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Operator: Good day, and thank you for standing by. Welcome to the Sappi Q4 2025 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Binnie, CEO. Please go ahead. Stephen Binnie: Good day. Thank you, everybody, for joining. As always, I'll go through the investor presentation calling out page numbers as I move through. I'm just starting briefly on page 2, just drawing your attention to the forward-looking statements disclosure. Turning to page 3, which is summarizing the year as a whole, the financial year 2025. And it's fair to say it was a challenging year, marked by ongoing global economic weakness. We did see difficult market conditions across all our segments actually, and obviously, partially driven by the weak economic conditions, but also the global trade tensions. As a result of all that, we saw downward pressure on selling prices. And from a materiality perspective, particularly on dissolving pulp, they dropped quite sharply during the year. And on the paper side, added to that, we have seen excess supply globally in our key market segments. Despite all those challenges, we did have some operational highlights. We saw our DWP and packaging volumes growing year-on-year. And in the graphic paper space, we were able to gain market share. Thrilled to say that we've obviously completed the Somerset PM2 conversion and expansion, and that's an important step in our strategy and the machine is performing well. In Europe, we continue to make further rationalization to take cost out of the business and to improve capacity utilization. Then on slide 4 is a summary of the quarter itself. Relative to the prior quarter, Q3 of this financial year, numbers up a little bit. However, the market conditions remained challenging. We did see sales volumes pick up for pulp and packaging, and we also benefited, obviously, because there was no maintenance shuts. Regionally, Europe continues to be in a challenging place. The economic situation there is still difficult for us. And across many of the paper grades, we see excess capacity. North America, obviously, beginning the ramp-up of the -- the Somerset 2 conversion. We saw improvements in volumes and modest improvement in profitability. Obviously, you're not at optimized levels, but we start to see that improvement come through. And in South Africa, I think South Africa had a pretty good quarter, actually. Obviously, lower dissolving pulp prices are the big story there. But on the packaging side, a reasonable quarter, albeit that on the packaging side, even selling prices there globally have an impact on the South African business. Slide 5 has the bridge from last year to the current year. And the big story is obviously the lower selling prices and its impact on our business. It's across all the segments, and that kind of dwarfs all the other variables when you look year-on-year to give us the $111 million. On Slide 6, we did see relative to the prior quarter, we did see variable costs coming down in each of the regions. Pulp at relatively low levels. And obviously, that benefits the paper business, but obviously indirectly has a negative impact on DWP prices. Energy prices coming down a little bit as well, but really across the board. And then turning to slide 7, which is the evolution of our net debt and our leverage over the last few years. And obviously, we saw the peak through the COVID period. We saw it coming down substantially. We made a decision to invest at Somerset, obviously. And then in the current year, we've got the higher CapEx, which is now behind us. We also were negatively impacted by the exchange rates, the fact that a significant proportion of our debt is denominated in euros. And when you convert that to dollars, you get the negative impact. But having said that now, the investments are now behind us, and we would expect our debt to start coming down. You saw it coming down a little bit in this quarter, and we would expect that to continue over the next quarters ahead and into the next few years. And then the debt maturity profile is reflected on page 8. And maybe just a couple of callouts. Firstly, on the short-term debt, which is 2026, you can see we've got a chunk of short-term debt in the box there, the $224 million. We are - and we did put out an announcement on this. We are in the process of terming out some of that debt and making good progress, and we'll give an update as soon as -- as soon as that's complete. Perhaps the other major refinancing that we've got coming up over the next few years is the 2028 bonds, Eurobonds, it is about at EUR 400 million. We obviously monitor the markets, and we'll pick the right time to refinance that as we move into the new year. And then on cash flow and CapEx, obviously, a tough year and lower profitability, which has meant that we utilized cash during the year and you add in the CapEx as well. So $360 million that we utilized during the year. CapEx going forward, 2026, we are estimating at $290 million. And then 2027, we're committed to keeping that below $300 million. We haven't finalized the number yet, but it will be below $300 million. Taking that forward into Page 10. As you all know, we gave a recent update on some of the work that we're doing on the balance sheet on the funding side. Obviously, with the lower profitability, our leverage ratio increased. And because of that, we proactively renegotiated our covenant levels through next year, great support from the banks, unanimous support, and we've negotiated significant -- enough headroom to manage through this peak time. We're terming out the short-term debt, as I said, and overall, with that debt reduction focus back to basics, focusing on productivity, cost containment. At the same time, we've obviously stopped the dividend, and we have some initiatives to reduce costs, particularly in the European business, and I've got a slide on that just now. The Thrive strategy is reflected on Page 11. And obviously, our focus in the short to medium term is this back to basics, but we must never lose sight of our strategic focus. And obviously, operational excellence is key to Back to Basics, maximizing productivity and efficiency and reducing costs. We continue to focus on enhancing trust