you guys have done a good job of keeping those tamed. Going forward, do I expect any changes in the operating expenses? Or is this -- are there any further cost savings? Just curious because it does seem like you're tracking towards that breakeven number on maybe even a smaller base of revenue because of those strong margins. Cecilia Welch: Yes, we are just analyzing everything. So it's just something that every quarter people are looking to spend on this, that and the other thing. And we're just trying to make good decisions on those types of things. As we said in the past, we've lowered all of our rents for all of our places. We're just doing what we can. And so we will continue to do that, just keep our eyes on the prize, so to speak. Jack Vander Aarde: Great. And Mike, do you echo those comments, though, just in terms of do you see profitability breakeven on the horizon? Michael DePasquale: Absolutely. No question in my mind. I do see it. I think it's a combination of things. It's, again, the pipeline. It's some of the larger renewals. It's also us managing and scaling around our existing resource pool, which, again, with the CAP Program gives us the ability to do that, right? Typically level 1 and level 2 support for these customers comes from the partner, right? We're there as a backup. This business scales very, very nicely with the model that we built. And even on the hardware side, the hardware that we sell, we get really good margins. We don't do anything without a 50% plus margin, even on the hardware side. Blended, we're in that 70%,80% range, and we think we can stay there. Operator: And your next question is a follow-up from Dan Khamis. Unknown Attendee: So it looks like your revenues are going to be flat or down year-over-year. The very good news, of course, is that the expenses have come down. But in terms of revenue, have you isolated the basic reason for flatness? Was it the loss of swivel revenue? Or what caused it to be flat, I guess, is my question. Michael DePasquale: Definitely, the transition from third-party to BIO-key product that took a little while to get productive. We're productive now. So I think you're going to see actually far better results. That's number one. And I think number two is we had an anomaly last year with our banking customer having to catch up. And so in particular, in the third quarter, we had over $0.5 million in revenue that was not recurring. It was pretty much a onetime shock. So I think that's it. I mean there is nothing here in this business other than timing that I am concerned about right now. I think we're in a really, really good position. We're lowering our breakeven point. We're growing our partner network, which again is a force multiplier to get more deals and more business. And we're operating in a market that has just insatiable demand. I mean, defense banking, huge market opportunities for advanced security. And we've got the solutions, and we've got the references and the quals to be able to solve those issues. And it goes back to what we call zero trust, but more importantly, it goes back to no phone, no token and fundamentally utilizing a passwordless solution that can be used across the enterprise because, again, our focus is enterprise right now. But we're blending and moving the CIAM. And I just think we've invested very, very heavily over the last 4 years in R&D, in sales and in marketing and expanding our footprint globally, especially now in the Middle East. You're going to see more of an expansion coming in the Asian markets. Stay tuned for that. That's going to have a huge impact on us. Unknown Attendee: Okay. Just as a final thought, I think with the $3 million in cash, you're probably still at about 1x book value. I know you and Jim have been doing some buying in the second and third quarters, maybe about $25,000 worth. I would just like to hear your take on why you think BKY is the best investment for that $25,000. Cecilia Welch: I think we're fundamentally undervalued, look at us, take any multiple, take any comp. And I think, again, we're just we've been traditionally undervalued. We've done a lot of financing. So I want to be brutally honest, right? I understand that, that created overhang, and it creates sometimes investor trepidation. There's no doubt or debate about it. But I felt, we felt, keeping the company alive with the notorious base installed base of customers we have. We're in a really good position. And I think we are we're not grabbing the value that we deserve. And I think you're going to see that unlocked in the near term in the future. Operator: Showing no further questions. This concludes the question-and-answer session. I'll ask Mike DePasquale to provide closing remarks. . Michael DePasquale: Thank you, and thank you again for joining our call today. We greatly appreciate your interest in investment in BIO-key and look forward to updating you on our progress. If you have any questions, please reach out to our IR team via phone or e-mail, and they will be very responsive. Their contact information is in today's release -- our earnings release. With that, operator, this will conclude the call. Thank you, everyone, and have a terrific weekend. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Scholar Rock's Third Quarter 2025 Conference Call. [Operator Instructions] This call is being recorded on Friday, November 14, 2025. I would now like to turn the conference over to Scholar Rock. Please go ahead. Laura Ekas: Good morning. I'm Laura Ekas, Vice President of Investor Relations at Scholar Rock. With me today are David Hallal, Chairman and Chief Executive Officer; Akshay Vaishnaw, President of R&D; Keith Woods, Chief Operating Officer; and Vikas Sinha, Chief Financial Officer. For those of you participating via conference call, the accompanying slides can be accessed in the Events section on the Investors page of our website. During today's call is outlined on Slide 2, David will provide introductory remarks and a business update. Akshay will review our R&D progress. Keith will provide an update on our commercial readiness activities and Vikas will provide a financial update. We will then open the call for questions. Before we begin, I'd like to remind you that during this call, we will be making various statements about Scholar Rock's expectations, plans and prospects that constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any future date. I encourage you to go to the Investors & Media section of our website for our most up-to-date SEC statements and filings. With that, I'd like to turn the call over to David. David? David Hallal: Thank you, Laura, and good morning. Thanks to everyone for joining our third quarter earnings call today. In April, when I was appointed CEO after 8 years in the Board Chairman role, and on the same day, we brought in Akshay, Keith and Vikas, we were confident that Scholar Rock was positioned to be the next great global biotech powerhouse. We based this on several factors. First, our conviction that the global opportunity with apitegromab in SMA alone offers the potential for many years of sustainable growth that will power our company through the end of this decade and into the next. Second, as world leaders in myostatin biology, our ability to deliver transformative therapies to patients suffering with additional rare, severe and debilitating neuromuscular disorders. And third, leveraging our innovative platform to advance our novel subcutaneously administered myostatin inhibitor, SRK-439. When we joined Scholar Rock, the most significant milestone ahead was the September 22 PDUFA date for apitegromab in SMA, which had been granted priority review. Our BLA was supported by robust data demonstrating apitegromab's efficacy and safety for children and adults living with SMA. Based upon our 188-patient prospective randomized, double-blind, placebo-controlled multinational Phase III trial. This trial showed a statistically significant and clinically meaningful benefit in motor function as measured by the Gold Standard Hammersmith Motor Function Scale for SMA. While we were disappointed to receive a complete response letter on September 22, we were pleased that the strength of our Phase III data was reflected in the FDA's review of our BLA and that the sole approvability issue referenced in the CRL was the status of our third-party fill/finish facility in Bloomington, Indiana, which is owned by Novo Nordisk. We know that it is not a matter of if but when apitegromab will be approved in the U.S. for patients living with SMA. We are emboldened by the commitment we have made to the more than 35,000 patients globally living with SMA who have received an SMN-targeted therapy. We are working expeditiously to deliver on our ambition that globally any patient with SMA who can benefit from apitegromab should have access to apitegromab. And now more than ever, we are confident in the significant opportunity that we have ahead of us to serve the SMA community as we work with the termination to bring this important medicine to children and adults with SMA. This is indeed what we know well and what we do well. I would like to now provide a regulatory update on apitegromab. We had our Type A meeting with the FDA on Wednesday. We are grateful to the agency for their full participation, particularly in the context of a government shutdown. The meeting was in person and included the relevant leaders and decision-makers from the agency, including the neurology division and the Office of Compliance. Our team was joined by Kenneth Hobby, President of Cure SMA and representatives from Novo Nordisk. We were encouraged by the meeting. It was constructive and collaborative. It was clear that there is a shared understanding of the high unmet need for the SMA community and a shared sense of urgency to bring apitegromab to children and adults with this disease. Novo Nordisk detailed the progress they have made in implementing their remediation plan at the Bloomington facility and affirmed that they expect the facility to be ready for reinspection by the end of this year. We discussed the path forward and await the final minutes of the meeting. We will continue to work closely with the FDA and anticipate resubmitting the BLA and U.S. launch following approval of apitegromab for children and adults with SMA in 2026. I'd like to now turn to adding redundancy to our supply chain. When Novo Nordisk purchased the Bloomington site in December of 2024, they plan to internalize the plant for their own products. In light of that, Scholar Rock implemented a plan to add an additional U.S.-based fill/finish facility. Now with the OAI classification, Scholar Rock has accelerated our timelines for an additional vialer. We have selected a world-class commercial facility that has a proven track record and has successfully completed recent site inspections, including with the FDA and EMA. As you know, one of the bottlenecks to rapidly adding a new vialer is securing commercial capacity. This can be a lengthy process. Importantly, we have secured commercial capacity commencing in the first quarter of 2026, and tech transfer is now underway. We anticipate submitting an sBLA for this facility later in 2026. In summary, we will continue to work with urgency to bring this important medicine to the SMA community. We look forward to providing clarity on resubmission timelines as soon as we are able. In addition to the large opportunity we have to serve children and adults with SMA, we continue to strategically advance our pipeline. This includes the Phase II OPAL study progressing apitegromab in a second rare debilitating neuromuscular disorder as well as advancing SRK-439 into the clinic. Akshay will provide additional detail on these activities shortly. Importantly, to reach our ambitions, I am pleased to opportunistically strengthened our balance sheet during the third quarter, and we continue to operate with a tight financial plan. which Vikas will discuss later in the call. This plan is aligned to thoughtful strategic investments to drive long-term value creation. We remain confident in the strength of our strategy, the grid of our team and the transformative potential of apitegromab and our pipeline. The regulatory challenges we face today are temporary, but the opportunities ahead to serve patients are extraordinary. With that, I'll turn the call over to Akshay to provide more detailed update on our R&D progress. Akshay? Akshay Vaishnaw: Thank you, David, and good morning, everybody. As David noted, we continue to work with urgency to bring apitegromab to children and adults with SMA as quickly as possible. SMA is a rare severe neuromuscular disease resulting in irreversible loss of motor neuron and progressive muscle wasting that diminishes the independence of both children and adults. Apitegromab has the potential to reverse the trajectory of SMA from a loss of motor function to a gain of motor function as demonstrated in the Phase III SAPPHIRE study, underscoring the importance of the potential benefit of this therapeutic. I'd now like to turn to Wednesday's Type A meeting. I was pleased to lead our team at that meeting in Bethesda. As David said, the meeting was in person and included the relevant leaders and decision-makers from the agency, including the neurology division and the Office of Compliance. Our team was joined by Kenneth Hobby, President of Cure SMA and representatives from Novo Nordisk. The meeting was constructive and collaborative. We reviewed the comprehensive data from apitegromab development program, including the Phase II TOPAZ study, which demonstrated that delayed treatment results in suboptimal motor function outcomes. These data underscore the impact of delayed treatment and the urgency to make apitegromab available to the SMA community. At the Type A meeting, it was clear that the CRL we received on September 22 was based solely on the need of the Bloomington facility to be in compliance with CGMP or Current Good Manufacturing Practice regulations. During the meeting, Novo Nordisk, detailed the progress they have made in implementing a robust remediation plan at the Bloomington facility. Novo Nordisk also shared with the FDA that it expects the facility to be ready for the inspection by the end of the year. We remain in close coordination with Novo Nordisk as we await the minutes from the Type A meeting. After Novo's completion of remediation of the Bloomington facility and a site reinspection by the FDA, we anticipate recommission of the BLA and U.S. launch following approval of apitegromab in 2026. As part of our long-term growth plans to serve patients around the world with apitegromab we're also accelerating timelines to bring a second fill/finish facility online. This process requires rigorous validation and regulatory approval to ensure the same quality, safety and efficacy of the drug product. Importantly, we have secured commercial capacity commencing in the first quarter of 2026 and anticipate submitting an sBLA for the second facility later in 2026. Outside of the U.S., we continue to expect a decision from the EMA on our apitegromab Marketing Authorization Application, or MAA, near the middle of next year. Further to our commitment to a broad SMA community, we announced today that we've initiated dosing in our Phase II OPAL trial evaluating apitegromab in infants and toddlers under the age of 2. The trial is enrolling participants who have been treated with an SMN1 targeted gene therapy or who are receiving treatment with an approved SMN2 targeted therapy. It is designed to investigate 2 different doses of apitegromab for a duration of 48 weeks and will assess PK/PD, efficacy and safety. In the OPAL study, early intervention with apitegromab could support muscle during the critical early development phase, complementing SMN targeted therapies that aim to preserve motor neurons. By promoting muscle growth when motor neurons and muscles are still forming, apitegromab has a unique opportunity to improve motor outcomes in young children with SMA. Beyond SMA, we're on track to initiate clinical development activities for apitegromab in a second neuromuscular disorder by year-end. We plan to provide additional information on the disease and the clinical development strategy in early 2026. And finally, we continue to advance our world-leading Anti-myostatin Platform beyond apitegromab. The FDA has cleared the IND for SRK-439, and we're on track to initiate a Phase I study in healthy volunteers before the end of this year. This program is built on the validated approach that delivered apitegromab. Specifically, 439 was designed to be an innovative, subcutaneously administered myostatin inhibitor binding to both pro and latent myostatin with high affinity and selectivity. Based on preclinical data, 439 has the potential to potently inhibit myostatin and increase muscle mass. We expect to have data from the SAD portion of the Phase I study in 2026. In summary, our focus remains on bringing apitegromab to patients and investing with financial discipline to deliver on the promise of our broader pipeline. The strength of our data and the momentum across our programs gives us confidence in the impact we can deliver. Now at this point, I'll turn the call over to Keith to discuss our commercial launch strategy and planning. Keith? R. Keith Woods: Thanks, Akshay. The SMA community is demanding more. Even with currently available treatments, they need a treatment that directly addresses progressive muscle wasting. Apitegromab demonstrated that ability in our Phase III SAPPHIRE study, and we will be ready to deliver apitegromab to the SMA community upon approval. This is not a matter of if, but when. Our understanding for the demand of apitegromab and our confidence in its potential to address the unmet need for children and adults with SMA continues to strengthen. As we look at SMA globally, nearly a decade following the launch of the first SMN-targeted therapy, the demand for treatment continues to grow. After the first 3 quarters of 2025, annual revenue for current SMA treatments are trending to approximately $5 billion globally with the continued growth of SMN targeted therapies, the need for the world's first muscle-targeted therapy is greater than it has ever been before. Our small, lean and highly experienced U.S. customer-facing team is active in the field and we are using this additional time to enhance our engagement activities and to strengthen our performance against key prelaunch readiness metrics. As a reminder, we are just under 4 months in to our pre-commercial field deployment, whereas most biotech companies typically benefit from a longer runway prior to approval. Nationwide, there are approximately 140 SMA treatment centers and more than 2,600 SMA prescribing physicians. With this additional time, we are working to both broaden and deepen our engagement with these potential prescribing physicians. However, an SMA patient is not just treated by one of these physicians but by a broader cross-specialty SMA treatment team. This team can include physical therapy, pulmonology, orthopedics and more. This additional time is enabling us to better understand the patient journey and the roles of the SMA treatment team in each of these 140 treatment centers and how they influence patient care. Additionally, our market access team is expanding their focus beyond that of national payers to also include top regional payers. This builds on our ambition that any patient with SMA who can benefit from apitegromab should have access to apitegromab. Furthermore, our unwavering commitment to the SMA patient community continues by a partnership at a local and national events and to educate on the importance of targeting muscle. We are deepening our collaboration with the advocacy groups, and we are also building lasting relationships, 1 patient, 1 caregiver, 1 family at a time. In Europe, our efforts continue to drive SMA education and awareness, laying the groundwork to ensure we reach patients efficiently across key markets. Our opportunity to serve patients around the world in SMA is significant. There are an estimated 35,000 people with SMA who have received an SMN-targeted therapy and who could be eligible for treatment with apitegromab. We are making strategic disciplined investments in our launch infrastructure, and we will be ready to execute rapidly once apitegromab is approved. In short, we are ready the strategy is clear. The team is in place and our commitment to the SMA community has never been stronger. Now I will turn the call over to Vikas. Vikas? Vikas Sinha: Thank you, Keith. Our overarching objectives are to fund our R&D activities to expand our leadership in the myostatin and muscle space to support a strong commercial launch and to extend our runway to meet our eventual timelines for apitegromab approval. In line with these objectives, I'm pleased to provide our third quarter financial results and to discuss our approach to managing our cash runway and investment prioritization moving forward. Turning first to our third quarter results. We ended the third quarter with $369.6 million in cash and cash equivalents. For the quarter, we reported $103 million in operating expenses which includes $18.3 million in noncash stock-based compensation. Excluding stock-based compensation, operating expenses were $85.3 million, which reflects ongoing investments in infrastructure to support apitegromab regulatory approval, commercial readiness and our clinical pipeline. During the third quarter, we strengthened our balance sheet, adding $141.7 million. This cash came from 2 sources. First, we executed our ATM and sold approximately 2.8 million shares, which resulted in net proceeds of $91.7 million. And second, we drew down $50 million from our existing debt facility. As we await apitegromab approval, we continue to operate with a tight financial plan focused on thoughtful capital allocation to advance our clinical pipeline and strategic investments to support commercial readiness. Accordingly, we have adjusted our go-forward operating plan. We have deferred investments across a number of areas, including new hiring, launch expenses that are gated to approval, certain R&D activities, including a third indication for apitegromab and other discretionary spend. Now I'll turn to the 6 prioritized investments we are making. The acceleration of a second fill/finish facility for apitegromab, SMA commercial launch readiness, ONYX apitegromab extension study, the Phase II OPAL study, the second indication for apitegromab and the commencement of SRK-439's clinical development. Turning to our balance sheet. Our current cash balance is $369.6 million, which we expect to be augmented by approximately $60 million in cash from the exercise of outstanding common warrants by year-end. With this, we expect our cash to be sufficient to fund operations into 2027. This cash runway has conservative assumptions and does not reflect any upside from potential sale of apitegromab or a priority review voucher. To further strengthen our balance sheet, we intend to expand our credit facility while preserving our non-dilutive financing options. We will provide further clarity on this as well as our anticipated operating expenses for 2026 during our fourth quarter earnings call. Scholar Rock continues to operate from a position of financial strength with a disciplined approach to capital allocation and a clear focus on supporting our strategic priorities. With that, I'll turn the call back to David. David? David Hallal: Thanks, Vikas. In closing, Scholar Rock remains focused on near-term execution while building with financial discipline for the future. Our conviction in apitegromab and in our broader strategy is stronger than ever, and we are moving with urgency and purpose to deliver meaningful impact for patients. Our priorities are clear: execute with urgency to bring apitegromab, the world's first and only muscle targeted treatment that improves motor function to children and adults living with SMA as rapidly as possible. Advance apitegromab development activities in the second rare debilitating neuromuscular disease, and that will be followed by additional indications where we can have a transformative impact for patients. We want to progress SRK-439 into the clinic and continue to invest in our future with discipline to support these high-value initiatives. Before I close, I want to share my sincere appreciation for Cure SMA and the SMA patient community. Over these past weeks, I have had the opportunity to meet with many individuals and families living with SMA and the words of support that have been shared with us and with me directly have been tremendously meaningful as we work harder, better and faster to bring this impactful medicine to those who can benefit. With that, we'll now open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Mani Foroohar from Leerink Partners. Mani Foroohar: Congrats on the progress through what's been obviously a choppy period for everyone in the government. I think a couple of quick questions. I know I'm violating the one question rule. One, in terms of thinking about further financing opportunities to top up the tank as necessary, how do you think about debt versus royalty/equity? Like how do you think about relative cost of capital? And what's the most appropriate use once you get to a launch. And then another commercial question. In the early days of launch, it is probable that you will be transitioning from one facility to another. To what extent does that introduce any operational risk going from products from one facility to another? And how can that be addressed ahead of time by you guys now? David Hallal: Thanks, Mani. Why don't we take the first question first with the cost on the financing options and then I'll come back on the redundancy of supply chain with fill/finish. Vikas? Vikas Sinha: Yes. Thank you, David. Mani, our first objective here is to bridge the financing until the approval. And the first path to go from the lowest cost of capital is to take additional -- extend our loan facility a little bit more. We are in discussions with that. That will be our first opportunity. Royalty probably comes next. And if it goes too long, and then we have to take a little bit of equity, that will be the last and the most expensive one, which we are trying to avoid at any cost and trying to get it as more non-dilutive first. Does that answer your question? Mani Foroohar: Yes. So a follow-up. That would imply that, relatively speaking, we should expect you guys to wind down/use ATM much less going forward? Like how does that fit into the strategy? Vikas Sinha: Yes. Obviously, our first objective is to work with the loan facility and expand upon that. And ATMs are put in place just to take some small augmentation of the capital at an opportunistic view. And we did take it down in the last quarter. Because we are only $50 million loan facility available. We're expanding that loan facility as we discussed. And as soon as we have the new facility in place, will share it with all of you. David Hallal: And then, Mani, regarding the second vialer, a couple of bottlenecks I've shared with you and others in the past. One of the big ones I highlighted in the call was obviously finding a commercial line that is available, that is -- got the ideal configuration for our vial and our team under the leadership of Lisa Wyman, our Chief Tech and Quality Officer just did an extraordinary job in accelerating our second vialer progress to secure commercial capacity in Q1 and commenced tech transfer in lightning speed since that middle of October timeline when the OAI hit, we thought that, that was really important. Now to get there and to get there quickly, you want to change as little as possible in your second vialer as in your primary vialer, whether or not it's vial configuration, analytical testing, like -- so that actually helps you with speed as well. And those are the things that we'll be focused on. And then the impact in the marketplace really should be almost seamless whether or not we are distributing our apitegromab from the Bloomington facility or the new second vialer, it should really be quite seamless operationally to the marketplace, and we would expect it to be that way. Operator: Our next question comes from the line of Eric Schmidt from Cantor. Eric Schmidt: Congrats on the progress as well. David and team, for those of us who've kind of been reading the Gory play by play around the Catalent facility in Bloomington, and know some of the prior history and all the past issues. How do you kind of provide confidence that this remediation effort is on good footing and that the inspection will prove positive? And then maybe secondarily, do you expect that to be a Class I or Class II acceptance for the resubmission? David Hallal: Thanks, Eric. And no doubt, there is a history in the facility. We think the history is really anchored around the quality system, the quality culture and the facility. I think importantly, it largely links back to ownership that did not include sort of the steady hand of Novo Nordisk and their commitment to quality and compliance. And so one of the things that I've been saying often, and certainly, the gory details are gory, right? We got the observations, and we notified you all of those observations back on August 6, our last earnings call, which feels like a lifetime away now. And then we've kind of been riding through the CRL and the OAI. But what we have had a front row seat to is the collaboration with Novo, the commitment from the top of the organization, the changes in the staff that they are making. The integration of the Novo quality system into that facility and then the substantial progress that they've been making on a robust remediation plan, which as they noted to the FDA on Wednesday, they feel like there -- the facility is going to be reinspection ready by the end of this year. We don't think that Novo takes that lightly. We think that they are going through a series of internal exercises to make sure that they are reinspection ready. We would imagine that they'll continue to communicate with the FDA and gather feedback on what might be missing from their remediation plan that they would then need to tweak before any reinspection would take place, but we are surely been pleased with the seriousness and the urgency that from the top of that organization right through that facility, they are taking the remediation plan. Regarding Class I or Class II, I'll turn that over to Akshay for his thoughts as he was presiding over our team in person in Bethesda on Wednesday, and the team just did a fantastic job. Akshay? Akshay Vaishnaw: Thanks, David. Eric, I just want to reiterate that it was a very constructive and collaborative meeting. And I think the agency, as you might expect, shares, the need for urgency as we all work together to try and get apitegromab to patients. So it's not for us obviously, to second guess and say, will it be Class I or Class II. But we were very heartened by the comments they made and the approach they committed to, to help effect the [indiscernible] to patients. So we need to work with Novo to get their work done. Let's wish them the best get the site reinspected, resubmit the BLA. And I'm confident the agency is going to act with urgency and commitment to this community of patients, which they've always shown when it comes to SMA. Operator: Our next question comes from the line of Tess Romero from JPMorgan. Tessa Romero: So to be clear, the BLA that you plan to submit in 2026 for apitegromab will include Catalent as your primary fill/finish and you plan to file the sBLA for the additional fill/finish facility later in 2026 following the potential approval of the BLA. Why is that the right path versus using an additional fill/finish only? And then a follow-up is just on the EMA review. How is that going with respect to manufacturing-related items. David Hallal: Thanks, Tess. Yes. I mean I think given where we are, given the tone and tenor of the meeting that Akshay presided over this week and again, the progress that Novo has been making which really enabled them to communicate to the FDA that they are on track to be reinspection ready by the end of this year. We just think that, that is the absolute right path for us. We would expect that our BLA would be resubmitted with Catalent as our primary filler. And we would expect a second filler to be added to our file, which was frankly always going to be our plan anyway given the fact that Novo wants that facility for internal purposes. And so that is the path that we are following, obviously, everything that we are doing to accelerate our second vialer is a great insurance policy for us no matter what would happen and I was really gratified by our team's efforts over the course of just the past month with the major progress that they have made to secure commercial capacity at a second vialer and already have tech transfer underway, and of course, we'll be expecting the commencement of our commercial capacity to be leveraged beginning in Q1 of 2026. Regarding the EMA, I'd love to have Akshay comment on that. Obviously, quality and compliance is important to all regulators, including them. Akshay Vaishnaw: Indeed. And just to review the status of the MAA, the question and answers that go back and forth have proceeded well. So the review continues in exactly the timeframe you'd expect. And as we guided on the formal comments, we expect a decision by the middle of next year. Now vis-a-vis the Catalent manufacturing status and the EMA, there is a mutual recognition procedure. And so there is an interdependency. And I think we obviously agree with that. Though I would point out that everything we're doing for the 2026 resubmission, we, Novo and all our collaborators for the 2026 resubmission of our BLA here in the U.S. launch following approval by the FDA is in line with supporting our MAA. So there's not much more I can say right now, and obviously, we'll keep you updated. But let's stay, on track and as we proceed with the BLA, we hope that supports the EU approval as well. Operator: Our next question comes from the line of Tazeen Ahmad from Bank of America. Tazeen Ahmad: Thanks for the detailed update. So can I ask when is the latest that you can have this reinspection for Catalent to be completed and given the green light in order to meet your expectations for a 2026 launch? And then just to play the scenarios for a second. And for whatever reason, the second inspection for Catalent doesn't resolve all issues. How quickly could you pivot to make any application with your second fill/finish? And how would that impact your timelines for 2026. Like would you be able to switch that sBLA filing to a BLA filing and keep the timelines the same as you just mentioned? David Hallal: Yes. Thanks, Tazeen. It's again, a good question, getting back to what -- or targeting back to Eric's point, there's a history at the facility. It was under prior ownership. They've had a few difficult inspections that have led to Form 483s and in this case, some repeat observations. So I understand and we understand that everybody could share some level of concern and/or skepticism that just getting a reinspection is not the objective. It's a successful reinspection. And we share with Novo Nordisk that, that is the objective. And to really put their own team through not only the remediation plan, but rigorous exercises to be reinspection ready, and we know that they are doing that. Related to your point about what if it doesn't resolve all issues, I think there's 2 ways to look at this Tazeen. Are there still observations in the facility and -- but yet do those observations warrant or not sort of a reclassification of the facility because that's really what we're playing for, a reclassification from OAI to either VAI or NAI. And for that, certainly, that is what the objective is. I think regarding your timeline, I think a reinspection could technically go pretty well into 2026, and we would still be within a frame of our guidance of resubmitting our BLA and then the U.S. launch upon approval. We're obviously pleased that the tone and tenor of our Type A meeting led by Akshay with the FDA with all the key decision makers, all the key groups, I think was constructive. It was collaborative. And there really was a shared understanding of the unmet need and a shared understanding that urgency is necessary to serve a very important patient population. And so we're hoping that all of the steps that would be required that gets us to a reinspection would be done in an expeditious way within the regulatory framework that exists and that Novo will do their part. We don't think that they take lightly indicating to the FDA that they will be reinspection ready by the end of this year. We don't think that, that's a low bar. We think they're holding themselves given the commitment to quality and compliance in the culture of Novo Nordisk, we think they say that with a pretty high hurdle in mind. But back to your question about should like a media right hit that facility. In other words, should the inspection not go well. Then what role would the second vialer play? Well, everything that we've done to accelerate that second vialer would be obviously extremely important for us in terms of should we need to pivot, and it's not an addition of this vial on an sBLA, but it's actually our primary resubmission strategy. There are a number of ways that the FDA, and we expect they've done this in the past. And given the shared urgency would understand some level of potential pathways to expedite adding a second vialer as your first vialer in the form of a BLA. And everything that we're doing to expedite this process, we think, will aid us in case the impact of the inspection is not what we all expect it to be, which is a successful reinspection. And as we continue to work with that second vialer, we can provide further guidance to you as we progress from tech transfer, which is now underway directly into the filling lines that we will be executing in Q1 and Q2, and we'll provide those updates over time. Operator: Our next question comes from the line of Kripa Devarakonda from Truist Securities. Kripa Devarakonda: Congratulations on all the progress. Thanks for all the details. So in terms of timelines for resubmission of BLA, I feel like we're all asking the same question, but is the plan to wait for the reinspection and for the OAI to be resolved before you submit the BLA and I understand that Novo has said that they're going to be inspection ready by year-end, but could Novo request an inspection? And finally, would you be able to address whether Novo hired any outside consultant to help with this process? David Hallal: Yes. Maybe related to the timelines on resubmission. I think that Akshay can comment on our thinking and recognizing that with the collaboration with the FDA and the shared urgency, it's a little dynamic. We don't have our Type A meeting minutes yet, but Akshay can share at least our go-forward plan with respect to that. Akshay Vaishnaw: Yes. I mean I think base case, Chris, it's safe to say that the reinspection would have to resubmit after that. But as David said, it is a dynamic situation, and we'll do everything possible to resubmit in a fashion to expedite the approval of this drug, which patients need so badly. And we were heartened by the degree of support from the agency during our Type A meeting. So a lot is going to happen in the coming weeks and early part of next year, and we look forward to resubmitting this BLA. David Hallal: But, for sure, Kripa, given that, again, it's reiterated our sole and primary issue is the classification of this facility and their state of compliance. I think it's a safe assumption that we'd like to see that clear. And be ready to go immediately with a resubmission. That's sort of our go-forward plan at this point. Akshay Vaishnaw: And I think it's worth adding, David, that resubmission is really compared to the initial BLA resubmission. It's a very different asset. It's a much more contained effort around just the safety update and the CMC aspects of the file. So it's very -- we're ready to file that resubmission at very short notice. David Hallal: Kripa, related to the -- could Novo request a reinspection. I think in a way, they're signaling that they're ready. We would imagine that Novo and the agency still has some wood to chop. Just how do we feel about the remediation plan? Is there anything left before reinspection needs to be done? I would expect that to be happening, okay? That would be an expectation. But in a way, they put themselves on notice with the FDA that they stand ready to be reinspected toward the end of this year. And we think that, that is really, really important. But as you know, this reinspection will not be announced. It would be like your typical unannounced inspection. And so that you can put yourself on notice and communicate with the Office of Compliance that you're reinspection ready. As they notified at our Type A meeting at the end of this year, but we would expect the FDA to -- when they do reinspect the facility, it would likely be an unannounced inspection. And then your final question about like third parties, I think Novo is really looking very broadly, and they have been working with outside experts and helping them through all of these things, including the remediation plan and the progress with the remediation plan. And we have been pleased with the level of quality and urgency that they are applying to this remediation plan, and we're thankful to them for that. Operator: Our next question comes from the line of Etzer Darout from Barclays. Etzer Darout: Just because investors have sort of been circling this September 2026 date in terms of sort of timing for a potential approval, David, maybe if you could help us understand what could -- maybe the FDA minutes unveiled to you on the type of resubmission that you have to make, maybe their timelines around the decision once you have filed -- refiled the BLA? David Hallal: Yes. Thanks, Etzer. It's a great question. And again, something that I think Akshay wanted to have some robust conversations with the agency on at our Type A meeting. We're obviously not -- we don't have meeting minutes in hand, and we certainly want to allow the agency to do their work. But Akshay can comment on how we're thinking about the resubmission timing and again, whether or not it would be Class I or Class II. Akshay Vaishnaw: Yes, as far as the minutes are concerned, I think it's always good to get the minutes in hand and reconfirm the impressions that we're conveying to you this morning that they're documented in the minutes of the progress that Novo has made of commitment that everyone is showing to the agency of the matter, Novo's comment about being ready for reinspection and everything we've discussed so far. So we await those minutes, and we're confident that they'll reflect what we're conveying this morning. Now as far as the resubmission is concerned, we just discussed that with the last question. And of course, we'll resubmit as soon as the inspection is done or earlier, if possible. But we'll be guided by the agency through all of that. And we'll also be guided on the review timelines. Now the minutes we get won't spell out the nature of the review timelines for the resubmission. That's not their practice. They await resubmission of the BLA before that's done. But one thing I can tell you is that David emphasized the tone and tenor of the meeting that there was support to act with urgency to get on all parties, including the agency to get this drug to patients as soon as possible. Operator: Our next question comes from the line of Marc Frahm from TD Cowen. Marc Frahm: And all the detailed disclosures around this meeting. Maybe in that light, just as you move forward and Novo hopefully is, in fact, in position to be reinspected. Just what do you expect to be able to disclose and kind of on what timeline, particularly given that it isn't even your facility directly, but it is a partner. Will you be able to disclose right when it gets inspected not until maybe some 483s are received? Just what are the disclosure plans there? David Hallal: Thanks, Marc. I think our disclosure plans will really kind of look in the mirror and focus on us and the things that are material to us that we think are important this year. Obviously, the reinspection timeline when it happens, the outcome of it is really important. So I think we want to be open to sharing the important information with you. Obviously, the way this would work is an inspection takes a week to a couple of weeks. There's generally a closeout meeting. At that closeout meeting there's generally some kind of preliminary assessment when a Form 483, as we've noted in the past, I think, again, it's hard to believe when we first disclosed these Form 483 observations was only last quarter because it feels like for me, it's been a long time. But as you know, a Form 483 usually travels 75% of the time with any inspection. But of course, we wouldn't expect a Form 483 to result in an OAI most of the times. And I think that's what startled all of us. But I think that all along Novo has been approaching this very aggressively. So I think we'll just maintain as we have open lines of communication with you all when we have important information to share, we'll certainly do that. And I think what we've done in the past is even if it wasn't something for us, what we did learn of, let's just say, the classification of the facility as we did just last month in October. We tried to get out in front of that and disclose that and have some dialogue with you all on what that meant. And we'll continue to make a commitment to do the same here as we continue on this journey to an eventual resubmission and U.S. launch upon approval. Marc Frahm: Okay. That's helpful. And then maybe just on the idea of waiting for the reinspection to kind of happen in the reclassification before filing. But also in your prior answer is, you noted this would be kind of like an unannounced reinspection once they've communicated that they really are in position to be ready. But kind of a forcing mechanism to that at some level, it could be a submission of a BLA from anyone using this facility. So maybe is there some value of maybe filing ahead to kind of try to force the timeline on the inspection? Or is your expectation that there are just so many other products flowing through this facility that that's kind of going to happen on its own without you guys being the forcing? David Hallal: Well, Marc, a couple of the things you said are really important. One is that we've heard this too, right? I mean the thing that creates urgency are pending applications. And right now, we don't have a pending application. We have a pending resubmission. At the same time, I would note that we were generally pleased with how constructive and collaborative, the in-person Type A meeting was and that there was this shared understanding of the unmet need and shared urgency. So while we're not on file, I would say a lot of the things, and you're absolutely right on your last point, that there are other pending applications at that site, and that can serve us well. We do think our Type A meeting serves as a really good central point of highlighting while we're not on file, there is real urgency here for a community that is desperately wanting to benefit from the world's first and only muscle-directed therapy. And so we have to continue to work with the agency, be collaborative with them find everyone's right footing on what the right thing to do is, and that is really our go-forward plan. And we think we've built sort of a foundation and framework with the agency frankly, all the way through the initial priority review period up till September 22 and even through Wednesday, a really strong foundation for collaboration for us to work together to resolve this issue. Akshay Vaishnaw: Yes. Thanks, David. And I just want to reiterate the importance of that collaborative approach. And you mentioned forcing function, so to speak, by resubmitting ahead of the reinspection. I don't know that that's wise. We want to be working closely with the FDA and be guided by them now. as we said, it's a dynamic situation. And if they invite us or they support any kind of resubmission in a particular timeframe in and around the reinspection, we will, of course, we are ready and we can resubmit very efficiently. But this is not about a forcing function. We have to collaborate with the FDA. Operator: Our next question comes from the line of Evan Seigerman from BMO Capital Markets. Evan Seigerman: With the delays for apitegromab, can you talk more about what your sales or market research team's efforts are to identify patients ahead of the launch? You had mentioned efforts to work with centers of excellence to understand the patient journey better. But do you feel you are developing a more robust number of patients which you could target for therapy following approval, potentially leading to a little bit of a faster uptake than people were probably initially expecting? David Hallal: Yes. It's a great question. Keith was highlighting it earlier in the call, and I'll turn it over to him for further comments on launch prep. R. Keith Woods: Yes. Thanks for the question. I guess I'd say first of all, when the September 22 date occurred, that was after 2 months of the team being able to spend time out in the field. And now with the extended time, we're getting to not just visit with the physicians, but we're also getting to meet the SMA treatment teams and getting that full feel. And what is that additionally, not just the SMA treatment teams, we're spending more time with patient advocacy events and getting to speak with patients and their families. And I can tell you what we're hearing is that there's a clear understanding of the unmet medical need and the approach of attacking this disease from a dual modality no longer just the motor neuron but also directly targeting the muscle, and this is being well accepted as we get the opportunity to meet with more people in the community. You add to the fact of the safety profile that apitegromab has demonstrated. And quite frankly, all of our studies, not just our SMA studies, but if you take a look at EMBRAZE, that was also all adults all treated with 10-milligram per kilogram and exceptional safety results. I guess I would end with the fact that at the end of the day, we're offering the world's first muscle-targeted therapy, and in the event, if you have a choice to either be in a situation of having experienced muscle loss or the potential for muscle gain, why wouldn't you want to use apitegromab. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Mount Logan Capital's Third Quarter 2025 Results Conference Call. Before we begin, I'd like to remind listeners that today's discussion will include forward-looking statements. These statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a description of the risks associated with Mount Logan Capital's business, please see our most recent filings with the SEC. In addition, we'll be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to non-GAAP financial measures are in today's earnings release. This morning's conference call is hosted by Mount Logan's Chairman and Chief Executive Officer, Ted Goldthorpe; our Chief Financial Officer, Nikita Klassen; our President, Henry Wang; and the Head of Investor Relations, Scott Chan. As a reminder, all references to dollar amounts on this call are in U.S. dollars unless otherwise stated. I'll now turn the call over to Mr. Goldthorpe. You may begin. Edward Goldthorpe: Thank you, everyone. Good morning, and thank you, everyone, for joining us today. What a year it has been for our company and team. We are incredibly excited to discuss Mount Logan Capital's third quarter with you today, which reflected the culmination of several years of preparation and hard work that enabled us to redomicile from Canada to the U.S., translate our financials from IFRS to GAAP and now trade on the NASDAQ Capital Market under the ticker MLCI. This year has been the heaviest lift for our team yet, and I'm deeply grateful for everyone's contributions and support to get us here. A special thank you to our shareholders and Board members for supporting our vision for Mount Logan, including the 180 Degree Capital shareholders, management team and Board, which overwhelmingly supported the combination of our respective businesses and specifically the vision we have for growth in 2026 and beyond. We're excited to welcome everyone to Mount Logan's first earnings call as a U.S.-listed alternative asset management platform and insurance solutions platform. While we will spend time discussing our financial results today, given the intra-quarter transaction and related movements on the legacy term portfolio and transaction expenses, there is some noise in the numbers, and therefore, I want to spend some additional time today laying out the vision we have for our platform as we look ahead to 2026 and our ambitions for driving significant AUM, FRE and SRE expansion for the years to come. We'll also provide a quick update on our capital allocation expectations through year-end before we turn the call over to Nikita to review our third quarter financial performance in more detail. Today, Mount Logan is an alternative asset management and insurance solutions platform that manages in excess of $2 billion of assets for various investment vehicles and accounts. We operate within what we believe to be the most attractive areas in the financial services space, private credit and insurance solutions. Since 2018, we've carefully built and shaped the Mount Logan platform with 3 focuses: one, build our FRE and AUM foundation on permanent and semi-permanent capital for a wide array of investors. Mount Logan has the support of large institutional investors, the retail investor community and through ability and insurance platform; two, employ rigorous and disciplined process around originating and underwriting the assets and investments we manage on behalf of those same investors; and three, maintain expansive credit and product capabilities in support of truly differentiated origination funnel, which ensures Mount Logan is not overly reliant or correlated to any single product or market. Today, we have a diverse expertise that spans the credit spectrum and enables us to be truly opportunistic as we seek attractive risk-adjusted returns in various market climates on behalf of our investors. We've experienced success scaling our business through organic and inorganic initiatives. As of today, we believe our business has the team, capabilities and through the merger with TURN Capital to drive investment into our business to accelerate growth in 2026 and beyond. Since the acquisition, we've completed efforts with respect to integrating front, middle and back-office functions. And we've already seen the benefits of adding 180 Degree Capital's network in the middle market to ours, which has enabled us to expand the universe of clients we serve within our suite of private credit solutions now with an improved line into public companies. With the modest integration lift now complete, our focus is on accelerating growth while maintaining stringent discipline on investments and costs. On the Insurance Solutions side, we see an immediate opportunity to invest capital into Ability to increase its capital base, take on additional reinsurance obligations. We've continued to invest in our insurance solutions team and believe we have the policies and procedures in place to grow this business significantly over the coming years. Our insurance solutions vertical is incredibly strategic to Mount Logan, and we view it as a core vertical for driving growth in our business as both our ability to manage our policyholder obligations and assets prudently to achieve positive spread earnings is the key to our organic thesis. On the asset management front, Mount Logan continued to advance its strategy as a leading consolidator in the business development company or BDC universe. Our approach centers on building scale and stability through permanent capital vehicles. In July, the merger of Portman Ridge and Logan Ridge was completed, creating what is now called BCP Investment Corporation. This created a larger, more efficient vehicle with substantial synergies, both from a portfolio perspective and given the significant overlap through the elimination of expenses, driving improved earnings capacity. From an economics perspective, Mount Logan will receive increased distributions from Sierra Crest Investment Management and its affiliates as Sierra Crest will serve as the investment adviser to the significantly larger BDC and BCP Investment Corp. Mount Logan today maintains a minority stake in Sierra Crest, which will allow -- which will continue to benefit Mount Logan as BCP Investment Corporation grows. In parallel, through our minority stake in Runway Growth Finance, we're able to support the recently announced merger of Runway Growth Finance Corporation with SWK Holdings. This combination will expand Runway's capability into health care and life sciences lending and demonstrate the continued consolidation taking place across the BDC ecosystem given the significant benefits that exist for investors in these funds as they scale. Collectively, these initiatives reinforce Mount Logan's long-term strategy of scaling permanent capital vehicles, diversifying credit capabilities and driving operating leverage across our platform for the benefit of our investors and policyholders. While the near-term financial benefit to Mount Logan remains limited, over time, these transactions will accrete to the benefit of Mount Logan and its shareholders as AUM and FRE increase. We enter this next phase of Mount Logan's growth with an incredible amount of momentum. Our platform is now fully equipped to capitalize on opportunities across both asset management and insurance solutions, and we're already seeing an acceleration into year-end of actionable opportunities. Before I hand the call over to Nikita to walk through the results of the quarter, I also want to touch on our capital allocation framework given our strengthened balance sheet today. We expect to remain opportunistic in how we deploy the capital with a focus on balancing growth, reinvestment of our business and return of capital to our shareholders. Supporting various initiatives to advance our business is a priority for our team, and we expect AUM growth to primarily come from our management of Ability, the Opportunistic Credit Interval Fund, or SOFIX, and our stakes in BDC managers, Sierra Crest Investment Management and Runway Group, which support FRE expansion. We also have a robust pipeline of acquisition opportunities, which will scale our existing permanent and semi-permanent capital vehicles, increase our retail product and distribution capabilities and help us to originate new or differentiated pools of assets for the benefit of our managed vehicles and accounts. The final component of our capital allocation strategy is centered around both near-term liquidity opportunities for our shareholders as outlined as part of the 180 Degree Capital transaction, along with the implementation of a sustainable dividend policy going forward. Our team remains committed to providing up to $25 million for shareholder liquidity at or above the closing merger value over the next 24 months. We continue to expect to launch a tender for up to $15 million in the weeks to come, which we anticipate will be at or around $9.43 per share, consistent with the valuation closing of the merger. This price represents a premium to our current share price as of yesterday's close. Therefore, we expect to be opportunistic in how we deploy the remaining capital over the coming 24 months. We hope this commitment supports trading liquidity in our shares as growth initiatives progress over the next 2 years. To ensure liquidity mechanisms focused on providing value to our shareholders, Mount Logan's management team, Board and affiliate entities will not participate in any tenders or share repurchases associated with the liquidity programs. This decision reinforces management's confidence in the long-term outlook for Mount Logan and the strength of our business combination. On the dividend front, Mount Logan was proud to have paid a dividend for the 25th consecutive quarter while listed in Canada, and we're excited to announce the Board has approved a dividend of $0.03 per share for the quarter. Our dividend policy is built on the belief that investors should receive direct benefit of our stable fee playing earnings model, and we hope today's declaration and our past track record clearly demonstrate our belief in returning capital to shareholders. As our platform scales, we hope to grow our dividend while maintaining financial flexibility to reinvest for future expansion. With that, I will now turn the call over to Nikita to review our third quarter financial performance. Nikita Klassen: Thanks, Ted. Good morning, everyone. Before reviewing our third quarter results, we want to note that as part of the acquisition of 180 Degree Capital, Mount Logan has transitioned its financial reporting from IFRS to U.S. GAAP. All the financial results discussed on today's call are presented under U.S. GAAP, which, while required as a U.S. registrant, also enhances the transparency and comparability of our financial performance going forward and with our peers. Further, some results are not directly comparable year-over-year as the acquisition of 180 Degree Capital did not close until mid-September 2025. I'll now walk through our third quarter financial highlights. This quarter was an incredibly transitional quarter, one that reflected substantial integration costs and accounting reset and the investments being made to scale our platform. For the 3 months ended September 30, we reported a net loss of $13.4 million compared to a loss of $2.4 million last year, largely related to non-cash items. This loss was driven by a gross $19 million impairment charge tied to the Logan Ridge Investment Management contract as Logan Ridge completed its merger with Portman Ridge in July, with Portman Ridge being the surviving entity and renamed BC Partners Investment Corporation. As part of this transaction, Mount Logan recognized a profit sharing interest with an affiliate of Sierra Crest, the adviser of BCIC, which reduced the net impairment by $11.2 million. The company also recognized a $4.5 million gain on acquisition of 180 Degree Capital as consideration paid, i.e., the shares issued were less than the fair market value of the net assets acquired. We also recognized an incremental $3 million worth of transaction costs as the transaction was finalized. Total revenues for the quarter came in at $11.4 million, down 10% year-over-year, while 9 months ended revenues for 2025 rose 7% to $43.6 million. On a non-GAAP basis, segment income, which is equal to the sum of fee-related earnings and spread-related earnings, was $30.7 million for the quarter versus $4.7 million last year. Year-to-date, segment income was $8.1 million compared to $16.5 million in the prior period, largely due to lower cost of funds in comparison to 2024, primarily due to the onetime benefit of an in-force update to the long-term care business in the first quarter of 2024, which was not present in 2025. At quarter end, total assets were $1.64 billion, up 5% since year-end and shareholders' equity increased to $231 million, a 26% increase year-to-date. In our asset management business, fee-related earnings were $2.5 million for the quarter and $7 million year-to-date, roughly flat with the prior year. Management fees were $1.9 million, down from $2.8 million last year, mainly due to the Logan Ridge and Portman Ridge merger, which ended our prior advisory contract. We anticipate the profit sharing interest, which added $262,000 to FRE this period will continue to be accretive to FRE going forward. Additionally, the Ovation fund wind down, which began in the third quarter of 2024 has resulted in lower management fees going forward. These headwinds were partially offset by growing fee streams from our Vista Life & Casualty investment management mandate and growth in our integral fund, SOFIX. Incentive fees were $0.4 million, down year-over-year as the Ovation funds continue their wind down and due to voluntary fee waivers at SOFIX, while equity investment earnings rose to $0.5 million, benefiting from stronger results at Sierra Crest after the merger and elimination of expense waivers within this adviser. On the expenses side, we saw higher transaction and integration costs tied to the 180-degree merger and accelerated stock compensation expense as all historically issued stock comp vested upon close of the merger. These are both onetime items. FRE excludes these onetime items and also includes other corporate costs that are reported within the Asset Management segment, such as non-fee-related compensation, amortization and impairment of intangible assets and interest expense. Fee-generating expenses decreased due to lower professional fee spend from disciplined cost control. Overall, FRE margins held steady, supported by recurring management fees, disciplined cost control and new recurring income from our profit-sharing interest with Sierra Crest. Turning to Insurance Solutions. Spread-related earnings were $1.1 million for the quarter compared with $2.2 million a year ago. Our results reflected lower investment yields and higher cost of funds, partially offset by tighter expense management. Net investment income was $17 million, down 12% year-over-year as lower short-term rates and higher cash balances weighed on floating rate income. The long-term care block remains stable and our multiyear guaranteed annuity or MYGA reinsurance business continues to expand. We added National Security Group as a new treaty partner in the second quarter. Total assets grew to $1.55 billion within our Insurance Solutions segment with strong credit quality and ample liquidity. The net investment spread was 12 basis points this quarter or 48 basis points annualized. We expect to build towards 75 to 100 basis point range on an annualized basis as capital is deployed into higher-yielding assets than our legacy investment portfolio. Mount Logan's balance sheet remains conservatively positioned. We ended the quarter with $162 million in cash and cash equivalents, up nearly 43% from a year ago. We continue to monetize the legacy 180 Degree Capital portfolio assets in an orderly fashion and look forward to deploying that capital to fuel growth in our Asset Management and Insurance Solutions segment. We closed the quarter with $22 million in cash and cash equivalents within the Asset Management and Corporate segment, we intend to deploy towards future growth, as Ted discussed previously. Total debt stood at $74 million in the Asset Management segment and $17 million in Insurance Solutions. 41% debt-to-capital ratio. Operating cash flow also improved during the quarter as integration costs rolled off. In closing, this quarter was about completing the transition, aligning our structure, simplifying our reporting and setting the foundation for growth. We have 2 complementary engines, a capital-light asset management platform and a liability-driven insurance solutions business, which designed to generate durable recurring income. Our focus from here is straightforward: grow fee revenue, expand spreads and maintain disciplined capital management. We're well capitalized and positioned to compound value for shareholders over time. And with that, I'll turn the call back over to Ted. Edward Goldthorpe: Thank you, Nikita. Overall, we are incredibly excited for Mount Logan's next phase of growth as we scale our U.S. domiciled asset management and insurance solutions businesses. We have a fortified balance sheet that provides significant flexibility to invest for the future, and we are well positioned to capitalize on the opportunities we are seeing in the market. We believe the substantial time and resources invested in our business during 2025 set the stage for meaningful growth in 2026 and 2027, helping to drive long-term value creation for our shareholders. This concludes our prepared remarks. We would now like to transition the call to Q&A. If the operator could please go ahead. Operator: [Operator Instructions] Our first question for today comes from Adam Waldo of Lismore Partners, my apologies. Our next question comes from Matthew Lee of Canaccord Genuity. Matthew Lee: Just want to talk about the trajectory for both SRE and FRE here. You now have the capital to invest to get the flywheel moving a bit. How should we be thinking about SRE and FRE growth in F '26? And what do you think is the run rate kind of going even further medium term, just given the capital position right now? Nikita Klassen: Thanks, Matt. So let's start with FRE. So as we said, FRE was pretty much flat quarter-over-quarter. In going into 2026, I think that's really where we're going to see things start to ramp up, particularly around BC Investment Corporation. This really adds a lot of scale to our platform. Our management fees are expected to increase to about $720,000 a quarter compared to what we recognized in the prior quarter. And under this new structure, they intend to pay incentive fees as well which will probably yield to us about $500,000 annually. So this is the upside that we didn't previously had when we have -- when we were the investment manager to Logan Ridge. Otherwise, again, the focus is always on cost and really making sure that we can grow these fees without expanding on the cost side, which we believe we've really invested in that over these past few years. So expect positive growth from there. Additionally, with SOFIX, one of our other growth engines, we have waived $415,000 of incentive fees to date as it continues to scale. So expect that vehicle to continue to add to FRE pretty strongly. And then lastly, Ability, our biggest growth engine. It has provided $1.6 million in fees for the quarter and $6.4 million annualized. And so as we continue to manage more of that book of investments and the vehicle continues to scale, I expect pretty strong growth there. On the SRE side, there are things within our control and things that are not within our control, largely related to cost of funds. But what we can control is really looking at sort of where rates are going and what we can do on the NII side to control it. We do have a hedge that limits some of our exposure on the downside that's helping. And then it's really just also looking at the cash drag and being able to find investment opportunities, which is challenging in a tighter spread environment. So generally speaking, it's looking pretty good. As we mentioned, we're trying to move towards a 75 to 100 basis point SRE margin going into next year. It's really just what we can control there. Matthew Lee: Okay. Maybe asked a different way. I mean, your FRE is kind of trending towards $10 million a year at the current run rate. Your SRE is kind of recovering off a low first half. I mean, should we be thinking about this as kind of like combined $15 million to $20 million for 2026? Or is it too early for guidance? Nikita Klassen: I'd say on an organic basis, that's fair. And then it's really just how we look to deploy the capital from the current transaction and where we can see upside from there. Edward Goldthorpe: Yes. So I think the plan today is we do have a bunch of cash, and we're going to do a couple of different things with it. One is we're going to buy back -- we're going to do this tender that we've talked about at a big premium to market. We're going to do -- we have a really good pipeline of M&A opportunities. And number three is put capital into the insurance company. There is a lag. When we put money into the insurance company, there is a bit of a lag between capital deployment and SRE benefit. So you should really see real benefit on SRE in the second half of next year. Matthew Lee: Got it. And maybe I'll touch on that, you mentioned M&A opportunities. I mean, 180 is now kind of digested. What sort of opportunity are you seeing in the market? Edward Goldthorpe: Yes. I mean I'd say this is like the perfect storm in a good way for us, which is, number one is now because we're listed on the NASDAQ, it gives us a currency that is deemed to be more attractive for many shareholders. And number two is we're getting size and scale where people feel like that works for them. More importantly, the scale matters. And I think a lot of -- the M&A environment tends to ebb and flow a little bit. Our pipeline has never been more robust. So we have 3 or 4 really strategic, very accretive things in our pipeline that we expect to announce, hopefully, some of them by the first quarter that will be real catalysts, I think, for growth for our business. So again, I think we're combining -- this year was a consolidation year. We kind of merged with TURN, we merged our BDCs. We've kind of like cut some costs. Next year, we really expect to be growing both from an organic and inorganic basis. Operator: There are currently no further questions in the queue. [Operator Instructions] We have a question from Chuck Burns of CIBC. Charles Burns: Congratulations on the -- taking this over the finish line this year, this transaction. I just have a couple of questions. The U.S. market transition, how is that progressing with regard to institutional interest and maybe brokerage coverage? Edward Goldthorpe: Yes, it's a good question, actually. So I would say this is kind of like we had to get through this last quarter and get this announced. And I think this tender is going to be obviously a good catalyst for us to engage with the Street. So we are -- we obviously are being very, very proactive in many different ways of engaging with institutional shareholders. And because of this NASDAQ listing in our size, it gives us an opportunity to have a more robust dialogue with people than previously. So I think that's a big, big focus of ours now that the quarter is out, now that the transaction is closed and now that we're going to announce this tender. Charles Burns: Okay. And the second question is there's been a lot of noise in the markets regarding private credit and the media has been kind of all over that issue. How is that impacting Mount Logan? Edward Goldthorpe: Very good question. I would say People have been calling for a [indiscernible] in private credit since I got in the business like 20 years ago. I mean I would say the recent -- the 4 big recent headlines all have similar things in common. And I'm referring to like first brands and some other things. First of all, first brands, most of the capital -- only 2% of the capital structure was in private credit hands. Most of that was either syndicated risk or in other channels. And again, the most of each of these 4 idiosyncratic situations, Tricolor, that one, generally speaking, were frauds or misappropriation of funds. They weren't necessarily tied to a macro theme. And then secondly, like -- our business, Mount Logan is really levered, generally speaking, towards corporate credit, and we haven't seen a big deterioration in corporate credit at all quite yet. And I'm not saying it's not going to happen. We just haven't seen it. All of these things, the catalyst to cause the stress came out of the asset-based part of their business. and the asset-based finance part of their business. And that's where -- that's like we're not really -- we're not leveraged those kind of channels. Operator: Our next question comes from [ Ben Brockhoff ] of [ Brockhoff Capital. ] Unknown Analyst: I wanted to ask about return on equity and whether you're seeing any changes on that because of spread compression or other reasons. I know you had guided to about, call it, 25% or 26% ROEs in one of the last presentations. I wanted to see if you had any commentary on that guidance, either short term or long term. Edward Goldthorpe: Yes, I'll answer that. So I would say like if you just take a step back, right, like there's a couple of tailwinds for ROE. One is scale. So like we have public company costs that we are amortizing on a lower base. Number two is obviously our insurance company is expected to grow. So we have a little bit of a transition period because we're sitting a lot of cash post merger. But once we kind of fully integrate all of that, there should be some good tailwinds on our ROE. The 25% you're referring to is the incremental ROE we get from investing in our insurance company. It doesn't necessarily measure it overall. But we do expect to drive pretty robust ROEs on a go-forward basis. Operator: At this time, we currently have no further questions. So I'll hand it back to the management team for any further remarks. Edward Goldthorpe: Thank you, everyone, for your time today. Looking ahead, our focus remains on disciplined execution and delivering measurable milestones that will showcase the strength of the platform we've built. As always, we are happy to make ourselves available for any questions you may have. We look forward to speaking with you to recap the fourth quarter and full year 2025 results in March of 2026. I hope everyone has a good weekend and a good American Thanksgiving. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Superior Plus 2025 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Chris Lichtenheldt, Vice President of Investor Relations. Please go ahead. Chris Lichtenheldt: Thank you. Good morning, everyone, and welcome to Superior Plus conference call and webcast to review our 2025 third quarter results. On the call today, we have Allan MacDonald, President and CEO; Grier Colter, Executive Vice President and Chief Financial Officer; and Dale Winger, President of Certarus. For this morning's call, Allan and Grier will begin with their prepared remarks, and then we'll open the call for questions. Listeners are reminded that some of the comments made today may be forward-looking in nature and information provided may refer to non-GAAP measures. Please refer to our continuous disclosure documents available on SEDAR+ and our website. The dollar amounts discussed on today's call are expressed in U.S. dollars unless otherwise noted. I'll now turn the call over to Allan. Allan MacDonald: Thanks, Chris. Good morning, everyone. Welcome to our Q3 call. Now my opening comments may surprise some of you, but let me start by saying I'm incredibly pleased with how far Superior has come in just 2 quarters. Changing an organization, in fact, reinventing an organization is very difficult. I'm pleased to say, at Superior, our reinvention is very much in progress. We've made permanent moves and abandoned old operating models, structures and tactics, which had us focused on surviving instead of thriving. Now transformation isn't linear, and it's regrettable that our impressive progress isn't apparent in our Q3 results, but that has not dissuaded us in any way or tempted us to change course. Superior Delivers is a generational reinvention of our company, and I couldn't be more proud of what the team has accomplished so far. At our Investor Day in April, we shared a plan to transform Superior's Propane business through 2027. We outlined our goal to serve our customers better by operating safely, never running people out of gas, delivering fuel at competitive prices in every market we serve, acquiring more customers and keeping them longer and using modern technology such as AI to better manage our business, predict trends and deliver more efficiently to our customers. As we discussed at that time, this transformation would impact all areas of operations from our assets and locations to our distribution capabilities, pricing and organizational structure. An ambitious effort, yes, but the team here at Superior has remained committed to our goal, and as a result, we've changed the way we operate more in the past 2 quarters than the past 2 decades. As of Q3, I can proudly tell you that we've changed how we deliver fuel, manage churn, set our prices, and we've restructured the organization. We've centralized functions and introduced advanced tools that allow us to operate more efficiently. We've restructured our teams and reduced headcount to remove duplication in the U.S. and Canada, and created key centers of excellence in pricing, marketing, distribution and service, to name just a few. And in keeping with our recognition that leadership is a key enabler of our future, we announced our new Chief Commercial Officer, Deena LaMarque Piquion, who joined on November 3. Deena most recently served as Chief Growth and Disruption Officer at Xerox. With more than 20 years of global leadership experience in marketing and operations, she shares our bold vision and recognizes the potential at Superior. I'd like to formally welcome Deena, who is here with us today as she takes on the challenge of advancing our commercial strategy and growth initiatives. One of our biggest initiatives over the past 2 quarters was the introduction of a completely new distribution model, which moved us from local ad hoc scheduling using rudimentary tools to a single, optimized distribution approach based on AI-driven algorithms. We're now employing a company-wide tool, which has the ability to create tens of millions of potential routing combinations per day, allowing us to plan better routes, avoid low-fill volumes, predict customer consumption and ultimately deliver more fuel with fewer trucks and fewer miles driven. No small feat, especially in such a short period of time, and such change inevitably comes with some challenges, especially when we were restructuring the company at the same time. But our team saw the bigger picture and took on this challenge, determined to build a new Superior, and I'm incredibly proud of their efforts. But as you'd expect, with change initiatives of this magnitude, not everything goes perfectly. We've had our share of missteps and have learned some valuable lessons along the way. For example, as we sought to optimize Propane Deliveries, we had a period of several weeks where we avoided inefficient fills while still working through the rationalization of our fleet. This meant some underutilized capacity and deferred volumes. While not ideal, as it would impact our quarterly results, we stayed the course because it was the right thing to do for the long-term success of the organization. These changes aren't about chasing short-term wins, they're about building a resilient, data-driven and customer-centric business that delivers sustainable shareholder value. It's a foundational shift. And while complex, we're confident the benefits will be enduring. Before we dive into the numbers for Q3, I'll connect our transformation story to our current performance in propane. The changes we've made are starting to show up in how we operate. As I've stated, a key focus within Superior Deliveries has been improving delivery efficiency, specifically, increasing volume per delivery and decrease in reducing frequency. To achieve this, we deferred many deliveries that would typically occur in Q2 and Q3 to optimize efficiency for our upcoming peak season. Now part way through Q4, volumes are increasing in line with expectations. And while our business is well positioned to benefit from improved efficiency going forward, we likely won't recoup all of these deferred profits during 2025. We appreciate that it's difficult to see these operational achievements based solely on our financial disclosures. So I'd like to share a few key performance indicators that demonstrate our progress. First, within our customer growth initiatives, so far in the fourth quarter, we are seeing more than a 300-basis-point improvement in the percentage of sales leads that we convert to new customers as our improved engagement and competitive pricing are gaining traction. Second, within our cost to serve initiatives, we're also seeing a 5% improvement in the number of labor hours incurred per 1,000 gallons of propane delivered. Third, as I mentioned, we're seeing improvements in our fill rates as our new approach to scheduling deliveries is increasing the number of gallons delivered per stop, setting us up to benefit from a more efficient and cost-effective structure in the future, which will ultimately benefit the customers and the markets we serve. Of course, there's still more work ahead of us. For example, in customer growth, we're now working to increase our total sales leads to capitalize on this improved conversion. With churn, our prediction tools are gaining traction, but customer attrition is inherently lagged. So it will take some time until the benefits of our new programs are fully realized. For cost to serve, while efficiency is improving, we continue to refine our models across our single North American delivery platform. Finally, as noted in our press release, we reduced our non-field workforce by 12% during the quarter as part of Superior Delivers, realigning to 1 North American propane business. These changes resulted in some onetime costs, but will drive further benefit to our organization in the long run. While the impact of transformative change takes time to become visible in financial results, especially with a seasonal weather-dependent business, we are on track. I am incredibly proud of this team. We're staying the course and not reverting to the sins of the past, pulling forward deliveries or raising margins to meet short-term pressures at the expense of the future. Turning now to Certarus, our CNG business. Q3 reflected a challenging pricing environment with EBITDA declining relative to last year. Well site business activity remains subdued, and we recognize that the timing of a recovery remains uncertain. But Dale and the Certarus team have done an incredible job managing some very significant headwinds. Rather than speculate on market shifts, our focus is firmly on what we can control, driving cost efficiency, maintaining our market share, advancing opportunities in new markets and allocating capital with discipline. Despite these pricing challenges, we've maintained EBITDA Margins over 25%. We've reduced operating costs per MMBtu by approximately 5%, and we've increased free cash flow with our disciplined capital investments. Certarus remains very profitable, and we're using this period of adversity to push ourselves so we exit the cycle stronger and more competitive. In September, we mobilized equipment for a data center project with a major hyperscale operator. Early commissioning of power generation equipment began on schedule, typically at a rate of 1 or 2 trailers per day. We are now ready and expect regular flows to commence later in Q4. This project highlights the unique capabilities of our team, including end-to-end project management and the flexibility of our equipment platform, notably, our ability to deploy dozens of mobile compression trailers with just a few weeks' notice. In addition, we were awarded a standby supply for a second data center in a separate region and successfully mobilized in October. We also continue to expand our network. This quarter, we executed site and gas supply agreements for a new hub location in Florida, which is expected to be fully operational before year-end. Deliveries to our first customer have already begun, and we have opportunities with utility, pipeline and other industrial applications in the region. In Houston, we've executed a letter of intent for a new hub site and are completing diligence and expect to have that location up and running in the first half of 2026. Our commercial strategy for Certarus is delivering results. We remain disciplined in our capital allocation and confident in our ability to deliver sustainable value regardless of the pace of recovery in well site activity. Industrial revenues were up 24% year-over-year, and renewable revenues grew 42%, reflecting the strength of our value proposition and Certarus' strategy to drive growth in these markets. Now despite the progress we've made this year, the pricing headwinds we faced within CNG, combined with additional costs associated with our new delivery technology and a wholesale supply disruption related to a refinery fire in California have caused us to lower our expectations for 2025. However, nothing fundamental has changed in our business, and we remain well positioned to deliver our long-term goals for the company. As I've said, transformation isn't linear. In closing, I want to leave you with a few thoughts. Success depends on having the right people in the right roles, engaged, focused and energized. Our teams are embracing this challenge and leaning into change with a commitment to excellence. We're undertaking something truly complex at Superior. Transforming a business model that's been in place for decades is no small task. It requires bold decisions and disciplined execution. The changes we've made are permanent. They're impacting our business positively and they will benefit us for years to come. And finally, I'd like to thank our teams across North America who are helping us get there. Your resilience and dedication are the foundation of our progress and the reason we're so confident about the road ahead. Thanks very much. And with that, I'll pass things over to Grier. Grier Colter: Thanks, Allan, and good morning. I'll start by recapping our consolidated financial results for the first 9 months and the third quarter specifically. Year-to-date adjusted EBITDA was up 2% due to modestly higher adjusted EBITDA from U.S. and Canadian propane, partially offset by a small decline in CNG. Q3 adjusted EBITDA of $7.6 million decreased $9.8 million compared to Q3 2024, driven by lower volumes in U.S. propane and pricing pressure in CNG, partially offset by a $1.2 million reduction in corporate operating costs. Year-to-date adjusted EBITDA per share of $0.91 increased by 15% due mainly to higher adjusted EBITDA, lower interest costs and a 7% decline in the diluted weighted average shares outstanding. Adjusted net earnings per share of $0.04 increased by $0.11, and free cash flow per share of $0.51 tripled for the same reasons, with lower capital expenditures also contributing to free cash flow growth. For Q3, adjusted EBITDA per share of negative $0.05 decreased $0.02 because of lower adjusted EBITDA from our propane and CNG operations, partially offset by lower interest costs. Adjusted net loss per share of $0.41 was down $0.05 from last year due primarily to lower adjusted EBITDA. Free cash flow per share of negative $0.32 decreased by $0.03, driven by lower adjusted EBITDA and partially offset by reductions in CapEx and interest expense. Third quarter is typically the lowest free cash flow quarter of the year due to seasonality in propane and in CNG. Turning now to the businesses. For the first 3 quarters of the year, adjusted EBITDA in our overall propane business increased 3% to $213.8 million, driven by strong volumes and favorable weather in Q1, followed by EBITDA declines in second and third quarters, as we had expected and we discussed on our last call. Looking at the regions, in the first 3 quarters, adjusted EBITDA in our U.S. propane division increased by $4.0 million or 3% from higher volumes in Q1. In the third quarter, U.S. propane adjusted EBITDA was down $6.1 million from last year. The decline was driven by lower retail sales volumes as customer in-tank inventory levels continue to decline. We anticipate replenishing these volumes during the fourth quarter. However, doing so will bring added costs, which have been reflected in our revised guidance for Superior Delivers. The U.S. propane business also continued to be affected by an outage at the Martinez Refinery in California, which also negatively impacted our margins. Canadian propane generated adjusted EBITDA of $64.2 million in the first 3 quarters, representing approximately 4% growth, primarily due to higher sales volumes benefiting from colder weather in Q1. In the third quarter, Canadian propane produced adjusted EBITDA of $2.5 million, a decrease of $0.3 million versus Q3 2024, primarily due to weaker economic activity and more competitive pricing within industrial and commercial sectors, particularly in Western Canada. Like the second quarter, weather trends are not a factor in the third quarter as heating demand is essentially absent until colder weather returns in Q4. Our propane transformation, Superior Delivers, contributed $5 million to results in the first 9 months and is on track with our longer-term goals. However, Superior Delivers contribution to results in the third quarter was nominal after netting out the impact of declining customer and tank inventory levels. As I indicated, the reduction in inventory levels is temporary in nature and will normalize over time. This has caused us to lower our in-year forecast for Superior Deliveries from $20 million to between $10 million to $15 million. During the quarter, we incurred approximately $20 million of restructuring and other costs related to Superior Delivers. The largest portion of this expense related to the 12% reduction in our non-field workforce that Allan had mentioned, resulting in one-time severance costs of approximately $11 million, and the balance of the costs are related to executing Superior Delivers, including third-party consulting costs. This workforce restructuring was not incorporated within our original Superior Delivers targets, and therefore, is incremental to the $10 million to $15 million of per year onetime cost we originally had expected. Furthermore, we have increased our 2027 run-rate Superior Delivers target from $70 million to $75 million to reflect the incremental savings associated with this restructuring. Certarus adjusted EBITDA of approximately $108 million over the first 9 months was roughly in line with last year as increased activity in industrials and renewables, along with reduced operating costs were offset by lower prices in the well site business. Notwithstanding these challenges, Certarus is making significant progress in several areas, including a 5% reduction in operating cost per MMBtu in the quarter and continued execution on its growth strategy in new markets. These achievements, coupled with our continued discipline on capital, drove significant free cash flow during the first 9 months of the year as EBITDA was stable while CapEx was down by more than $50 million compared with the same period last year. We remain very focused on maximizing returns on our capital and positioning the business for long-term success. Third quarter adjusted EBITDA in CNG was down $4.6 million to $25.7 million, again, mainly driven by pricing pressure in the well site business. Moving to guidance. As Allan mentioned, we are revising our 2025 expected adjusted EBITDA growth target from 8% down to 2%, driven primarily by lower well site pricing in CNG, the unexpected onetime costs associated with the implementation of our new delivery tools in propane and the temporary wholesale supply disruption. Consolidated capital expenditures for the first 3 quarters were $76.7 million or approximately half of our full year CapEx guidance, largely due to the timing of receiving equipment in the propane business, but we continue to expect our CapEx to be approximately $150 million for the full year. For the quarter and year-to-date, corporate operating costs were $6.6 million and $20.4 million, respectively, and were relatively in line with our expectations. Our leverage at the end of the third quarter was 3.9x, down slightly compared with the year ago quarter. We expect to finish the year with leverage around 4.0x, up from our initial target of 3.6x due to the downward revision of adjusted EBITDA as well as a stronger Canadian dollar, which has impacted our Canadian dollar debt. We remain focused on reducing leverage and expect to achieve 3.0x by the end of 2027. We continue to believe that share repurchases are an excellent use of capital. During the quarter, we repurchased 1.8 million shares or approximately 1% of the outstanding common shares, below our run rate for the year as we ran through our NCIB. We have now repurchased over 10% of the company's equity and plan to renew our NCIB in the coming days, and plan to resume our repurchases in line with previously indicated plans of approximately CAD 135 million per year. Despite some of the challenges we faced this year, we remain on track to deliver value to our shareholders through substantial growth in our per share metrics. While EBITDA growth forecasts for the year have moderated, we have maintained sharp focus on capital efficiency and have continued to benefit from what we believe is an exceptionally attractive share price by executing our repurchase program and maxing out our NCIB. When factoring in our reduced share count, lower interest costs and growth in adjusted EBITDA, we expect 2025 EBITDA per share to grow by 15%. When adding this to our CapEx reductions, we expect free cash flow per share to grow by approximately 70% with 2024 -- compared with 2024. We continue to make progress in the transformation of our business and positioning the company for continued growth in the years ahead. And with that, I will turn it back for Q&A. Operator: [Operator Instructions] And our first question would be coming from Gary Ho of Desjardins Capital Markets. Gary Ho: Maybe just on the guidance change here. So I get the Certarus piece, which is due to softer pricing. But other reasons were kind of the onetime costs related to unexpected implementation of the new delivery technology. And then I think we already just mentioned the temporary wholesale supply disruption. Can you maybe elaborate on these 2 specifically? I would have thought kind of the onetime would be backed out of unusual costs. And also, are you able to kind of quantify each of these different components? Grier Colter: Gary, it's Grier. Let me take a shot at this, and maybe Allan will have some additional comments. So yes, we're looking at roughly a $30 million type adjustment. The vast majority of this or at least half of this is the Certarus. I think that's probably relatively clear. So just to be a little bit more helpful on the delivery tool technology. So if you think about this tool that we're implementing, it's obviously -- it's pretty sophisticated. It's got a lot of inputs like things we're trying to optimize and things we're trying to prioritize. So if you think of fill percentage on a tank, for example, it's a lot more efficient to go out and fill the tank 70% of the way versus 30% of the way. If you have more miles per 1,000 gallons, that's a bad thing. And so that's an input. There's capacity utilization, which is a circular thing, it's input. So I could go through this. There's a huge list of things that would impact your efficiency. And as we fine-tune or calibrate the tool, what you're doing ultimately is kind of prioritizing or having what trumps what. It's very complicated. And so what we found in the third quarter is we didn't have it perfectly calibrated. As a result, some of the things that you might have prioritized were kind of not in the right priority and got more of a waiting. So we are really efficient in some categories and less efficient in other. Ultimately, what we did is we didn't utilize the capacity that we had, which probably should have had more weighting. And as a result, kind of had a lower in-tank inventory and lower margin. You could see it in the volumes as well in Q3, and that was largely due to the delivery tool calibration we are doing. So you recalibrated in fourth quarter, we think we'll get the majority, if not all of this back in fourth quarter. So that's great. You get the margin back. The reason why the cost increase is because you're utilizing a much higher percentage of your labor capacity at that point. And obviously, demand for colder weather is also peaking up. And so you dip into overtime and some of the other categories of utilization of your labor force and that has a cost versus the capacity that you didn't use in Q3. And so that's -- so you'll kind of get back to the same inventory level, let's say, by the end of Q4. You'll get all that margin back. But as I say, the increase in the kind of cost per hour of labor is kind of where you lose that. And we're not sure exactly what that will be. We've kind of said, hey, like maybe that will be $5 million, $6 million. And so that is the change in the estimate for Superior Delivers. So that's the second component. And then the third component, this is really in the base propane business is largely the Martinez issue, which so far this year has kind of cost us better part of $3 million, and we kind of think for the full year, it will be a $4-ish million type thing. So if you kind of -- and then there's maybe some other routes and miles there, but those are the main components. So hopefully, that helps you a little bit. Allan MacDonald: Yes. Can I -- Gary, it's Allan. This inventory question is a complicated one for sure. If I were to say it really plainly, as we went through Q3, we had -- we came out of Q3 with lower in-tank inventories at our customer premise. Now that meant fewer deliveries. We didn't lose those customers. We didn't lose that volume. We just didn't deliver it in Q3. And we'll regain that volume in Q4 and Q1. What we did do though is we incurred the cost of some latent capacity in our distribution network in Q3. So when we talk about the cost, I mean, if you think about the volume, we'll recover the volume, we'll recover the gross margin that goes along with it. But we can't go back into Q3 and recoup the cost that we incurred for that excess capacity that we carried. When you're making changes of this magnitude, as I said in my comments, while you're restructuring the organization, you're going to have lessons learned. And we're making changes to an organization. And because of the seasonality of our business, our window, our sort of, our go period to make changes in the company is actually really small. You can't make changes and you got to basically black out in Q4 and Q1. So that gives you 2 quarters to make changes. We -- a 3-, 4-week delay in these kind of initiatives is not unusual, but for us, it has an impact. And that's really all you're seeing here is just the variation of those tank levels. And -- but rest assured, we did not lose those customers. We did not lose that volume, and we'll recover it. Gary Ho: Allan, while I have you, you mentioned words like reinvention, transformation, et cetera, in your prepared remarks, hired a new CCO. Can you maybe talk about high level the culture change, what's been some of the challenges you faced and early successes you see internally? And I have noticed that several of these hires are outside the propane industry. So what's the trade-off between bringing perhaps a new perspective versus industry experience? Allan MacDonald: That's a really insightful question, Gary. The pre-work that we did for Superior Delivers really started with challenging convention. At its core, this is a business that's operated kind of in isolation. It hasn't really had a lot of external disruption. And I can tell you that we have -- the fundamental things you already know, we have low market share when you compare us to the entire addressable market, and our customers are incredibly profitable. Yet, we were working in a pretty dated operating model that was very local and very manual. And you think where the benefit of scale was never really capitalized on. When you have a generation of employees that have worked in the propane business for 20, 25 years, trying to rally them to embrace the potential within this business is really hard because they know what they know, and they're really good at what they do. So I think the biggest first piece of the culture change was saying, look, if we start to look at the business a little bit differently, and we allow our colleagues to do complicated things like pricing once, do complicated things like route optimization once on behalf of the whole company, we can employ some really impressive tools that will get us some efficiency. That was a journey because that's like not dissimilar to all of you, that's a show-me story. I can tell you that as we move through that, the shift that I've seen from anecdotes and legacy thinking to data-driven decision-making is pretty astonishing, really astonishing actually. And I can't give our team enough credit. And we've asked them to do all of these Superior Delivers initiatives when we were restructuring the organization and bringing all of these groups together to a single propane company. So in the disruption of having a