across all our stakeholders. In terms of growing our business, we're not going to be taking on any projects or any material projects in the next couple of years. Our focus is on ramping up the projects that we've done and primarily, obviously, that's the Somerset PM2. Ultimately, we're laser-focused on getting the debt below $1 billion. We know it's going to take a couple of years, but with all the actions that we're taking, and we're confident that we'll get there in the medium term. And then obviously, with a strong focus on our maturity profile, which I talked about already. Slide 12, I'm not going to repeat because a lot of this is similar to the prior slide, just to say that we are in this consolidation phase, focused on costs, focused on efficiency, maximize production. We've got a $60 million target to take out costs in Europe, and that -- much of that's already been made public, but it's not just Europe. We are focusing on the other regions and at the corporate level. And on top of all that, working capital optimization. It's only once we complete all that, that we would consider dividend payments and any growth opportunities. The Slide 13 just talks about our capital allocation priorities, and I've touched on this. So I'm not going to repeat everything here. But obviously, strongly focused on reducing debt, ramping up on PM2, ensuring we get a return on capital employed above our costs -- above 2% of our WACC -- 2% above WACC. And then making sure that we optimize our product portfolio and matching graphic paper capacity to market demand. Slide 14 is a specific slide on Europe, which we thought would be useful. It just breaks down the $60 million saving that we've got. You can see it's across some -- the mills and at the corporate level or the central regional level. We're closing 2 machines at Alfeld, at Kirkniemi. At Ehingen, we are reducing shift details. And at Gratkorn, which is our #1 mill in Europe, looking at a number of initiatives to optimize product -- production and profitability. Then turning to the segments. And again, I'm not going to go into detail, but just to summarize, and I'm on Slide 16. The demand -- the underlying demand for DWP remains good. And we are fully sold out, and we continue to have our customers pushing for volume. The challenge is obviously that global prices have come off, and that's linked to various macroeconomic conditions. And I also think that the lower paper pulp prices have not helped as well with carouseling and substitution there. But overall, volumes are good. Also on the production side, things are going -- going better as well. Packaging, a really tough year -- sorry, Slide 17. Packaging, a tough year across all the regions, actually. Europe, a modest recovery. But as I said earlier, the European economy continues to be challenging, and there's overcapacity in all the key product categories. North America, we've begun that ramp-up. The machine is performing well. We're adding volumes, and we're confident that we'll continue to do that in the quarters ahead. South Africa had a very good citrus market season, which is our primary product -- that's our primary market for our South African containerboard business, a good season. The only challenge -- well, the one challenge we have is that global containerboard prices are weak, and that does have an impact on domestic selling prices. And then on graphics, we continue to be proactive in terms of managing our capacity. In North America, the domestic markets tightened. Obviously, we took out PM2 out of graphics. So that supported the market balance, and I think it has helped ensure that we have stable selling prices and good margins. Europe, the challenge in Europe is the excess supply, and that obviously impacted on selling prices in that region, which had a negative impact on profitability. And then Slide 19, just a very brief summary of the regions. And all in all, you can see selling prices across the board down. And then some of it, we did get cost savings in Europe to offset some of that, however, not enough. And then in North America, cost’s up, obviously, because we had the initial ramp-up at Somerset and that obviously impacts on efficiencies and usage and the likes. And then in South Africa, we did have some of the -- some of the raw material costs up year-on-year, some of the chemical costs and wood costs there. Slide 20 has some of our key awards and the highlights. I'm not going to go through all of them. We're particularly proud of our rankings in the Forbes Best Employer and top companies for women. We were 144 in the world for top companies for women, the second in South Africa, really very proud of that. But even best employers as well globally to come in at 289. And when you look at the companies on that list, we're very proud of that. Other than that, we continue to focus on our science-based targets and our wood certification, which gives us a strategic advantage. And then you can see the links to our reports there as well. Turning to the outlook, and I don't intend going through every bullet. I'm on Slide 22. I think it's fair to say that the market conditions continue to be challenging. We do believe that as we progressively move through 2026, things will get better. DWP has stabilized. You saw a little bit of an increase in that quarter, and we continue to think that that will be the case as we move through 2026. We'll obviously have the benefit of the ramp-up in PM2 as we progress quarter-on-quarter. And then on the graphics side, it's about proactively managing that capacity. The cost side, yes, some of the -- some of the raw material costs are relatively low, and we'll look for opportunities there. We do have a maintenance shut -- scheduled maintenance shut at Somerset. That's an 18-month shut, which will have an impact of about $20 million, and we obviously took that into account in our guidance. You've heard me say it many times, back to basics, focus on what we can control, focus on efficiency, focus on cost, debt reduction, very disciplined capital allocation. And taking all that into account and the shut, obviously, we estimate that the EBITDA for -- the adjusted EBITDA for the first quarter of 2026 will be below that of the first quarter we've just reported