new boss and having new responsibilities, we're also using new tools, and we're working in new geographies. So I wasn't being in any way disingenuous when I said I'm incredibly impressed with the progress that we've made. In terms of strengthening the leadership team, there's a couple of things at play there. We're -- in the greater scheme of things, we're not the largest company. So we have to always balance talent that we're promoting from within, which is about 70% or 80% of the changes that we've made in the organization with introducing people from outside who have different experiences and skill sets. Within the propane sector, you're unlikely to find someone who has a sophistication in AI-driven algorithms around customer engagement, or someone who's -- there's not a lot of people who've worked on optimizing customer experience with call centers and sort of other digital engagement technologies. So what we're trying to do is not only bring in fresh points of view and leadership talent that's got a fresh perspective, but also acquiring skills that aren't resident within the industry. That married to people with great depth of experience in the industry like Tommy and others, has really had a big -- very positive impact on the organization. So I hope I answered your question. I'm not -- it's probably a longer answer than you're looking for, but everything begins with culture, and we wouldn't be where we are if we hadn't seen a marked change in terms of our cultural engagement here. Operator: And our next question will be coming from Daryl Young of Stifel. Daryl Young: I wanted to switch gears a little bit to Certarus and just get a sense of how you're thinking about the oil and gas exposure into 2026, maybe shifting of the fleet or maybe what you're seeing from a potential rationalization of the competitive landscape currently just given the oil and gas market seems like it's going to be weaker for a while? Allan MacDonald: Daryl, it's Allan. Let me offer a couple of strategic comments, and then I'll let the people that run the business actually talk. Dale is sitting here right next to me. The one thing I'll tell you about Certarus that I'm incredibly pleased with is Dale and his team are running this business so that they exit the cycle stronger and more competitive than they ever have before. And Dale and I were just talking before the call started. And sometimes, through periods of adversity, afterwards, you reflect on them and say they might have been a blessing in disguise. The success that Dale and his team are having in expanding this business into new markets, into adjacent categories, I don't think would have happened if it weren't for the challenges in the oil sector. They've restructured the business, so it's much more competitive at lower price points, and that's opened up the opportunity to explore other markets and have them be really attractive. So I can't say enough good things. This company is getting stronger and stronger through this last 12 months, and they're just -- they're on a great trajectory. I couldn't be more pleased. Having said that, obviously, there's a lot of questions about the oil sector and Dale, I'm sure he will share with you. Dale Winger: Daryl, as Allan said, we're extremely proud of the way the team is working to deliver for our customers safely and reliably while also improving our efficiencies and driving down our cost structure. And so as you probably know, just from an overall oil macro, which drives a lot of the North America activity, we were enjoying oil prices north of $70 in the first quarter of the year. I think recently, those have dipped below 60%. A lot of our customers have not provided a kind of spending forecast into 2026 yet. And so it's difficult for us to say exactly what to expect in that space. What we are -- many have talked about maintaining production or maintaining spending. And so we know that the blue chip folks are going to be in the best position to provide work. And so we have a very account-focused strategy where we're using our capabilities, our experience, our fleet size, our hub network, our digital tools to be the best provider, to be the most reliable provider at a cost-effective price point. Of course, they're all interested in reducing their operating costs, and we're in a great position to help them do that. And so as Allan mentioned, we've focused on our own procurement, and we focused on our own efficiencies to take advantage of the market circumstances to improve our competitive position. There hasn't been a lot of change in the sort of the competitive environment. We're still -- as you can see from the margin pressure, it still remains intense, and we're very focused on kind of building the capabilities and strengthening competitive advantage to maintain market share and be the best able to serve and whatever the competitive environment unfolds. Daryl Young: And then in terms of just the ERP route optimization tool, effectively, I guess, if I were to summarize it, has it led to an under or an incorrect fill rate that you're now playing catch-up and effectively paying overtime wages to execute? And I guess, is there a risk that customers are underfilled coming into the winter heating season that could result in more customer churn in the future? Allan MacDonald: Daryl, it's Allan. No, I wouldn't describe it as playing catch-up. We have some capacity, some sort of in-tank level that's slightly lower than it was last year. But the catch-up, in Grier's comments were how fast you sort of return to normal or more historical tank levels will be a factor of the winter that we face. If we -- we're going to do everything in our power, obviously, to make sure we don't run customers out of gas and put people in any kind of jeopardy and that's our first priority. And very much conversations we're having, as a matter of fact, as soon as this meeting ends to make sure that's not the case. The speed of recovery that we have will depend on the winter that presents. If we have a fairly normal winter, we'll recover the lion's share of it. If we have a heavy winter like we did in Q1 of last year, some of that volume will get deferred to later in 2026. But make no mistake that making sure that customers' tank levels are sufficient to get them through their season of demand is really important. The one thing I would sort of add to that is we've made a big shift away from -- we monitor customer tank levels, of course. But no two customers are the same. So in our vernacular, it's -- while that's an important metric, we've added to it days to empty because you can have 2 customers at 30%. One has 5 days to empty and one has 5 months to empty. So this is kind of a little bit of insight into the complexity of just how far we've come. There will be customers that -- we're calculating every customer's days to empty and there'll be customers we're reacting to with a lot of urgency, and there are other customers that we know that we can fill on a regular basis when the routes -- when the capacity allows and when the routes are in their vicinity. So we're trying to be very, very calculating and mindful of how we sort of recover this volume gap. Operator: And our next question will be coming from Nelson Ng of RBC Capital Markets. Nelson Ng: So I think in some of the commentary, you talked about mitigating customer attrition by -- with price management. Can you just give a bit more color on that initiative given that, I think, it's one of the headwinds. Like are a lot of customers -- like will lot of customers require like a lower propane price or margin to retain them. And is it more on the retail side or in industrial side? Allan MacDonald: Nelson, good to talk to you. Well, there's a few things going on there. Number one, the biggest contribution that we've made to improving retention is not raising our prices, which we've historically done year-over-year, which our competition continues to do. So we haven't had any price increases sort of categorically in the last, 12, 18 months. So that's step number one. The impact that has on churn is it doesn't necessarily -- price increases agitate churn, so we've removed that, but it doesn't necessarily improve churn. So what we've done following up from that is, in centralizing our call center and customer experience group, we've now got a group that are completely dedicated to customers who are at risk of churn. We've got some predictive models that were -- that are in place now that we continue to refine that predicts customers that are at risk, and we have interventions where we reach out to those customers and discuss issues, whether they be pricing-related issues or service-related issues, and we have some remedies in place to make sure we retain those customers. We've implemented, in some instances, price match guarantees, where when customers are calling in and having been offered at a better price, depending on our new pricing models, which allow us on a per customer basis to be able to calculate our optimal return and our optimal pricing based on their distance, their volume, their density of the community they live in, we're able to be much more aggressive. All of these things are sort of single instance tools that you apply to each customer. And so we're getting much better at remediation. Where I think the next stage in our evolution is doing that at scale and really tackling the churn opportunity that we have. I don't want -- what I said in my remarks was that these changes churn lags these changes. Often, customers are considering moving suppliers because of a price increase that happened maybe 12 months ago or a service incidence that happened 12 months ago because bear in mind that when we fill a tank, customers don't anticipate a change until they, for the most part, empty the tank. And if you're a seasonal customer, that could be 12 to 24 months. So that was really the comment about the lag between these changes and the impact we have on churn. But I don't want to leave you with the impression that churn has in any way changed materially in the negative over the last year because that isn't the case. Nelson Ng: And do you have any KPIs on churn and attrition? Or is that something more for -- given the lag, is that something you'll look to disclose at a later date? Allan MacDonald: Yes. It's something we'll look to disclose at a later date because I think one of the things we talked about historically was around the work that we've done, rationalizing our tank inventory in field, cleaning up old data sources that have inactive customers that, for all intents and purposes, haven't been a customer for years, but we're still included in our customer accounts, normal things you have when you grow through acquisitions. So getting that data up and getting reliable trending data and year-over-year comparative data is still a work in progress. We're getting there, but it's not completed yet. So it will be a while yet before we're able to share reliable churn data. Nelson Ng: And then just switching gears to Certarus. Can you just talk about the market dynamics in the sector? I think previous commentary mentioned that there was like an ample supply of MSUs in the market, particularly for like Q2 and Q3. Can you just talk about how we'll utilize the fleet was in Q3? And was the reduction in EBITDA partly due to losing some market share? Or it's mainly reducing price to maintain market share? Dale Winger: Nelson, it's Dale. It would be the latter. So price reductions required to maintain a consistent market share. The utilization of trailers was very similar to second quarter. So the fleet was not fully utilized in the third quarter. So we have trailers we can put to work. And as you know, the seasonal demand as it relates to winter type work and applications picks up for us in the fourth quarter and first quarter. And we will be in a sold-out position as we head into the heavier season. Nelson Ng: And then just one other one on Certarus. So I think, Allan mentioned that you guys are serving or will soon be serving 2 data center sites. Can you just talk about how long the expected contract term would be? Are we talking about a few months or a few quarters? Dale Winger: That's -- yes, we're really excited about the data center and had a press release in the quarter, getting one under our belt and demonstrating to the industry that this is a viable option to deal with pain points that they're experiencing in terms of getting power and fuel to get the data center up and running, you're probably seeing a bunch of things about that. In terms of your question, months to quarters is the right way to think about it. I mean everyone is going to be a little different. And of course, there -- the first that we talked about, there is a plan to have pipeline supply fuel there sometime in 2026, but they're ready to go sooner than that. And so as Allan mentioned, we've got a unique set of capabilities to be able to go after an opportunity that requires that much fuel, requires a fleet of trailers, it requires mobile compression, it requires end-to-end project management. And so we're really excited about how we're positioned in that space. As you know, there's a lot of capital flowing into the construction of data centers. And there are discontinuities in fuel supply and energy supply that we're well positioned. And so these will, in many cases, not be permanent supplies. They'll be looking for permanent infrastructure, but we have a really unique solution that we can kind of step in and be able to alleviate some pain points and at a cost-effective way that really kind of brings an end-to-end solution all the way from experience and having sort of the fleet of gear that can be mobilized on a time schedule that provides value for the customers. And so we're -- our focus right now is doing a great job in sort of building a strong reference case and sort of becoming better known in that ecosystem and further developing that pipeline. Nelson Ng: And then just one last question, and maybe it's for Grier. So it looks like you're a little bit behind on deleveraging this year. I know deleveraging is a combination of like outright debt reduction and EBITDA growth. But in terms of capital allocation, like does it make sense to allocate some capital from buybacks to debt reduction? Or how do you prioritize the two? Grier Colter: Yes, Nelson, no, I think no change, right? I think we're still very committed to share repurchases. But it is a balanced plan. And we -- as I said in my remarks, we are still very committed to the leverage. Our plan is to get to 3.0 by the end of 2027. As you know, that was previously kind of mid-2027, and with the cash -- the reduction in cash flow from kind of the lower EBITDA this year is a factor. They'll take a little bit longer, but that is still a very important goal for us. But I mean, look, the share repurchases so far have been very good, and we'll continue to do that. We think it's an important part of the overall strategy. So I don't know, obviously, no change. We're still committed, but debt reduction and the overall leverage reduction is still very much a priority. So we believe that we can balance both these. There's really -- there's no change in that regard. Operator: And our next question will be coming from Robert Catellier of CIBC Capital Markets. Robert Catellier: I wanted to ask that capital allocation that Nelson just asked, but maybe I'll ask the other part of it, and I don't want this to sound any more dramatic than it is. But in terms of capital allocation, do you see any further risk to the dividend? Or you're just looking at the other levers and trying to balance repurchases and leverage? Grier Colter: Rob, it's Grier again. Look, I think the dividend is not something that we're discussing here at all. It's part of the overall return to our shareholders. And we think that's an important part of the overall mix here. So yes, no, that's just not a topic that we're discussing right now. So you can assume that, that's part of the go-forward plan. And as I said to Nelson earlier, I think the strategy here is the same as what we would have said at Investor Day. I mean the allocation, the percentages, the things that we're focused on, there is no change whatsoever. If you think of what we're talking about today, we're talking about things that are temporary in nature, some well within our control, some less so. But in the longer run, we still are very much on the same path here. And all the things that we've been saying all along, we're very much along those paths. So yes, no change. Robert Catellier: Yes. No, I'm surprised to hear it. And then just on the MSUs and specifically in 2026, what is the outlook really for adding more MSUs to the fleet given the amount of pricing and margin pressure? Dale Winger: We haven't taken a decision on adding MSUs, as we mentioned, like we'll be in a sold-out position as we go through the winter season. And if there's opportunities to make high -- make good returns on capital adding to our fleet, we may need to do that as we open up additional hub locations. As Allan mentioned, we signed agreements for a piece of real estate and a gas supply in Florida. We're in process of moving gear to that location. We have a customer there already, a few others that will be coming online over the course of the next 90 to 120 days. And so as we -- and we anticipate opening additional hubs in early 2026, but too early to say specific plans for MSU adds for '26. Robert Catellier: And last one for me. As you guys look forward, obviously, the plan you're executing on Superior Delivers is not measured in months or quarters. But as you look through the fullness of that plan and you achieve your objectives, is there a permanent reduction in working capital to the business? Grier Colter: Yes. Maybe I'll start, and Allan may have some comments as well. It's being completely honest, I think it's probably a little too early tell. But what we've baked in our plans is that any working capital changes would be insignificant. I mean look, this is obviously something we'll continue to look at if there are great opportunities to be better there. And I think they probably are. But we're focused on the bigger prizes at this point. There's a lot here, right? I think like this -- when you look at the list of initiatives that we're focused on, one of the battles here is to try to not take on too much. And there's a lot there that can go on for a while. I think when you get further down the list, are there some working capital things in there? I would say that's highly likely. Are they bigger than the things we're working on today? I think you could confidently say probably not. But yes, maybe at the margin, there are some things, but I don't have anything more intelligent than that to say at this point. Operator: Our next question will be coming from Patrick Kenny of NBCM. Patrick Kenny: Just back on the leverage discussion. I know we've talked in the past about asset sales as a potential plan B to help shore up the balance sheet. Just wondering if given some of the challenges being experienced in California on the propane side, or obviously in the Permian within Certarus, if you're maybe reconsidering high-grading the portfolio at all, not only put the rightsized leverage over the near term, but also just to set these businesses up for perhaps less volatility down the road? Grier Colter: Pat, it's Grier. Yes. No, look, we feel really comfortable with the capital allocation plan. We think it's a great use of capital to continue buying back shares at this level. But keep in mind, it was always a balanced approach we are very focused on also bring the leverage down. The switch in the dividend, which basically went kind of straight to share repurchases almost for kind of dollar for dollar. But keep in mind, we're also driving more cash flow through the business, particularly in the case of Certarus where we brought the CapEx down significantly. That business will produce a bunch of cash flow. So there are a bunch of things we're doing here. Like in the next 6 months, we're going to see quite a lift in the EBITDA and cash flow from the propane business. And so, no, I mean, we're very much along the same path. I hear what you're asking for sure. We discussed it regularly. The reduction in leverage is really important to us as well. But there are other priorities here, and we're still on the same path here and committed to that. Patrick Kenny: And then I guess on Certarus specifically, and we've all seen the oil and gas customers pullback in terms of Permian drilling activity and overall CapEx. But just wondering on the Canadian side of the border, if you might be seeing any signs of customers accelerating activity, just given the added egress across the basin as well as LNG projects being declared in the national interest now? So just wondering how your team might be able to I guess, capitalize on this Canadian growth story over, say, the next 3 to 5 years? Dale Winger: Thank you, Patrick. This is Dale. No, great observation. We have the leading market position in the Canadian well site business, have multiple hubs that serve that market, have very good relationships with some of the folks that you're talking about that are involved in those. And while a smaller market, of course, in relative size to the Permian, an important one for us. Of course, the business was established in Alberta. And we feel really good about our position there and are continuing to invest in competitive advantage to grow with those opportunities. Operator: And our next question will be coming from Ben Isaacson of Scotiabank. Ben Isaacson: Just one question for me and about the bigger prize that you mentioned. You talked a lot today about everything being on track and confidence in delivering value. As you reflect on some of the setbacks though, to balance sheet leverage or Superior Delivers, can you talk about your confidence level in achieving 2027 free cash flow at USD 1 to USD 1.10? And then what is the cadence or the path to get there? Because presumably, it seems that the slope is a little bit higher to meet that target, but that's also in the face of headwinds that you mentioned. So I was just hoping you could connect the dots. Allan MacDonald: Ben, it's Allan. I'm going to just offer a comment on the trajectory of Superior Delivers, and then I'll let Grier take the hard part of the question. I said in my opening comments that transformation isn't linear. And it's always super frustrating when you can't see what I see, and I know it's frustrating for you guys, too. The fact that we were able to change wholesale, our distribution model here at Superior in 2 quarters, for me, it's an incredible accomplishment. People said we'd never be able to do it. And you're all smart people. You know these things aren't like a light switch where you're flipping on, everything works perfectly, and we'd be misrepresenting ourselves as we said it was. But it's in place, it's working. We're continuing to refine it, and we're starting to see the results. So in terms of, honestly, I think some of the biggest challenges that Superior Deliveries represented, we've tackled in 2025. Culture shift, bringing the organization together as a single business is much more complex than the average person would appreciate. And then really tackling our distribution model, being able to get our hands around pricing, bringing on new Chief Commercial Officer is a huge win for us. So I don't see the overall program being in jeopardy. In fact, we're all having to operate with a lot of discipline to not be distracted by some of the short-term challenges that invariably come with the transformation of this size and then the headwinds that we -- that are created that we don't control and remaining enthusiastic and determined about what the ultimate price is. And I'm as comfortable now as I -- probably more comfortable now than I was in April to be perfectly honest. But you had a specific question that Grier is going to answer for you. Grier Colter: Yes. So Ben, I would agree with everything that Allan said. So if we look at kind of what's changed between Investor Day and today, it's really kind of 3 things, right? And the CNG business obviously hasn't performed to our expectations. And largely, that's been the oil markets and completion activity, which has had an impact. And so in our model, in the long run, to get to 2027, if I look at what needs to happen, do we need to get back to the same oil prices and the same level of activity that was happening at the start of this year, certainly it would help, but we don't need to have that. If you listen to what Dale has said, we're trying to make this business better. The team has done an incredible job trying to make things more efficient, be better at what we do and diversify. And there's a couple of pretty good examples of diversification, and we'll continue to do that. So the business will be better. And I think -- so to get to 2027, I'd say we've made this business better since when we talked at Investor Day. And so in a stable environment, if the -- all this activity in the oil prices were the same, I would actually say that would probably be performing even better than what we said for 2027. But a lot of it is dependent on what happens in markets that are very difficult for us to control, but what we can control is making this business better. So that's the first thing I would say. On Superior Delivers, this is onetime thing. We will get -- as I said, we'll get this volume back most likely in the fourth quarter. There's onetime cost there, but if you look at the exit rate leaving this year, it's very much intact with what we originally said. So if you look at the health of the program, the size of the prize at the end, the inventory, the sale -- like the funnel that we use, like this stuff is all very healthy. And I would say we feel as good today as we did back at Investor Day. So I'd say that's the same number. I mean we -- yes, we brought the number up slightly, it's not that big. But I think hopefully, that will show the level of confidence that we have in the program and what we think will be achieved in 2027. So I'd say no change on that. The third item, Martinez, this has been a pain for us this year. Latest I've heard is that this will come back online start of next year, and so that should go away. Look, would there be potentially other refinery things that may come along? I mean, we'll always have to continue to evolve this business and assess things that are kind of coming at us and do the best things. But no, I think we're not going to get into like the fine-tooth comb of like pluses and minuses here or there or whatever. I would say, largely, no, the 2027 stuff is very much intact, but with that, I would say it is somewhat dependent on what happens in oil and gas markets. That will have an impact and maybe... Ben Isaacson: That's helpful. Allan MacDonald: And those are market pressures that blow both directions. Do you think it just as easily because of the same eventuality and the positive being overachievement. But to Grier's point, we're just focused on running the best business we can and thinking about the future. Sorry, Ben, did you have another question? Ben Isaacson: No, that's it. Appreciate it. Operator: And our final question will be coming from Aaron MacNeil of TD Cowen. Aaron MacNeil: I can appreciate the comments in the prepared remarks, including the clarity on the miss on the guide this year, but Superior is now missed 2 years in a row. So just in that context, can we expect that Superior will employ more conservative guidance assumptions in 2026? An obvious one for me is just the assumption of 5-year average temperatures, which historically overstates heating degree days. Again, I know you can't get into specifics, but -- maybe you could highlight the broader approach and your appetite for potentially starting the year with a lower growth rate that you can increase as the year progresses if things play out as you expect? Allan MacDonald: Aaron, it's Allan. My surprise you. I'm going to jump in on this one before we'd like to talk. First of all, thanks for joining us, and we wouldn't end the call, of course, without getting everybody. One of the -- you're absolutely right. Guidance has been real tricky for us. But our guidance is tied to our budget, and that's been really tricky for us. And part of the genesis of Superior Delivers was sophistication with which we ran the business. So if you start with how easy is this business to predict, right out of the gate, you've got the cyclicality in the propane business and the weather factor. I hate 5-year average, by the way. So I'm with you on that one. And then you have cyclicality in the oil and gas sector, which is incredibly difficult to predict. So those two things are not a great starting point. Historically, our capability to predict the performance of the business, I think, has been really challenged by understanding the relationship between price, margin, customer acquisition and your cost fluctuations. So a lot of the work we've been doing, and Grier and his team have done a great job at this over the past 1.5 years is understanding our business better. And when you understand it, you can predict -- it becomes more predictable. So I think what you've seen over the last year is a combination of a business that's tough to predict, but also one that didn't have very sophisticated tools at its disposal. We're not in the ninth inning on that yet, but we're much better than we were historically. So I think you'll start to see that our ability to forecast our own performance is markedly improved. Our ability to predict what happens in the external market, of course, is always going to be an X factor, but Grier and I both are much more leading on the conservative side than the ambitious side in that regard. Grier Colter: Yes, for sure. I would agree with everything that Allan said, I look, at the end of the day, we're trying to create realistic internal budgets that are not super easy and sandbag type things, but at the same time, things that are realistic and achievable. We save for these things, it's very hard to see some of these external factors happen, right? To be fair. And so we put the thing together with the best information that we had, and we'll continue to do that. It is somewhat difficult to see things that are, as I say, kind of from the outside. The Superior Delivers one is one that really I would kind of focus on that was more on us, right? And that's a big program. There's a lot of stuff in it, and we didn't see that. And so yes, do we maybe add a reserve for things like that? We'll certainly have more sight line though. Like if you think of where we are today versus where we were back in February when we announced our guidance, we didn't know nearly as much about Superior Delivers as we know today. So that will be quite helpful. But that -- the base business is actually -- we've been quite close so far. If you look at where we are kind of year-to-date, the base business estimate has been very close to right on. Now having said that, we had a good idea what the weather looked like in first quarter and second and third quarter, the weather is not as much of an impact. So we'll see what kind of happens in the fourth quarter. But yes, look, we did our best. I think that's -- I would say we'll do our best again and trying to give our people here a shot at realistic targets and letting the market kind of see what we see, but it is difficult to anticipate all these things. I kind of look at the 3 major factors here. And the 2 external ones were pretty tough for us to see. The internal one, it's a big program, that's complicated. Should we may be seeing that, I guess, maybe you could say that. But we'll know a lot more for sure, as I say, going into next year. And I think the budget will be different. But from my perspective, it's not -- I wouldn't say, yes, we're going to set a way easier budget next year, numbers that are easier to hit. I think we'll continue to try to set what we think are realistic targets and try to have our people motivated to do great stuff and also give the market the best idea of what we think the business is going to do. Allan MacDonald: Yes. And it's funny because Q2 and Q3, they are so unforgiving, they're so small. That anything -- in a lot of companies, your margin of error would be negligible in a quarter, but because of the way our business comes in, it's really unforgiving to the smallest of miscalculations or external factors that you don't control, which is frustrating. But I mean, it's a business we're in, so we have to live. Aaron MacNeil: Okay. Fair enough. All very good points. Dale, maybe just another one for you on Certarus. I just want to confirm that the current data center opportunities today contemplate gas delivery only. And if the answer is yes, what's your appetite to sort of branch out to electric power and sort of just given the several other competitors are starting to do that with the quarter? Dale Winger: Yes, Aaron, confirming that it is for gas supply only. And I mean really the full system to provide fuel to whatever their power generation of choice is. And as you know, providing -- actually providing the power is a different capital profile than what Certarus has right now. And there are a number of people that are doing that already. And so our approach has been to build relationships with those people, the people that have the power generation assets, and be able to provide a complementary service that helps them operate reliably when pipeline supply is not available. Operator: I'm showing no further questions at this time. I'd like to hand the call to Allan MacDonald, President and CEO, for closing remarks. Allan MacDonald: Thanks, operator, and thanks all of you for your time and attention. And you've all been on this journey with us, and we're continuing to persevere. Something that Grier and I talked about earlier this week that's not lost on me is, it's always easy to focus on the challenges in front of us, and sometimes we forget to reflect on how far we've come. Our results so far in 2025 certainly aren't as -- they didn't meet our expectations. Having said that, year-to-date, this company is growing and it's growing despite the challenges that existed in the business. And when I joined 2.5 years ago, this was about, "Hey, how do we transform Superior into an organic growth story?" So this company is growing without acquisitions, without raising margins, without pulling deliveries forward. And I'm incredibly proud of the team. For us, that is -- that was a really big milestone to pass through. Now we still have another quarter to go, and that's okay, but we're well on our way in this journey. And I think when we reflect on it, we'll say it wasn't easy, and there were difficult times through it, but perseverance was what made the difference. So you can rest assure that you have a management team that is incredibly focused on the long-term health of this company. So with all that, thank you all very, very much and look forward to talking to you in our next quarterly call in between. Take care. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Carolina Senna: Good afternoon, everyone. I am Carolina Sena, Cemig's IR Superintendent. Welcome to Cemig's Third Quarter 2025 Earnings Video Conference Call. This video conference is being recorded, and it will be available on the company's IR website at ri.cemig.com.br, where you also find the full package on our earnings call. [Operator Instructions] We will now start Cemig's video conference call with Reynaldo Passanezi Filho, CEO; Andrea Marques de Almeida, CFO and IR Officer; Luis Cláudio Correa Villani, Chief Information Officer; Sergio Lopes Cabral, Chief Commercialization Officer; Sérgio Pessoa de Paula Castro, Chief Legal Officer; Carlos Camargo de Colón, Gasmig's CEO; Iuri Araújo de Mendonça, Cemig SIM's CEO. For their initial remarks, I turn the floor over to our CEO, Reynaldo Passanezi Filho. Reynaldo Filho: Good afternoon, everyone. Welcome to our earnings call for the third quarter. It's always an opportunity and a pleasure to be able to bring to you our results and our efforts in another quarter. This is a quarter in which we have more difficult news. Of course, I would like to highlight some important topics that show the strength and the resilience of Cemig's earnings. About specific news on the quarter, we had distribution results that were affected by large clients that left the network. They migrated to the basic network about trading. We tried to decrease some positions. Also, that involves the submarket prices that have affected the results. What's important, and you know that when we look at our net position, it is very favorable in the scenario that we have for pricing today. The same thing happened with generation because of the difference in the GSF and the need to offset that with the spot price. This is what I would like to highlight. And despite of these topics, we moved on with a recurring EBITDA, proving the company's resilience, and we have confirmed the AAA rating by Moody's. We have 2 agencies now guaranteeing us a AAA rating, showing our resilience capacity to any type of scenario. We also had an award by a magazine called Veja Negócios, as the best energy company in Brazil in the top 30 award. And we also had the approval of our health care plan for retired employees. So we finalized a collective agreement with the union and that allows us to look for a positive structural solution that will preserve a positive transition to all of us. Therefore, they can keep their health care plan and also we'll be able to guarantee the company's sustainability. And the final topic, and Andrea is going to go over the details, which is our investment program. We are, once again, making the largest investment program in the company. For this quarter, we have BRL 4.7 billion, a significant increase when compared to last year. I believe we have a very positive message here, and we are maintaining our investment plan. And that means very positive results for the tariff review situation when that comes. So here, we have BRL 3.6 billion in distribution by itself. If we multiply that by the WACC, we know that the results bring additional revenue of a little over BRL 500 million just for that 9 months. So these are very cautious investments in regulated areas that when they get mature and the agency recognizes that we are going to have very positive results for the company. This is what allows us to have resilience today, and this is what allows us to have very positive results in the future, whether by these investments or by a very favorable position in the trading business in the near future. These are my initial remarks. Obviously, we are here to take your questions after the company's presentation. I'll turn the floor to Andrea, but I would like to stress the strength of this company and that we are very confident that we are going to move on with this investment plan and maintain the company's debt levels and the covenants and therefore, to keep on investing, keep on generating value. And this is going to get more mature according to the regulations and tariff regulations as expected. Thank you very much. Andrea de Almeida: Good afternoon, everyone. It's also a pleasure to be here with all of you today, going over our third quarter earnings. Now moving on, talking about our investments, as Reynaldo mentioned, we invested in the 9 months of 2025, BRL 4.7 billion. And this is how they break down BRL 3.6 billion in distribution, focused obviously in substations. This is a milestone and we have some pictures to show you the substations that we had in the quarter, but also 5,349 kilometers of low and medium voltage networks, which are very important to bring good service to Minas Gerais. For generation, we also mentioned our participation in the GSF credit auction with BRL 199 million. That's very nice. It guaranteed the extension of our concession in some of our plants. But also we had investments of BRL 149 million in expansion and maintenance. For transmission, we have our Verona project, around BRL 30 million, and we are still investing in reinforcements and improvements, and we are going to mention some of those and how the allowed annual revenue is performing in transmission. For Gasmig, the centralized project is the most representative one, around BRL 180 million being invested in the project. And for Cemig SIM, the delivery of new photovoltaic plants and 31 megawatts of installed capacity. Moving forward, we have the pictures of the 5 new substations, the ones this quarter, Andrelândia, Coronel Xavier Chaves, João Pinheiro, São Tiago, Fronteira. These are our highlights of new substations for distribution. Now turning to transmission. We see where in our operation we had improvements: Taquaril, Três Marias, São Simão, Itajubá, Volta Grande, Lafaiete. And we were able to add over the year, BRL 32 million of allowed annual revenue in our transmission business. And of course, this brings great results as well. Moving over to the figures. As Reynaldo mentioned, we have BRL 1.5 billion of EBITDA, and we see a drop in our EBITDA in around 16.3% when we analyze the recurring EBITDA, and I will talk about the recurring numbers, and then I'll talk about the nonrecurring events of last year, which were significant. We can talk about them as well. In generation, we already mentioned we had the effects of a lower GSF. We had to buy energy to cover for the GSF. So we had an impact of BRL 54 million. In the trading business, there was an impact here. And we already had the reduction in margin in the trading comparing '24 to '25. And we ended positions. We closed positions and of course, came from our exposure and other positions that were also open. So the closing of these positions and the purchasing of energy and the prices -- the spot prices that we have seen ended up having this impact of BRL 136 million for distribution. In '24, we had a change in the methodology, which was a reversal of our ADA and that reverted how we provisioned our ADA. We didn't have that in 2025. Therefore, there is a negative delta effect in distribution. And you will see that the market also has reduced it. And as Reynaldo mentioned, some clients left and went to the basic network. Therefore, this impacted distribution. Now turning to our net profit, the major investment that we are making has a greater depreciation impact than the funding, the increase of the interest rates, and of course, the increase of leverage of the debt also affects our net profit, the recurring net profit, and we realized that there was this drop of around 30.2%. For nonrecurring effects of last year, just let me remind you, they were very relevant. We had BRL 1.6 billion of the disposal of Aliança last year. Of course, this is not happening this year, and the tariff review for the transmission business of BRL 1.5 billion. These did not show in 2025. That's why we have also this relevant delta here. Let's move on. Here, zooming in, in GSF, when we compare GSF of 2024, we see the performance of July and September. GSF for 2024 going from 0.8 to up to 0.7. So we did have to purchase to deal with the hydrological risk and also the level of the energy price that we see this year. Of course, higher levels than what we have seen last year. Just September of last year, we had higher prices than this year, as you can check in the charts. So this is the impact. Now operating costs and expenses. We are growing below the inflation rate. And outsourced services, which is what draws our attention, we have an increase in areas where distribution has to invest more efforts to guarantee the improvement of services, whether maintaining, installations or in technology, and we still are working on the improvement with smart meters. We have to invest in that. And we have to fund technology. We have to prune trees and also clear the pathway. So that's where we have a higher increase in other expenses. Also, we had the sale of a plot. For personnel, we see a performance -- a good performance here. But here, we have in-sourcing of employees. We are bringing in our own teams so that we can cater to our clients faster in specific regions. And we really want to be more efficient in our service in regions. And we know that Minas Gerais is a largest state. So we want to be quicker serving further away areas. So we have an increase here in personnel in our headcount. Moving on, in line with our capital structure, we, yes, need the debt to fund our investments, but our leverage is at very safe levels. We are at 1.76 or net debt over recurring EBITDA. That's why we have our best rating in history. As Reynaldo mentioned, two AAAs and one AA+, and we are structuring our debt in a way to increase the average tenure. We reached 5.7 with the average term -- as average term. And the cost performance, we see the fact of the high cost of the interest rates, which affect all of us in the market and as well as Cemig, of course. Now for our cash flow. This is how we have been financing our activity, our investments. We start with cash. This is for 9 months, okay? So we start with cash of 2024 at BRL 2.3 billion. We have cash from operations of BRL 3.4 billion. We have the debentures issuance in May of BRL 5.1 billion, the debentures payments, of course, obviously. These are prior debentures of BRL 2.4 billion. Dividends and IOC, BRL 1.7 billion. Our activities for investments of BRL 4.5 billion. Earmarked funds here, BRL 187 million. We have to have this amount aside. So we come to our final cash of BRL 2.3 billion. For Cemig D, everything is more or less explained already. But effectively, we show a drop in EBITDA of 4.7%, especially because of the market reduction, whether it is by economic activity, once it's not that positive and also the temperature that was mild and the market dropped. Once again, the client that has migrated in the second quarter to the basic network. And of course, now in the third quarter, we see the full impact of this migration. In addition to that, we have the reversal of the constitution that I said of the ADA, as I mentioned before. And of course, in the net profit for Cemig D, we see the effect of our fundings and also the interest rates affecting that result. Talking a little bit now about the energy market. We had a drop of 4.4%, and we see the full effect in all the different markets and our distributing company coming from the rural, commercial, industrial, all the effects coming from all the markets. And in fact, here, we see this drop being caused by this client that has migrated for the basic network. Our operating indicators show that our collection is still very strong, focusing in the digital channels and Pix, our payment method is the cheapest. And now we are going to have the auto Pix as well. And we will be able to have campaigns so that people choose this payment mode, which helps us all and also reduces our costs. And this is growing as a good option of payment. And now our ARFA, the receivables collection index is at good, stable levels, and our regulatory OpEx and EBITDA show that we are within the regulatory standards. In terms of regulatory losses, we are also within the standards. There was a change in the criteria which already happened. We are now are integrating the effects of micro and mini generations that are distributed. So we are continuing to work. We have always keep working on losses. We have to install the armored meeting panels. We have to install the smart meters. And all the actions that we have to keep on taking so that this indicator is within the regulatory limits. For Cemig GT, once again, we talked about it. GSF was the main impact. We had to purchase energy to tackle the hydrological risk and the recurring net profit. Here, you can see the results as well. And Cemig GT was the one that had the main nonrecurring effects from 2024. So the major impacts are there represented last year. Therefore, we had a higher EBITDA in 2024 effects that are not replicated in 2025. And Gasmig, that also had impact for EBITDA reduction because there was a drop of 6% in the market and also the clients that migrated to the free market. This, once again, effect on Gasmig. And on this page, we have Cemig's recognitions. Reynaldo already mentioned, and that we are very proud to be recognized as the best energy company in Brazil by Veja Negócios. And there are other recognitions. We are also recognized as the best financial team in the infrastructure and energy sector by FILASA. We also got the transparency award from ANEFAC. We have always room to improve, but it's already great to be recognized by the 19th time by ANEFAC. And there is a new one, the ESG award. Cemig has thousands of awards in sustainability. And we are very proud, and it's always great to have another one. So ESG from ANEFAC in this category, Transformative Internship category. Therefore, I end my presentation, and I turn the floor back to Carol to ask -- to open the Q&A session and take your questions. Carolina Senna: [Operator Instructions] Our first question is from Victor Sousa, Genial Investimentos. Vitor Sousa: Hello, can you hear us? Carolina Senna: Yes, we can hear you, Victor. Go ahead. Vitor Sousa: My question is about Technical Note 53 that changes how you post losses in the distribution sector. I would like to understand if there is a possibility of republishing the level of losses that Cemig had. Now looking backwards here, I would like to understand if this change can end up generating any accounting retroactive effect regarding the application of this technical note if your concerned amount receivables, provisions and other adjustments, or is this just a prospective impact, just an accounting impact? And another question still on this note. How would have been the level of losses for distribution if this technical note did not exist? So in the same comparison base, what would have been the performance of Cemig losses? Would they have increased, decreased, or they would have been the same? I think this is important to understand for the process of assessing the distributing companies. Reynaldo Filho: Thank you, Vitor, for your question. Denis Mollica, our Strategy, Innovation and Sustainability Officer. Please, Dennis. Denis Mollica: Thank you for your question, Vitor. About the method used for calculation of losses. The method, even having it being reviewed, it does not -- it's not applied to past calculations. Even if we were to simulate that in the prior losses and the older losses, we would still be within the limits. So for practical accounting effects, adjustments have done from now on. And as it was said already, we are still within the regulatory losses, both before and after this technical note. So we have major actions to manage and to fight our losses, and they are within the limits with no effects that might affect accounting at all. And of course, yes, we also have here a positive effect on the tariff once we have the recognition of the impacts of the DG in the method of calculating losses. Carolina Senna: [Operator Instructions] Our next question is from Luiza Candiota from Banco Itaú. Luiza Candiota: It is about your trading strategy. Analyzing the changes in the energy balance in this quarter compared to the prior one. I would like to go over the details of the rationale regarding the short exposure when we look at '25, '26 and '28. What could be explaining this change that we see? Reynaldo Filho: Thank you, Luiza. I'll turn the floor to our Chief Trading Officer, Sergio Lopes. Sergio Cabral: First, thank you for your question. We have been doing a great effort to close our positions. Of course, we have some marginal sales that we are executing with clients that are strategic, but our position is not to open more positions. We want to close, as Andrea has mentioned. For this quarter, we could close positions in these past months. And also, we have the impact of gold that ended up making us go to the market to buy energy, but we are not opening positions. We are rather than that closing them. Carolina Senna: There are no further questions. We thank you all very much for your participation. And the superintendents of IR is available to take any other questions you might have. Therefore, we end Cemig's third call -- video conference call. Have a nice afternoon, and thank you very much.
Operator: Thank you for standing by, and welcome to Peyto's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to President and CEO, JP Lachance. Please go ahead. Jean-Paul Lachance: Thanks, Latif. Good morning, folks, and thanks for joining Peyto's Third Quarter 2025 Conference Call. Before we begin, I'd like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory set forth in the company's news release issued yesterday. Here in the room with me is Riley Frame, our COO; Tavis Carlson, our CFO; Lee Curran, our VP of Drilling and Completions; Todd Burdick, our VP of Production; Mike Collens, our VP of Marketing; Derick Czember, our VP of Land and Business Development; Crissy Rafoss, our VP of Finance; and Michael Rees, our VP of Geoscience. Before we discuss the quarter, on behalf of this group here and the management team, I'd like to sincerely thank the entire Peyto team, both here in the office and in the field, for their contributions to yet another strong quarter. And we had a busy quarter. It's carried on through into Q4. July was a little wet, somewhat unusually wet, and that slowed our activity in the month down a little bit. We had some plant turnarounds. We built and started up a new field compressor in Sundance. We added a fifth rig. We shut in some gas in September due to low prices. And most recently, we extended our credit facility. And that's just to name a few things. Quarterly production per share was up 5% compared to Q3 last year, relatively flat quarter-over-quarter production at approximately 130,000 BOEs a day. But cash cost of $1.21 per Mcfe or $1.13 per Mcfe without royalties were down to their lowest level since we purchased the Repsol Canada assets in the fourth quarter of 2023. And that's not just unit cost due to some production dilution. That's absolute costs as well. AECO 7A prices averaged a mere $0.94 per GJ or about $1.08 per Mcf when you account for the [ e-content ] of our gas for the quarter. But our strong hedge book added $87 million of gains or about $1.38 per Mcf for gas, and our marketing diversification contributed another $1.11 per Mcf, yielding $3.57 per Mcf all-in realized natural gas price, which equates to about 3.3x that of AECO for the quarter. Putting all these elements together resulted in funds from operations of nearly $200 million or $0.98 per diluted share, and that's up from -- up by 29% from Q3 last year or 26% on a per share basis. We also achieved a top-tier operating profit -- or operating margin of 72% with a profit margin of 29%. And which at the end of the day, we feel is the most important. I mean, after all, it's generating profits, right? And it's those profits that we can return back to our shareholders in the form of dividends, which we paid out $0.33 per share in the quarter or a total of $66 million. We spent $126 million of capital in Q3, up from previous quarters. So that's mainly due to the addition of the Sundance compressor station, the addition of a fifth rig later in the quarter and the Oldman plant turnarounds. Nevertheless, our payout ratio was just under 100%, and we were able to pay down a little more net debt of $20.5 million, bringing our year-to-date net debt repayment to $126 million. And I think more importantly, the increase in capital activity in late Q3 allows us to increase production into Q4 and Q1 and capitalize on improving winter pricing. Okay. Let's talk a little bit about our operations during the quarter and so far into Q4. We had a couple of minor production interruptions in the quarter with planned Oldman turnarounds and some gas that we elected to shut in when prices went negative. But we also brought on a new field compressor in Sundance, which added some gas by pulling down the gathering system pressure. We brought on another rig in Sundance to help us catch up on the activity delayed from the wet July. And our drilling program shifted to the potent Notikewin, Falher and Bluesky species in the third quarter, and we're now drilling and completing what we think we expect will be the most productive wells of the 2025 program. We don't amortize individual well rates, but we expect that these -- the wells that we just drilled in the second half of 2025 will -- to outperform those from earlier in the year, such that our full year vintage production curve should look a whole lot like 2024. And that really relates to the complexion of the species in the second half as compared to the first half. Of course, it isn't just the rates that matter. It's also the amount of capital that we deployed to achieve them, and we expect that these wells will rank as some of our highest rates of return projects this year. So what does all this mean? I expect we're going to set a new production record for the company in November, and we're well on our way and very comfortable to reaching our target of 140,000 BOEs per day exit for December, which correlates to the midpoint of our guidance of capital spending. Also subsequent to the third quarter, we renewed and extended our credit facility for another 4 years. We rolled in what was left of the term loan that we put in place for the Repsol acquisition. So our new revolver -- revolving credit facility now stands at $1.05 billion, of which were drawn -- we were drawn $745 million on closing of that extension. We still have approximately $491 million of long-term private notes that mature at various times over the next 9 years. When you take all this together, it provides Peyto with a strong liquidity position to execute our business plan. It also shows the support of our lenders to Peyto's business plan and to our strategy. I mentioned that we shut in some production in September, not because we were exposed to low AECO prices, our hedging and downstream diversification protects us from that. But because it made sense to have someone else pay us to take their gas, which we then use to fulfill our physical contracts and preserve our gas for better pricing in the future. Our diversification to other markets allowed us to gain a premium price of $1.11 per Mcf, as I mentioned earlier, over AECO, and that's net of the cost to get to those markets. Our physical and synthetic service to Henry Hub, Chicago, Dawn/Parkway, Venture and the Alberta power market all contributed to this gain, and we expect them to continue to contribute meaningfully into '26 based on the current strip. We've released our preliminary capital budget for 2026. We plan to invest between $450 million to $500 million of capital next year to drill between 70 to 80 net wells. This program should add between 43,000 to 48,000 BOEs per day by next December and more than replace our estimated 26% to 28% corporate production decline over the year. If this sounds a lot like '25, it is. I guess the key difference here is that we plan to continue drilling with 5 rigs in the first half of '26, which should change the production profile and the capital profile to be a little more front-end loaded than in the past years. We can apply the brakes and slow down the program in the second half if prices or the business environment warrants it. Conversely, we can keep it going with 5 rigs and aim for the high end of the guidance, if that makes sense. And this plan is consistent with our outlook on natural gas prices in 2026. The preliminary program had us spending about 80% on new wells, with the rest going towards pipeline and plant optimizations. These projects will be undertaken to improve plant reliability, lower our costs and debottleneck field gas gathering systems to accommodate new drilling. We also have some minor plant turnarounds planned for later in Q3 next year, when prices tend to be the weakest. And maybe we'll get Todd to expand on -- with some details on that later. We will firm up the capital budget in February with our reserves release, which should also coincide with the full ramp up of LNG Canada if it all goes well. So in closing, we think it was an excellent quarter, and we look -- as we look forward, we are well positioned to grow modestly, 5% to 10%, with enough cash flow not only to fund the capital program, but to return dividends to our shareholders and to continue to pay down debt over the next year. This is thanks to our prudent business strategy to keep the costs that we control as low as possible while protecting the revenues in the near term with our disciplined hedging strategy and derisking our sales markets to gas demand regions. This is manifested in stable long-term returns to our shareholders over the last 27 years, and we aim to continue that. I don't think there's been a more optimistic time in the natural gas market with all the positive demand growth from both recent and future LNG build-outs in North America and the increasing appetite for power generation from gas in both U.S. and Canada. Heck, it looks like we've even got support from our federal government to the industry. And I think Peyto is well positioned to take advantage of these exciting times. Okay. I think there's some -- probably some questions, Latif, for us. We can go to the phones if there's anybody waiting. If not, I do have some questions that have come in through email overnight. Operator: [Operator Instructions] And sir, I don't show any questions at this time. Jean-Paul Lachance: Yes, I will go to some questions I've received via e-mail. This one comes from Chris Thompson of CIBC. He couldn't make the call here this morning. One of his questions is, would Peyto continue to hedge gas volumes on forward strip given AECO basis remains wide for the foreseeable future? And do you believe that the basin is entering a period of increased production discipline given producer hedge books are rolling off and operators have an increasing exposure to AECO? So I'll answer the first part of that. I normally would look to Mike. Mike has also got some -- having some trouble with his voice this morning. So I'll try and do my best. Mike, you can squeeze in if I miss an important point. But I think when we look at the business, we've always run the business prudently. And I think when we think about the business of hedging, we're going to continue to be -- our disciplined risk management program. We're going to navigate the stormy waters of AECO with care. We know this is a volatile market. So our hedging strategy, we don't plan to change our hedging strategy. As everyone knows, we have the guardrails, which we can land on between -- when we get to a certain season. So we'll continue to run the hedging program as we always have. I don't know about the increased production discipline. I can't speak to other producers, and I don't know about other producers' hedge books and whether they're rolling off and what their exposure is or isn't to the market. But I do know that we don't change our strategy year-over-year around that. I guess we have some minimums that we like to accomplish, Mike. And I think that's obviously, minimum prices that we want to see. So we recognize that future prices are down a little bit from where we've been able to hedge. We've still taken some of that off the table. It's a price that works for us. But we'll continue to do that. So I would say our hedging strategy hasn't changed and won't change in the near future. Another question Chris had was on our 2026 goals for cash costs and what we're thinking and what we -- how we achieve those goals. Maybe I'll turn that over to -- I think -- well, I think simply, there are two things that we're going to work on here. One is OpEx, and one is -- we'll always work on OpEx, it's the relentless pursuit of reducing those costs. The other one is just naturally interest costs will come down as we pay down debt. Over the next year, interest costs will come down on a per unit basis. But maybe, Todd, do you want to elaborate? We've got some plans for next year on our facility capital. Maybe you can tie that into maybe how that helps us reduce our costs. And I would say all the target that we're looking at for cash costs for next year should be somewhere around 10% reduction, excluding royalties, of course. But maybe, Todd, do you want to comment on the operating costs? Todd Burdick: Yes, sure. So obviously, we have a number of facility and projects -- pipeline projects on the go for next year, which will allow us to, I guess, see as much of the new wells that are drilled, which will help, obviously, OpEx dilution just through the increased production. But as well, we've been working on a lot of labor, I guess, efficiencies with the Edson plant and some of the other integration pieces that we've been able to spread out some of the labor amongst the field, which we're starting to really see bear some fruit. As well, we've seen chemicals kind of come down a little bit. We're hoping that, that's going to continue or at least stay flat, which has really helped. Weather has helped a little bit. But obviously, through the winter months, when pricing typically goes up through this time, we're kind of seeing things hold flat, which is a good sign in the chemical market. So with those two things and sort of, I guess, our ongoing little pieces that we work on, we expect to see a pretty good drop, like you say, around 10% over next year versus what we've seen so far this year. Jean-Paul Lachance: Thanks, Todd. I see there's a question there. Do you want to go to the phones there, please, Latif? Operator: We have a question from the line of Amir Arif of ATB Capital. Laique Ahmad Amir Arif: Just had a quick question on that fifth rig. I think if I heard you right, in the capital budget, it's essentially in the year for half a year. And I'm just curious, what kind of spot gas price you need sort of to keep it for the whole year? And if you do, how much additional capital we can think about or additional production we can think about if the rig is extended from half year to full year? Jean-Paul Lachance: Yes. So I think the difference in our capital program for next year than this past year is that we're going to front-end load a little bit more. I'll maybe get Riley to speak to what that means. But essentially, what we're suggesting, we're very happy, first of all, with rig and ops operating. So we feel like keeping it running. Last year, we had a rig out to do -- sorry, we got a rig on a window, had to drill a couple of wells, but it couldn't stay there because we would have filled up that plant and couldn't really effectively use it. We're down in Sundance right now. Things are going well. We'd like to keep it running. So we're going to do that. And that just changed the complexion of the loading. Maybe we'll talk about that first. The price trigger, I think there's so much more than just the price. It's what have we been able to hedge, what have we -- what are our cost situations. So there's a lot that goes into that. I wouldn't say there's necessarily a price trigger. But if we kept the 5 rigs going all year around, that -- all throughout the whole year, that's the high end of the guidance, essentially. So we're moving it somewhere in the middle of the year, should we decide to, would be -- would get us towards the midpoint, I would suggest. But Riley, do you want to talk about the complexion of the program and maybe how it's loaded? Riley Frame: Yes. I mean, the complexion of the program from sort of an area and species perspective is going to be very similar to what we did this year. And JP alluded to the [ DCP ] and [ non-DCP ] capital. Allocation is very similar. But as it pertains to sort of the capital program for the year as we're towards that midpoint of guidance, we'll see it being sort of 55% capital front-end, 45% capital back-end loading. And then, yes, depending on kind of how the year goes and obviously prices playing a role in that, that could shift to 50-50 if we end up going to the high end as we bring on more activity in the back end with [indiscernible]. Jean-Paul Lachance: So the production profile will then sort of look that, and similarly as opposed to in the past, we've had more of a decreasing production profile in the sort of middle quarters because of activity. Now we're going to probably be a little more -- build that production profile a little steadier over the year, which is what I think you see in our corporate presentation materials for '26. So if that helps. Laique Ahmad Amir Arif: Absolutely. No, that helps, JP. And then just a follow-up question. Just on -- in terms of the cadence of the operating cost improvements you're thinking for '26, is it more tied to the looping projects at Sundance? Like, is it going to be more of a step change at a certain point in the year? Or is it sort of gradual as the year unfolds? Jean-Paul Lachance: We have some projects that are planned that are optimization of the plant. Those are the ones that will typically help with that, other than the production growth itself, considering -- but we were stunned a little bit in Q2, as we didn't expect -- government costs now are roughly 30% of our operating costs, which is significant, right? That's the AER fees. That's the fees to pay the Orphan Well fund, that's property tax and that's a carbon tax. So we didn't have enough in our budget for the property tax in Q2. So we went up in Q2. So I don't know what surprises are around the corner. But as far as what we control on that side, it will be the projects that Todd discussed. Typically, costs go up in Q1 because it's cold and we have -- we use more chemical. And costs decline as the rest of the year progresses, and that's what I think you can expect on the profile. Go ahead, Tavis. Tavis Carlson: I can add on your point on government costs and fixed costs in general, which is a lot harder to drive down yearly, they're 60%, 65% of our total OpEx. So we've only got 35% of that OpEx that we are really able to play with. And when you look at $0.50 op cost, that means you're talking $0.15, $0.16 that you can really control a lot more effectively than things like property tax going up higher than you thought or Orphan Well levy or AER, things like that. Laique Ahmad Amir Arif: Okay. And then just to clarify, should we be thinking about a 10% reduction to your average cost from this year, which is $0.54? Or 10% reduction from your current cost of $0.51? Jean-Paul Lachance: I'd say the all-in cost for the year, year-over-year. We don't -- quarter-on-quarter is a tough one to call, right, like I just mentioned, because it can vary. So year-over-year. Laique Ahmad Amir Arif: Got it. Jean-Paul Lachance: Okay. I have another question. If there isn't a question on the phone, I have another question that came in, which is more like -- we had some pretty low royalty rates. And I think that's one of the things we'd like to highlight. It was obviously, what was it -- 2.6%? For the quarter? I just want to ask Tavis how that -- how we see the complexion of our royalty rates going forward and what's sort of behind that 2.6% because it's obviously pretty low, one of the lowest in the industry. Tavis Carlson: Yes, JP, there are a few factors that contributed to the low royalties for the quarter. Firstly, low AECO. Again, we were $0.90 on a 7A basis, I think -- or $0.94. I think AECO was $0.60 per GJ. And AECO is really what drives the Alberta reference price that the Crown uses to charge us royalties. And then secondly, we have a lot of our volumes diversified away from AECO. So we're getting really strong prices in the U.S. Midwest in Dawn and Henry Hub. So -- and those additional revenues that we're getting really aren't royaltied the same as the AECO stuff, right? Jean-Paul Lachance: Yes, sir. Tavis Carlson: Next would be increased gas cost allowance credits. Those went up in Q2, and we're going to see those for the next 3 or 4 quarters. And then we also had lower NGL royalties from the decline in WTI and NGL prices. And I guess lastly would be just we have lower other royalties. We haven't done any wide sweeping, overriding royalty deals on our lands. So our other royalties are probably less than 0.5%. Jean-Paul Lachance: Well, we haven't encumbered our lands with other -- besides Crown royalties, we're not encumbered with other royalties. So I think that's a testament to the way we run the business, pay me now, pay me later scenario, I guess, when you think about it if we had done that. So I guess we always think of royalties as not being a controllable cost. But in that sense, it would be if we were to burden our lands with a bunch of overriding royalties to others. So -- and that's 0.5% you said, roughly, run rate? And what's our overall run rate going forward here, do you think is a reasonable expectation given the strip? Tavis Carlson: Yes. I think for Q4, we're going to be in the 4% to 4.5% range. Next year, though, with the pricing strip, we're probably modeling more like 5% to 6%. Jean-Paul Lachance: Okay. Right on. So back to the phones. If there's another call on the phone, we can take that. Operator: Our next comes from the line of Mike Beall of Davenport. Michael Beall: This is sort of a macro question, but part of our bull story for natural gas is the increased North American exports of LNG. There's also some talk of a surplus later in the decade of LNG. Would that ever work against us in terms of North American pricing? Jean-Paul Lachance: Well, I guess if you're referring to the fact that you might have too much LNG and it gets backed up onto the continent, then of course, that would have a negative impact on pricing in the future, if that's where you're going. And I think we've seen -- certainly, the U.S. producers have a lot of discipline in that regard to reacting to that with supply cuts and whatnot. So that's -- I mean, that's the big market, right, that will be affected. In Canada here, we're working towards more export capabilities to help our local market. And that's encouraging as we think forward beyond just this year, we've got LNG Canada slowly getting going here, but we also have other projects on the come. So it's good for the overall future out there. But that's one of the reasons, Mike, we think about hedging, and we think about taking that risk down and we want to be exposed to different markets so that we can weather those storms, and we feel that they'll be shorter term, and we can weather those storms when we've had an active and continue to have an active hedging program. We still believe gas will be one of the most volatile markets, and we want to be able to smooth those revenues out, right, smooth out that volatility. Michael Beall: Right. Okay. Jean-Paul Lachance: Okay. Any more questions on the line? Operator: I show no further questions from the phone lines at this time. Jean-Paul Lachance: Okay. Well, thank you very much for participating in the call. I appreciate the engagement and the involvement, and we'll see you next year. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Nauticus Robotics 2025 Q3 Earnings Call. [Operator Instructions] This call is being recorded on Friday, November 14, 2025. I would now like to turn the conference over to Kristin Moorman. Please go ahead. Kristin Moorman: Thank you, and good morning, everyone. Joining me today and participating in the call are John Gibson, CEO and President; Jimena Begaries, Interim CFO; and other members of our leadership team. On today's call, we will first provide prepared remarks concerning our financial and operations results. Following that, we will answer questions. We have now released our results for the third quarter of 2025, which are available on our website. In addition, today's call is being webcast, and a replay will be available on our website shortly following the conclusion of the call. Please note that comments we make on today's call regarding projections or our expectations for future events are forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Also, please refer to the reconciliations provided in our earnings press release as we may discuss non-GAAP metrics on this call. I will now turn it over to John. John Gibson: Well, thank you, Kristin, and good morning, and thanks to all of you for joining us this morning. This quarter marked a turning point for Nauticus. Across the organization, we saw progress that reflects the company moving beyond early stage development into scalable commercial deployment. Our field operations, technical milestones and customer response all signal real traction for the company. Now rather than previewing the details, I'm going to let the team walk you through the accomplishments of Q3 and outline the road ahead. I think you'll enjoy it. With that, I'm going to turn it over to Dr. Yamokoski, our CTO, to begin the updates. JD? John Yamokoski: Thank you, John, and good morning, everyone. As we've noted in prior quarters, we remain committed to securing new government contract awards. We continue to work closely with both long-standing and new partners across the industry as we evaluate opportunities that align with Nauticus' long-term strategic road map. I have had the distinct pleasure of serving Nauticus for over a decade. With that historical perspective, I can say that Nauticus has pursued a deliberate strategy, combining private investment with government-funded research to accelerate the development of advanced autonomous robotics. Having been here through that journey, I'm excited to say that the result is a mature technology foundation now ready to scale commercially and lead the maritime industry's transition towards autonomous operations. Today, that foundation is converging into a clear vision for the future of ocean work. We're moving beyond single vehicle autonomy toward coordinated teams of unmanned systems, surface and subsea, working together to execute complex missions. Our previously announced partnerships and collaborations in the surface maritime autonomy space represent early steps in bringing this vision to life. Another major trend reshaping our market is the reduction of personnel deployed offshore, driven by safety, sustainability and cost considerations. This shift plays directly to Nauticus' strength. Our [ surface ] vehicles require a level of autonomy that will enable remote to provision and control from land-based centers, dramatically reducing the need for personnel at sea. We recently announced a new $250 million equity facility that strengthens our ability to pursue other emerging opportunities, such as those in the deep sea mining sector. The same autonomous capabilities that have defined our defense and asset integrity work are directly applicable to this market where safe and cost-efficient operations are critical to success. This strategic expansion underscores the versatility of our technology and its relevance across multiple ocean industries. In defense, this strategy aligns directly with evolving operational priorities, distributed and persistent maritime presence without the risk of crew deployments. In commercial markets, it opens a door to entirely new cost structures for subsea asset integrity, maintenance and nearshore monitoring, domains that have long been constrained by the economics of large manned service ships. We remain confident that we are building the infrastructure and technology base for a new era of intelligent ocean operations, one where autonomy amplifies human capability, reduces offshore risk and fundamentally changes the economics of working in the sea. I will now turn the call over to Jimena for to update our quarterly financials. Jimena? Jimena Begaries: Thank you, JD, and good morning, everyone. I will now discuss our financial results for the third quarter of 2025. Revenue for the third quarter was $1.9 million, which is down $0.1 million sequentially and up $1.6 million from the same quarter last year. Against our original expectations, revenue in the third quarter was slightly lower than Q2. The revenue shortfall in Q3 was a strategic decision of the company made in cooperation with customers to defer work. Daniel will elaborate later on the call. We observed an increase in customer base, which Steve will cover later in the call. Operating expenses for the quarter were $7.8 million, which is up $1.9 million from Q3 2024, but down $0.6 million sequentially. G&A costs for the quarter were $2.9 million, which is a decrease of $1.4 million sequentially and a $0.1 million increase compared to Q3 2024. Nonrecurring transaction costs related to the SeaTrepid acquisition weighed down in the first half of 2025, but G&A costs are now trending back to pre-acquisition levels. Net loss for the quarter was $6.6 million. This is a $0.8 million decrease in net loss sequentially and a $24.5 million increase in net loss from Q3 2024. This large variance is attributable to the gains in fair value of our convertible debentures reported last year. Adjusted net loss for the quarter was $6.7 million compared to $7.4 million for the second quarter of 2025 and $6.4 million for the same quarter in 2024. Cash at the end of Q3 2025 was $5.5 million compared to $2.7 million last quarter. This is driven by funding received through an at-the-market offering. During the last week of October 2025, we reissued our at-the-market offering and raised further funds to support our ongoing operations. In October, some of our lenders converted a portion of our outstanding debt into equity, further deleveraging our balance sheet. In addition, we received a letter of intent from another lender willing to do the same if needed, to address any shareholder equity requirements. These actions, along with the ATM, put us in a solid position to maintain our NASDAQ listing. We entered Q4 financially stronger, thanks in part to the confidence shown by our lenders and our long-term strategy. I will now pass the call back to John. John Gibson: Thank you very much, Jimena. I'm not losing any sleep over the delisting. We have a plan, we have support, and we're executing that plan, and we're on track. So now I'd like to turn it over to the sales and operation leads to discuss activities in their departments. First is up, Daniel Dehart, our field operations lead for an update on the 2025 commercial season and plans for the remainder of the year. Daniel? Daniel Dehart: Thank you, John. In the third quarter in cooperation with our customers, we made a strategic decision to defer near-term revenue in order to enhance the vehicle for specific deepwater workflows that position us for longer-term contracts. A major highlight this quarter was completing our deepest subsea test to date, successfully operating our Aquanaut system to 2,300 meters water depth in the Gulf of America. This milestone demonstrates the operational advancement and industry differentiating capability of our platform in complex underwater environments. We believe we are the only company operating an untethered drone down to these depths. Our customers remain fully engaged and excited about the technology. While some 2025 project work has been pushed into 2026, we've seen continued enthusiasm and commitment from our clients who want to be part of this next phase of success. We are currently working on defining even more capabilities for the Aquanaut system. We have one vehicle located in Stuart, Florida, and the second will be on its way soon. In collaboration with Sea Robotics, we have identified a lake that is ideal for testing the capabilities of the Aquanaut and at a fraction of the operational cost that it takes to test offshore. The cost of testing at the lake is an order of magnitude less than the cost of operating a vessel. We mobilized and began testing in October. One of the key targets being worked on is a launch system design that can be easily used to launch and recover the Aquanaut from shore, which leads directly into conducting inspections offshore without the use of a vessel. We are refining operational procedures to disintermediate vessels for nearshore operations, which will provide material cost reduction for our clients. We are now integrating specific customer-funded workflows into our lake testing for commercial implementation in 2026, specifically focused on autonomous mooring line and riser inspections. There are numerous clients that will be joining us in Florida over the next several weeks to witness the advancements that have been made that will directly impact the scope of works offshore. There will be opportunities over the next few months to host more clients to visit and witness the revenue-generating workflows that will be brought to the market in 2026. We're making real progress in improving our technology, expanding our operational capabilities and building momentum for a strong year ahead. With that, I will now turn it over to Steve Walsh, our sales lead for an update for our offshore commercial pipeline. Steve Walsh: Thank you, Daniel, and good morning. During the third quarter, our customer base continued its growth in our ROV systems delivering consistent results, with customer feedback being overwhelmingly positive. We are seeing growing interest in our solutions from the commercial and government sectors, and our sales team is actively converting that interest into long-term engagements. In fact, our 2026 pipeline is beginning to fill and the early signs are encouraging. We're seeing stronger demand signals, deeper conversations and more strategic alignment with partners who recognize the value of autonomy and subsea operations. We continue to sharpen our go-to-market strategies. The sales team is focused on expanding into adjacent markets, accelerating commercial adoption and ensuring that Nauticus Robotics is positioned not just as a technology provider, but as a trusted operational partner. At this point, I would like to mention how excited I am to tell you of the successful integration of new technology into our existing ROV fleet. The Nauticus ToolKITT operating system has been installed and tested in the field with great results. Jason will discuss later in this call how this enhancement to our current ROV fleet will increase our abilities and differentiate us from our competitors. With that, I'll turn it over to Jason Close, our software lead, for an update on Nauticus ToolKITT progress. Jason Close: Thank you, Steve. The experience and data we collected during ultra-deepwater testing led to targeted software improvements that are already being tested on the Aquanaut. We continue to have strong support from our existing customers, and this quarter will demonstrate new functionality for them, making meaningful progress in improving Nauticus ToolKITT's reliability and performance to meet their commercial needs. Additionally, this quarter, we worked closely with customers and partners to enhance our simulation environment to improve our testing and reduce overall testing costs. Importantly, we also achieved a major milestone in Nauticus ToolKITT's product expansion beyond Aquanaut. Following the quarter close, we successfully demonstrated Nauticus ToolKITT operating on a third-party ROV, completing pool testing, open water testing and the first deployment of our autonomy software on a world-class vehicle performing a commercial operation. The system performed exceptionally well, validating our approach and opening new opportunities for software licensing and partnership. Our ROV operators are excited to continue to use the current implementation of Nauticus ToolKITT and also to test and deploy additional autonomy to these legacy ROVs. This success underscores Nauticus ToolKITT's flexibility and scalability, key elements of our long-term successful software growth strategy. Our recent technical success has strengthened the foundation for 2026 with a more capable product, broader platform reach and a clear path towards recurring software revenue. I'll now hand it over to Ameen Albadri, our engineering lead, for an update on Aquanaut and electric manipulators. Ameen Albadri: Thank you, Jason. In the third quarter, our team achieved a significant milestone with a successful deep dive of the Aquanaut to 2,300 meters. This operation provided us with an invaluable amount of data and operational experience, further validating our technology and expanding our capabilities in ultra-deepwater environments. The mission also helped us identify key areas for improvement as we continue to mature this new technology. Our engineering and operations teams are now working diligently with both suppliers and industry experts to enhance Aquanaut's efficiency and reliability, particularly in the harsh and dynamic open water environment. On the manipulator front, our engineering team made significant progress in the design of the new manipulator system. We have officially begun parts and tooling procurement, making an important step forward in our mission to bring the next-generation manipulator into testing. Global trade turbulence continue to pose risk to our procurement and logistics efforts. However, our team has taken proactive measures to mitigate these challenges. We have identified high-risk, long-lead components and are working closely with suppliers to secure critical spare parts well ahead of the 2026 offshore season. This proactive approach will help ensure operational readiness and minimize disruption to project time lines. The insight [indiscernible] our deepwater operations, coupled with ongoing technological improvements and strategic supply chain management position us well for the future. I will now hand the call back to John. John Gibson: Well, thank you, team, and I'm really excited. And before we move to questions, I just want to acknowledge this entire Nauticus team. The achievements we've discussed today from deepwater operations to ToolKITT expansion to our growing customer pipeline are a direct result of their commitment and capability. We have a very talented workforce here at Nauticus that I'm proud to be a part of. And we've made so much progress, and we've got the customer visits lined up in Stuart, Florida, that we're excited to tell you that we're planning for early 2026 an Investor Day that we think we'll also have in Stuart, where we'll invite you to come down and see this equipment, this software, this technology at work. I think it's an eye-opening opportunity and takes us from listening to us on calls to those that are available to come down and really see it put through its paces. Now we are entering the final quarter of the year with more momentum than at any point in the company's history. The foundation is in place, the technology is maturing and our customer confidence is growing. We still have work ahead, but the trajectory is clear and it's upward. With that, operator, I'd like to turn it over to you for questions. Operator: [Operator Instructions] One moment for your first question, which comes from Peter Gastreich, Water Tower Research. Peter Gastreich: Peter Gastreich here from Water Tower Research. So congratulations to John and the team on your results and execution. Like last quarter, I really do appreciate hearing from your whole team on these calls. I think it's very effective to hear straight from the horse's mouth, so to speak. So thank you very much for that. Just a few questions from me. First, it's great to see your successful integration and first paid operation of ToolKITT on a retrofitted ROV. This does look like a very critical step in your capital-light strategy. I just want to ask, when compared to the full stack newbuild vehicle sales like Aquanaut, how should we think about the enhanced margin potential for these software-only retrofits? John Gibson: Well, it's good to have you on the call, Peter. Software is going to be a big part of our future. Gross margins on it are in the 80-plus percent range. As a result, it doesn't take nearly as much of that for us to get to cash flow breakeven as it does for the services side of the business. And so we're very excited. The ToolKITT implementation on an ROV that we completed and did commercial work with, we've identified a market of 300-plus vehicles that can benefit from it in the very near term. And so we're working on the go-to-market strategy for those 300 vehicles and a tremendous opportunity for us. So very excited about software. The other good part about it is that it's not the full implementation of ToolKITT it's only a portion of the ToolKITT that's necessary to bring this tremendous advantage to the ROV operators. And the validation of this software comes from the ROV operators and not just a customer or our view of the market. It's just how much easier this made them for them to be able to do their jobs and how much improvement that they're going to see in terms of loss of nonproductive time and the fatiguing part of just simply holding the vehicle in place, we take that over, and we basically provide all the hovering and maneuvering of the vehicle when it's near the bottom. So a very exciting opportunity for us. Clear customers that we know to go and sell to. So this is a straightforward strategy for us to execute through the end of the year so that they can be ready to deploy this software for the coming '26 season. So I think the software sales efforts where you see us focused in the near term. Peter Gastreich: Okay. My next question, you do have a pretty long lead time to build the quant. Taking what you've just discussed, would you be able to accelerate scaling your operations by acquiring existing vehicles in operation? You mentioned the 300 or so that are out there now, like it may not be quite as good as your Aquanaut, but maybe they can do the job. Would that be a possible use of funds? John Gibson: Yes. Well, the 300 are actually ROVs, world-class ROVs that we're looking at just selling software to and they're not -- they're tethered as opposed to being untethered like the Aquanaut. But there are some vehicles available that are untethered that don't have all of the capabilities of Aquanaut that we are investigating whether we could acquire some of those vehicles and put them to work in our fleet in order to scale quickly as opposed to waiting on the bills. As fast as we may be able to do it could be 9 months to 18 months in terms of depending on supply chain building additional Aquanauts. The demand for what we're doing and the success of the software leads us to believe that acquiring other vehicles that may not be quite as capable, but allow us to jump in the market and grow our market share is something that we should pursue. So we're pretty excited about talking to some of what you might think are competitors. But when we're excelling at this and doing better than anyone, it could be an opportunity for us to simply scale the business quickly. So we are looking into that, Peter. Peter Gastreich: Okay. That's great. In your second quarter call, you talked a bit about some supply chain risks and tariff risks. I just want to ask sort of as we've moved on here into the third quarter, what does that environment look like today, especially for those long lead items? And how is the company addressing tariff and supply chain risks? John Gibson: That's probably the toughest part of being in this business is the supply chain management. A lot of this comes from international suppliers. Extremely pleased, Ameen and his group have taken a very active approach to it. And we have on order the parts that we need and believe that they're going to be delivered, but you're looking at having to order today for parts that you need in May. And if you haven't already made those decisions, it's basically too late. You're going to end up showing up with the parts that you need later in 2026. So everything is on order. And we believe we've got what we need and are excited about having really managed a tough supply chain. I think it will get easier as we get larger and have scale and scope and can move up in priority with some of the suppliers. But it's -- in our particular case, we've had to take an active approach to it. We've used some of the capital to actually purchase the spares that we need, so we can ensure that we can have a good commercial year in '26. Peter Gastreich: Okay. That's very clear. Just regarding the SeaTrepid acquisition, now a few months into that integration, which expanded your ROV capacity. Clearly, you have a lot that's working very well there. Have there been any unexpected bottlenecks that you've needed to address in that integration? John Gibson: Not enough equipment. I mean we've got more demand than we have ROVs at this point, but we focus more on moving into autonomy and tetherless. If we had more ROVs, we would have more revenue. So it will get down to a question of does the autonomous ROV really an opportunity to expand that fleet as well to demonstrate to people why they should be using our software. I think we'll be sought after more than those people that don't have this autonomy. So our ROV should see a really full season next year because we'll be advanced over other suppliers. So I'm excited about that. But in terms of SeaTrepid, we're really blessed to have Bob and Steve on board. I mean, it is our sales force today, and Steve Walsh and his team. Bob brings tremendous industry knowledge, many decades of experience and difficult problems in the maritime world and has enhanced our knowledge and is incredibly practical. He gets things done. So -- and in fact, he's been at the Ocean Minerals Conference this week. And so we're really coming up to speed on how we could expand what we're doing into ocean minerals right now while the market is hot and there's some opportunities for us to take a look at how we could address it. Peter Gastreich: Okay. Great. On that, I'd like to ask some questions about the deepsea rare earth exploration strategy. The first one is just in terms of how we should think about the customer type. Are these going to be private contracts you're going after with exploration companies? Or is this government contracts? How should we think about the customer type in this instance? John Gibson: Where we excel really is in inspection and observation, and we're not into the mining equipment. And the first phase of anything in ocean minerals is going to be trying to identify those resources that can be produced economically. And so we're investigating how we can use our software and how we can expand our hardware platform to the vehicles that go to the depths that they require. That's another reason for us looking into investing in potentially some deeper vehicles that aren't quite as capable, but give us the ability to go to the depths that the ocean minerals exploration companies are exploring. And so we are doing that. I think we have some really unique capabilities and the ability to potentially sample while we're on the seafloor, add that capability to a vehicle to enhance the exploration phase, which I believe will go for the next decade and then before you really get the infrastructure in place to begin the mining. So we're going to focus on what we think is immediate and where we think we can add value. And we think there's some good opportunities for the company to look at that. It does sort of point to why we got the ELOC. If we see something that is a perfect fit that has immediate accretive value to us from an ocean minerals bolt-on technology capability, we'll have the ability to pursue that if we choose. Peter Gastreich: And on that, how should we think about the time line and road map to commercialization? So for example, you have oil and gas and wind energy opportunities that are right in front of you today. And then you talked about the future opportunities in things like carbon capture and sequestration and space analog missions. Where would the deep sea mining sit in a time line with these other opportunities in front of you? Is it do have imminent opportunities today? Or is this something more that's going to take a bit more time to kind of get there? Because you mentioned about, for example, needing to potentially test deeper with your Aquanaut and so forth. John Gibson: So it's a great question of priorities. Right now, the workflows that we're building in Florida associated with mooring lines and risers have immediate customer opportunities and contracts that are pending. And so I don't want to take our focus off that. So our primary focus is going to be on booking all of the time that we have available to doing what we know people are ready to pay for. On the ocean mineral side, there's great opportunities for us to enhance other people's platforms. And so we'll be exploring that and seeing how to partner with people. But we've got a really strong customer support for the work that we're doing, and we want to go out and take long-term contracts on doing that in 2026 as opposed to chasing new opportunities. We're really focused on let's execute with what we've got now that we've gotten the maturity of the platform. Peter Gastreich: And is this a U.S. strategy? Are you talking with people globally? Sort of what will be your focus going forward? John Gibson: Well, that's an insightful question. Let me think about how to answer right quick, Peter. The international telephone is ringing. And so the bat line here to the cave is lit up. A lot of interest in this platform internationally, a lot of potential financial support internationally. And so we're looking into that, but we don't have anything that we have that is imminent. And so -- but we are looking at the growth and interest that we've sort of gone from really focused on the Gulf of America to having a lot of international interest in the platform and what we're able to do, both in the defense side as well as in the commercial side. Peter Gastreich: Okay. Got it. I'll just ask one more question here, if I may. So just regarding -- you mentioned the equity line of credit, which is $250 million, quite substantial. Given that's kind of structure for financing the growth and acquisitions, are there any specific milestones or triggers that investors should be thinking about in terms of the optimal timing for drawing down that capital? John Gibson: We have an ongoing effort where we brought in a consultant that is doing the acquisition planning for us. And the main thing that you should take away from the ELOC is unless we see something that's immediately accretive and cash flow generating for us, that is the very first filter that it has to pass before we would consider using the ELOC. So we are not looking at anything that is futuristic or has a 2-year R&D lead time or any of that. This is about being accretive to the business now, right? And so that's our focus on the ELOC, and we're not going to pursue anything that looks like it enhances technology. We're no longer in the technology business. We're in the moneymaking business. Operator: Our next question comes from Robert Mendrala, private investor. Unknown Attendee: This is Bob Mendrala, I'm a shareholder, and thank you for the update for the quarter. And specifically, I wanted to ask on the compliance -- NASDAQ compliance issue. What is the plan and/or steps to cure that noncompliance issue? And specifically to another part of that is one of the requirements is a market cap of $35 million. Currently, it sits at $8 million. So what can be done to achieve that benchmark? John Gibson: So 2 things. Excellent question, Robert, I'm happy to answer. First, the market cap that you're looking at doesn't reflect the total number of shares that we have out. And so you're probably somewhere around 12%, 15%. We're in that range depending on the share count at the moment because we're doing the conversions, and so it improves our market cap. Also on the maintaining a listing, there is market cap, and we haven't focused on that one. That one's harder to control because it's related to share price. And so -- and with the market going up and down, that's sort of out of your control, right? You look at the macro environment and you go, that affects what the market cap is. What we can control and what we're focused on is shareholder equity. And when Jimena was walking through the discussion, she was explaining to you that we have the number of converts in place and a commitment letter to convert the remaining necessary for us to achieve compliance with the shareholder equity level, which is $2.5 million if you look at the rules. And so we're executing the plan to get to $2.5-plus million in shareholder equity. We have support from lenders to do that. And that's the plan that we're executing to maintain the listing. It's straightforward. It's within our control, and we have commitments so that is something that we just need to execute. Unknown Attendee: Okay. What is the time line? Do you have a hearing coming up with the NASDAQ? John Gibson: The NASDAQ hearing sometime in early December, but I think we will get all the information to them before then. Everything that we're doing, including the ELOC supports our ability to maintain the listing. Unknown Attendee: Okay. And then last question. The company is doing some wonderful stuff. I really don't think that the capital marketplace out there understands it. And so what can be done to improve the communication with the capital markets and specifically Investor Relations. I mean, the share price shouldn't be sitting at $1.35 a share. I mean, come on. John Gibson: Well, no, I want to agree with you in a very strong way. It's -- we haven't been in the promote mode. We really are trying to maintain a focus on delivering and not on overpromoting. Every time you start promoting in a new venture company, you end up getting out over the ends of your skis and taking a tumble. So we're really disciplined. We are beginning to put out more. I think we've put out quite a number of press releases here over the last 6, 8 weeks. The better thing to put out is the adoption of it, and that's what we're really focused on is announcing the adoption of the technology and the contracts, Robert. So announcing more technology is probably not what we're going to see. We've got more technology than anybody in this space now. I don't need more of that. What I need is really the beginnings of commercial adoption of breakthrough technology that disintermediates current legacy systems. And I think we're on path to do that, and we've got an exciting '26 ahead. So -- and then to your point, though, it's the reason I'm excited about the Investor Day in Florida. I think it's going to be better to let people see it firsthand. You can talk about this, but I'm telling you, it's hard to imagine just how breakthrough this is compared to current legacy systems, both the software and the hardware and our operational skills. So we think getting people down there and getting an announcement out on that will be -- on the Investor Day will be probably a big event in terms of getting people to know what we're doing. Unknown Attendee: Yes. And Peter brought up -- yes. Okay. Well, I appreciate the invite, John. But Peter brought up some great questions around milestones. And I do think to communicate more effectively with the investors who really don't -- I mean, they probably don't have the big picture that I'm seeing and you're seeing, but to have Investor Relations just maybe put out PRs a little more frequently around milestones and it doesn't have to be -- oh, we have this, we have this, but just communicate more effectively because the share price personally, I think, should be at least $10, if not higher. I mean it's way undervalued. Yes, a similar robotics company in comparison. I mean they have less revenue than Nauticus does, and their market cap is tremendously higher. What are they doing differently? John Gibson: Probably a more attractive CEO. I don't know. I'm not very photogenic. There is -- I guess I'm in this -- to say it like this, Robert, I'm in this for the long term and not just a pop and pump. I'm not doing that at all. And I take your comments and your suggestion, and we will see if we can't do better. But the main thing for us is we're not trying to promote the shares. We think that if we can start delivering results that we'll get a sustainable upward trend in the shares, and it's not going to be something where it goes way up and then we disappoint on a contract not being as big as people thought it should be or wanted. I think we're on the right trajectory. We're trying to stay disciplined about it. And when it starts up, I think it just keeps going up. It's not going to be something where we're trying to have just bumps as a result of people getting excited about technology. But your comment is taken under advisement. We -- you can always do better. I would never say otherwise. And so let's see if we can improve in that category as well. Unknown Attendee: Yes. And last comment. I agree, and I look forward to regaining NASDAQ compliance and keeping it that way because the last 2 splits wasn't good. Anyway, I'll leave it at that, John. John Gibson: You're quite welcome. And I would agree with you. I do not like doing reverse splits. I had taken most of my remuneration in shares. So it hurts me just the way it hurts you, and you can assume I don't want to do that. It just -- it's absolutely necessary. Otherwise, we wouldn't have executed it. Unknown Attendee: Yes, I'm always here to help, John. So just let me know. Operator: [Operator Instructions] Our next question comes from Jason [ Nicolini ], private investors. Unknown Attendee: Thanks for doing this conference call. Appreciate it. It sounds like a lot of exciting things are going on with the business. But my question has more to do with the previous callers about the share price and the investment I have a lot of shares that averaged about $1 a share before the reverse split, which means they should be worth $9 plus a share. And since then, they've lost 85% of their value in about a month. So the reverse split didn't actually help anybody out because the shares were trading around $1 anyways. And then we've got this -- my concern is how are we going to -- how are you guys going to get that stock price back up because I see this $250 million investor that is obviously going to want to make money on their investment as well, the potential there and is going to want to buy their shares at $0.10 or $0.01 a share compared to the $1.35 that it's sitting at today. How do we protect or how are you guys going to protect your current investors? Because right now, your stock price has to increase tenfold just for us to get our money back from just a month or 2 ago when the reverse split was announced. And there's about 6 million shares outstanding currently, but I saw an SEC filing that you guys increased the amount of shares, unbelievable amount. I think it might have been 6 billion shares or something like that, that could be now sold. So my concern, and I'm not very keen on this. That's what I'm asking you guys for your wisdom and understanding. My concern is the price is going to drive all the way down to hardly nothing, a penny stock for this $250 million investor to invest $50 million or $100 million. And then when the price quadruples or it goes up 10x to $0.10 or $1 or whatever it is, that's when they're going to make their money and the rest of us are going to be lost in the mix from this. So that's my concern, and I just need insight on what's going on. John Gibson: Well, Jason, I appreciate you dialing in and the directness of your question. And when you say the rest of us, that us includes the management team that's sitting here and me as well. So we look at it in exactly the same way you do. Our goal is to create shareholder wealth. The ELOC, it is good to have it in place but using it needs to be done with great discretion. Unless it's going to increase the share price and all shareholders make money, I don't intend to go out and call the ELOC. And so the -- it's -- because I firmly agree with you, we're not going to execute that unless there's value to all shareholders. It should not be just for the holder of the ELOC. And so we are being really disciplined in our assessment of what would we use it for. And don't expect the use of it immediately because we haven't found exactly the right things that fit. And so we're going to be very disciplined in the use of that. Now it's a good question. I think there are a lot of opportunities with regard to similar companies, similar size that have great technologies that we can engage with that could actually begin to roll up some of this technology and having the shares available to do that if we see one that's going to move the share price up, we just want to be positioned for it. So a lot of what you see in terms of our registration of additional shares, et cetera, is all about being positioned in the event that something emerges that makes a lot of sense for all shareholders, including the management team and myself here as well as you. So Jason, I think we're fully aligned on wanting to create wealth for you as well as ourselves. So I hope that answers your question. Unknown Attendee: Partly, I'll follow up with it a little bit. I do appreciate that. I know that I own my own business as well, and there's a difference between my share value of the business versus my income from the business, right? So you and the rest of the employees and things like that, you're gaining income, so to speak, from working there day in and day out. But the share price, from my understanding, the last time you guys did a reverse split back in '22 or '23, it was kind of the same thing. It was around a couple of dollars and then it reversed, it went up to $2 and then it went all the way back down to this $1 and now the reverse split happened again. So there's this constant dilution of the value of the business. And I'm trying to think how -- because I know you guys have to get to the $35 million. In my mind, I'm going, okay, just like the previous caller said, the current value, you said it's different than what we can see online because of the shares not all shown there or something. But let's just assume that this is correct that the market capitalization that I'm looking at on trading view right now is $7.5 million. You guys have to increase that by 5x at least in order to stay NASDAQ compliant at the $35 million. And so if this investor is -- either you have to sell -- you have to either multiply your number of shares that are outstanding by 5 to get -- and they stay at the exact same price or your price value has to go up 5x. And I'm questioning how is that going to happen in a couple of months so you guys don't get delisted without getting this loan, so to speak I imagine this $250 million loan, if somebody comes in and says, okay, I'll buy $35 million worth of your shares. And yes, they can drop back down and then you get the warning from NASDAQ to get delisted and then you kind of play this game, so to speak, of trying to stay compliant. So I'm just not understanding how you're going to be able to stay compliant without taking advantage of the loan. But if they buy -- right now, there's 6 million outstanding shares. If you sell 6 million shares, then that reduces -- the dilution itself takes our $1.40 down to $0.70. You follow my train of thought, I can't comprehend how you're going to become NASDAQ compliant and all that good stuff. John Gibson: Yes. So let me -- I'll walk you through it again. First, I don't have any control over these bulletin boards, et cetera. And they don't keep up in real time, to be honest with you. And I'm not sure they're even designed to, but the number of shares outstanding is slightly over 15 million. And so it's not the number you show. So the market cap is going to be more in the $20 million ZIP code than it is depending on where the share price goes today, than it is in the $7 million ZIP code. So the gap to close to get to $35 million is not as large as you think. But that's not what we're doing. There's in compliance for NASDAQ listing, it's an either/or. You can either have $35 million or you can have $2.5 million in shareholder equity. The $2.5 million in shareholder equity is something that is within our control working with our lenders. And it doesn't require taking money to do that at the moment. Some converts can do it as well, and it just -- which improves our balance sheet and reduces our debt. And so we continue to work on reducing debt, and I think we've made great strides over the last 2 years in working on debt reduction and conversions. And so we're improving the balance sheet. We're strengthening the company with regard to our balance sheet and the debt. And our compliance, if you go take a look at the either/or, look at the shareholder equity and see that, that's something that is within our reach and within our control, and that's what we're executing. So on the delisting, the reverse splits, okay, I'm not going to ever be a great advocate for reverse split. It typically means the other criteria for listing is to have a bid price above $1. And so we're having to use the reverse splits to maintain the $1 -- plus $1 listing. And then we're using the conversions in order to improve the cash position so that we can meet the shareholder equity requirement. It's those 2 triggers. We feel like we're in good shape on that. And we think that our plan going forward is something where we can see improvements in the share price as a result of our execution throughout 2026. I don't know if that helps, but that's how we think about it. We are aligned with you. We would really like to see this company begin to take off. And we are shifting from being a venture capital type company into the -- to a position where we've got commercial products, and we're not just doing R&D., we're beginning to get in the field and deliver this. And I think that's the -- where we need to get the momentum. Unknown Attendee: Okay. What do you mean -- and maybe I just need to do my own research, and this might be an ignorant question, so I'm sorry for that. I understand the concept of the value of the company is worth $35 million or $20 million or whatever it is. What's the $2.5 million shareholder equity? What's that difference? I don't follow that. Do you mean individuals? Or -- because obviously, if it's worth $7.5 million, then you already meet that shareholder equity or $3 million... John Gibson: That's market capitalization, which is number of shares times share price. Shareholder equity is actually the cash on the balance sheet and then the asset values, et cetera. It's taking a look at our solvency really as opposed to looking at -- our market cap. And I'll tell you what, that's probably a longer discussion. If you wanted, reach out to us and our CFO, Jimena Begaries, will be happy to walk you through that. Jason, no problem at all. Unknown Attendee: Okay. I understand now. I can follow that train of thought. I appreciate you taking the hard questions, John. I know it's [ not fun ] getting beat up. John Gibson: I'd tell you, if I could get people to take a picture of me now, I've lost 150 pounds, they'll stop calling me fat pig. I'll be happy, Jason. Everything else, it doesn't bother me. I do this for a living, and we're -- this is probably one of the best future platforms. I've ever had an opportunity to be with, and I've turned a lot of companies around. And this one is beginning to get in a really good position to take advantage of the year ahead. So I'm excited. I hope I can get everybody excited about it. And I think our results in '26 will really underpin that, and that's where we're focused. Unknown Attendee: Perfect. Well, maybe how long have you been with the company, John? John Gibson: Well, I've been in the role here about 2 years, and -- but I've been around the company for close to 10. Not as long as our CTO, but -- who's here from inception and brings corporate memory, but I've been associated with the company and assisting or advising for quite a long time. But I took over to really bring it to commercial. We need to sort of shift from a technology driven to commerciality. And so it's been a bit of a road. It is a venture capital company that was listed and getting everything to maturity to where we can get out and execute reliably because customers don't want breakthrough technology. They want reliable disintermediation of current platforms. And I think we're there. We just -- we've got a really solid platform, got a solid software platform, pretty exciting to see where things are going. It's no longer in development. We're sort of in deployment at this stage. Unknown Attendee: Got you. Well, maybe I agree then with the previous caller as far as to say maybe you guys need to do some additional marketing or something along those lines to make people aware of who you are and what you're doing because that's obviously why we always -- we all invested in the company is because we're like, wow, this looks amazing. But it all is about volume and who knows about you who these different influencers are and different things like that, that can get the name out to go, hey, here's a way undervalued business that you can invest in, which would then obviously drive the share price up. John Gibson: I've noted. I won't disagree. We will see what we can't do to communicate more frequently. Operator: Okay. This concludes the question-and-answer session. There are no further questions at this time. I'll now turn the call over to John Gibson. Please continue. John Gibson: Thank you. I appreciate everybody that joined us on the call today. And I particularly want to thank our team here. Enduring through this is a challenge. And this is an incredible team who are focused on delivering results, and they benefit from the results. They also are interested in the equity value of the company as well. And so I appreciate our team here, and I appreciate all of you that own shares. I mean, I look at this as a long-term strategy, and I've got shares and I'm holding them. And you'll notice there's no sales for me of any of the shares that I hold. I am here until we get this thing where it can be. And it's a great privilege to be here and to work with this team of people. We look forward to bringing you an update at the end of the year. And so thank you, and take care, and be safe. Operator: All right. Ladies and gentlemen, this concludes the conference for today. Thank you so much for your participation. You may now disconnect.
Romeo Maione: Good evening, wherever you're tuning in from today. I personally am joined live at Deutsche Goldmesse in Frankfurt, Germany by Contango CEO, Rick Van Nieuwenhuyse; and CFO, Mike Clark, to discuss Contango's Q3 reporting. Gentlemen, how are you? Rick Van Nieuwenhuyse: Good to see you here in Frankfurt, Romeo. Romeo Maione: Awesome. And I wish we're in the same room, but we're several feet away just because of the practicalities of movie magic on webinars. But here's how today is going to work just for the folks in the room. I've got a number of questions to go through, just eager to get into these pretty great Q3 reports. And then I'm eager to take questions from the live audience. So if there is any questions that you got during today's event, there is chat button in the bottom right of your screen. Please jump in at any time. Anything I don't get to, we're going to be a pretty short event today. But any questions I don't get to, I'll be sure to get to both Rick and Mike and the Contango team afterwards, and they'll be able to get back to you as quickly as possible. Romeo Maione: I wanted to jump right into the protein as quickly as I can. Rick, obviously, looking at record operating income of $25 million this quarter, while I think almost as impressively or more impressively maintaining AISC below that $1,625 target at $1,597 per ounce. So 2 comment and a question. First, that's a lot of money. Congratulations. And what's kept ASIC in check? Rick Van Nieuwenhuyse: Well, I think, yes, it's a lot of money. It's a record for us. That was our Q3 production level was above plan by about 2,000 ounces. And importantly, the AISC is coming in lower than the 1,625 that we guided to. And obviously, we got our guidance from Kinross. So I think a big reason behind that is we're -- the mine plan that we outlined, we're delivering into or exceeding that. And I think that's somewhat typical of Kinross as a big company. They like to underpromise and overdeliver. That's good because that means we're not going to get too far ahead of our skis. And I think the other thing overall that we see that's really helped our project specifically is the fact that the oil price is low and diesel prices have not gone up. We all know that an increasing gold price environment is telling us that inflation is still there regardless of what the government officially tells us. We know that's what it is anticipating. But this -- what is different about this time around is that we don't see that going -- the oil prices going up in Alaska. We've had the same pretty stable diesel price at the pumps for several years now. So that's a good thing. It's specifically a good thing for our projects, obviously, with the transportation aspect of transporting the ore from the mine site to the mill, it's a significant part of our cost structure. So I think that -- and I think the other thing is, look, Kinross is doing a great job just delivering into the plan that they've outlined. So when you're kind of firing on all cylinders is the way I like to express it. Romeo Maione: No, makes a lot of sense. And Mike, I want to get you in here for some of the dollars and cents questions. I know the cash position jumped from $20 million at year-end 2024 to an eye-popping $107 million as of September 30, with $87 million distribution received from that Peak Gold JV to date. I hope you could walk us through just capital allocation priorities. So now you've paid down a bunch of debt, you settled carry trade. What's the strategic thinking behind those moves? J. Clark: Yes, it hasn't changed much from the last couple of periods. Our objective all along has been to deliver into the hedges, get those paid off as quickly as possible, pay down the debt on schedule. And so to date, we've had -- we're always about a quarter ahead on our production. So we're always delivering about 3 months in advance. And so that's why we're using the carry trade in a rising gold market, that has saved us. I think this quarter, we saved about $2.4 million as a result. So the strategy is working. And so we're going to continue doing that. I think we're delivering the December hedges right now. And the goal is we'll basically try to get these delivered into you all by September of next year. So we're waiting for the '26 plan for Manh Choh, but that is currently what our target is internally. Romeo Maione: No, I appreciate that. And Mike, one thing I noticed you added adjusted net income this period. Just for folks in the room and for me, too, to be honest, can you provide some insight into that? What are we looking at here? J. Clark: Yes. You can thank Rick for that last minute. Basically, we continue to report a very strong income statement, and you keep having these derivative hedge losses that kind of muddy the waters. And really what that is, is an unrealized loss on the derivatives, which is a function of the forward curve of the gold price. And because it went up so much in September up to like $4,300, the derivative loss went way up. And so that had a $30 million impact on our P&L, which took us from what really would be a normal reoccurring net income position to a net loss. So we put it in there so that shareholders could kind of see what the business would look like once those things are gone and what our normal business looks like. Rick, anything to add to that? Rick Van Nieuwenhuyse: Yes, I'll just add kind of I find the accounting rules somewhat inaccurate when they're describing this and how they sort of force describe things. So it's unrealized, meaning that if we don't deliver that gold and future gold, yes, we're in trouble. We've got to come up with either go buy gold in the market or whatever because it's a contract that we have to deliver into. That's why it's unrealized. I would have preferred something like potential loss or something like that. But anyways, the accounting rules are what they are. We're just a little company, we're not going to change them. So we can -- we try to make it at least clear to the shareholders what the reality is... Romeo Maione: No, I appreciate that very much. I think that's.... J. Clark: The unrealized is the remaining hedges that are on the books at September 30. And then for any hedges we delivered into during the quarter and recognize that loss, those are going to be recognized losses. So it was about 50-50 split, about $50 million each during the quarter. Romeo Maione: Great. No, I do appreciate that. One thing, Rick, I wanted to ask you about, one interesting thing in the PR is the test batch blending Manh Choh's low-grade oxide ore with the Fort Knox ore achieved 94% recovery, and it's going to add about 1,300 ounces in Q4. To me, that looked like a pretty significant technical achievement. So I'm looking for your perspective on what does this successful met test tell us about the potential to process additional Manh Choh material that might have been uneconomic in a previous era. Rick Van Nieuwenhuyse: Well, the short answer is we don't know yet because all we know is the net result of the test. We processed 44,000 tonnes at a rough grade of 0.1 ounces per tonne, which is 3 grams. So when we say low grade, it's low grade relative to the 8 grams per tonne that is the average grade. So we have to sort of put that in context. But you're right in the sense that we're doing this test to see what that marginal ore would be like if we just blended it with Fort Knox. And it is oxide material. And there's a fair bit of this low-grade material because you have to go back to the original mine plan, the feasibility study mine plan, and that was done at a $1,400 gold price, what, 3 years ago or so. So obviously, with the gold price, it's down today kind of hard, but it's still above $4,000. That's just a different mine plan. And so testing this low-grade roughly 3-gram material is the start of taking a look at how -- is there another way of working on processing this low-grade material, just blending it with Fort Knox. And so the Fort Knox ore, which is much, much lower grade, is somewhere in the 0.6, 0.7 grams per tonne. That's the typical Fort Knox ore. And it's not really oxide ore Fort Knox. It just doesn't have any sulfide. So taking our oxidized low-grade 3-gram material and blending it, when you're doing that, you're running the mill at 2,500 tonnes a day. That's when they run the mill for Fort Knox, that's what you're doing. When we run it for Manh Choh on a batch basis, it's down at 10,000 tonnes a day. So it's looking for those economies of scale. We don't have the results for all that and the consumables and the cost, the power costs, all the details of what go into determining your milling cost. But in the next month, we should have those and we'll make some decisions on going forward if this is -- this makes sense to process this low-grade material on a blended basis versus just a batch basis. But the batches will continue. That's on higher grade and -- we're down in the sulfide part of the... So the material we're talking about is all sitting on the surface in stockpiles, the oxide, the low-grade oxide. Does that make sense? Romeo Maione: Yes. No, absolutely. And I appreciate that. I understand a little better. And I know at Manh Choh, you processed 287,000 tonnes that 0.214 ounces per tonne, 92.5% recovery in Q3. How does this compare to reserve grade expectations? And what's your visibility into the ore body to sequence through that mine plan? Rick Van Nieuwenhuyse: Yes. So we'll have a detailed mine plan for 2026 here probably in another few weeks. Once we've had our budget meeting and we've approved the budget and that mine plan, we'll certainly put that out to the public. So I think stay tuned for that. But basically, the grades a little lower than the feasibility grade, which was close to 8 grams per tonne, but that's because we're blending it with lower grade material because the gold price isn't $1,400, it's $4,000. So we're going to -- the tendency of that when you're adding more low-grade material in there is to lower the overall grade, but you're making more money because the gold price is more than twice as high as what you plan for. So I think the most important thing is to stay tuned for the 2026 mine plan. Now in -- if we go back to the feasibility study itself, that was always going to be the lowest gold production year for the entire mine life. Now we've done a few things. We've purchased some additional trucks where we have -- we're obviously blending -- looking at this blending strategy. So we'll see what the mine plan is in the next couple of weeks, and we'll have to have another podcast interview on the platform here to explain... Romeo Maione: No makes sense. Appreciate that. Now I know you mentioned in the PR sustaining capital for tractor replacements and ongoing exploration drilling at Manh Choh contributed to the AISC increase. Is this new baseline for sustaining costs? Or would you expect those to moderate as we kind of complete the capital replacement cycle? Rick Van Nieuwenhuyse: Yes. I think this is -- I mean, you might want to answer this from an accounting perspective. But from a mining perspective, this was always part of the plan, looking at ways to optimize the transportation aspects of the project. J. Clark: Yes. I don't -- I think these are probably -- we'll wait for the '26 budget to see what is next year. But I think for now, I think it's a good benchmark to follow. And again, this is always -- it will become less at the end of the mine life. But yes, I think we're going to continue to be below $1,600 AISC this year and next year, probably consistent, but then come much lower in the later years of the mine life. Rick Van Nieuwenhuyse: Maybe just to add on to that. I mean, one of the things in the feasibility level mine plan, we're wrapping up mining on the North pit. And then so that means you're starting to mine more on the main pit. So you're getting your layback in, right? So there's a lot of pre-stripping that you're doing to do that. So I think that's why our all-in sustaining costs are on the higher end of the average. And then '27, '28 are grade going to be lower. Romeo Maione: Awesome. I do want to get into Lucky Shot just for a quick second because I know you've mobilized the drill rig for that 15,000-meter underground infill program, looking at, as I understand, the feasibility study in 12, 18 months and a production decision as quickly as '27. With production estimates of 30,000, 40,000 ounces annually using the classic Contango DSO approach, how does Lucky Shot fit into your larger portfolio? And what makes you kind of confident in this really cool, but aggressive time line? Rick Van Nieuwenhuyse: Yes. I mean look, this isn't the biggest mine in the world, but it is really good grade. We've done enough drilling. We put out a modest resource. And I know 100,000, 110,000 ounces of resource doesn't get -- everybody [indiscernible] can get wound up. But the grade should get them wound up it's 14 grams per tonne. And so we're underground. We've got the underground infrastructure in place. We've been carrying and maintaining the mine all year. So we've been waiting for getting this cash buildup that we have. Now we can execute the plan that we have in place to get the drilling done. The drill is actually on site. I don't know if it's actually drilling today, but if it's not today, it will be in the next day or 2. And the plan is to drill 15,000 meters underground. Give us about a year to get that done. These are relatively short holes, and we drill kind of what I call a fan shot from underground from a near vertical hole to about a minus 10, 20 degrees. You're basically just spraying the -- the vein is sitting here and you're just drilling into it. 30-meter holes on average. And so we should start having drill results by the middle of January. We're basically using a photon assay. The lab is in Fairbanks. So we basically just put the rocks in the box and hang, take them up to the lab and get them analyzed. So I think we'll start releasing results in, say, middle of January sometime. And it will be kind of constant all year long. So we'll be able to know and the market understand that our objective here is outline 400,000 to 500,000 ounces. This mine produced 0.25 million ounces of very high-grade 40-gram per tonne average grade. That was mined the old style narrow vein mine that, frankly, wasn't terribly safe. We're going to be mining on a 3-meter average width and diluting that grade over that width. So we're expecting a grade more like 10 to 12 on a mine diluted basis. We're fully permitted. And so basically, give us a year to get the drilling done, another 6 months to get a feasibility level mine plan. And I call it feasibility light because, again, we're not building a mill on a tailings facility and a power plant. It's basically just a mine plan and a transportation plan and the transportation plan is to haul it down to the railroad and then we can decide if we're going north to Fort Knox or if we go south to [ Steward, ] and we've had interest from overseas to take this to a smelter. That might work out as good or better than taking it up to Fort Knox. So we've got a lot of choices. And that's the thing when you have grade, you have a lot more choices. And the other thing I like about our DSO model is we focus on things that have grade. They're not necessarily the biggest gold mine in the world, but they're going to make our shareholders money. And I think that's the business we want to focus on being in is having mines that actually make money and can get into production quickly. And the DSO model allows us to do that. Romeo Maione: Great. And I also still think we should make rocks in a box T-shirts. I just think that's a fun idea for the future every time you say it. But I want to talk about Johnson Tract really quickly because it represents potentially the highest grade asset in your portfolio based on historical drilling at least. Can you provide us just an update on the permitting process for that underground exploration drift and the transportation infrastructure CIRI. What's up next basically? What are the critical path items that determine where this project is going towards... Rick Van Nieuwenhuyse: Yes. So look, I mean, Johnson Tract, it's a great project. We bought it a little over a year ago with the acquisition of HighGold. We're on the boring part of the Lassonde Curve. This is about permitting. We've been working with the state government on permitting the underground tunnel. So basically sort of being exactly what we got through doing with Lucky Shot, get the underground tunnel in place. We have to permit that first, and those are permits with the state of Alaska. They're basically 2 fundamental permits, a mine operating permit because technically, you're a mine. We're still doing exploration, but technically, it's a mine. And then because you have a mine, you have a potential of water discharge, you need a water discharge permit. So those 2 permits, we expect to receive between -- by Q1 of next year. Assuming that, then we would mobilize next summer, we'd be mobilizing the equipment. to build the road. It's about a 5-kilometer or 3-mile road between the camp and the proposed portal site. There's a couple of bridges to put in place. Again, these are temporary bridges because, again, still exploration. And we use this water called Bailey bridges. They just basically go across the creek and you get your stuff to the other side. We're not -- this is not -- we're not permitted for mining operation at this point for the road. That will come next. And then we want to get the equipment mobilized to start building the tunnel, and we want to winterize camp, so that we can operate year-round. That's about a $20 million program. And again, we're funded to do that. And so that's our plan. You'll -- obviously, as we -- when we receive the permits, we'll be announcing that and as we start mobilizing equipment next summer. A lot of work to do on all that. And then while all that's going on, we're in the process of permitting with the federal government agencies, the transportation road route on the transportation easement and the port site easement, which is for us a barge landing site. We're also in the process in a parallel fashion to permit the road and the barge landing site. So lots of work going on in the background, and we're excited to get the drills turning to do the drilling and blasting to build the tunnel next -- starting next -- probably September is probably what we're pushing for. And getting the camp is a very important step so that we can work around. Romeo Maione: Great. No, I think that's really helpful context for that project. Now I do want to zoom out here a bit before I get to the questions from the audience. I'm going to gas up Contango more than I usually do while we zoom out. But we transitioned the company from an explorer to a cash-generating producer, $107 million in the treasury at this point, minimal debt and 2 development projects advancing. So as you're looking at the next 5 years with the potential to extend into a longer plan, what does success look like? Are you focused on organic growth through Lucky Shot and Johnson Tract? Or does this new financial position allow you to consider consolidation options elsewhere? Rick Van Nieuwenhuyse: Yes. I'd say the way I'd like to express it is I think we have a really solid executable 5-year plan, and we have the money to execute. So that's why I say it's executable. We have the team to do it. We know Alaska, this is our backyard. We know how to get stuff done here. And -- now we're starting to think, okay, well, that's a great 5-year plan. Why don't we put a 5-year plan into a 10-year or 20-year plan. And so -- and to do that growth, we want to be looking at M&A. And so we're taking a look at opportunities. We're not going to stray too far from home. So Alaska, BC, Yukon, that's kind of our backyard. We know how to work there. We've all worked there before. So that's where I would say we're looking, and we've got half a dozen different opportunities that fit the DSO model. They're all going to fit this model. We like this model. This is -- we've demonstrated that it works. And so we see another half a dozen opportunities like Johnson Tract, like Lucky Shot type opportunities to continue to invest in and continue to grow the company beyond the 5 to 7 years out with the existing resources. And don't want to forget -- I mean, we're not going to forget about doing exploration at Johnson Tract and Lucky Shock. There's -- we can have a 5-year plan at Lucky Shot, and we can have a 5-year plan for the next 10, 15 years, just like the Kensington mine has said, they've been operating for 25 years, and they've never had more than 5 years of mine life ahead of them. So just that's how an underground mine works. And so don't -- we will be spending money doing exploration once the mine is up and running. First thing is get the mines up and running. Romeo Maione: Awesome. That's very helpful. I was like seeing what the plan is for the future. And Mike, I'm going to get you in on one. I promised you 6 months ago, one question about hedges maximum per webinar. So here's your one question about hedges. And that's somebody from the chat asks, when do you expect the old hedges to be fulfilled and get to 100% of market price? J. Clark: Yes. So our objective is to get these hedges paid off as early as possible. And so any shipments that are coming out, we're delivering 100% into these kind of carry trades because we're always a quarter ahead. So assuming we can have a 50,000 ounce '26 year of gold, the objective is to try to deliver into those hedges by September -- all of them by September. So they all technically -- the last ones mature in mid-'27, but I think we should be have the cash to kind of support that approach. And so I think we can deliver into these and then be done with them by September, assuming the '26 budget is where we think it will be. Does that answer your question? Romeo Maione: I reconciled. And there, that's it for hedges. You can relax no more hedge for the rest of this webinar. Somebody else from the chat as -- and this, I think, is also for you, Mike. How large is the net operating loss carry forward? J. Clark: Losses, there is -- they're a little more complicated in the states because there's these nonoperating losses that you can only apply 80% of against net income. But we are set up in a way where we can -- any costs incurred as a Lucky Shot can be offset against Manh Choh profit. So no, we don't anticipate being in a -- we're not going to -- we don't anticipate paying taxes this year or next year. I think -- and as we move forward on Johnson Tract, the idea is to offset those costs. So my hope and my goal is that we will never actually have to pay taxes related to Manh Choh. But that will -- if we want to actually achieve that, we're going to have to be continuing to spend on Lucky Shot and JT. But right now, we don't anticipate anything this year, and I'd be surprised if we had to pay next year, but we are starting to dwindle down on our loss positions in the states. So at some point, we will be -- we will be taxable, but that's a good problem to have because it means we're making money. Rick Van Nieuwenhuyse: Paying taxes is -- I mean you're making a lot of money. So I'm good with it. Romeo Maione: It's a champagne problem to some degree, for sure. Looking at the last question that just came in, is there going to be a Q3 earnings presentation as somebody just asked. J. Clark: We updated the presentation on the website. There's not going to be anything else. Rick Van Nieuwenhuyse: You take a look at the website, we just recently updated that with the Q3 results. It might be -- yes, that's -- just take a look at the website, it should be on there. J. Clark: And I think we'll hopefully be able to give guidance in December for '26. And at that point, we'll update it and probably have a call at that point. Rick Van Nieuwenhuyse: As always, if you have questions, you can e-mail us at the generic info@contangoore.com. If you've got our addresses, I'm going to put them out there in public. But if you've got addresses or phone numbers, just give us a call. Romeo Maione: One question from Jan in the chat. And there's 1 or 2 things he probably met with us, but he asked how many ounces were there in Q4 2024. So I'm not sure if you recall total ounces from 2024. J. Clark: Well, I know how many ounces we produced in '24. I think we produced about 42,000 ounces in 6 months. We did 2 batches in the Q4. I don't know the actual number, but I just know over the 2 quarters, it was 42,000 ounces. Rick Van Nieuwenhuyse: And just keep in mind, we started mining almost a year before that because we opened the mine and then we weren't hauling with all the trucks right away. So you're building up a stockpiling, you're starting to haul ore. So we had a fair bit of ore built up for that first half year of production. And what I would describe now in the 60,000 ounces is more of a steady state plan. And so we -- again, next year, 2026 was always going to be a low year because of the stripping going on at the main pit. But we'll have the details on that 2026 mine plan here in a few weeks. So stay tuned for that. Romeo Maione: I know this is meant to be a short event today, so I'll wrap up with one real quick one. And that's Rick, what are you most excited about coming up? What's keeping up with excitement at this point about Contango Ore? Rick Van Nieuwenhuyse: It's great to be drilling underground Lucky Shot again. I mean, look, we think Lucky Shot, again, it's a small -- it's not going to be the biggest mine in the world. We'll never tell anybody it will be, but we think it's going to make a lot of money. The drill is turning. And so stay tuned for the drill results. It's always exciting to see free gold in the quartz chain underground. So yes, as a geologist, this is what it's all about. So stay tuned. Romeo Maione: Awesome. Appreciate it very much. And thanks, everyone. This is a big audience today. You guys don't know how difficult it is to set up stuff at a conference, but Rick and Mike do, and thank you for joining us very much being able to get this done today and answer everybody's questions. I really appreciate your time. And if anybody has any additional questions, make sure to shoot them through. But otherwise, I hope everybody has a great end of the day. Rick Van Nieuwenhuyse: Thanks, Romeo. Romeo Maione: Cheers.
Roger Dent: All right. Well, it's 10:00 so -- hold on I'm just going to mute people here. All right. Well, welcome, everybody. And please welcome to the third quarter Quinsam Conference Call. I'm going to assume that everyone's already looked at the results and probably read the press release. So I'm not going to go into what's already there. Third quarter, basically, we were slightly in the black, which is not terribly dramatic one way or the other. And there wasn't a lot of activity in the quarter. So really, the key update is what's going on here in Q4. We have 2 of our private investments that are both at this stage, looking to list. The largest one, we've carried it under the name Peninsula. It's announced to go public financing with a syndicate of large investment dealers here in Toronto under the name of Renterz. It's a U.S. single-family rental business. It's out there in the market now trying to raise funds at $1.90, our carrying value is quite a bit below that. At this stage, they're in marketing. I understand that it's going sort of okay. We're hopeful that the transaction will complete. There's probably, I'm guessing, some risk in the $1.90 price, but we'll see. That's an important development for Q4. And obviously, we hope that it goes ahead. The other go public that we're looking at here in Q4 is a company called Electro Metals. That is -- it's a relatively traditional Canadian mining story, copper, gold properties. And the market, obviously, for mining is relatively good right now. They are awaiting final approval from the exchange to list. I understand they're down to the short strokes and that they expect to get final listing approval in the next week or 2. And once they have that listing approval, they believe that they have the funds lined up to close and then commence trading. So those are probably the 2 big things in front of us for Q4. Between the 2 of them, there's about $0.02 of NAV that are in play here. So we hopefully will see the amount of liquid investments move from the $0.06 level up to $0.08 and obviously, hopefully beyond that with the expected listing prices of both Electro Metals and Peninsula above where we're carrying them. Unknown Analyst: Excuse me, Roger? Roger Dent: Yes. Unknown Analyst: Quick question. Electro Metals, what are they into? Roger Dent: Well, it's a fairly traditional mining story. This is actually a company that we bought quite a long time ago as a cannabis company. Back in the day, it was called Ancient Strains, and it was run by Daryl Hodges, who used to run Jennings Capital. And he was a mining guy in his -- for most of his life. He's a geologist. He always focused on mining companies. And when the cannabis market turned, he decided to reposition it as a mining play. So he's been working with that for the last 2 or 3 years. He tried to list about 18 months ago, but obviously, mining markets were much less favorable than they are today. And that attempt did not go ahead. He couldn't get the money. But obviously, now we're looking at a much more favorable mining market. Unknown Analyst: What's the -- is it gold or is it... Roger Dent: It's copper, gold. It's sort of... Unknown Analyst: Copper, gold. Roger Dent: It's -- most of the NAV is copper, but it's got a significant gold byproduct. Both of those commodities are quite strong at this stage. And it's a pretty -- it's a very conventional asset. It's Ontario. It's got a resource in place, like it's a pretty conventional story, and it should be able to complete its financing and list. It's just a question of value, I would say. So those are on the private side, the 2 visible situations right in front of us. The other one that is progressing well, I would say is A-Synaptic, which is about $0.02 of NAV. A-Synaptic is developing a CBD treatment for epilepsy, and it's about to start a clinical trial. It's been approved by the FDA and Boston's Children's Hospital is going to do the trial. They also have been working informally on a second indication to use the same treatment for Parkinson's. And they've actually been given a $3 million grant by the Michael Fox Foundation to take it from its sort of informal trial. It's now like basically being given to some patients and has been for about a year outside of a formal trial with very good results. So the Michael J. Fox Foundation is funding it to go into a formal trial for approval for Parkinson's as well. So that -- it's progressing well. We hope to start doing a U.S. go-public process this year. It's not going to happen, I don't think, by year-end, but hopefully, early in the new year, that will begin its march to being public. Otherwise, as far as Q4 is concerned, we have one company, Newlox Gold, which it's under a cease trade at present because its financials are late. And we decided to be conservative to take it to a valuation of 0 in Q3. We definitely do not expect it ultimately to be valued at 0. It was trading around $0.05 or $0.06 before it was halted and it raised money at $0.07 as recently as about 6 weeks ago. So we expect it to be back and trading at those sorts of values in and around the end of the year. But to be conservative, we took that down. So that hopefully is money in the bank for Q4. We also have a few companies that are at this point, even with the sell-off of the last day or 2, above where they were at the end of the quarter, BluMetric, NeoTerrex, Royalties Inc. which won its lawsuit appeal and City View Green, which is now a cryptocurrency play, no longer a cannabis play. So with any luck, Q4 will be a decently profitable quarter. But obviously, there's volatility out there, and we'll have to see what happens over the next 6 weeks or so. And with that, I'll open it up to questions. If anyone's got a question, just take yourself off mute. Unknown Analyst: Question, Roger. Anything coming forward about a transaction? Roger Dent: Transaction. So we've had some very good discussions this quarter with a company that we're quite interested in. It's an American-based company. And because of that, there are some income tax complications for the main shareholders, like they obviously don't want it to be a taxable event, but there are some problems in making it not a taxable event for them. So they are kind of mulling some structural and tax issues. But it is quite promising. It's a company that's in a very interesting business. It makes nice cash flow. The valuation is reasonable. And their funding requirement is quite appropriate for us. It's -- they don't really actually have a funding requirement. They're a cash flow positive business. So really for them, what they find attractive is the ability to raise for them a relatively small amount of money with a small amount of dilution and have a company that would have a very tight float that they would be in a position to influence the share price of. So for us, it's quite interesting because we think we would get a quite decent win coming out of the gate. But this tax issue is something that -- it's got to be solved because if it can't be solved, then they're not going to basically take their whole company value into income tax -- into income and pay tax on it on go public. It's just not viable. Otherwise, I would have to say there's not too much going on. I mean we certainly could go and do a mining transaction, I think, quite easily if we chose to. It's really not what I would want to do. I'd much rather get into an operating business with cash flow or very, very near-term cash flow. Don't really want to go into a mining exploration situation where it's significantly cash flow negative and you're just kind of hoping for geology to work out your way. So that's something that it's certainly fine for an investment or 2. Happy to make those sorts of investments, but not sure I want to bet the whole portfolio on one mining situation. Unknown Analyst: Yes, I would have to agree with that. All right. That's good for me. Roger Dent: Any other questions? There's no further questions. Thanks for attending, and we'll talk to people later. Unknown Analyst: Thanks, Roger. Roger Dent: Bye-bye. Unknown Analyst: Thank you.
Operator: Good afternoon, everyone, and thank you for joining us today for Nagarro SE's Q3 9 Months 2025 Earnings Call. [Operator Instructions] With that, it's my pleasure to hand you over to Michael. Michael Knapp: Great. Thank you, Sami, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our Q3 2025 earnings release, you can find it as well as a copy of today's presentation in the Investor Relations section at nagarro.com. Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship. Manas and I will be covering the results and strategic updates for the quarter. Before we begin, please note that some statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our earnings release. Additionally, please refer to the release for important information regarding non-IFRS measures. And with that, I'm pleased to hand you over to Manas. Manas Fuloria: Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call. We are taking a slightly different approach this quarter and hosting just 1 combined call so that we can expand on our prepared remarks a little and still have time to address your questions. We'll start by briefly highlighting our strong Q3 results, but perhaps even more importantly, underscoring the important and sustained actions we have been taking to address investor concerns, improve corporate governance and enhance our financial reporting and transparency. I also want to discuss how we have set the stage to drive better shareholder returns through improved execution and a disciplined capital allocation strategy. The operational changes we have made are already driving measurable improvements in our results, which perhaps have been overshadowed a bit at this time by a subdued demand environment and FX noise, but we believe we are still at the very early stages of showing the benefits from some of these new initiatives and processes that we have put in place, especially on the sales execution side. I'd also like to talk more about the future and in particular, about our vision of Fluidic Intelligence. We would like to explain that to you. We are promising our clients significant productivity improvements by unlocking the intelligence that already exists within their organizations. We are removing barriers for our clients between their people, their data, their decisions, creating low-friction enterprises that adapt faster and execute with clarity. And I'm excited to say that we're already seeing a very positive response from our clients around this promise, this theme of productivity improvements, and we will present an example of this. And finally, we'll be happy to take your questions. Now we are pleased with our execution in Q3, which demonstrates the strength and resilience of our business model despite all the ongoing macroeconomic challenges. Our teams delivered exceptional service to our clients, and we focused intently on operational discipline. During Q3, our revenue growth accelerated and is tracking to the guidance we provided last quarter. This is a testament to the stability of our customer base and the confidence our loyal customers place in us. Importantly, we're also seeing significant outperformance in profitability. Both our gross margin and adjusted EBITDA margin are ahead of expectations, reflecting the positive impact of the efficiency measures that we have implemented. In fact, the adjusted EBITDA margin of over 17% is the highest level we have seen since 2022. This margin expansion positions us well to generate strong earnings and cash flow moving forward. Over the past few quarters, we have prioritized making fundamental structural improvements to the way we operate. To that end, we have taken a number of decisive actions to improve corporate governance, financial reporting and transparency. We're already seeing tangible improvements in our internal process and operations. I'll talk more about this shortly. But these changes are not simply about meeting regulatory requirements. They're about building a world-class company about strengthening the foundation of trust and operational excellence that will support our growth ambitions for years to come. Our success is directly linked to our client success, and we are intensifying our efforts to deliver quantifiable business impact to help them win in their markets. We are actively showing clients how we drive significant measurable improvements to their businesses. We aren't just selling hours. We are pitching outcomes. And importantly, clients are responding. The quality of our relationships is improving, evidenced by the increase in client satisfaction scores and a strong pipeline of new high-value contracts. This focus on value creation ensures that our services remain essential and deeply embedded in our clients' strategic initiatives. Finally, in line with our disciplined approach to capital allocation, we remain committed to enhancing shareholder returns. We are pleased to announce that we are extinguishing approximately 75% of our treasury shares. We're also buying back EUR 20 million worth of stock. We believe there's a clear disconnect between the current share price and the intrinsic value of our share. The current share price even after today's jump does not reflect our strong financial performance, our expanding margins and improving operational structure. We believe the buyback program is one of several tools we are using to deploy capital, while signaling our confidence in the company's long-term outlook. We are confident that as we continue to execute on our strategy, the market will recognize the sustainable value that Nagarro has been building and in fact, has been building for a couple of decades now. Digging a little deeper into the numbers, we are pleased to report that our Q3 revenue growth reached 9.4% year-over-year at constant currency. This solid performance in a subdued demand environment keeps us on track with the revenue guidance we provided earlier. Turning to profitability. Our focus on operational discipline continues to yield impressive results. Our Q3 gross margins came in at 33.1%, which is over 300 basis points better than the guidance that we have provided. This significant outperformance is a direct consequence of our increased focus on margin expansion through targeted initiatives, including the successful implementation of the margin support program that we have earlier talked about. This program has optimized resource allocation, improved utilization rates and driven efficiencies across our organization. Our Q3 adjusted EBITDA margins were over 17%, which is above the high end of our guidance range. These strong margins are a clear highlight of our quarter and underscore our deliberately improved operational efficiency and our ability to translate top line growth into meaningful bottom line results for our shareholders. And all in all, we are maintaining the guidance we provided last time. But when you look at our tracking to our guidance for 2025, please also keep in mind the significant headwind presented all year by foreign exchange rates, especially the conversion between dollars and euro. To put this in perspective, if we were to adjust our revenue for the full 9 months to account for the foreign exchange impacts from the dollar and euro, our revenue would be approximately EUR 719 million, which would have placed us right near the midpoint of the initial 2025 full year guidance that we had issued back in January '23. Further, as you will see on the next slide, if currency exchange rates have not moved, our adjusted EBITDA would also have been at or above the midpoint of the initial 2025 full year guidance we issued in January. This ability to deliver what we promised at the start of the year despite the highly volatile environment, underscores the fundamental strength of Nagarro's business and the fundamental strength of Nagarro's positioning in the market and the fundamental strength of our relationships with our clients. Beyond these financial metrics, our long-term focus on delivering a superior client experience remains the primary driver of our sustained success, our commitment to our intimate partnership, innovation and measurable outcomes for our clients. By deeply understanding their strategic challenges and exceeding their expectations, we ensure that our services remain indispensable and embedded in the long-term digital transformation road maps. We believe the quality of our client relationships is our most valuable long-term asset. We believe that we can double our revenues well within this decade simply by doing more for the 187 clients we already have today that generate more than EUR 1 million in revenue each with us. Operator: We have lost connection to Manas, please bear with me regaining connection. Manas Fuloria: Coming out of this -- let me just talk again on the slide, and I hope, I'm not repeating my words too much. I want to take a few minutes to provide a clearer view of our underlying profitability. We recognize that our reported adjusted EBITDA figures for recent quarters have been significantly impacted by fluctuations in foreign exchange rates, specifically related to noncash impacts on loans between different companies within the Nagarro Group. Here, I want to highlight what our adjusted EBITDA margins might have looked like for the past 3 quarters, if we had corrected for this FX impact on intercompany loans, the resulting adjusted margins would have been materially higher and more representative of our sustained and resilient operational efficiency. We believe that this adjusted view provides a better picture of the fundamental robust earnings power of our business than the numbers that we have reported. This is also tangible evidence that the margin discipline we have been driving throughout the business is taking hold. We have now started to work similarly to elevate our sales execution. We are confident that as we continue to embed these operational improvements, the strength and stability of our business will shine through regardless of market conditions. Now as you know, we have taken a number of actions over the past several quarters to address investor concerns to improve our corporate governance and enhance our financial reporting and transparency. I want to highlight some of these by putting them all on one page. First, KPMG was appointed as Nagarro's external auditor. KPMG approved the 2024 annual financial statements without qualification, hopefully putting to rest many of the allegations that have been made against the company since we have been public. Working with the Tier 1 auditor has also led to enhanced reporting and disclosures, including how we account for purchase price allocation for deals and a combined management report that aligns to the specific broad topics defined by GAS 20. Then we developed new programs to drive a basic level of profitability across our business units and introduced an expanded bonus component for senior people, linking compensation directly to the company's margin performance. And now we are expanding that incentive linked to growth. Then we added 3 new members to the Supervisory Board with outstanding backgrounds as leaders at global companies. Martin Enderle is an experienced Chairman. Jack Clemens is an excellent Chair for the Audit Committee, and that's having an impact. And then Hans-Paul Bürkner has been an excellent mentor, a sparring partner for me in his role as the Chair of the Strategy Committee, and all of this change has been fantastic. Next, we have outlined a commitment to a disciplined capital allocation policy that included share buybacks, dividends and M&A. We have done all of these. We bought back EUR 52 million worth of stock to date. We intend to buy back another EUR 20 million as we announced this morning. We also paid out a EUR 12.6 million dividend and continue to pursue smaller tuck-in acquisitions. We are on track to announce soon a very small, but meaningful acquisition in the Japan, India tech services corridor. So that's that. And then we have some more good news this week, just a couple of days ago, our sustainability commitment was validated by an EcoVadis Gold Star rating, which is up from bronze that we had. This places our sustainability management system in the top 5% of assessed companies. And I would like to congratulate the Nagarro team that worked on this. We continue to uphold our dedication to becoming a more sustainable organization through ambitious science-aligned climate targets following the science-based target initiative. We have run a CFO search process and should have good news for you soon on that front. And finally, Nagarro has been developed from the first day on strong principles of ethics and full regulatory compliance. But in order to ensure that even in the decades to come, we are continuing to maintain the highest standards of integrity, compliance and operational resilience, we are further enhancing our processes and governance frameworks across the organization. Now our customer diversification across industries continues to provide both growth and stability. But in the meantime, there has been an evolution in our thinking given the tighter market conditions that have now persisted for a couple of years. We are going to be a bit more deliberate about targeted growth and more deliberate about where we place our bets. We're going to give a little extra emphasis in terms of sales efforts, where we have the right to win in those verticals and topics where we feel we can go big. While we do this, we continue to explore meaningfully our big secular growth opportunities that we have outlined in past calls in Japan and for Japan Inc. around the world. German Mittelstand in hardware and IoT and now in a fledgling way in the supply chain. We are developing playbooks around many of these topics and are improving our discipline around these. We see this improved discipline of execution and improved focus on commercial excellence as a new phase in Nagarro's evolutionary journey. Just a few words on our geographies. You know that our diversification extends to geographies as well. The U.S. and Germany remain of top importance for us. The Middle East has been a nice addition to growth in the last few years. We fully expect Japan to play this role in the coming years. Michael, with that, do you want to now discuss the balance sheet and cash flows? Michael Knapp: Absolutely, Manas. Thanks. The chart on the left shows our financial position at September 30, 2025. Financial liabilities were EUR 301.2 million and lease liabilities were EUR 70.8 million. Our cash balance remained strong at EUR 129.4 million, implying net liabilities of EUR 242.6 million, which leads to a net leverage ratio of 1.7x. The company's liquidity position at the end of the 9-month period was comfortable with working capital of EUR 223.5 million. In the interim consolidated statement of cash flows for 9 months of 2025, Nagarro has included the unrealized loss on intra-group loans within the Nagarro Group of EUR 15.8 million that was formerly under other noncash income and expenses into net cash flow from operating activities. And this is leading to a positive impact on it and a corresponding decrease in effects of exchange rate changes in cash and cash equivalents. For Q1 and first half 2025, this reclassification has a positive impact on net cash inflow from operating activities with a corresponding negative impact and effects of exchange rate changes on cash and cash equivalents of EUR 7.4 million and EUR 15.9 million, respectively. The numbers for comparable periods in 2024 are not material. Overall, there's no change in cash and cash equivalents and total changes in cash and cash equivalents in the statement of cash flows for Q1 and the first half of 2025. Cash flow for the 9-month period ended September showed a total cash outflow of EUR 49.2 million versus an inflow of EUR 33.1 million for the comparable period last year. Operating cash flow for the current 9-month period increased to EUR 77.1 million versus EUR 64.9 million for the comparable period last year. This was primarily due to other noncash incomes and expenses of EUR 7.2 million. Days of sales outstanding improved from 88 days at year-end 2024 to 85 days at the end of September. Kindly note that we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. Cash flow from investing activities for the current 9-month period was an outflow of EUR 8.9 million, and CapEx was EUR 6.1 million. That's less than 1% of 9-month revenue, which reflects our asset-light model. Cash outflow from financing activities for the current 9-month period was EUR 117.4 million, mainly due to purchase of treasury shares amounting to EUR 50.1 million, net repayment of bank loans of EUR 24.3 million, lease payments of EUR 16.6 million, interest payments of EUR 13.8 million and the dividend paid during the period amounting to EUR 12.6 million. Turning to our capital allocation initiatives, which are designed to create shareholder value. We bought back a total of 684,000 shares that amounts to EUR 50.1 million. And we are pleased to announce this morning that we're continuing the buyback program and intend to acquire up to EUR 20 million worth of shares. In addition, we plan to redeem approximately 75% of the roughly 1.1 million treasury shares currently held to enable further share buybacks and adjust capital levels to appropriate levels for the company's business needs. We announced and paid a dividend of EUR 1 per share amounting to EUR 12.6 million or 13.1% of 2024 EBIT. This was declared during our AGM in June, and we expect to sustain our dividend policy of distributing between 10% and 20% of our EBIT annually. Our inorganic growth strategy remains highly disciplined, and it's focused on synergistic tuck-in opportunities rather than large transformative M&A. These smaller strategic acquisitions are crucial for filling specific technological, geographical and client-specific gaps. And we believe this measured approach ensures rapid integration, minimizes operational disruption and provides a clear path to immediately enhance our service portfolio and deepen client value. And with that, I'll hand it back to Manas. Manas Fuloria: Thank you, Michael. Now we spent the first half of this call talking about all the good work we have done in the recent past. I would like to shift gears and look towards the future a bit. We believe that in the next few years, every company in every industry will have to find significant double-digit productivity gains. Competition around this will heat up. A company without a clear path to realizing these productivity gains with AI will be lost. It will be a bit like a consumer company without a website in the '90s or 2000s or today, a consumer company without a social media presence. So this productivity movement is a big transformation ahead of us that will cut across each and every industry. Now as you know, Nagarro has been a big proponent of agile, and we have helped a large number of our corporate clients make the move to agile. In the next years, we're going to help them make the move to what we call Fluidic Intelligence. Let me spend a few minutes explaining what we see as Fluidic Intelligence. When we say Fluidic Intelligence at Nagarro, we are describing a fundamental shift in how individuals, technology and enterprises will operate in the age of AI. It's a deep rethinking of how human judgment and machine capability will come together to create step change outcomes. So let's start with individuals and take the example just of engineering and software engineering. So there's a big revolution ongoing in the software front, as you know, where engineers are no longer just writing code. They're orchestrating entire systems alongside AI assistants and agents. They're debugging complex distributed systems faster. They're exploring architectural options that they may not have considered otherwise and shipping micro services in days instead of weeks. But the real shift is that the nature of work has changed. The engineer is now the decision maker, the strategic decision maker setting direction, applying judgment, teaching the AI what good looks like in that project's context. And the result is a seamless and fluid collaboration between the human engineering nutrition and the AI capability. And we believe that this is the way the future will work and all individuals and teams that are not working this way will be simply too slow to compete. And this is what we call Fluidic Intelligence at the individual or small teams level. But if you look then beyond this at technology inside large enterprises, most organizations sit on 10, 20, 50 years of operational knowledge. Much of it is scrapped in systems that only some experts understand or it's in the head of -- heads of managers or experts or buried in some spreadsheets or logs. And when an issue takes place, whether it's a quality issue, supply chain issue or whatever, the disruption just has to trigger teams spending days piecing together this tribal knowledge from here and there to diagnose what's going on. With Fluidic Intelligence, AI can surface the right insight at exactly the right moment by understanding every bit of adjustment, anomaly, recovery pattern that's stored across the enterprise historically. So the real unlock isn't just data, it's the accessible contextualized decision-making knowledge. And this is the technological dimension of Fluidic Intelligence. And it goes beyond technology to the enterprise itself. Most organizations are like cities that grew organically. They are built with a certain old context in mind, the departments that don't talk to each other, they work in silos. They have independent objectives, independent incentives, independent budgets, workflows create friction and information moves slowly. And even a simple change to a simple topic may take weeks or months and may require many changes to many systems. And in this friction-free future enterprise that we see powered by Fluidic Intelligence, that same scenario is intelligently orchestrated end-to-end in minutes or hours, pulling context on the right systems, checking constraints, routing decisions to the right humans, automating everything else. So Fluidic Intelligence for us in some is at one level, human AI collaboration, at one level, the knowledge fluidity across different technology platforms. And the third is like the friction free flow at the enterprise across departments. And we think it's the architecture of how the next generation of intelligent organizations will operate. Now given Nagarro's own context of not only being an agile software engineering company, but trying to build an agile company, given our deep engineering expertise, given our history of engaging with clients on the agile transformations and other complex and challenging cultural topics, I think this is work we are uniquely positioned to deliver. Now in a minute, I'll show an example of what Fluidic Intelligence looks like in practice because it's the best way to understand it is to actually see an example. But first, a few words on how we are going to deliver it using special intellectual property that we have developed. What we are doing is we have, in the past several months, centralized our IT investments that used to exist in the BU silos. We have consolidated them all these AI accelerators and platforms into a portfolio that we call the Fluidic Forge. At a high level, it includes 4 streams of activity broadly. The first is the operational intelligence to run the business where work actually happens. This is a front line with orders and fulfillment and exceptions and incidents, and you want to bring predictability to the messiest part of operations, which is this. The second is more around decision planning intelligence. This is where strategy and map come together to improve the business. The third is around the technology integration and orchestration across the ERP, CRM, order management, warehouse management, finance, HR and whether it's legacy mainframes or the latest data platforms by using agents that work across systems and inside every workflow. And the final pillar is the modernization of the mission-critical core of data across legacy mainframes as well as data platforms. So this vision is about what an organization needs to do to move to this new world. It's not about small pilots in some corner, but rather about transforming the enterprise end-to-end. And we feel that Nagarro is just the right size. We are big enough and embedded enough at our clients to take on such transformational work, but we are also technical enough and agile enough to work on every little piece that needs to come together for this transformation at our clients. Now let's take a real-world example of how this transformation is achieved. And this example is the example of Dublin Airport and of modernizing Dublin Airports operations. And I believe most of us would be frequent travelers, frequent air travelers, so we will be able to relate to this example. Dublin Airport is Ireland's national Gateway and the 12th largest airport in Europe. It handles over 30 million passengers annually. It operates in a highly dynamic system with thousands of different processes with interdependent, airside logistics coordination, retail management, security, ground transportation and so on. And every decision impacts passenger experience, safety and operational agility. Now despite its evidence and the scale of the airport, it has faced frequent disruptions and challenges in decision-making. Data critical decision-making is scattered across silo systems, baggage handling, for example, passenger information, for example, gate management, air traffic control, ground operations and many more. And this fragmentation resulted in delayed awareness, reactive operations and inefficiencies. And a lot of the operational intelligence of the airport was not in the systems, but facet knowledge held by experienced staff insights that were not captured or shared across teams. And to manage this complexity as the airport plan to scale, it needed to evolve into a Fluidic system, where data decisions and intelligence flow seamlessly across teams and technologies. So this is what Nagarro did. We came in, mapped the airport as a single connected system. We revealed the fragmentation across these different operational and decision-making layers. We identified these critical knowledge assets and key friction points that were limiting the agility and cross-functional decision-making such as challenges with operational command visibility and unified control into flight operations, passenger operations, the limited ability to anticipate passenger flows or peak loads or queue congestion and not being able to drive retail and other non-aeronautical revenue and leaving money on the table and not being able to optimize the utilization of pavement and assets stands, taxiways, runway users and so on. And we use the Fluidic Forge AI accelerator that I just talked about to address these friction points, creating this sort of connected intelligence and predictive control and optimization with measurable business outcomes. Now I won't go into the details, but the airport has now much more data streaming, real-time event-driven dashboards, AI models for flow prediction, for congestion alerts. And these are integrating all kinds of data, like weather data or airline schedules or how people are coming through security and so on. There's agent-based modeling for dynamic workforce planning. There's a digital twin of airfield operations, there's AI maintenance schedulers and so on. So -- and the outcomes are, of course, how -- everything is optimized, how airlines use the airport, how the revenue and yield from retail locations is optimized, efficiency and ground handling, better experiences for passengers. And if you think about it, it's also going to drive better regulatory compliance and also agility to respond to things that may happen in the environment, which all comes from this unified data fabric with intelligence sitting on top of it. And this collaboration with Dublin Airport is not a one-off thing. It continues as the airport expands its AI native capabilities from passenger flow forecasting and retail intelligence and so on to sustainability analytics and other new frontiers setting this global benchmark for frictionless airports of the future. So in this example, we talk about how we brought Fluidic Intelligence to this airport, to Dublin Airport. But from the vantage point of where Nagarro sits, we have like hundreds of such clients. We have this opportunity to deliver similar results on data and AI to many great clients across various industries. And as you know, we are privileged to work with some of the world's most recognized and forward-thinking companies, companies that are not just leading their industries today, but actually reimagining what the future will look like across how we live, how we move, how we work, how we bank, how we connect and so on. And these are loyal clients. These are not just one-off partnerships. These are loyal clients who work with us year after year. They include, for example, 3 of the top luxury car manufacturers, 3 of the top 5 global leaders in industrial automation, 5 of the leading global retailers, 2 of the top 3 global hotel groups, 2 of the leading global cities. And then there are these niches like half -- almost half the top banks in the Middle East. 3 of the top 4 management consulting companies and so on. I could just go on and on, right? So there's a huge base of loyal clients where we can bring these capabilities to them. And with these clients, we will work towards the future, we work towards inventing what comes next. And with that sort of like a little bit of framing of where we sit and to speak into how we see Nagarro evolving into the future, maybe we transition to the Q&A. Maybe the operator can switch to Q&A. Operator: Our first audio question comes from Nicolas David from ODDO BHF. Nicolas David: I have a few questions. The first one is regarding the overrun environment. Manas you said that the demand is still soft. But I understand that this comment is more on a 9-month basis because, I mean, you showed a pretty good Q3, both on a year-on-year basis, but also on a quarter-on-quarter trend. So did you see, nevertheless, an improvement in the trend recently? And how do you see Q4? Do you see further improvement? Or are you worried about potential big furlough by the end of the year? So my first question would be around the overall environment. And regarding that, also, could you comment please on the pricing environment. Some of your competitors have been mentioning further pricing pressure be it linked or not to the AI evolution? And my last question is regarding the profitability. So if we take the midrange of your annual guidance, it implies a 14% EBITDA margin. Excluding the write-off of your intercompany loan, it would be like 15.8%. Is this profitable level sustainable for the next years? Or do you need some investment? Or is that something that could push downwards the margin for the next year? Manas Fuloria: Thank you, Nicolas, for these questions, and I'll take them one by one. I think that the demand environment is still soft, but I think the degree of clarity and confidence that now exists about where AI is going to take us, has not been there for a long time. So it's difficult to predict how the quarters will look, but I think the 3-year, 5-year horizon is really bullish now, I would even say bullish because the transformation is here. I think we had this period when the technology had been introduced. There were lots of questions about whether it would be capable enough to bring about changes, how it would impact the IT services sector and so on. I think these questions are by and large, behind us. I think there is a fair amount of tangibility into how the future will look. Q4 is a quarter with fewer working days typically. So there is some of that. And again, I would not want to predict quarters, but I think that in general, the outlook is bullish. In terms of pricing pressure, I think there's pricing pressure in large multiyear deals because there's some doubt about where the productivity improvements will take us. But I think that in general, Nagarro's business is still majority T&M business, and we don't see that much pricing pressure there as maybe in multiyear managed services deals. Finally, in terms of profitability, I think a couple of years ago, we had said that we believe that when we spun off the company, we said that 15% adjusted EBITDA was our target. And a few years later, we said 18% is where we want to gradually get to, I think that's where our target is. I think that we will need to make some more investments, but we also see still a lot of opportunities to rationalize our costs and to pool our resources and make more targeted bets. So I think that we will -- we do expect profitability to keep improving in the years to come. Nicolas David: And if I may, regarding the outlook, you mentioned more the AI visibility driving the demand. It's you really believe that it's really technology and AI, which has been driving up and down. It's even more than the macro itself? Or macro has still an important role to play. And if so, what is your view regarding the macro? Is it really unchanged there or slightly better? Manas Fuloria: That's a great question, Nicolas. I think that there have been periods in this -- in the last few years, where the macro has played a role but in general, I think technology is seen as a must invest, when it becomes critical to competition. And I think we are entering a phase where it will become a must invest when it comes to productivity improvements. That's why I'm very bullish about this. I don't think that companies will pare back their budgets only to spend more money in terms of reduced productivity. So I think the technology changes will prompt the macro. That's my personal reading. Operator: Our next question comes from Fabio Holsch from M.M. Warburg. Fabio Holscher: Starting with maybe can you confirm that the sequential margin improvement now in Q3 was mainly driven by FX in the other operating results compared to Q1 and Q2? And then how we should think about FX revaluation risk going forward? That's my first question. And then second question, can you comment on what drove the decision to redeem the 75% of treasury shares now? And how aggressive you plan to be with the EUR 20 million buyback? Manas Fuloria: Sure. So the margin improvement is -- I mean, it's a secular trend. The underlying margin improvement with the reported adjusted EBITDA margin because we don't correct for this revaluation of intracompany loans, it has shown a weakness in the first 2 quarters, but with the adjustment, you can see that there's a secular trend of being over 15% and now in a 17% range. So I think that the revaluation risk remains because if the dollar drops dramatically to -- against the euro, then the adjusted EBITDA margin that we declare will be affected. On the other hand, if it rises, it will be affected. But I think we're also going to be talking to our auditor about potentially restating our adjusted EBITDA to account for this intracompany loan topic because we think it's not -- we think it's distracting and doesn't fully reflect the operations of the business. So that's that. I think in general, the margin improvement is not predicated on FX. It's actually the underlying effect is really about all the operational efficiency that we're working towards. On the redeeming the 75%, we keep looking at our balance sheet from time to time and monitoring it and seeing what's best. And at the moment, we have I mean, currently, we have decided to redeem 75%. And the share buyback, I think we have certain regulatory, I think how much we can buy on any single day, but we will be trying to buy this EUR 20 million as soon as possible. Fabio Holscher: Okay, perfect. And if I may squeeze in 1 more. Can you elaborate on your growth plans and Fluidic Intelligence, how that is concentrated in the specific verticals or geographies, which ones you maybe prioritize? Manas Fuloria: So we are actually in the middle of a strategic review, and we will have more clarity by the beginning of next year. But in general, we -- if you look back over the last years, we have seen that the U.S. and Germany continue to be our largest market. And we see excitement across the Middle East and Japan. So I think these are the markets where we have the real focus. And outside that, in terms of verticals, we are doing very well in industrial, and we're doing well in retail and CPG, life sciences. So there are a few verticals that we can easily see that are bucking the trend and then there are some verticals which are really big for us and really important, like banking, for example, or automotive, to some extent, even if they are not doing very, very well at this particular moment. So I think that in general, we are -- we have already started to shift away from some of the verticals that we used to report like horizontal tech. I think from -- for the last 5 years, we've been kind of shifting away from that. But there may be a few others that we decide at least not to invest too much in. It's not that we shut down accounts or anything like that. I think it's just that we don't want to be -- we want to be playing in a tight market where we have a very good chance of winning. And that's the philosophy going forward. So the company has been a very entrepreneurially driven company, but we also have the ability, I believe, to be strong and to take decisive decisions centrally to steer it in certain directions, and that's kind of what we have been kind of playing out in the last few months. Operator: [Operator Instructions] And I'd now like to hand over to Michael for text questions. Michael Knapp: Great. Thanks, Sami. So first question, Manas. Congratulations on strong quarterly results and clarity of the presentation, wanted to ask about the recent significant reduction in equity through the cancellation of treasury shares. Can you elaborate on the strategic objective behind this move? And how we should interpret it in the context of your future capital allocation policy? Manas Fuloria: Well, I think it's just -- thanks, Michael. I think it's just an assessment of the levels of capital needed to run the company, and that's the reason for the exhibition of the shares. And our capital allocation policy continues along the lines of what we have described before, we will take a good look at it as the new CFO in place and come out with a fresh update. But at the moment, this is our -- we are on track with our -- we're in line with the current capital allocation policy. I don't see this as a departure. Michael Knapp: Great. Thanks, Manas. The next question is in 2 parts. First is can you please elaborate on your strong expense control, noting that your SG&A declined by EUR 12 million sequentially. And then secondly, can you explain what changes were made to the stock compensation and incentive plan, which was called out as EUR 11.5 million in your quarterly report. Were those related in any way or discrete items? Manas Fuloria: So on the first, I think the main change that we have made is to try to push towards a certain minimum margin in every business unit. And what this has led to has been streamlining of the spend that we have in practices, which are mainly sales and presales oriented. I think that when we spun off in 2020, our target was that we were aim for 15% EBITDA and really invest in practices and capabilities to drive a global footprint across different industries. Because that was the nature of the situation, we found ourselves beautifully placed to ride the wave of digital transformation, and we felt that we should take full advantage of that wave to build out as many footprints as possible across different industries and different verticals, different offerings. And what this is, is a little bit more of a rationalization. It's also a realization and recognition that the AI revolution is going to be a lot more common to different industries. So it's better to invest in a central way than in all these different practices across the BU. So that's the main theme. On the stock compensation and incentive side, my guess is that's coming from just revaluation based on stock options, et cetera, but I'm not totally sure maybe we can reconnect separately and go over that line item. Michael Knapp: Great. Next question is a 3-parter. Do you have any visibility on returning to double-digit growth in 2026? And then what free cash flow conversion target do you have for the coming quarters? And do you have an estimated net debt level by year-end? Manas Fuloria: Sure. So we don't like to predict the short-term future. It's always more difficult and volatile -- but I think that double-digit growth in the medium term is absolutely where we need to be at. And we don't know, when it will come, but the company is just gearing up to ensure that no matter what the market conditions, we are able to deliver that. And that's the first part. It involves a lot of different changes that we are making to the way we run our business units, but also the way we run our different geographies and the way we run key accounts and the playbooks we use and how sales is organized. But that's definitely something in our future. In terms of FCF, we are not -- we don't talk to set targets because the faster you grow, the more your cash flow suffers. So we are really focused more on growth and margins rather than FCF. And in terms of net debt level, we have obviously an outer bound that we have always declared of 3x adjusted EBITDA, but typically, we like to steer at the 2x EBITDA level to keep that as a -- and maybe go up a little bit beyond that. But 3x is the outer bound. We don't expect the net debt level to change. I mean, let me not give a prediction for the year-end, but that's a general approach to stay around the 2x mark. Or rather, actually also a question of how much cash you want to keep. And typically, we're trying to keep between EUR 100 million to EUR 125 million of cash across our different offices. So that's kind of where we kind of end up with the net debt. Michael Knapp: Great. Thanks for that, Manas. Next question would be you're seeing big tax implications that the dividend payment had this year? Are you exploring ways to improve this? Manas Fuloria: Yes, we have been obsolete transferring cash that was at different parts of the organization upstream towards the [ SE ] and there have been some tax implications of that. And yes, we are definitely working on how to reduce those and normalize those in the years to come. Michael Knapp: Okay. The next question is the current narrative for the sector seems to be that AI could disrupt the IT sector, implying clients are focusing most on their budgets, most of their budgets on hyperscalers, meaning that could be less for companies like Nagarro. Could you please share your view on this? Manas Fuloria: No, I don't think that's the right way to think about it personally. I think that if you want to use more compute and do more things with technology, you need to know what you are doing, right? So the challenge is not in -- it's not just a question of harnessing more chips. But as each one of us knows enterprises are horribly complex. And the example of Dublin Airport totally is one example that we all can relate to, but I think we see similar frictions in every experience that we have, whether it's on a hospital chain or insurance or banking or there are all these different frictions that we have or in cities and governments and so on. And I think the opportunity to actually drive change with AI and with what we call Fluidic Intelligence, is going to be dependent a lot on the people who get it done, who have done this many other companies, and they can bring it to you and they can tell you how it's done, what works, what doesn't work, and that can actually design it in a way that doesn't lock you in as a customer, that keeps you flexible to jump on the next wave of innovation that happens. So I don't at all believe that IT services is -- or the IT services sector is going to be depressed. I think it has good room to grow. There's, of course, intermediate adjustments that we have been seeing in the last couple of years. But I don't think that this -- I'm very excited about the medium-term outlook for the sector. Michael Knapp: Okay. The next question is, should we expect the head count to keep on rising in the following quarters? Manas Fuloria: We try to -- again, I'm always very wary of giving predictions. I think we do -- personally, I would say, I guess, head count will keep rising gradually. But it's a lot more about what we do with people than the number of people that are deployed. So there is a big change to retrain, to improve the productivity, the people we already have and then to choose a different kind of person when you are hiring. So for example, in India, our fresher hiring, which we hire the most people fresh from colleges has now moved to the AI business unit so that the people that we are hiring are all AI native. And we see that there is a whole new level of capabilities that people like that can bring. So I think it's a reorientation of how people are added to a company, but I don't think it's an end of people growth. We do expect the growth to be a bit more conservative in the next few quarters, but maybe picking up after that. Michael Knapp: Perfect. Thanks for that. The next question is what impact will the potential higher act in America have on your business? Manas Fuloria: At the moment, we don't expect any significant impact, but we keep waiting and watching. We don't expect any significant impact. Michael Knapp: Okay. And the next question is how much growth is expected to come as a percent of revenues from joint ventures in Japan? And when will we start to see them contributing to revenue? Manas Fuloria: That's an interesting question. So whether it's joint ventures or partnerships, I think we are going to have like double-digit millions next year. And hopefully triple-digit millions by -- in a 2 years, right? So we have a very strong pipeline. It's -- as you know, the Japan is a complicated environment to work in because there are cultural nuances, there are language topics. And that's why the acquisition that I just mentioned briefly is important because it allows us to work with -- work globally with the language trained workforce, for example. So I think we're putting the pieces in place, and we have the pipeline, and we expect it to take off in the next year or 2, but I must say that at this moment, we probably have already a 3-digit number of leads and opportunity for separate projects that we are looking at. Michael Knapp: Great. And the final question is around conversations with your clients for 2026 digital transformation spending, how are those evolving so far? I know it's still early and companies are finalizing their 2026 budgets. But according to conversations so far, they are still conservative? Or do they look more optimistic about ramping up projects next year? Manas Fuloria: I think that in general, it is better than it's unit for the last few years. But I won't say that spring is here and summer can't be far behind. I think that it is definitely a stronger base than we are projecting out than we have had in any of the last few year ends, but let's wait and see. I don't want to be -- go out on the limb and forecast a recovery, but it does look better than it has been in the last years. Michael Knapp: Great. Well, thanks for your feedback on those points, Manas. I want to thank everyone for joining us today. We really appreciate your interest in Nagarro, and we look forward to connecting with you again soon. Manas Fuloria: Thank you very much. Operator: Thank you, everyone. This now concludes Nagarro's Q3 2025 earnings call. You may now disconnect your lines.
Operator: Greetings, and welcome to Hyperion DeFi's Q3 '25 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Jason Assad. Thank you, Jason. You may begin. Jason Assad: Good afternoon, and welcome to Hyperion DeFi's 2025 Third Quarter Earnings Call. Joining me today are Interim CEO, Hyunsu Jung; and CFO, David Knox. Before we get started, please note that our remarks today may include forward-looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially. During this call, we may use words like anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions, which indicate forward-looking statements. For a more comprehensive discussion of these and other risks, please refer to our filings with the SEC available on sec.gov and in the Investor Relations section of our website at hyperiondefi.com. We'll also reference certain non-GAAP financial measures today. Please refer to our earnings release and earnings supplement on our website for a full reconciliation of these non-GAAP measures to the most comparable GAAP measures. We will start this morning's call with prepared remarks from Hyunsu and David, followed by Q&A. [Operator Instructions] I'll now turn the call over to our Interim CEO, Hyunsu Jung. Hyunsu Jung: Thank you, operator, and good afternoon, everyone. Welcome to Hyperion DeFi's Third Quarter 2025 Earnings Call. Our first full quarterly earnings call since completing our strategic transformation from a biotech company to the first U.S. publicly listed digital asset treasury company focused on the Hyperliquid ecosystem. Now before I dive into our Q3 achievements, I want to acknowledge that this has been an extraordinary year for Hyperion DeFi. We successfully executed what I believe is one of the most significant corporate transformations in recent public market history, pivoting from Eyenovia's ophthalmic technology focus to establishing ourselves as a premier institutional gateway to DeFi innovation. Today, Hyperion DeFi stands as the first U.S. public company building a strategic HYPE token treasury. We're not simply holding digital assets. We're actively participating in the sustainable growth and governance of what we believe will become the backbone of next-generation financial services, the Hyperliquid blockchain. Our thesis is straightforward. Traditional finance is undergoing its most significant transformation since the advent of electronic trading. Hyperliquid represents the convergence of institutional-grade performance with decentralized innovation, offering up to 100,000 transactions per second with sub-second finality, all fully on chain. As institutions increasingly recognize the utility of blockchain adoption, we believe Hyperliquid's infrastructure advantages position it to capture significant market share in not only the extensive derivatives market, but also as part of its larger role as a sustainable layer 1 blockchain ecosystem. Let me briefly outline why our conviction on Hyperliquid is so strong and why we decided to establish a digital asset treasury focused on HYPE, its native token. All information is as of October 31, 2025, and based on external resources. Hyperliquid is the #1 revenue-generating blockchain and #11 cryptocurrency by market cap, both figures excluding stablecoins. Hyperliquid generates annualized revenue of approximately $1.3 billion based on an October 2025 observed run rate of $3.5 million per day. Additionally, platforms built on Hyperliquid earn approximately $2 million in fees per day, bringing the total fees to approximately $5 million per day across the blockchain and platforms. Approximately 99% of Hyperliquid revenues are used by the Hyperliquid assistance fund, which has cumulatively purchased and owned 34.25 million HYPE tokens with a market value of approximately $1.45 billion. There have been over 800,000 cumulative Hyperliquid marketplace users since inception. Hyperliquid's token maximum supply is $1 billion, of which circulating supply is approximately $337 million and corresponds to a market capitalization of approximately $14.3 billion. Daily trading volume on Hyperliquid exceeds $12 billion, cumulative Hyperliquid fees have exceeded $700 million since inception and cumulative cryptocurrency perpetuals trading volume on Hyperliquid has exceeded $3 trillion since inception. With that in mind, what sets Hyperion DeFi apart from other digital asset treasury companies is our comprehensive ecosystem engagement strategy. While companies like MicroStrategy pioneered the corporate Bitcoin treasury model and others have followed with various token strategies, our approach with Hyperliquid goes far beyond simple accumulation. The market opportunity we're addressing continues to expand rapidly. Upcoming network upgrades, such as the recently announced HIP3 are expected to create new opportunities for users ranging from retail to institutions to participate in the ecosystem. For example, the requirement for 500,000 HYPE stake to launch new perpetual futures market has generated and is expected to continue to generate natural demand for large long-term token positions, which is exactly what we've worked to build through our strategic accumulation. Our competitive positioning is unique. As the first and largest public company focused on HYPE, we believe we have advantages in capital access, regulatory compliance and institutional credibility that will be difficult for competitors to replicate. We also continue to develop what we expect to be long-term relationships with various participants in this space, ranging from protocols to major market makers and execution counterparties. One of our most significant Q3 achievements was launching our first HYPE Asset Use Service agreement with proprietary trading firm, Credo Payment. This innovative structure allows institutional clients to utilize our stake HYPE position to reduce their transaction costs on Hyperliquid while both parties share the resulting fee savings. This model demonstrates how our treasury position can create unique revenue opportunities that extend far beyond simple token appreciation. We're essentially monetizing our stake in the network infrastructure while maintaining full ownership of our underlying assets, a business model that we believe has no equivalent in traditional finance. Our vision extends beyond generating robust revenues on our treasury assets. We're actively supporting the build-out of institutional infrastructure to bridge traditional finance and decentralized finance. The appointment of David Knox as our Chief Financial Officer exemplifies the strategy. David previously served as both Head of Capital Markets and Head of Finance for Global Credit and Financial Services at PayPal. He brings deep experience in scaling institutional financial product, and we believe his expertise in structured products and capital markets positions us to develop sophisticated financial services built on Hyperliquid's infrastructure. It may be difficult to recognize now, but Hyperion DeFi is in the early phases of building out a unique strategy that we anticipate will benefit from a flywheel effect that circulates both on and off chain. We're not waiting for others to start this flywheel. We're accelerating it day by day alongside other ecosystem builders, developing institutional-grade products and services that leverage Hyperliquid's unique blockchain technology while meeting the regulatory and operational standards that traditional institutions require. Our financial strategy is designed to create long-term shareholder value through multiple pathways. First, direct exposure to HYPE token appreciation as we expect the Hyperliquid ecosystem to continue to grow and capture market share in decentralized derivatives. Second, we anticipate recurring revenue from our growing portfolio of DeFi services, including validation, asset use services and future product offerings. Third, the potential for strategic partnerships or acquisition opportunities as we expect traditional financial institutions to seek exposure to DeFi infrastructure. And fourth, optionality around our legacy assets, including the potential for UFD monetization through strategic partnerships. I want to provide a quick rundown of our 6 business activities in Q3. Number one, staking rewards. This starts with our Kinetiq x Hyperion Validator. The company stakes its HYPE to its Validator and earns HYPE rewards. Number two, Validator commissions. The company operates its Validator under a Joint Validator Operators Agreement together with Kinetiq and Pier Two, earns commissions on rewards delivered to third-party tokens delegated to the Validator. Number three, yield enhancement. The company pursues accretive strategies to enhance yield earned on its tokens. In Q3 '25, this included the launch of the company's HiHYPE or Hyperion Institutional HYPE liquid staking token, gains on covered call option strategies included in the realized and unrealized gains on digital assets income statement line items and certain liquid staking activities. Number four, DeFi monetization. The company supports and monetizes DeFi activity on the Hyperliquid blockchain with practices we believe to be sustainable and scalable. In Q3 '25, this included the launch of the company's proprietary HYPE Asset Use or HAUS platform, which allows its clients to unlock unique utility on Hyperliquid while generating fee income for Hyperion DeFi. We expect to be able to generate new revenue streams on top of staking, something that simply isn't possible with traditional treasury assets. The company announced its first HAUS transaction with Credo in September 2025, which enables Credo to receive the benefit of lower trading fees on the Hyperliquid decentralized exchange with Hyperion DeFi receiving a portion of those savings as income while continuing to earn staking rewards. The company's second HAUS transaction was announced with Felix in October 2025, enabling Felix's launch of new financial markets on the Hyperliquid blockchain with Hyperion DeFi receiving a portion of fees generated from their markets, again, while continuing to earn staking rewards. We have initiated a partnership with native markets to support their qualification of USDH, the Hyperliquid native stablecoin under the network's Aligned Quota framework. We expect the partnership to go live in the fourth quarter and to hold some USDH on our balance sheet. Number five, ecosystem rewards. Through our active participation in the Hyperliquid DeFi ecosystem, we believe the company positions itself for the receipt of future potential token air drops, protocol incentives and other rewards that may become available periodically. In Q3 '25, the company's Validator received over 3 million tokens delegated from the Hyperliquid Foundation. We also anticipate an ecosystem rewards opportunity near term with Kinetiq. Kinetiq is the largest institutional liquid staking protocol on Hyperliquid with over $1 billion in total value locked. As a reminder, through our co-branded Validator partnership with Kinetiq, Hyperion DeFi directly contributes to network security while generating staking yields on both our HYPE as well as HYPE delegated from other network participants toward our Validator. With them, we have created our own liquid staking token used to participate in offchain strategies and in Hyperion DeFi. We have Kinetiq points, and we anticipate being eligible for their token generation event. We expect additional clarity on this topic in Q4. And number six, Life Sciences. Hyperion DeFi continues to develop its proprietary Optejet User Filled Device. As we enter the fourth quarter, we're focused on several key strategic initiatives, expanding our HYPE asset use service offerings, deploying assets into additional DeFi products on HyperEVM and continuing to strengthen our position in supporting HIP3-enabled market launches, which we expect will require significant long-term HYPE stakes. We believe the fundamentals supporting our strategy continue to strengthen. Hyperliquid holds a position as a leading decentralized perpetuals exchange with over 60% market share as of October 31. Daily average revenues continue to exceed $3 million, supporting the buyback mechanism that has sequestered over 30 million HYPE tokens. Our treasury position has grown to over 1.7 million HYPE tokens as of the end of Q3, positioning us to participate in the network's anticipated continued expansion. We believe this is just the beginning of our transformation in the same way that this is still the beginning for Hyperliquid. We're building what we believe is the new category of financial services company, one that combines public market accessibility with cutting-edge DeFi innovation. We hope that you all are as excited as I am for what's to come. With that, I'll turn the call over to David to walk through our third quarter financial results in detail. David Knox: Thank you, Hyunsu, and good afternoon, everyone. I'm pleased to join Hyperion DeFi as Chief Financial Officer and participate in my first earnings call with the company. My appointment became effective on September 29, so I've been able to observe our Q3 results from both an external and internal perspective. Having spent my career scaling financial services businesses at institutions like PayPal, SoFi and Cantor Fitzgerald, I believe Hyperion DeFi represents a unique opportunity to participate in the institutional adoption of blockchain technology. The company's strategic positioning and asset base are expected to provide multiple pathways for value creation that simply do not exist in traditional financial services. This was a very positive quarter for us. Let me hit the highlights. We achieved income from operations of $4.4 million and GAAP net income of $6.6 million, both of which are record highs for the company. This results in net income per common share on a basic and diluted basis of $0.26 and $0.05, respectively. We started the quarter with $45.5 million invested in HYPE tokens. We purchased another $20.0 million worth of HYPE, and we recognized GAAP accretion of $7.1 million this quarter. Separate from our treasury gains, our revenues from digital assets businesses, which we just launched in the quarter and are only beginning to scale exceeded $300,000. We also achieved $8.0 million of adjusted EBITDA, which removes some large nonrecurring tailwinds to the quarter, such as debt extinguishment, plus reverses some GAAP nuances on our liquid staking tokens, which otherwise would have resulted in additional mark-to-market gains in the quarter. I'm going to go through in detail our newly established key operating and financial results table, which is included on the first page of our earnings release and the third page of our earnings supplement, both of which can be found on our website. These are metrics that we think matter most to our business. Given the very recent initiation of our digital assets treasury strategy, we do not express any of these non-GAAP measures for periods prior to Q3 '25 as we don't think those comparisons would be useful for investors or for us as management. At the end of the quarter, about half of our digital asset treasury was in HYPE tokens and the other half was in HiHYPE, that's HiHYPE, which is our company's liquid staking token. To keep things simple, in this call, I'm going to refer to our HiHYPE as LST our liquid staking token. Liquid staking means that we can earn staking yields on our LSTs while also deploying them into certain parts of the Hyperliquid DeFi ecosystem and also into some off-chain strategies. For example, in the third quarter, we used some of our LSTs as collateral when we entered into covered call strategies on the price of HYPE, which netted us some profits in Q3. As mentioned by Hyunsu earlier, LSTs also help us in optimizing our positioning for certain potential ecosystem rewards, including the upcoming Kinetiq airdrop. For the avoidance of doubt, we are also able to deploy our HYPE tokens into certain DFA activities, including our HAUS agreement with Credo announced in September and our HAUS agreement with Felix announced in October. The point is we have chosen to own both HYPE and our LSTs for different business purposes, and it's important to understand how the accounting treatment is different between the 2 and how we adjust for those differences in our non-GAAP measures. So when you look at the first row of this table, HYPE digital assets, that is a GAAP measurement of our HYPE tokens in isolation and does not include our LSTs. HYPE tokens are held at fair market value, which was $38.0 million at the end of Q3 on 840,000 tokens and a HYPE price of $45.19. HYPE tokens are remarked each quarter for any mark-to-market changes. In contrast, our LSTs are considered digital intangible assets and are carried at the lower of cost basis and impaired value. To put it simply, we cannot mark up our LSTs. However, sometimes we are required to mark them down from a GAAP perspective. This means that from time to time, our balance sheet carrying value on LSTs could be lower than the market value if we had converted all our LSTs back to HYPE. And in addition, while we accrue HYPE tokens as staking rewards against our LSTs, the balance sheet and income impact of those rewards are not recognized in period from a GAAP perspective until the LSTs are converted back to HYPE. We estimate that the combination of these two factors, both the unrealized market value accretion on our LSTs plus our unrealized staking rewards on our LSTs would have added $4.9 million to our balance sheet and net income if we had elected to convert all our LSTs back to HYPE at the end of the third quarter. Therefore, in the second row of this table, we show our first non-GAAP measure gross HYPE Holdings of $77.8 million, which is the estimated market value of our combined HYPE and LSTs, inclusive of the $4.9 million LST pro forma REIT conversion. And this corresponds to 1.7 million tokens shown in the next row and a HYPE price of $45.19 at the end of the quarter. Next, we show the number of tokens delegated to our Validator as of September 30, which was 8.2 million HYPE tokens. This information is publicly available real time on the Hyperliquid blockchain and website interfaces when you look for the Kinetiq x Hyperion Validator. Therefore, we are also showing this figure as of October 31, which was 13.2 million tokens, representing 60% month-over-month growth versus September. While we expect the total number of tokens delegated to our Validator to increase over the long term, there are multiple forces that could impact this number, and we expect the figure to be volatile going forward. Net asset value, another non-GAAP metric, is meant to cover our estimated liquid digital assets less net debt totaling $74.5 million at the end of the quarter. It is calculated as our HYPE digital assets as adjusted to gross HYPE Holdings plus all current assets minus all current liabilities minus notional outstanding debt. Said another way, in the third quarter, our net asset value was $3.2 million lower than our gross HYPE Holdings as a function of outstanding net debt. Moving on to the next section in the table. We generated $303,000 of revenue in the third quarter completely from the digital asset strategy and none from our life sciences segment. This consisted of staking rewards, Validator commissions and our first HAUS agreement with Credo. Our revenue this quarter was substantially higher than the less than $2,000 of revenue realized in the third quarter of 2024. In order to provide a more consistent view of our staking activities in period and our non-GAAP measure adjusted revenue, we take GAAP revenue and add in the unrealized staking rewards on our LSTs, which gives us the next figure in this table of $361,000 of adjusted revenue in Q3. Our Q3 GAAP income from operations of $4.4 million, a record high for the company, includes $7.1 million total GAAP accretion in our digital assets treasury, including yield enhancement from our covered calls in Q3. In terms of our operating costs, research and development expenses decreased 89% year-over-year from $3.5 million in Q3 '24 to $374,000 in Q3 '25. And selling, general and administrative expenses declined 30% from $3.7 million in Q3 '24 to $2.6 million in Q3 '25. Keep in mind, our company has been through an extraordinary corporate transition over the past year. One year ago, in November 2024, the company provided an update that the Phase III CHAPERONE study on our proprietary drug device combination was not meeting its primary 3-year efficacy endpoint. The company then proceeded to execute significant cuts, which drove the operating cost savings that I just described. Today, we are continuing to pressure test every single expense line item, but we are also continuing to invest in having the right people, systems and processes to ensure that our digital assets treasury and DeFi business lines are both sustainable and scalable. As we continue scaling and diversifying our DeFi operations, we are implementing comprehensive risk management frameworks appropriate for our expanded activities. This includes enhanced treasury policies, operational controls and regulatory compliance procedures. Our Board composition and governance structure have been strengthened to provide appropriate oversight of our DeFi strategy. We are committed to maintaining the transparency and accountability that public market investors expect while operating at the forefront of financial innovation. Back to R&D. We continue to make progress in our development and testing of our next-generation Optejet User Filled Device, and we continue to be on track to have an active registration and listing with the FDA in the coming months. We previously announced that we expect operating costs to further decline once we achieve that milestone. We are also continuing to evaluate various strategic alternatives with regard to the future commercialization of the Optejet. The next row in this table is $6.6 million of net income in the third quarter. This was another record high for the company and compares to a net loss of $7.9 million in Q3 2024. In Q3 '25, other income was boosted by $2.4 million due to reductions in life sciences liabilities, which we do not expect to be recurring. In the third quarter, we had a $795,000 dividend payment to preferred shareholders, resulting in net income attributable to participating securities at $5.8 million. Before we get into per share metrics, let me remind everyone of our capital transition over the last 6 months. In June 2025, we received a $50 million PIPE investment involving the issuance of preferred shares and warrants, and we used the net proceeds primarily to establish our HYPE digital assets treasury. There are important conversion restrictions and other investor considerations related to the PIPE investment, which are more fully described in our SEC filings. However, if warrant holders choose to exercise their warrants for shares of common stock of the company, we would anticipate using a substantial portion of the related net proceeds to buy more HYPE tokens and generate more revenue and income. With all that being said, based on 6.0 million basic weighted average common shares outstanding and 29.0 million diluted weighted average common shares outstanding, net income per common share in the third quarter on a basic and diluted basis was $0.26 and $0.05, respectively. For the last row on this table, we are showing the non-GAAP measure adjusted EBITDA of $8.0 million in the third quarter. There are some important reconciliations from net income, so let's go point by point. Stock-based compensation is removed from our adjusted EBITDA. In Q3, stock-based compensation was negative $1.3 million, meaning it was a tailwind to Q3 net income. This was unusual. It happened primarily because of the timing of certain stock-based awards in connection with recent changes in the company's leadership. Next, we removed $223,000 interest expense in the quarter. Then we removed the $2.4 million of nonrecurring Q3 gains from reductions in life sciences liabilities. These were extinguishments or reductions in liabilities which we held on our balance sheet as of Q2. We also back out a few other nonrecurring items totaling $56,000 of GAAP gains, including gains on sales of life sciences equipment. Finally, we add the same $4.9 million LST pro forma reconversion that I mentioned earlier. From an operational perspective, we aim to optimize our HYPE versus LST holdings for long-term shareholder value and not for near-term income recognition implications. Within income from operations, total accretion on our digital assets was $7.1 million in Q3. But if we had converted all our LSTs back, we believe this figure would have instead been $12.0 million. Over time, we expect this line item on LST reconversion within adjusted EBITDA to cumulatively net to 0. If, for example, all LSTs are reconverted in Q4 '25, we would anticipate a positive $4.9 million tailwind to Q4 net income and would expect an offsetting negative $4.9 million in our Q4 adjusted EBITDA on this line item. That closes out my discussion on the key operating and financial results table. I am now going to briefly touch on cash flows, liquidity and guidance. Net cash used in operating activities decreased from $24.0 million for the 9 months ended September 30, 2024, to $10.7 million for the 9 months ended September 30, 2025. And in the past 3 months, net cash used in operating activities was less than $3 million. Owing to our successful corporate and financial transition over the past year in management's view, the company now has a very solid liquidity profile. At the end of the quarter, we had $8.2 million of cash and cash equivalents. Our outstanding loan owed to Avenue Capital is carried on the balance sheet at $7.7 million, which is net of $599,000 of unamortized debt discount, meaning the notional balance owed is $8.3 million. This loan is in an interest-only period at 8% fixed rate per annum until principal payments begin in 2027. And in addition, only half of the interest is payable in cash and the other half is payable in kind, increasing the balance of the loan, meaning the cash interest expense on this loan effectively at 4% per annum is expected to be less than $90,000 in the fourth quarter of 2025. On the preferred shares, we have a quarterly fixed dividend of $795,000. And while we recently elected to pay this in cash, we also have the option to pay in common shares instead. Our operations and cash flows are more fully described in our filings, but summing up a few items I just mentioned. About $3 million operating cash outflows, plus about $90,000 cash interest plus $795,000 in dividends, which don't need to be paid in cash, equates to approximately $3 million to $4 million combined at Q3 run rate versus $8.2 million of cash and cash equivalents at the end of the quarter. And in Q3, we raised $21.8 million net of expenses via our at-the-market equity offering program or ATM, which we believe demonstrates our ongoing ability to raise funds needed. Quickly highlighting investing and financing cash flows. Net cash used in investing activities increased from $161,000 for the 9 months ended September 30, 2024, to $65.6 million for the 9 months ended September 30, 2025, primarily to purchase HYPE Tokens. In June, we purchased $45.5 million worth of HYPE funded by our PIPE investments. In the third quarter, we raised $21.8 million net proceeds from our ATM and purchased an additional $20.0 million worth of HYPE. Since the end of the third quarter, we have continued raising funds via our ATM, and we have kept buying more HYPE tokens, including during mid-October following the broad market sell-off. We plan to continue to operate with a balanced approach regarding our fundraising and our HYPE purchases, and we'll continue to weigh all relevant financial and liquidity factors, including our opportunities to deploy any HYPE that we purchase. Looking ahead to Q4 2025, we expect continued growth in our DeFi-related revenues. Our pipeline of potential HYPE asset use service clients is robust with several institutional clients expressing interest in similar arrangements to our Credo and Felix partnerships. Staking and Validator revenues are expected to continue to increase as the Hyperliquid network expands and our staked and delegated positions grow. Our Kinetiq x Hyperion Validator currently sits among the top 10 Validators by stake with 13.2 million HYPE delegated as of October 31. On top of our option strategies, we are also exploring additional yield generation opportunities through HyperEVM DeFi protocols, though these remain in early stages. This is now the first time in the company's history that we are initiating financial guidance. As we consider our metrics that matter, while we have a strong point of view that HYPE is the most compelling digital asset and that buying HYPE may produce outsized returns to investors over time, we don't consider it useful to provide near-term price predictions. Instead, given the growth we are anticipating across all our business lines, we are pleased to give guidance focused on our operations. We anticipate Q4 '25 adjusted revenues between $475,000 and $515,000, representing a 31% to 43% quarter-over-quarter increase versus Q3. We expect our adjusted revenue growth rate to continue to accelerate into 2026. We are already off to a great start in Q4 with 2 new DeFi monetization partnerships already announced, plus 60% month-over-month growth on tokens delegated to our Validator from September to October. The other guidance we are providing is that we anticipate our operating cash flow to turn positive in 2026, meaning we aim to achieve a run rate where we don't need to raise funds, draw down on our cash or sell HYPE tokens in order to fund ongoing company operations. We are highly convicted on the opportunity ahead of us. And while 2025 has already been a remarkable year of firsts for the company, we believe that achieving operating cash flow positivity in 2026 will be one of the most important inflection points for our company. We are already engaging in 5 unique digital assets business strategies less than 6 months after establishing our digital assets treasury, and we expect all of them to achieve scale in 2026. As a reminder, these are staking yields, validated commissions, yield enhancement, DeFi monetization and ecosystem rewards. We believe our flywheel effect to compound our HYPE Holdings is simply unparalleled. With that, I'll turn it back over to Jason, and we look forward to answering your questions. Jason Assad: Thank you very much, David. [Operator Instructions] Here's our first question. How did the crypto liquidation event on October 10 impact your business? Hyunsu Jung: Yes. While October 10 was a very unfortunate event that created substantial economic losses for many market participants, it really demonstrated the resilience of on-chain smart contract platforms. So Hyperliquid's centralized exchange suffered 0 downtime or outages and the applications on HyperEVM, including lending and borrowing, worked perfectly without incurring any bad debt, which was not the case for other exchanges. More specific to Hyperion DeFi, none of our business operations were affected given that we have not taken on any leverage positions with our HYPE assets. As we mentioned before, our focus is on deploying natively staked HYPE to secondary yield-generating mechanisms such as HIP3. And we also saw more importantly, that even after this flush out of risk, trading volumes and associated fees quickly returned to Hyperliquid, which demonstrates market that there is demand for participants to continue to position their strategies on decentralized exchanges. Jason Assad: Thank you. What do you think of recent regulatory developments and their impact on DeFi and your business? Hyunsu Jung: Yes, great question. So we are currently in an extremely dynamic regulatory environment that is broadly favorable due to the current administration. And we would expect to continue to see clarity around how crypto and DeFi will interact with existing financial infrastructure. The passing of the GENIUS Act, for example, encourages continued innovation in stablecoins under a more clear regulatory framework, which serves as a tailwind for the development of Hyperliquid native stablecoins like USDH. David, it would be great, too, if you want to add your thoughts here. David Knox: Absolutely, and thanks, Hyunsu. We place ourselves on the cutting edge of financial innovation. And because of that, we believe that we have a duty and an obligation to operate responsibly. This means choosing to operate in ways where we believe we can navigate various regulatory outcomes, and we welcome any additional clarity with regards to cryptocurrency, digital assets and DeFi regulation. Jason Assad: Thank you, David. This investor asks, are you considering an additional capital raise? Hyunsu Jung: Great question. So after raising $50 million for our PIPE back in June, we moved very quickly to purchase HYPE and establish the foundations of our business, which, again, as a reminder, is our Validator and the development of the proprietary HAUS platforms and other additional initiatives to engage with and support Hyperliquid. Now these efforts support the growth of the ecosystem, and our focus is not simply buying and holding the assets, but to build and scale real businesses on chain. So we've established that foundation and the focus would be to continue to accumulate HYPE and refining what we've built. I'll hand it off to David here just with regard to capital markets activity. David Knox: Sure. Thanks, Hyunsu. We believe that HYPE is the most compelling digital asset and that over time, we are going to purchase more. As we think through how we might contemplate an additional raise and additional fundraisings, we're going to consider important financial factors like liquidity, like market conditions and like how we think we can deploy our HYPE tokens most effectively throughout our various business strategies. As mentioned previously, we did raise $21.8 million via our ATM in the third quarter, with which we bought back another $20.0 million of HYPE tokens and use cash for other purposes. And we have continued raising funds via our ATM in the fourth quarter. Jason Assad: Thank you, David. This one is on Aster and Lighter. They're asking, do you see it as a credible threat to Hyperliquid? Hyunsu Jung: So there have been on-chain perpetuals markets before, like GMX and dYdX, and we expect that others may continue to come in the future. In our opinion, none of them are like Hyperliquid. So holistically, it is true that when a new entrant like Aster or Lighter join a market that is seeing a lot of attention, users may be interested in trying the shiny new thing. Competition is healthy because it encourages everyone to refine their product and be better, and it also helps the pie grow bigger, in this case, on-chain derivatives. But beyond this, Hyperliquid has done so many things differently. It's entirely self-funded with no VC capital. It's distributed over 30% of its token supply to early users. It remains credibly neutral. It's even refunded user funds when network issues have emerged. And more importantly, its rate of innovation is unmatched. It seems that those that are coming into the perpetual debt space now are playing a little bit of catch-up, whereas with Hyperliquid, with products like HIP3, which enable the permissionless launch of non-crypto assets and also aligned quota assets, it creates new demand things for HYPE and expands the universe of participants to Hyperliquid, and that's where we, at Hyperion see the opportunity. Jason Assad: Great. Thank you. Robert asked, is mNAV a useful metric to you? Hyunsu Jung: So we believe mNAV was an appropriate metric during the first generation of digital asset treasuries when there wasn't a proper way to measure the value of the company besides the value of the assets in the balance sheet versus its market cap. We see this kind of changing now with new strategies from the, call it, the second generation of digital asset treasuries with strategies like staking, restaking derivatives. None of them, however, are able to do so far what Hyperion has done within the Hyperliquid ecosystem with real revenue-generating businesses built on top of our treasury asset HYPE. So not to reiterate the point too much, but the HYPE Asset Use Service products are ways of not only just earning the native staking yield, but compounding those returns through mechanisms that also support the growth of new products, expanding the user base to Hyperliquid and also onboarding and scaling financial activities. And so we see a world where companies like ours are actually measured by a combination of both the asset value and future cash flows. Jason Assad: Great. Thank you, Hyunsu. This one is regarding how do we -- what measures do we take to secure our tokens? Hyunsu Jung: So self-custody infrastructure using infrastructure provided by Anchorage Digital Bank. There is also ways to utilize the native multi-sig offered on Hyperliquid to build secondary level protections on top of our existing HSM and MPC infrastructure. And it's our job to continue to diligence other service providers, infrastructure providers to ensure that we are always up to date and using the best mechanisms possible to protect the HYPE assets on behalf of the company and our shareholders. Jason Assad: How would we differentiate ourselves from other [ debts ]? Hyunsu Jung: The simple answer is that we do not just buy and hold our treasury assets. It seems that staking to the network and contributing to security should just be baseline. Now Hyperion runs our own top 10 Validator with over 13 million HYPE stake to it, which does become real revenues for Hyperion. But more so than that, we have so many mechanisms to use that stake HYPE and redeploy it into the ecosystem. And these strategies not just compound yield and generate sources of revenue, but they also help create the flywheel effect that brings more users and activity to Hyperliquid. And as we mentioned before, with the Hyperliquid assistance fund, we have a precedent where the more fees and revenues that are generated within the ecosystem, 99% of them are going back to purchase back HYPE. And so we think this is a really powerful mechanism, and it's our role with Hyperion to continue to innovate financial products that enable this to continue. Jason Assad: Thank you. This one is regarding the Kinetiq airdrop. Is that baked into our forecast? Hyunsu Jung: David, do you want to speak to this one? David Knox: Absolutely, and thank you for the question. So here is what we know. We have Kinetiq points. We believe we will be eligible for the token generation of airdrop. We do not know what the financial implications will be, nor do we have a reasonable basis to take a view on if it's going to be material or not material. But there's 2 important points that I want to make here. The first is we have not adversely positioned our balance sheet or our operations to try and take advantage of this opportunity. Our joint Validator agreement between us and Kinetiq and Pier Two is a top 10 Validator on the Hyperliquid blockchain with north of 13 million tokens as of the end of October, which is 60% month-over-month growth. In addition, the activities that we do with Kinetiq include our liquid staking HiHYPE token, which provides real utility to us in terms of being able to stake our HYPE, deploy into HyperEVM and use in off-chain situations like when we used HiHYPE as collateral for our Q3 covered call option strategy, which netted some profits in Q3. So this is why in our earnings supplement, we present these various business activities as compounding on top of each other, staking yields plus Validator commissions plus yield enhancement plus DeFi monetization plus ecosystem rewards. Because we really do believe that this all adds up together. And the second point that we want to make here, we don't know when or if there's going to be other opportunities like this, but we've only been doing this less than 6 months, and there's already been 2. The first was when the Hyperliquid Foundation delegated to our Validator 3 million tokens in the third quarter. And the second now with this Kinetiq rewards, for us, this shows that our flywheel effect is really beginning to work. We are building these businesses on the Hyperliquid blockchain, which both promote and monetize Hyperliquid's use. And now the ecosystem is rewarding us back. So this gives us even more conviction in our core thesis that HYPE is the most compelling digital asset, that the Hyperliquid blockchain is ripe for innovation and monetization. And we're very, very pleased to be simultaneously supporting and sharing in the upside of this growing ecosystem. Jason Assad: Thank you. Jonathan, one of our legacy shareholders asked, why have we not sold the Optejet? Hyunsu Jung: Thanks for the question. Yes, with regard to the Optejet, we're taking a rational approach to that side of the business. It has commercialization potential. We maintain both patents and IP developed over the years. We are still completing R&D and testing to reach a position of commercial viability. So we've had a number of conversations with people in the industry, and we're taking it one step at a time. David, feel free to add some color here. David Knox: Thanks, Hyunsu, and that's right. All of our knowledge and conversations support our thesis that the best financial outcome for the company is to continue towards that next milestone of having an active registration and listing with the FDA. And in the fourth quarter, we've continued to do some testing towards that milestone. But we will continue to have a rational approach and evaluate options available to us. Jason Assad: Thank you. I think we have time for one last question. They're asking, are you going to hire more people? Hyunsu Jung: So Hyperion DeFi's mandate is to continue to accumulate and generate revenue on what we believe to be the most compelling digital asset type, so that our shareholders can benefit from this comprehensive exposure to decentralized finance. Now to accomplish that, we must continue to operate responsibly and minimize cost on the operating side. So currently, we do remain fully supported across key business functions, and we want to remain very lean as we continue to move forward. Now the beauty of blockchain-based businesses is that similar to SaaS or other Web 2 products is that once they are properly designed, they are almost infinitely scalable. Hyperion DeFi has long-term ambitions far beyond simply operating in DeFi actually. Our goal is to become the bridge between institutional finance and on-chain financial primatives. And that's going to take time, and it's going to require a team of really some of the best-in-class people across industries, which obviously we've already started to build. And so a very long-winded way of saying it's definitely in the road map, but we want to focus on our core business first, which is ensuring that we develop a robust revenue-generating business lines within this DeFi space built on Hyperliquid. Jason Assad: Thank you. So this concludes the question-and-answer session. If you have additional questions that we didn't get to, please feel free to send them to ir@hyperiondefi.com. And we, of course, will be happy to get back with you. At this time, I'd like to now turn the call back over to Interim CEO, Hyunsu Jung, for his closing remarks. Hyunsu Jung: All right. Thank you, Jason. As we conclude today's call, I want to emphasize the significance of what we've accomplished and what lies ahead. Q3 2025 was our first full quarter operating as Hyperion DeFi, and we believe the results demonstrate the viability of our strategic transformation. We believe our performance shows that a public company can successfully participate in DeFi ecosystems while maintaining institutional-grade governance and creating shareholder value. We believe our achievements this quarter were expanding our HYPE treasury to launching innovative revenue-generating services to appointing world-class financial leadership position us for accelerated growth in Q4 and beyond. We view the broader macro environment for institutional DeFi adoption as continuing to improve. In our view, regulatory clarity is increasing, institutional infrastructure is maturing and the performance advantages of platforms like Hyperliquid are becoming more recognizable. We believe Hyperion DeFi is positioned at the center of this transformation. Looking ahead, our priorities remain focused on 3 key areas: continuing to build our strategic HYPE position, expanding our portfolio of DeFi services and developing the institutional infrastructure necessary to bring traditional finance onto blockchain platforms. We're so grateful for the support of our shareholders throughout this transformation and excited about the opportunities ahead. Hyperion DeFi is building for the future of institutional finance, and we are just getting started. Operator: Thank you, ladies and gentlemen. And with that, this does conclude today's teleconference. We thank you for your participation, and enjoy the rest of your evening.
Operator: Welcome to the NIBE Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Eric Lindquist; and CFO, Hans Backman. Please go ahead. Gerteric Lindquist: Thank you very much. Good morning, everyone out there. Hans Backman: Good morning from me as well. Gerteric Lindquist: And just a few things when it comes to the order we are going to introduce, of course, ourselves and some figures afterwards, we have the Q&A sessions, and we will be pleased if there would only be 2 questions per individual and also try to end this Q&A session around 12 because we have other commitments shortly afternoon there. So with that said, once again, welcome to this conference call. And I think that the headline is that we are very proud to be able to present these figures as we are today. We've said several times that the organization that we represent, Hans and I, is very, very strong, very, very proud to have the ability and possibility to lead this organization. So that's the headline. Of course, it's a gradual recovery that we -- as you go through for the group. And of course, when comparing the situation in the world today, compare what it was when we started [Audio Gap] environment like that. And also the increased strength of the Swedish crown from many perspective, is very nice, of course. But when you compare figures, it's a little bit shadowing the real organic growth, which we, therefore, have explained very explicitly when separating it from the currency effects. And we gave a very bold promise from the very beginning of the year that we're going to be back at the intervals of the historic levels for each respective business area. And we are, of course, very proud that as far as we've come, and we are very transparent with where we are as we are with the targets. And of course, those disturbances that I just described, of course, they are causing some hindrances, but we are trying our best to give you some kind of a guidance where we possibly could land at the end of the year. You've seen them. We don't have to dwell so much about it. It's very pleasing, of course, that there is growth there well beyond the 1.2, like 4.6% organic growth. And what's also very pleasing is that we see that the gross margin is going up and the operating margin is moving in the right direction. And of course, moving into the quarter as such, the third quarter, then we see that the gross margin to be improving and the operating margin is now up to 11.3%, which is, of course, what we like when the margin that corresponds well to where we like to be. And if we just continue a little bit about the graphs that we typically look at, I mean we see now that the income is gradually coming back, and that's even more described perhaps in the next graph, where we see the curve is going in the right direction. And when we look at, again, it's an improvement quarter after quarter. And of course, it's a recovery all over, you can say, but in smaller portions, of course, where it's Germany and Sweden and Netherlands, particularly on the residential side, the U.S. remaining stable and also Italy, very much on the commercial side, which is very pleasing to see. We also see that there is a more traditional seasonal pattern, particularly with Stoves and with Climate Solutions. And it is also pleasing to note that all the efforts that we've done during the year despite the action program that we took, R&D remained at the same level and also the sales forces, and that is paying off now, of course. You can't look at things shortsighted. You have to be very determined long term to be successful. And here, we, of course, have now come up to the third quarter when it comes to the margin that is just in the right, can I say, level and the right span. And of course, we are giving a little bit of an indication here on this slide saying that, well, within margin of error, we should be close to the 13%. And that's, of course, again, a very bold statement, but you've been following us. We've been giving you very clearly the intervals. And now with 6 weeks remaining, it's very important we are into a quarter that is typically decent when it comes to invoicing and order intake. So we -- the best thing we can state is exactly what you read there, and that's also stated in the report. We are very cautious not to do anything or mention anything or do any saying here that wouldn't correspond to the report as such. So Hans, of course, is going to dwell a little more on the quarter as such on Climate Solutions. It's a good growth organically, and we've seen that, of course, and the margin here so far just south of 12%, whereas the quarter is coming in above the 13%. So it's a balancing act, a very delicate balancing act for the rest of the year. And coming into Elements, they, of course, at when the whole industry of heat pumps went down all over Europe, and of course, being a main supplier there of components, they also took a dive. They're a little bit behind [Audio Gap] but we also see now that, that is coming along. And electrification in general, of course, and also the rail segment, which is very pleasing to see. Industrial segment is more a reflection of somewhat cautious or subdued market, particularly in Europe. As a comparison, we can say that in general, Europe seems to be a little bit more cautious or subdued compared to the U.S. or the North American market. And if we just look at the same sort of forecast again if we dare to say or what we could offer as far as margin predictions, we say, well, it's going to be some close to the 8%, of course, but we also give a little bit of a buffer for ourselves depending on how the last weeks will look like. And particularly on the Element side, being a supplier or sub-supplier, we know that although the order intake could be good, but for obvious reasons, no customer wants to sit on too large inventories. It's always delicate to do the forecasting for the Element side. But looking at the figures there again, good growth. Operating margin is back at 6.8%. And when we look at the quarter as such, as Hans is going to come back to that. It's again, of course, on the higher level, up to 7.4% for the quarter. Quickly into Stoves. And there, of course, we noticed that had already indicated in the second quarter that, that would be difficult to arrive at the old or the interval of that we have been -- where we've been or where we used to be. So there, we need a few more quarters. And I think that is what we think that is more referred to -- be referred to the overall cautiousness, particularly in the European market. In North America, it's -- the markets are fairly buoyant, but there, we have difficulties with the manufacturing of stoves that's taking place in Canada and then being shipped into the U.S. So there, we take a hit when it comes to the margins. And there, we very consequently say that they're going to take us a few more quarters to come back to the span that we typically talk about between 10% and 13%. And there we see, of course, it's a thin margin and the quarter as such, that is around 3%. So it's not getting any worse. If we were bold enough, we could say that we've seen the bottom of also the stove market with the figures that we've seen during quarter 3 with a margin of 8%, which, of course, is not satisfying, but still is slightly higher than the previous quarter '24. And just a few concepts in here. I mean, Climate, it's a typical graph really on the pie chart here with climate being like 2/3 roughly and then Element and then Stoves. And on the distribution side, profitability, then we see that, of course, Climate Solutions coming out quite dominating here. And then geographically, not that much has happened. North America remains slightly above 30%. The Nordics, slightly below 20% and then Europe, of course, around the 45%. So no dramatic changes really there. So I think with those quick comments, I hand over to Hans, but I have a lot of eager people out there that would like to put questions to us. All right? Hans Backman: All right. Thank you, Eric. Yes, I'll try to be quick, but not rushing it, but to allow for questions, of course. Before we jump into Climate Solutions here, I would just like to mention from the main report, speaking for the tax rate. Some of you might have seen that the tax rate in the quarter is above 30%. And that is not a new normal as we see it. It's rather a matter of timing differences now, very much related to the introduction of the so-called Big Beautiful Bill in the U.S. where the rules and regulations around capitalization of R&D expenses has changed, and that has led to a couple of one-off effects, but that doesn't change anything in the long run really. That's the major reason for that tax rate going up. If we then move into Climate Solutions, I mean, Climate Solutions definitely shows a very robust performance in what still is a challenging world in a way. It's a very strong comeback from the challenges we faced last year and the profitability level at the time. We've been able now to grow sales with some 7% organically, but then, of course, current [Audio Gap] but due to increased sales and also our cost efficiency programs that we have undertaken, profit has improved by close to 50%, coming up from the SEK 1.5 billion to more than SEK 2.3 billion, landing in this operating margin at 11.9%, mentioned. And on a 12-month rolling basis, we are up to roughly that level, 11.8%. In the quarter, sales grew by some 8% and gross margin improved even further, coming up to 35.4%, up from 32.5%. So that's a good achievement as well coming from the volume that we get. And profit grew by another close to 29% or almost 30%, more than 29%, landing in the operating margin there at 14%. So it's a very robust performance and a robust and strong comeback from last year, showing our ability to adapt the cost levels when market conditions change and also to reap the benefits of a good volume that comes in. In terms of split of sales per geography, there is virtually no change at all from last year. It's very stable with Europe, Mainland Europe being 50%, our home turf here up in the Nordics being slightly north of 22% and North America with a solid quarter of total sales. NIBE Element has also shown a very robust in a challenging world. And here, we are really exposed, as you know, to many segments in many parts of the world. Organic growth here was above 6%. But then again, the Swedish currency took away a large portion of that, landing it in then at 2.9%. Gross margin took a jump up here from 19.8% to 21.1%. So that's a nice improvement. And then the profitability itself coming up with more than 30%, landing in on the 6.8%, which leads then to a 12-month rolling that is around that level as well. In Q3, sales actually grew even more organically, that is close to 9%, but again, with a headwind from the Swedish currency. Gross margin continued to improve and profitability again, and we came very close to at least the lower range in the interval for our historical profitability ranges there at 7.5% and a nice step in the right direction. Neither here have we seen any large changes in terms of split of sales per geography. So that's basically how it looked last year with North America being a very strong portion of that business. I would say when it comes to Stoves that despite these very challenging market conditions that they have experienced, first, an overconsumption, you can say, during the COVID period when everyone renovated their homes and then when Putin invaded Ukraine, leading to a lot of people wanting a freestanding and alone off the grid type of heating system. And after that, a period with low energy prices, higher interest rates, low new build. Despite all of those challenges, the business area has defended its position quite well. Despite, I mean, an organic decline there of 8% and more than 11% when you include currency, they have been able to generate a profit here and continue to spend time and money on interesting products and market activities for the future. Here, the -- yes, performance for the last past 12 months is just above 4% and far from where we're used to being, but not that we see that there is any in coming back to a stronger performance as soon as the market returns. And I think we see that a little bit in Q3. Here, sales dropped organically by 1.6%, so much less than before. With currency again, it's obviously a drop there, which is much larger than that. But despite this drop then of 7%, we were able to defend the operating profit from last year. So it remained on the same level, generating a margin there of 3%, which shows the ability also here to take out costs and of course, keeping a portion of them on board or a good portion to be able to meet an expected better demand going forward. In this area, we see a small shift or a clear shift in a way in the distribution of sales in the sense that North America has increased up to 37% from 32% of last year. That's the major change. And that shows that North America has actually, from a sales point of view, been quite decent. What then has hampered the picture for us is, of course, that we have our manufacturing in Canada, and this is where the tariffs have hit us from a profitability point of view. Moving then into the balance sheet. There are no major changes here. We have a fairly stable balance sheet. We've been able to amortize both on intangible and or depreciate rather -- intangible and intangible assets. The investment level has come down a little as well, which we will see on a slide later. On the liability side, you can see that both the interest-bearing -- long-term interest-bearing liabilities and the current interest-bearing liabilities, both have come down, which we also will see the effect of when we look at the net debt figure soon. The performance then and what we have on stock, so to speak, has an effect on the cash flow. We have had a good cash flow from the operating activities of slightly more than SEK 2.9 billion, up from just below SEK 1.8 billion for the corresponding period of last year. Then you see a change in working capital, which is negative with SEK 1 billion. That is solely related to an increase in receivables. It's the exact same situation we actually had -- inventories have been reduced and accounts payables have contributed in a positive way. So it's a result of us invoicing more, and we've not changed any payment terms really. So this should come eventually. And on the next line, you see that the investment in the current operations has decreased by some SEK 500 million, then leading to an operating cash flow, which is plus SEK 420 million rather than minus SEK 450 million of last year. And then we've had some amortization of loans and things affecting the change in liquid assets -- the currency change, we cannot do much about. A few comments here on the key financial figures. The -- we have a fairly decent amount of cash on hand, the unappropriated liquid assets. The number there is actually correct. I mean, the SEK 5,119, which was the exact same. But if you look into the report on Page 13, I think it is, you see that the composition is different. But it's a good portion of cash there. And then interest-bearing liabilities have come down and the net debt is now [Audio Gap] which is very pleasing to see. We typically amortize our loans and liabilities effectively after acquisitions. And what took a little longer this time was, of course, the acquisition of Climate for Life, one of the largest acquisitions we've made and then a market that took a very strong downturn after that. But we're definitely heading there in the right direction. And the equity assets ratio is solid as well, being above 45%. Just a quick comment there on the working capital. If we look upon it, excluding cash, it's also been improved from last year with more than a percentage unit. We are still targeting 20% as an intermediate target. So we still have some work to do imminently moving in the right direction. And moving in the right direction are also these key figures, although they are, of course, not where we want them to be yet, but they are heading there. Return on capital employed, now 9%, up from [indiscernible] return on equity also above 9% there, up from just below 7% and a profit per share that has increased just like equity per share. So things are slowly but surely moving in the right direction. And as always, we don't comment upon the share price, especially not today, I think I think. By that, I'm done. So, if you want to add something before we open up. Gerteric Lindquist: No, I think we open up now. And as we say, about 2 questions per individual and then we take it from there. All right. Operator: [Operator Instructions] The next question comes from Uma Samlin from Bank of America. Uma Samlin: Two for me, please. So first question is on the Nordic market. I was wondering if you could give us a bit more color on the lower growth in the Nordic this quarter. It seems like it's minus 1.5%. So what is the main drivers there? What are the trajectories do you expect in Q4? Gerteric Lindquist: Okay. So we should [Audio Gap] in general or you're referring to Climate Solutions now or you're talking about the whole NIBE group? Uma Samlin: Yes, the whole group is the one that you have reported. Gerteric Lindquist: Yes. Okay. That's fine. Well, I think that, of course, the contraction is substantial, as we said, in the Nordic when it comes to Stoves. That's very obvious. And also, we noticed that the industry as such is not that strong in the Nordic region when it comes to the heating element. And I think what's keeping it up at a decent pace is still the Climate Solution. So I think the consumer -- so cautiousness when it comes to Stoves, that's certainly an observation. Also that the industry in general is not that strong in performance, which is heating element where heat pumps are keeping up fairly decently. Uma Samlin: Okay. That's super. My second question is on your margin guidance. So I guess if you assume that Climate Solutions will reach the corridor of 13% to 15% for the full year with some margin of error, let's say, around 13%, does that indicate, I guess, significant upside in your EBIT margin profile in Q4? Would that be then like trending more close to 15%? So what would you expect to be the drivers of the step-up in Climate Solutions margins in Q4? Gerteric Lindquist: Well, I think that to start with, as we mentioned, the seasonal or the seasonality is back. So here is a little bit weaker and the second half is a little stronger. That's the traditional pattern that we've had prior to pandemic and the -- and those years with crazy, if I may call it, energy prices. So of course, quarter 3 and 4 traditionally should be stronger. And it's very difficult to predict anything, and we try our utmost to give you some kind of an indication that if we now say, as we say, regarding Climate Solution, of course, that is the best hint we can give you. It's impossible to say it's going to be so and so common. I think that's as far as we get -- the Stove side, of course, we saw after Q2 that it would be difficult, very difficult to arrive at within the span. And that's also clearly indicating now. That doesn't mean that we wouldn't have an uptick again. It's just that they came into this downturn a little bit later. First quarter '24 was not bad at all, whereas the other ones were really taking a hit. So it's more a matter of that has staggered a little bit when it comes to sales and profitability. Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: The first one is just a follow-up to the margin here and especially if we think about Climate because historically, the fourth quarter's margin is on average lower than the third one. So if possible, if we take aside the seasonality effect here, I see volume is one thing, but what other drivers do you think could help the margin in the fourth quarter help you approach the full year target that you guide towards? Gerteric Lindquist: Things that are moving in the right direction when you talk about the strengthened productivity. I mean, that continues quarter after quarter. Productivity is one factor and also the ambitious program that we have across the business areas, Element and Climate Solutions. So I mean, there are no magic factors, but there are some factors that we feel will continue to assist the profitability. Karl Bokvist: Understood. Yes. Understood. The second one is on the receivables point that you mentioned, Hans. Historically, the kind of balance between receivables and payables have kind of yielded a net neutral situation. But the last couple of quarters, the receivables have increased more than the payables. So how long do you think this kind of gap will be before they normalize? Hans Backman: That's very hard to predict. I think the result of the increase in the receivables is a consequence of the seasonality kicking in and with us invoicing more, so to speak. And typically, the invoicing takes place in the latter part of each month as well. So it's typically weaker in the beginning and then a lot happens and that you don't collect it until the next period. On the payables side, we have a little bit more deliberately than before, begun reviewing payment terms without treating our suppliers bad in any way, but to make sure we have competitive terms. And when it's going to level out, it's hard to predict. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I'm going to follow up on the working capital side, if I may, and on inventories, 23.9% of last 12 months revenue. I appreciate we're improving quarter-on-quarter, but still above the sort of long-run average. I guess, firstly, do you anticipate a seasonally strong Q4 for inventory? And then longer term, how do we think about the inventory level required to support growth either as a percent of sales or perhaps on an inventory days basis? That's the first one. Gerteric Lindquist: Well, I mean, as Hans mentioned, of course, we like to drive down the inventories. And I think that there's been a little bit of cautiousness here now from sales because we don't like to have any disturbances when it comes to deliveries. We know that everyone is on the tip toes out there. And of course, it's very tempting to say we are -- now we're going to bring down the inventories. And I think that we and our colleagues, we really have to restore our, should I say, reputation in the market by really delivering promptly. And I think that the discipline is coming back. And I think the next step is keeping the discipline and then very diligently moving down inventory levels further. So there is a cautiousness on our side and also our colleagues, I'm sure, that no one wants to sit out there saying that, now we have like so many more weeks of delivery. That is no, no go for us. And I don't think that's -- I think that's pretty much a symbol for the whole industry. And that was my immediate answer... Hans Backman: No, no, absolutely. It's very correct. And if I just may add, I mean, what we are taking down also step by step. It takes a little bit longer, but it's a deliberate work to do it, level of component inventory. We -- as you know, we had delivery issues, so to speak, during COVID because we couldn't get products on board to the extent we needed. And when we could source something, we sourced it to the extent possible. And that inventory, given the strong shortfall that came afterwards, is now being used step by step and being reduced. So -- but without, as Eric is pointing out, disturbing any production that we have throughout the group or deliveries to the customer. Christian Hinderaker: Okay. So just to be clear, the pre-2020 levels is probably an unfair number to think about in the immediate term? Gerteric Lindquist: Well, I think it's the reverse picture. Then there was an enormous demand or if I say, quite a heavy demand. And then we were lagging. And then, of course, the figures turned out to be very nice, perhaps a little bit bigger than -- or better than we really deserved being viewed for or criticized for, evaluated for. And now we come from the other side. Now sales are picking up, we are cautious. So I think that we have to take it step by step and bringing it down perhaps to '20 at least and then take it from there. Christian Hinderaker: My second one is on the action program. In the Q4 presentation last year, you gave a summary of the potential split for those savings by segment. I suppose, firstly, is it fair to assume that the 73% of savings have come in Climate Solutions as was set out in that slide? Or has there been a sort of readjustment as we move through the year? Gerteric Lindquist: No. Hans, you... Hans Backman: Yes. No, I think that the calculations we made at the time and as the program evolved, so to speak, they were pretty accurate. And that's what we see has come in as well. And given that the stretch in the return to normality has dragged out a little, we've undertaken a few more saving actions. But that's all kicking in now, you can say, according to the program. And then -- well, running a business, you always have cost reduction initiatives. So it's -- but it's mainly related to the program, kicking in as we planned. Operator: The next question comes from Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I have a question starting off with the Climate Solutions, Eric, if you could. You talk about sort of demand being back to -- or demand for next year, you're talking about external consultants and they share -- or you share their view upon sort of the growth. There are a lot of reports out there on the heat pump market in Europe, especially. Could you sort of give some sort of ballpark range what is the sort of the underlying assumptions you are looking for or basically the consultants are looking for, which you agree with? Gerteric Lindquist: Well, as you say, there are so many reports out there. And some are very biased and some are more -- I don't know where statistics come from. But I think that you can get reports anything from 5% to a few double digits plus, like anything from 5% to 12%, depending on which report you read. But the common denominator is that no one foresees a decline any longer, but rather growth, but in various sizes or various numbers, whether it's 5% or 7% or 11% or 12%, it's very difficult to predict. But what we take away from all those reports is that we -- the tide has turned. We are back on a market that is getting or growing again, which is very pleasing. Then, of course, it's up to all the colleagues out there, including ourselves to do as much as possible out of those figures. But perhaps, as we said before, we all love when the growth figures are phenomenal, but not necessarily do the customers always benefit from that. I think that we believe that a growth in an orderly fashion is better for everyone because then the installation work is done professionally and the distribution flow works much better. So those figures indicated that I think that would, to us, mean that it's a healthy growth possibility, but still in a way that they're going to make things materialize in a profitable and decent way for us as manufacturers, but also for the installers out there and for the end users. Johan Sjöberg: That's very clear. And also just looking at the different segments in Climate Solutions also. I mean, looking at sort of what is heat pumps and of course, the different segments within the heat pump and also you got the water boilers. Is it a big difference between the growth rates right now between sort of -- if you take sort of the bigger sort of subsegments, not going out to sort of add to water or anything like that, but more sort of between the different bigger segments within Climate Solutions, it's a bigger -- it's a big difference in growth right now? Gerteric Lindquist: Yes. Well, I think that the water heaters, if you talk about them, they have a more modest growth, and that goes for all over, of course. And that's pretty much -- construction is down -- new construction is down, and that's where you typically, you install those and when you build new houses and so forth, although the houses themselves, they might have heat pumps or district heating. But you have those modules there we typically have 1 or 2 of those water heaters. When construction is down, it's also down. So the water heater market is very, very cautious, a few percentage units, but doesn't have the same growth at all as the heat pumps, but stable, decent margin. So it's not something that we should neglect by any means, but the growth pattern is strictly on, you can say, on heat pumps. Johan Sjöberg: Got it. Hans, also a few questions for you, if I may here. You mentioned in the report the impact on sales from the currency. Could you also talk about the impact on EBIT just to get sort of a feeling for the dilution, if any, from FX in the quarter, if that's something you can provide us with? Hans Backman: Yes. It's roughly the same. I mean the margin is not influenced to a large extent. Of course, you can convert less dollars or euro or what have you at a poorer rate, so to speak, or stronger or weaker rate, which has an impact. But in percentage-wise, it doesn't deviate too much from the effect on the sales side either. Johan Sjöberg: Okay. And also your comments on the Stoves business also, the tariff, of course, impacting -- of course, impacting even more now when you have a higher share of sales in the North America coming from Canada. But what are sort of the impact from tariffs in the quarter, if that -- just give us some sort of feeling? And also what are your -- how can you mitigate that? And how long time will it take before you can mitigate these tariffs? Gerteric Lindquist: It is substantial. We won't dwell on any [Audio Gap] of course, partly will be taken like -- in any case, will be taken by price increases. But we -- at the same time, we've said we're never going to put our position on the market in jeopardy by being ridiculous in that. We just have to trim and trim and trim and be more efficient, try to come back to a margin that is decent. So we have taken quite a bit of a hit during Q3 and of course, during the whole year, and we don't expect that to improve, but price increases takes away a little bit. And then we just have to be more efficient and streamlined. Those are the only 2 recipes. And then thirdly, you could possibly -- but that's more of a guess. I mean the American manufacturers might be tempted to increase their prices when they see that's difficult to import from other countries. But that's a speculation. I wouldn't dwell on that. So we are between a rock and a hard spot, as I say, but we're going to come back to a decent margin by streamlining and doing everything possible without jeopardizing our position in the market. That was a long answer to you, but because that is a little bit of a long answer to us. We are, of course, doing our utmost just to keep and increase our position in the U.S. because we are well positioned. And now it's really up to productivity and doing everything we possibly can to combat the difficulties with those tariffs. That was a long answer. That's it. Operator: The next question comes from Anders Roslund from Pareto Securities. Anders Roslund: Yes. I was curious about your thoughts about next year for Europe and heat pumps. I mean this year have been characterized by de-stocking coming to an end, and now it's the true market growth we are looking for. And at least in Germany are sort of coming with some growth into next year. How do you see structurally on Europe for next year? Gerteric Lindquist: No. As I said there, we assume that Europe will grow overall. And of course, Germany is going to be one important contributor to that growth. And then, of course, there are -- it's important to distinguish between those applications and the number of heat pumps really being installed because you have a sort of a period once you have the application in and is approved, you don't necessarily start to install the week after. You have an allowance or is it like how many quarters was it now like -- many months... Hans Backman: Yes, yes, I don't recall exactly. Gerteric Lindquist: And then, of course, the true figure is around 40% -- or well above 40% that's been installed, partly taken from inventories, of course, and partly from producers directly. And we believe strongly that there will be a real organic growth for the manufacturers next year because now we should be out of the inventory, has been dampening things. So the overall picture, I mean, now again, sitting here or standing here on the 14th of November making predictions for '26, but if you ask us, we look at the European market in a fairly positive way because also that the interest rate die or at least they come down, that is also sending a report to consumers or sending a signal to consumers that, okay, now it's more decent. They can start to build homes, which is very important when you start to build homes in a country. That's a driver for the whole economy. So without too many other disturbances, but then you never know about Europe what's going to happen. We believe that it's going to be a stronger year '26 than this year. And then, of course, that is a prediction. I don't know whether I answered your question, but I tried. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I boldly went back in the queue, so I'm surprised to be fit in for the follow-up, but I appreciate it nonetheless. Yes, I wanted to ask the Selmo acquisition you made in Italy during the quarter, I guess, interesting in terms of its components, focus, smart thermostats and so forth. How should we think about that transaction and the scope of your broader M&A priorities looking forward? Is that illustrative of the type of deals you're looking at? Or are you still balanced in terms of also reviewing sort of OEM type transactions? Gerteric Lindquist: I think that we have received a number of questions earlier on today in other forums, and we say we're always working on acquisition. Nothing has come down. Of course, '24 was a year when there weren't that many signings carried out. But I think this is a decent acquisition for Element with a turnover around EUR 20 million. It's not gigantic, but it's profitable. It's a company that we've known for a long time. It's a company that we've been working with for a long time. We don't foresee any [Audio Gap] issues if I had to say that because we know the founders and has a very good relationship. So it's one of those add-on acquisitions that we really like to do, family-owned companies, and they remain helping us, it's perfect. I don't know whether I answered that question fully, but we have similar activities within Stoves and within Climate Solutions, ideal partners and that we try to trim and try to bring on board. But everything is timing, just like anything else in life. And this Italian acquisition was something we've been discussing with them for a long time. And then all of a sudden, they say, we are fine. Should we really -- now we really go and then we are ready. An acquisition takes more than a quarter or 2 in our world, we like to come in on a friendly basis, not coming in as an intruder or -- yes, exactly like that. We like to come in as partners, and it takes time to develop that over years. So those are the most successful ones in our book. Okay? Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: I was a little bit late, so apologies if this question has already been asked. But I wanted to come back a little bit on the topic of pricing. I mean we talked about this for roughly 2 years now. And I guess earlier this year, we were talking about inventory reductions amongst the distributors and increased campaigns on the back of elevated inventories. But now we hear, I guess, also from some of your listed peers that pricing environment on the hydronic side seems to have been improving here a little bit towards the latter part of the year. So I just want to hear your view here on sort of pricing in general and maybe if yourself have done any sort of definite price adjustments here in the latest months. Gerteric Lindquist: Well, I think that's one area we've been very cautious that we are one of the leading actors because to sell premium product, you can't devaluate the value because short term, they just deteriorates everything. So coming back again to the overstock situation, we had some of that. We've been very cautious of reducing prices. And therefore, it might have taken a little bit longer to reduce those inventories because you know that if you sort of spoil the market with lower prices, then that is very contaminating. But further on in the distribution chain, and I'm repeating this again, of course, when our distributors or installers have been sitting on inventories, knowing that also might have been refrigerants and stuff like that, they see a new wall coming towards [Audio Gap] well, and they have to be gone. Of course, it's very tempting just to free the capital tied up. And our own method has been sit still in a boat, be very cautious. And as far as price increases are concerned, monitor that very, very cautiously again, being very observant. Of course, we agree what you say. We also see that there is some signs of price increases in the market, which is very natural once it's been stabilized as it's been. And I think no one is the winner in the price war, just like any other war, all are losers. Carl Deijenberg: Fair enough. Then I wanted to ask also a little bit coming back to the balance sheet and sort of gross margin development. I mean, quite a good rebound here in Q3, but still, as you evaluated earlier on, you're still in the situation where inventories -- your own inventories are on the way down. And I just wanted to ask a little bit on the sort of internal production rates for you. Obviously, you've been adding capacity quite dramatically in the last couple of years. But would you say that sort of the shipments you are delivering on right now is the sort of utilization in sort of your base production sort of excluding the capacity expansion, is that fairly much 1:1 right now? Or are you still suffering quite tangibly on the gross margin from some utilization? Gerteric Lindquist: Well, I mean, we can't avoid depreciation. I think that's kicking in, of course. So of course, they're going to be lesser than what we sell. That's very obvious. But at the same time, on the other direction, those new facilities that we have, that's also offering better productivity. So it's not so easy to say that, okay, now we sit with a tremendous depreciation. Of course, it's going up. But they're also built for a reason, not only for volume increase, but also to do things more rational. So that's working in the other direction. I don't know whether I answered your question, but there was... Carl Deijenberg: No, no, no, but -- yes, yes, yes, absolutely. No, but I guess, I mean, my question was a little bit, and I understand there's multiple variable components to it. But I mean, assuming if you would see further volume support next year, it sounds like you could still have some upside on that gross margin development even now when we look at Q3, where you saw quite a good development year-on-year at least. Gerteric Lindquist: I think that we have to give you right there, yes. Correctly, so... Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: But I just wanted to go back to one thing that you've been very good at in the Nordics, which has been kind of heat pump products towards new buildings or new residential buildings. And if we think about both Nordics and Europe potentially seeing a bit of an uptick in new residential construction, how have you worked with that kind of product assortment in other areas than Sweden? Gerteric Lindquist: No, I think that if you talk about the exhaust air heat pumps, we've been working with that as well, but that comes to legislation -- the construction legislation and also preferences for what you can do. And I think that we see very positive view on our next generation of heat pumps where you also can -- like I'm talking about the exhaust air heat pumps now in well-insulated homes, that we also have a cooling capacity. When you come a little bit further south, then there's been a question, could you also possibly cool our facilities in the summertime. And I think that has given us quite a stir in demand. So that's one way of mitigating that. But of course, when you have lower standards, then you have to adapt to that when it comes to building standards. Here, we have a very tough situation up -- for instance, Sweden or that's pretty much the same, in the Nordic markets, you can say that you can only use 40 watt per square meter a year, and that limits your amount of energy of 6,000 kilowatt hours per year in house, and that's including tap water. So of course, that is -- that's quite a challenge. But that's also something we can -- we use when selling that to house manufacturers and customers when we go in other countries, ventilation and heat pumps in Holland or Netherlands, for instance, that's very, very important. So they are tagging along the same lines. And also in Germany, that is pretty much the standard that you have to recapture the ventilation air or the energy in the ventilation air. So the larger heat pumps, they are typically for renovation when you have -- when you're replacing a gas burning boiler or an oil burning boiler with an output of some 16, 20, 18 kW, then, of course, you have to have a larger heat pump and then you talk about a different vehicle or a different animal, but you still supply the same sufficient amount of energy to the radiators. But then you talk about refurbishment. I hope I answered your question. Karl Bokvist: Yes, partly one, I mean it is just that you've built up a strong position in the Nordics. And I mean, as you expand in the other countries, how you work to kind of get close to that level of relationship with the important stakeholders, house builders, et cetera, so that you're in their blueprint, so to say. Gerteric Lindquist: Yes, yes. Of course. And also working with house builders and giving them the upper hand, the advantage of using our products and demonstrating what can be achieved having the Nordic market as references. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Gerteric Lindquist: Well, once again, thank you for the disciplined way you've all times, you would like to have very, very much of a decimal, comma and so forth. And we, of course, couldn't do that. But I hope we've put some flesh on the figures in the report. So once again, thank you for calling in, and we see you, if not earlier, beginning of next year when we report the full year. Thank you again. Hans Backman: Thank you, everyone. Thank you. Bye-bye.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. I'd like to welcome everyone to the Canaccord Genuity Group Inc. Fiscal 2026 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being broadcast live online and recorded. I would now like to turn the conference call over to Mr. Dan Daviau, Chairman and CEO. Please go ahead. Daniel Daviau: Thank you, operator, and welcome to those of you joining us for today's call. As always, I'm joined by our Chief Financial Officer, Nadine Ahn. Our remarks today are complementary to the earnings release, MD&A and supplemental financials, copies of which have been made available for download on SEDAR+ and on the Investor Relations section of our website at cgf.com. Nadine will also be referring to our investor presentation available on our website and through the online portal for this conference call. Within our update, certain reported information has been adjusted to exclude significant items to provide a transparent and comparative view of our operating performance. These adjusted items are non-IFRS measures. Please refer to our notice regarding forward-looking statements and the description of non-IFRS financial measures that appear in our MD&A. And with that, let's discuss our second quarter fiscal 2026 results. During our second fiscal quarter, major equity indices posted strong gains and gold prices surged 17%, while improved certainty on trade-related matters, coupled with downward pressure on interest rates contributed to a substantially improved market environment for our core wealth management and Capital Markets activities. Consolidated revenue of $530 million increased by 24% year-over-year and by 18% sequentially, representing our strongest top line quarterly results announcing a substantial increase in our provision for ongoing U.S. regulatory matters. This reflects our revised estimate of the total monetary penalty related to the enforcement matters. First and foremost, I want to acknowledge how seriously we are taking these matters. Compliance and integrity are fundamental to the trust you place in us as shareholders. We are cooperating fully with our regulators, and we anticipate reaching a global resolution in the coming months. As this remains an ongoing matter, we are precluded from discussing in further detail. I want to reaffirm that over several years, our U.S. business has substantially invested in a comprehensive compliance transformation aimed at aligning with regulatory standards and remediating its existing program. In addition, as you've heard me say before, we've also invested in strengthening our compliance talent and infrastructure across all businesses and geographies. In keeping with our commitment to continuous improvement, we have also taken steps to meaningfully reduce our risk exposure while ensuring that we can continue to deliver exceptional experiences for our clients. In addition to the increased provision, we've recorded a noncash goodwill impairment charge of $110 million in our U.S. Capital Markets business. For several quarters, macroeconomic and trade-related uncertainties have tempered activity across our core focus sectors impacting revenue and profitability in our U.S. operations. Although advisory completions have rebounded from the trade-driven slowdown of the prior quarter and corporate financing activity has seen a meaningful uptick, the recovery for small and mid-cap segments within our core sector has been more gradual in this region. Nevertheless, we continue to execute against a robust pipeline, reinforcing our confidence in the stronger performance in the second half of the year. Together, these items contributed to an IFRS loss attributable to common shareholders of $204 million and a loss per share of $2.04. While this quarter's results are disappointing in light of these measures, we've confronted legacy issues head on and taken steps to strengthen the foundation of our business. Our core operations remain strong, our balance sheet is solid, and we continue to see encouraging momentum across key growth areas. I'm confident that the actions we are taking today will support sustainable value creation for our shareholders in the years ahead. And with that, I turn things over to Nadine. Nadine Ahn: Thank you, Dan, and good morning, everyone. I'll start with the performance highlights on Page 4 of our investor presentation. Firm-wide revenue of $530 million improved by 24% year-over-year and 18% sequentially, representing our strongest quarterly revenue since the third quarter of fiscal 2022. The increase was primarily driven by a meaningful improvement in firm-wide corporate financing revenue, which increased by 91% year-over-year to $108 million, in addition to higher commissions and fees revenue, which increased by 25% year-over-year to $257 million, primarily driven by our wealth management businesses. When measured on a fiscal year-to-date basis, firm-wide revenue amounted to $979 million, an improvement of 14% compared to the first 6 months of fiscal 2025. As Dan mentioned, we continue to make solid progress on our efforts to curb expenses, although certain costs remain elevated in the 3-month period. A detailed breakdown of the factors contributing to our second quarter compensation expenses can be found on Slide 7 of our investor presentation. The largest driver of the increase was related to fixed or less controllable expenses, which represented $7 million of the year-over-year increase. The impact of foreign exchange accounted for $2.4 million or 34% of this increase. Additionally, premises and equipment costs in connection with new flagship offices in several geographies represented $2.7 million or 39% of the increase. As previously noted, we expect that the year-over-year variance in premises and equipment expenses will begin to taper off in the second half of this fiscal year as we pass the 1-year occupancy milestones in each location. Professional fees remained moderately elevated due to our remediation efforts in the U.S. and we also incurred higher communications and technology expenses in connection with investments to support growth in our Canadian and U.K. wealth operations. Given the advanced stage of our remediation efforts and expectations for a unified resolution in the coming months, we expect that professional fees in this business will begin to taper off accordingly. The remainder of the increase was attributable to revenue or investment-driven expenses. Firm-wide compensation expense amounted to $323 million, an increase of $72 million or 29% year-over-year, broadly in line with the increase in incentive-based revenue. Our firm-wide compensation ratio was modestly elevated to 60.8%, partially due to changes in the value of certain unvested stock-based compensation awards during the 3-month period. Excluding significant items, our pretax operating margin for the 3-month period improved by 1.4 percentage points year-over-year and by 3.9 percentage points sequentially to 11.3%. Adjusted pretax net income of $60 million for the second fiscal quarter increased by 41% year-over-year, which translated to diluted earnings per share of $0.27. Turning to our segment results. Our Wealth Management division earned revenue of $269 million during the quarter and $512 million for the fiscal year-to-date, year-over-year increases of 24% and 19%, respectively. The second quarter increase was largely attributable to a $42 million or 25% increase in commissions and fees revenue to $211 million, reflecting record quarterly contributions from all regions. Additionally, revenue from investment banking activity earned in the Wealth division increased by $13 million or 240% year-over-year to $18 million, primarily due to stronger activity levels in our Canadian and Australian businesses. Excluding significant items, which increased by $17 million or 26% compared to the same period of last year. In addition to increased investment banking revenue, which improved by $8 million or 206% year-over-year. Client assets surpassed $49 billion in the second fiscal quarter, increasing 24% year-over-year and 10% sequentially, representing a new record for this business. As outlined on Slide 11, higher market valuations were a major contributor to this increase, supported by positive net flows. The business continues to advance its priority of growing contributions from fee-generating client assets, which amounted to 54% of total client assets for the fiscal year-to-date. The average book per adviser also reached a new record of $348 million, among the highest in the industry. On an adjusted basis, our Canadian wealth business delivered second quarter pretax net income of $18 million, a year-over-year increase of 54% and the strongest quarterly result since the first quarter of fiscal 2022. This brought adjusted pretax net income to $28 million for the first half of fiscal 2026, up 30% from the same period of last year. The adjusted pretax profit margin for the fiscal year-to-date improved by 1.5 percentage points year-over-year to 13.4%. Adding back noncash development charges, normalized EBITDA in our Canadian Wealth Management business was $25 million for the second quarter and $40 million for the fiscal year-to-date, year-over-year increases of 42% and 18%, respectively. And finally, second quarter revenue in our Australian Wealth Management business increased by 43% year-over-year to a record $28 million, bringing fiscal year-to-date revenue to $51 million, up 34% compared to the same period of last year. Revenue growth in this business was broad-based, reflecting increased client activity levels, IA recruitment and new client onboarding. Commission and fees revenue of $22 million for the 3-month period increased by 23% year-over-year and investment banking revenue of $5.5 million increased by more than fourfold when compared to the same period of last year. Measured in local currency, client assets in this business grew to a record $11 billion, an increase of 37% year-over-year and 11% sequentially. During the second quarter, we announced our acquisition of Wilsons Advisory, which was completed on October 1. The financial contribution from this acquisition will be included in the operating results for this business beginning in our third fiscal quarter. Second quarter adjusted non-compensation expenses increased by $0.6 million or 13% year-over-year, largely in connection with acquisition-related travel and administrative costs. Excluding significant items, pretax net income more than doubled to $3 million when compared to the second quarter of last year. The adjusted pretax profit margin of 11.2% increased by 6.5 percentage points year-over-year and represents the highest result for this business since the second quarter of fiscal 2022. Turning to our Capital Markets business. Consolidated Capital Markets revenue of $253 million for the second quarter increased by 25% year-over-year and 26% sequentially to the highest level since the fourth quarter of fiscal 2022. For the fiscal year-to-date, revenue in this division increased by 11% year-over-year to $453 million. The second quarter increase was primarily driven by our Investment Banking segment, which saw revenue rise by $39 million or 76% year-over-year to $91 million for the 3-month period. Notably, our Australian business contributed $51 million, representing 56% of total investment banking revenue for the quarter and achieved a remarkable 193% year-over-year growth, which was primarily driven by the mining sector activity. Investment banking revenue also meaningfully improved in our Canadian and U.S. businesses by 20% and 52%, respectively, when compared to the same period of last year. Following the sharp decline in advisory completion activity caused by trade-related uncertainties in our first quarter, Q2 advisory revenue rose to $79 million, a 62% sequential improvement as activity levels began to recover. Our U.S. business was the largest contributor to this result, generating $46 million in revenue, over twice the amount recorded in Q1. However, this figure remains 18% below the revenue earned in the same period last year as completion activity levels were still subdued at the start of the quarter. Our U.K. business also experienced a notable uptick with advisory revenue improving by 253% sequentially and by 73% year-over-year to $22 million. Consolidated commissions and fees revenue of $42 million improved by 22% year-over-year as new issues and client trading activity increased in all geographies. Principal trading revenue of $31 million increased by 12% year-over-year. The U.S. business was the largest contributor to this result with quarterly revenue of $27 million, largely attributable to the International Equities Group. As the sale of this business was completed on November 7, our third quarter results will begin to reflect the reduction in related contributions. On an adjusted basis, non-compensation expenses increased by 6% year-over-year, largely due to higher trading costs, which were in line with increased revenue. Additionally, non-comp expenses in our Australian business increased by $1.4 million due to conference expenses and costs associated with the previously discussed acquisition of Wilsons Advisory. Along with higher trading costs, expenses in our U.S. business remained elevated due to the increased premises and equipment costs noted earlier as well as professional fees in connection with our previously disclosed regulatory enforcement matters. I'll touch briefly on the goodwill impairment that impacted IFRS results for our U.S. business. Goodwill is required to be tested for impairment at least annually. As Dan mentioned, over the past several quarters, a combination of macroeconomic and trade-related uncertainties has moderated activity levels across our core focus sectors, weighing on revenue and profitability in our U.S. operations. As past performance would demonstrate, we continue to see substantial long-term value in our U.S. business, which remains a strategically important part of our global platform with a strong record of generating meaningful revenue and profitability under more typical market conditions. However, accounting standards require fair value assessment at what we believe to be the bottom of the cycle. The goodwill charge is a noncash accounting adjustment and does not result in any current or future cash outlay. I'd like to emphasize that this adjustment has no impact on the ongoing operations or our capacity to continue to invest in our U.S. business. On a consolidated basis, adjusted non-compensation expenses as a percentage of revenue for our Capital Markets division decreased by 4.7 percentage points year-over-year to 26%. The adjusted pretax net income contribution from our Capital Markets division increased by 71% year-over-year to $26 million. Improved contributions from Australia, Canada and the U.K. were offset by a breakeven result in our U.S. business. Aside from the previously discussed U.S. matters that impacted our profitability this quarter, our efforts to curb discretionary expenses are evident in our results. With activity levels expected to strengthen in the second half, we anticipate continued margin improvement into fiscal 2026. As we advance both our organic and inorganic growth initiatives and execute effectively for our clients amid improving business conditions, we remain confident in our ability to enhance firm-wide profit margins and achieve our targeted single-digit growth for the current fiscal year. Turning to the balance sheet. We maintain sufficient working capital to meet our regulatory commitments, support our strategic priorities and expanded business activity while preserving the flexibility to respond to outstanding regulatory matters and reallocate capital as market conditions evolve. With that, I'll turn things back to Dan. Daniel Daviau: Thanks, Nadine. We're having a very productive start to the second half of our 2026 fiscal year. We are seeing meaningful signs of recovery in the equity capital markets with small-cap indices signaling a renewed risk-on environment. Notably, the IPO market is showing early signs of recovery and private equity-backed IPOs have more than doubled year-over-year, underscoring the confidence in public exits. That said, activity remains selective. Our proceeds raised have increased by nearly 60% compared to the first half of the last fiscal year. The mining sector continues to dominate, but we are encouraged by strong pickup in technology, industrials and health care sectors, which should lead to a more diversified mix in the second half. Our Australian business is currently the top rank investment dealer in the region for equity financings, both by proceeds and volume, and we are also ranked third overall in the Canadian league tables. Capital Markets advisory activity is also gaining momentum, and our outlook for advisory completions in the second half is stronger than in the first. While our U.S. business experienced an abrupt slowdown in M&A completions amid trade-related uncertainties during the first quarter, it has since regained momentum. The team is executing on a robust pipeline of mandates while continuing to win new ones. M&A activity is improving in Canada and the U.K. as well, and we are also seeing good momentum from our Australian practice, which is still in the early stage of its development. On November 7, we completed the previously announced sale of our U.S. market making business. This transaction enables our U.S. operations to focus capital and resources on our core equities and M&A franchises, which are both higher-margin and capital-light businesses. Each of our wealth management businesses is delivering on their respective business plans and continues to deliver impressive growth. Our business in the U.K. and Crown Dependencies continues to advance its organic growth priorities with a focus on growing contributions from fee-based assets, which will continue to enhance the stability and quality of its earnings. We continue to see very strong growth potential in our Canadian wealth business. Driven by economic expansion and interest rate cuts, North America is outpacing the rest of the world in wealth creation with Canada offering particularly attractive opportunities for investors. With several domestic competitors having recently been acquired, the environment for independent wealth managers has become increasingly favorable, positioning CG to capture additional market share. And finally, as Nadine mentioned, we completed our acquisition of Wilsons on October 1, which will add approximately $7 billion in client assets to our Australian wealth platform, further strengthening our national footprint and brand in the region. Integration is progressing smoothly, and we look forward to delivering an enhanced offering to our combined Wealth and Capital Markets clients in the region. Looking ahead, our strongest opportunities lie in accelerating Wealth Management growth across all regions while leveraging our integrated equity and M&A capabilities to deepen our presence in core sectors poised for outperformance amid a more sustained market recovery. Assuming no changes to our operating environment, our results for the first half of this fiscal year give us confidence that we are on track to exceed our fiscal 2025 performance. Our Board of Directors has approved a continuation of our quarterly common share dividend of $0.085. With that, Nadine and I will be pleased to take your questions. Operator, please open the lines. Operator: [Operator Instructions] And your first question comes from Jeffrey Fenwick from Cormark Securities. Jeff Fenwick: So Dan, I wanted to start with the regulatory provision in the quarter, it is a pretty sizable amount. Could you just speak to capital position and your ability to fund that? Do you still require raising some debt here? Or how is that going to be managed? Nadine Ahn: hi, sorry just one moment, we are just trying to fix the microphone. Can you hear me now? Jeff Fenwick: I can hear you. Did you hear my question? Nadine Ahn: Yes, we do, apologies. I think you can hear my response. It's Nadine. I'm going to respond to your question, Jeff. So when we did put the provision, we set aside the cash and the capital, the moment that we made the provision for the regulatory matter. And we do have sufficient capital to continue with our U.S. operations and continuing to invest in the business. So there's no issue as it relates to our balance sheet. It's already been funded. Daniel Daviau: The bad news, Jeff, it took us 3 years to get us this far. The good news is we've known for 3 years that we've had to get something. So lots of time to accumulate capital that we require for this. Jeff Fenwick: That's helpful. And then obviously, alongside of that, as you mentioned, reorienting the business, trying to change some of the risk exposures. I think you referred to that comment. I assume that's in part related to the divestment of the trading desk, the wholesale trading group there. With that closing, is there any way you could provide us some color, even just backward looking on what sort of top line contribution that group made and the related expenses? Any sort of color you can add that might help us with modeling that going forward? Nadine Ahn: Yes. So the sale of the International Equities Group, we don't expect it to have a meaningful impact overall on our earnings profile. I think if you look at the U.S. for Capital Markets business as part of our disclosure, you see that principal trading revenue line number that would primarily have related to that business. In addition, when you look at the cost base associated with it, obviously, trading business is going to have a higher proportion related to that common tech cost. So as Dan mentioned in his remarks, as on a go-forward basis, we do expect that as we pivot to primarily the ECM and advisory business, we should start to see an improvement overall in the margins in the U.S. business. As well, we've also -- with the remediation work in the U.S., we're going to start to see a decrease in some of our pro fees. So overall, we expect that while the sale does not have a meaningful impact on the overall earnings profile, provided that we continue to see growth in our U.S. revenues, we expect to see an improvement in margins overall. Jeff Fenwick: And then in terms of responding to these market demand -- market conditions that are evolving, I know there's been a focus on expanding advisory. Is there more work to do in the U.S., maybe reorienting the focus of that segment now? Maybe cutting some areas and adding others? Or where do you feel you are in that process? Daniel Daviau: Yes, Jeff, we're always evolving the business, obviously. I mean, we operate globally in several core sectors. Those sectors are very important to us, and we'll continue to expand into those core sectors. The expansions generally we've done in those core sectors has been into the advisory channel. So when we bought Sawaya, when we bought Results, when we bought Petsky, that's not going to stop. We'll continue to look at acquisitions in our core verticals. So it's a little bit finding a needle in a haystack to find the right partner at the right price at the right time with the right culture. But we're in the market always looking for those areas. Yes, that's I think, the best I can answer that. Jeff Fenwick: Okay. And I can't leave without asking about U.K. Wealth Management. I know there's lots of rumors and speculation. Clearly, you're clearly featuring it in your slides there on the time line and giving us an EBITDA number that you obviously want us to zero in on. So just maybe it's a bigger picture question here. What are you and the Board thinking in terms of strategic direction going forward? If you were to surface value and exit a market like the U.K., that would be a very significant change for the continuation of the run rate of the business. So does that -- is there another area to focus growth on another market? It just -- you'd be giving up obviously the largest contributor to your earnings. Clearly, it's servicing some big value. But what would you think that would do with respect to the strategy going forward for Canaccord? Daniel Daviau: Yes, a great question. I don't think I'm prepared to answer at this stage, Jeff. But in general, on the U.K. -- the broader U.K. question, obviously, we're not going to comment on rumors and speculation. You know that we have a minority partner in that business, a financial strategic partner in that business. So we're obviously talking to lots of people all the time about a whole range of alternatives. So some of those involve external parties, which is what creates rumors and stuff in the marketplace. So I can tell you that on our broader wealth businesses, including our U.K. wealth business, we're incredibly pleased with the performance of all those businesses. I mean, record revenue, record earnings, firm-wide assets at record levels, $134 billion now. They're all contributing significantly. Our Canadian business is contributing well. Our U.K. business is obviously record levels of EBITDA and revenue. Our Australia business now is starting to contribute. Pro forma Wilsons will be at $17 billion in assets, made good money in that business. So that strategy that we started, whatever it was, 6 years ago, growing wealth and having it increase, it's working. Last time we had revenues like this, Jeff, 2/3 of them were Capital Markets and 1/3 of them are Wealth. Now we have revenues like this and more than half of them are coming from Wealth and certainly more -- way more than half of our earnings are coming from Wealth. So we like the Wealth strategy. I can't get to the second part of your question is, what if we do this and what if we do that, then what are we going to do? Those are all really good questions that the Board will assess at the right time. Operator: And your next question comes from Rob Goff from Ventum Capital. Rob Goff: Thank you Jeff for asking the tough questions upfront. So my question will turn down to Australia. Could you talk to the integration time line strategy with Wilsons? And you often build into momentum and the momentum is certainly in Australia. Can you talk to further inorganic growth in that region? Daniel Daviau: Yes. I mean, Wilsons is a big acquisition for us. Just 60 advisers, 8 offices to integrate into our broader platform. They had a small capital markets business that was integrated on day 1, literally. And then the Wealth businesses are busily integrating as well. Perth has moved. Sydney has -- Melbourne has moved. Sydney, we need to find some more space. But the businesses are going to quickly be integrated into our Wealth business. The back-office system will take a little bit longer than that, obviously, but it's a big chunky acquisition for us in that market. So it's going to take some time, which addresses your second question about what do you do next? Or is there other strategic things? Like right now, this is what we've done, and this is kind of what we're doing. And it will take time. We do continue to -- our existing plan, which was to hire more advisers, we continue to do that. And that's a similar strategy to the strategy we've had in Canada. We just hired 4 advisers from Morgan Stanley in Perth, for example, and that will continue to upgrade and up-tier our advisory offering there. So our principal strategy in Australia is an organic strategy, the same strategy we've deployed in Canada. Occasionally, we'll find the odd inorganic opportunity like we did with Wilson, and we'll do that as well. Rob Goff: And you mentioned in your remarks the rationalization of the Canadian wealth marketplace and where you're seeing opportunities. Could you perhaps talk to how that's impacting your efforts and pipeline? Daniel Daviau: Yes. I mean the recruiting pipeline is always kind of goes up and down and chunky. The truth is -- and again, I'm sure IA will do a good job with Richardson and all that kind of stuff. But at the end of the day, there's not as many -- truly independent platforms out there as there used to be. You can just look at the pace of activity, whether it's a pure kind of full-service wealth manager like us or other types of independent wealth managers, they're disappearing pretty quickly. And we remain a very, very strong independent wealth platform. We've got $49 billion in assets. We're making -- we made $25 million in EBITDA in that business this year, if you back out the development charges. So we've got a very, very strong business and one that we've invested a lot of resources in, and we continue to invest in that business. So it's a very attractive platform for advisers that want to leave their existing place to join. It's also a very attractive platform for existing advisers who are here to grow from. So we've got reasonable net new assets in the business. We continue to recruit in the business. We continue to bring on more advisers into the business, and we continue to feel incredibly confident about the future of this business. Operator: And your next question comes from Stephen Boland from Raymond James. Stephen Boland: Maybe -- Nadine, maybe you could just dig into the impairment a little bit. I know you're saying U.S. Capital Markets. But is it specific to one of the subsidiaries that you purchased, Petsky or Sawaya? Like I'm just trying to get an idea of is it just a widespread impairment or it's specific to certain segments? Nadine Ahn: No. So the goodwill that's sitting on the balance sheet as it relates to the U.S. is the aggregate of those acquisitions. And so essentially, when you're looking at goodwill impairment, you start out looking at your last 12 months baseline. And given the performance in the U.S. has been a bit slower than we initially anticipated starting out into fiscal 2026. You're kind of starting to jump off point and lower. And so we're still projecting good growth in the business overall, but I'm starting at a lower point, which impacts my carrying value, relative to valuation. So that's what the impairment is coming down. And we don't look at it. It's not a specific business line. It's really around the projections of the full U.S. Capital Markets business going forward. Stephen Boland: Okay. I mean when I look at the revenue trend, this is probably your second highest revenue quarter for the last few years, I think. Profitability seems to be tough to be consistent. So I'm wondering what you can do in the U.S. to -- there's still another $100 million of goodwill, I think, allocated to that division. So I'm just curious like how do you drive the profitability going forward? Like is $112 million of revenue kind of the breakeven number that you have to do just to breakeven? Or is there triggers that you can pull here? Nadine Ahn: Well, I think that what we're talking about in terms of the projections in that business overall, and we're starting to see it, and Dan can speak to it a bit more as it relates to our pipeline. But I think you hit on one of the other primary areas of focus, which is the cost base. And so as we started to look forward, in particular, with the sale of IEG and that having a bit of a higher cost base. But in addition, with the work we've completed as it relates to focusing building on our compliance program, that from a remediation standpoint, those costs are also going to be coming down. So we do expect to see the margin expansion in addition to a more favorable revenue trajectory going forward. Dan, do you want to add anything? Daniel Daviau: Yes. No, I think you hit on it pretty well. I mean we came off Q1. There was all the tariff stuff and really impacted M&A. It obviously came back in our Q2. We continue to see that momentum going forward. Our core M&A franchise is good or stronger than it's ever been. So I think that improves. The new issue environment, you saw great new issue numbers out of us. But to be honest, the big increases were in Australia and Canada, both of those tend to do a lot of mining deals. And I think mining has been pretty active. We see an expansion. We see the other sectors starting to expand beyond that, beyond just the resource sector. So -- and that's where we would tend to dominate in the U.S. The final thing is that government has been shut down in the U.S., and you know that impacts IPOs. In particular, we do disproportionately well in some of the IPO activity. So we expect that to turn on. So that will improve our business. So we think there's lots of upside in the U.S. Don't get me wrong. We were very excited about our prospects in the U.S., notwithstanding the goodwill write-down. And there was a time and a place, and it's still the same franchise that we have that we made a lot of money in the U.S. Like again, no one likes to refer to COVID times because no one likes to refer to them. But we were making $100 million a year in the U.S. So there's a real opportunity to -- we're not in the -- I won't use baseball analogies. It's way too soon, but we're still in the first period. I'll use hockey analogies now. We're still in the first period here. There's a fair amount of skating in front of us. Stephen Boland: Okay. That's great color. And then the second thing I just -- I'll turn to Australia. And obviously, the revenue is pretty strong, mostly mining. So I'm just curious on the financing, which accounts or jurisdictions are buying these deals? And the reason I ask is because I think in the past, you've said if Asian accounts are coming into buying Australian deals and especially mining deals, that's a very bullish sign and could kind of lengthen the time line of having a bullish market there. So I'm just curious if that's occurring. Daniel Daviau: It's a great question. I'm not sure I know the answer, and I'm not sure I was the one that said that. But maybe who knows? I can't remember what I had for breakfast. But the -- again, we've got a very integrated global sales desk. We're big enough to have a global sales desk. We're small enough that we can be integrated and operate well. So we'll sell U.K. deals into Australia. We'll sell Australia deals into North America, and the border kind of vanishes with us. So we're pretty good at that, having an integrated ECM platform, particularly in the mining square, where it's -- the companies are very, very similar, notwithstanding where they may operate. It's the key underlying dynamics. So we're good at distributing. That being said, I do think that the vast majority of the Australian equity flow has come from domestic accounts. You've got large superannuation funds. They continue to grow. There continues to be -- it's not a shrinking institutional pool of money the way you'd see in the U.K. or maybe even in Canada. It's a growing institutional pool and add to the fact that we've got a pretty significant retail distribution path in Australia now. We're becoming a more significant distributor of equities into our own retail channel. And you saw that through the new issue chunk of the revenue that flows through our Australian Wealth business, which I think was $4 million or $5 million this quarter. So we're becoming a serious distributor. And as I referred to in the prepared remarks, I mean we're -- like last quarter, we were #1 in the Australian league, not #1 in number of deals, like #1 in any measure. And even for the year, I think we're #2 overall in the dollars raised and #1 in the number of deals done. So we are a very significant Australian underwriter now, similar to our position in Canada. Stephen Boland: I'll ask one more just on the Canadian Wealth Management, the expansion in the margin. Revenue -- AUM continues to go up, revenue continues to go up, but the expenses seem to be managed pretty well. Is that something that we can continue to expect that, that margin will continue to expand? Nadine Ahn: Yes, absolutely. That was one of the areas of focus for us coming into fiscal 2026. In particular, we've seen just structurally that cost base had increased as we talked about related to our investments in new properties, both in Vancouver and Toronto. So what you're starting to see is that really that buildout and scale in that revenue and also quite a bit of discipline on our cost base to focus on that margin expansion, which is what we anticipate going forward as well. Operator: And your last question comes from Graham Ryding from TD Securities. Graham Ryding: I know we've talked about this a lot already, so -- but maybe I'll come at it in a different way. So the U.S. capital markets write-down, it just looks to me or us that commentary and data that we're seeing from the U.S. brokers broadly suggest activity is picking up, earnings expectations are rising. Your write-down at this time seems somewhat at odds with sort of the improving sentiment broadly in the U.S. Capital Markets. Can you just help me connect the dots there and why you're taking a write-down now at a time when the cycle looks like it should be picking up? Nadine Ahn: Yes. When you think about it, when you're looking at it from an accounting basis, right, like you do have projections in your model, and we baseline it off the last 12 months of cash flows. And so as I rolled into Q2, we didn't see quite the improvement in performance that we had anticipated. That's hitting my last 12 months of cash flows. And so we still are looking, if you look at our disclosure at a projection of 5% growth still in terms of that business. And so you're still seeing an anticipation that we're going to be of an improvement. But when you look at the impact from a baseline standpoint, that was impacting my overall valuation versus the carrying value. And so it's being able to support the $200 million of goodwill in that business, it wasn't sustainable given the projections going forward. So from an accounting perspective, while there's a lot of judgment in there, it became a bit of a mechanical exercise. But we do still anticipate strong performance in that business going forward, but the ability to hit the valuation based off of the last period was just becoming really challenging, which is why we didn't -- we took 50%. We were obviously still able to carry the extra $100 million. Graham Ryding: And did you consider sort of assessing this at the end of fiscal 2026, a couple of quarters to maybe get the potential... Nadine Ahn: Yes, it's a judgment call. But I think when you look at our disclosure previously, the U.S. business has been operating with reduced headwind or headroom, sorry, which is why we provided sensitivity disclosure every quarter relative to that business. So yes, you could have considered waiting another period, but it was becoming difficult to substantiate the growth trajectory off a lower base, which is taking into account the historical performance. Graham Ryding: Okay. Understood. And then you flagged in your MD&A, just confidence in achieving your profitability targets for fiscal 2026. Can you share with us what those targets are? Daniel Daviau: I'm not sure what it was, I'm going to go back and look at that MD&A. Yes, I'll let Nadine answer. How is that if I can't answer it. Nadine Ahn: No, we didn't provide any guidance as it relates to -- we did discuss it more around as it relates to our operating margin and the guidance we have provided was that a 1 point improvement overall. And I think you can see based on the trajectory that we've had on a year-over-year basis, we're well on our way to achieving that result. I think that's what it was in relation to the operating margins. Operator: And there are no further questions at this time. Mr. Daviau, you may continue. Daniel Daviau: Well, again, thanks, everyone, for joining us. I know we moved the time of this call. I appreciate this is a busy morning for everybody. So I appreciate your focus and attention to this. It's obviously an important quarter for us, and we have a lot of stuff going on. Certainly look forward to updating you next quarter. And always, we're available for questions. So operator, please feel free to close the lines. Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day.
Operator: Good day, ladies and gentlemen, and welcome to AmpliTech Group's quarterly investor update call, where the company will discuss its second (sic) [third] quarter 2025 financial results. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to AmpliTech's COO, Jorge Flores. Jorge Flores: Thank you for joining today's call to review the progress of AmpliTech's growth initiatives and financial results and to answer investor questions. On the call today are AmpliTech's founder and CEO, CTO, Mr. Fawad Maqbool; the company's CFO, Louisa Sanfratello; and the company's COO, Jorge Flores. Following initial management comments, we will open the call to investor questions. An archived replay of today's call will be posted to the Investors Relations section of AmpliTechs' corporate website. This call is taking place on Friday, November 14, 2025. Remarks that follow and answers to questions may include statements that the company believes to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as anticipate, believe, expect or words of similar importance. Likewise, statements that describe future plans, objectives or goals are also forward-looking. These forward-looking statements are subject to various risks that could cause actual results to be materially different than expected. Such risks include, among others, matters that the company has described in its press releases and in its filings with the Securities and Exchange Commission. Except as described in these filings, the company disclaims any obligation to update forward-looking statements, which are made as of place date. With that, let me turn the call over to our CEO, CTO, Mr. Fawad Maqbool. Fawad Maqbool: Ladies and gentlemen, good morning, and thank you for joining our Q3 2025 review call. Today, we'll reflect on our record performance in the third quarter of 2025 and the 9-month period ending September 30, 2025. We'll take the opportunity to discuss the company's growth outlook, market opportunities and provide additional financial guidance. Let's start with the Q3 2025 highlights and strategic progress. Quarterly revenue was $6.09 million, a 115% increase compared to $2.83 million in Q3 2024. Gross profit more than doubled to $2.96 million, representing a 48.6% gross margin, up from 47.5% in the prior year period, up about 40% from Q2 2025 gross margin. EBITDA positive of nearly $200,000, reflecting substantial improvement in operating performance and margin expansion. Net loss significantly narrowed to $188,000 compared to a net loss of $1.19 million in Q3 2024. Cash, cash equivalents and accounts receivables of nearly $12 million with zero long-term debt and working capital of $14 million as of September 30, 2025. Now the 9 months highlights year-to-date 2025. Overall, 9-month company's record revenue surged 171% year-to-date to $20.7 million compared to $7.7 million in the same period last year. Net loss reduced by nearly 50%, improving from $7.4 million in 2024 to $3.8 million in 2025. The growth driven by the successful integration of AmpliTech's 5G ORAN technology and strong momentum in low-noise amplifiers, low-noise blocks and 5G infrastructure systems. This is not just 5G ORAN, its true 5G and we are 5G. Continued investment in R&D, up 60% supporting the new product development in MIMO 64T64R ORAN Radios, private 5G network systems and cryogenic amplifier platforms for quantum applications. Now this isn't just random R&D. It's strategically focused on what the world needs, billion and trillion-dollar markets. Now operational and financial highlights. Integration of ORAN IP portfolio positions AmpliTech as a U.S.-based vertically integrated supplier for next-generation Open RAN 5G radios and private network deployment. Our third quarter shows to be an EBITDA-positive quarter, achieved through disciplined expense control, operational efficiency and growth in high-margin segments. This is a clear signal we are turning the corner and getting close to achieving profitability. Rights offering earlier -- it's an above market price shareholder-friendly rights offering priced at $4 per unit, providing growth capital for scaling ORAN product lines and expanding domestic production. We're going to go deeper into that a little bit later. But now I'll give some outlook and forward guidance. The company increased revenue guidance to at least $25 million for fiscal year 2025, representing a 160% year-over-year increase over fiscal year 2024, beating The Street estimates. We anticipate double-digit gross margins in Q4 2025 and 2026. As production costs normalize, onetime costs are reduced and higher-margin follow-on business ramps up. We project positive cash flow from operations and profitability to be achieved in fiscal year 2026, assuming continuation of current order pace and margin recovery. Company expects to receive follow-on orders from both publicly announced LOIs imminently as well as orders from new customers in 2026. Assuming continuation of the current order pace and based on forecast information received by the company, fiscal year 2026 revenue will be at least $50 million, effectively doubling that of projected record fiscal year 2025 of at least $25 million. With this all said, I'd like to focus on our current rights offering efforts, because I'm sure many people are confused. AmpliTech has an effective Form S-3 base perspective -- prospectus from which it intends to offer these securities -- registered with the Securities and Exchange Commission, for a proposed rights offering in which it plans to distribute to, a, stockholders and b, certain warrant holders 2 transferable unit rights to purchase up to the maximum of 8 million units at $4 per unit. Each unit will consist of 1 share of common stock, the common shares and 2 short-term rights to purchase additional common shares. These are rights -- short-term rights, not warrants. Under the rights offering, each stockholder and certain warrant holders as of the record date will receive as a dividend at no charge, 2 unit rights for each common share -- each common share subject to warrant owned on the record date. The distribution of the unit rights will occur on or around the record date. The record date for the distribution of the unit rights, the expiration dates for the units rights and related short-term rights and related pricing information will be included in the filing perspective. Holders who fully exercise their unit rights will be entitled to oversubscribe for additional units, if available, that are not purchased by other right holders, subject to potential pro-rata allocation of those oversubscribe units, for which they subscribe in proportion to the total number of oversubscription units. Now that sounds very complicated, but you can get the SWP that has been published publicly to get all the details. The company is aiming for a 25% to 30% annual revenue growth through 2030. This target is mainly driven and based on our ORAN 5G LOIs with two different customers. These LOIs were not binding are the results of months of technical meetings and our involvement as what is known as the industry -- in the industry as POCs or proof-of-concept. With this said, there is a predetermined price set up with these minimum quantities and specific delivery requirements set in place already, which have been supported by receiving forecast from both customers. We're executing on a visible pipeline, early repeat orders and capacity clients to support tens of thousands of radios over time. At retail, we expect operating leverage, better purchasing, tighter manufacturing cycles, which will contribute to lift gross margins. Put simply, 25%, 35%, 30% isn't a moonshot. It's what happens when a valid product line meets a secular upgrade cycle with a differentiated ORAN 5G supplier. Company's rights offering provides our loyal investors choice, fairness and alignment. In choice, a rights offering lets every existing shareholder decide if they want to maintain or increase their ownership on similar terms. No one is boxed out by a selective private deal. Everyone has access, hence it's pro-rata by design. If you participate, you can offset those. And if you don't, you're making asset portfolio decision, not suffering because we raised capital in a small group. Please take note the right are transferable. Holders can also use to sell their rights in the market as we do expect market makers will create a market for them to be traded. So again, not just fairness, but flexibility. Alignment, we picked this structure to strengthen the balance sheet without loading the company with expensive debt or entering into toxic financing transactions. It supports growth while expecting our valued long-term shareholders. It also sends a clear signal. We're raising capital to fund concrete opportunities, production, inventory turns, certifications and go-to-market. We are not raising capital plug hold. Bottom line, the right deal gives us our shareholders agency and keeps us aligned as we step into larger orders and programs. We're inviting our owners to come with us on the next leg of our growth on the same terms. The company will use the proceeds as a high-return near-term growth levers. There are 5 levers. Number one, scale production and working capital, fund inventories for committed and forecasted orders, shorten lead times and secure long lead components. The goal is faster, order-to-cash and the capacity to fulfill multisite rollouts without bottlenecks. Number two, certification and market assets, complete and extend -- complete these certifications and will extend certifications like CE and ISED, some are operator-specific. The field trials and interoperability testing. Each certification stamp expands our addressable market and removes friction for large buyers. Number three, product road map. Encryption and software. Advanced next-gen radios and RF front-end at AI-RIC adjacent peers improved manageability and hardened security. We also have a proprietary encryption for our networks. It's hardware-based, not firmware-based big difference, which we want to incorporate across our entire ORAN 5G product line. These additional products and features will lift performance and margin and create upsell paths across our installed base. These are valuable differentiators for us. We are not a me-too company. We have never been. Growth to markets -- number four, go-to-market expansion. The strategy is to add sales, engineering, carrier enterprise channel partners and targeted international presence where trusted highly secured ORAN 5G has become a mandate. We all know how important security is, and we're going to the next step, incorporating this into our networks. This accelerates deal velocity and conversion. And finally, number five, strategic flexibility. It keeps the balance sheet strong so we can pursue select tuck-in, joint ventures or capacity investments when they're clearly accretive. We're disciplined about ROI, dollars go where they unlock revenue, improved gross margin and reduce cycle times. That's how this rate translates into 25% to 30% growth trajectory, more importantly, durable value creation. In concluding, valued shareholders, we are firmly looking ahead with our company having a record fiscal year 2025, in which we expect to nearly triple the sales achieved in fiscal year 2024, a major milestone for the company. We have expectations of receiving additional orders to continue funding our LOIs with a healthy balance sheet, zero long-term debt and expanding portfolio of proprietary 5G and satellite technologies. We also have special cryogenic amplifiers to serve the growing needs of the quantum computing market, along with ORAN technology to support artificial intelligence and global 5G product certification is now in place. AmpliTech is now positioned to deliver successive quarters of growth, enhanced shareholder value and a significantly stronger IP valuation in 2026 and beyond. Thank you for your continued support. We will now open the call for questions. Operator, please proceed. Operator: [Operator Instructions] Our first question comes from the line of Vishal Mishra with Bard Associates. Vishal Mishra: So just want to -- I heard you right, which is that you do expect these rights to be traded when they're distributed, correct? Fawad Maqbool: Correct. Vishal Mishra: That's great. And second question, this is great momentum, congratulations. Do we -- I know I see double-digit gross margins. Or do we have any more like -- as you scale like -- and you also said that the gross -- like the margins, the quantities have been sort of solidified in the contract as you've been working on the POC. Do we know -- can you give me a more color on that? Is it like those margins, which has been agreed upon are like the gross margin like in the 20s, 30s, 40s or that's not something you can disclose? Jorge Flores: Well, this is Jorge, COO for AmpliTech Group. I'm going to be taking on that answer. We do have a mixed -- we have a mixed list of 4G and 5G products and every single one of them carries a different gross margin. All we can say right now, though, and also due to competitive natures, right, that we are not going to be able to disclose a specific gross margin information on our products due to competitive nature, of course. But that's why we are saying that at least we're going to be able to achieve double-digit gross margins on every of our products right now. Vishal Mishra: So I know historically, you've been close to 30%, 40%. Is that something historically you will be or like because these new products, they will be lower, higher or... Jorge Flores: Well, as you could see from our results in Q2, in which we had a lot of onetime cost driver, we have recovered very handsomely in Q3 with over 40% gross margins. So we are, of course, going to keep allocating capital, right, to improve on our margins, sometimes we might elect to go into a higher configuration of molding equipment and fixturing to be able to drive the cost down on every single item used in our radios. So -- we do expect, though, that we're going to have, as I said before, though, at least like gross margins in the double digits. Operator: [Operator Instructions] This concludes the Q&A session. I'll turn the call back to Fawad Maqbool for closing remarks. Fawad Maqbool: Thank you, everyone, who enjoyed today's call to hear about progress. We made the plan. We have to further our company's mission of providing the communication systems of tomorrow today. We look forward to updating you further on our full year financial results call next year. Until then, please contact us directly if you have any questions or wish to schedule a call with management. Our Investor Relations team can be reached at the contact information listed at the bottom of our press release. Thank you and be well. Operator: Today's conference call is now concluded. Thank you, and you may now disconnect your lines.