on. So, operator, I've gone through the presentation. I'm now going to put it back to you for questions. Operator: [Operator Instructions] Our first question comes from the line of Brian Morgan of RMB Morgan Stanley. Brian Morgan: Steve, if I can ask 2 questions. First question is on Europe. Pretty torrid quarter, September quarter, like saw what the rest of the -- the rest of the paper packaging management, but none of them were EBITDA negative. So just a question on that is, was there -- in terms of those machines that you closed during the quarter, were there sort of non-normal effects coming through EBITDA, which we can reverse out in coming quarters? Stephen Binnie: Brian, I think specifically, the two machines that we took out were negative -- negative EBITDA. Obviously, by taking those out and optimizing the product mix and the cost base associated with that, we do think we can get improvement there. One of the challenges we face is that at Alfa specifically, our energy costs have risen substantially since the pre-COVID times. And it’s -- it's meant that those -- those machines that we're closing became uncompetitive, and we've moved around our portfolio. And that combined with obviously all the other initiatives, we're focused on getting the packaging back to positive EBITDA. Brian Morgan: Okay. So, without -- without any tailwinds from the market, you'd expect that European business to turn EBITDA positive even modestly? Stephen Binnie: Are you talking about -- yes, in the year? Yes, next year, yes, definitely. Yes. Brian Morgan: Yes. Okay. 2026. So, without any tailwind, any pricing benefits or anything like that, you would expect an improvement? Stephen Binnie: Yes. Brian Morgan: Okay. Steve, could you just flesh out PMT now? Just I'd be interested to know if you worked out how much of an EBITDA headwind that conversion had for you through the course of FY '25? And then also, if you could just chat to us a little bit about how to think about maybe an EBITDA ramp-up. I know you don't give us numbers but just help us to think about how that might evolve over the next couple of quarters. Stephen Binnie: Yes. Interesting question. Look, I mean, obviously, we had the direct costs of the downtime, and we revealed that in the last two quarters, and I'm looking at my colleagues, I think it was $22 million and $21 million. So, there was about $40-odd million specifically. But then you obviously had the indirect impacts of the efficiencies at the mill. Brian, I don't have that as a specific number. But clearly, it's north of $10 million. I don't have that as a-- as an absolute number, but -- but it had a material impact on the profitability. Now obviously, on top of that, going forward, you're going to have the additional volumes because we've doubled the capacity of the machine. Now Q1, we've got the shut, and you've got to take that into account when you -- when you're quantifying profitability of the North American business. But progressively beyond that, we're still very confident in the ramp-up. We've been signing up customers. We've been adding volumes. Yes, obviously, the delay had an impact. Yes, we have that trade-off between price and volume, which we've got be – we’ve got to delicately manage. You know that and this is public, SDS prices in the U.S. have come down a lot over the course of the last 18 months. And we've got to carefully manage that, but we are confident on the ramp-up. And we know the machine is performing well. We know that the customers like the quality of the product coming off there. And we're still committed. We said it all along that by the time we get to the end of Q4 of this -- this new financial year, we're confident that the machine can be substantially full. Operator: Our next question comes from the line of James Twyman of Prescient. James Twyman: Two to start with from me. The first one is the energy credit gain that you always get in Europe in Q1. Could you give us some idea of the scale of that and whether that's included in your guidance? And secondly, the 5 measures you're doing in Europe, could you give us some idea about broadly when you expect them to give a return and when and what the costs are? Stephen Binnie: Okay. I think on the first one, just to clarify your question, obviously, energy costs in Europe have been rising, and there has been increased costs. And the way that these rebates work is that you incur the cost -- higher costs across the year. And then at the end of the year, you get rebates based on your usage. So it's an offset of the higher costs that you have during the course of the year. Yes, you're right. Typically, the rebates occur in Q1, but not always. And it's difficult to give a -- to pinpoint exactly when we get them. Typically, they're somewhere between EUR 20 million and EUR 30 million. And by the way, it's not unique to Sappi, it is over -- it's all the industry players in Europe. Typically, they are between EUR 20 million to EUR 30 million. We don't know the exact numbers as we sit here today for what we've done this year. We have a rough idea, but we don't know the exact. In terms of our guidance, yes, that would be incorporated into our guidance. James Twyman: Okay. So, you would have included that the number -- somewhere in that range of number in your Q1 guidance. Stephen Binnie: Indeed. But ____ 26:25 to stress, it is an operational -- it's an offset of an operational cost, I think, is the important point. And then your second question? James Twyman: Yes. Sorry, yes. My second question was just in terms of these 5 measures, your big measures you're doing in Europe. … When should we start expecting that return? And when do you expect the costs to -- that EUR 40 million of cost to be incurred? Stephen Binnie: Yes. I'll let Marco go into more detail. Just from our side, obviously, you have to be sensitive about the discussions with labor and following a process, which we've been going through. And maybe the other point before I hand to Marco, EUR 60 million benefits, EUR 40 million costs. Those are the headline numbers, but obviously, that's phased. And Marco, maybe you want to go into more detail. Marco Eikelenboom: Yes. Yes, James, this is very much a staged approach. We've highlighted the 5 units basically where most of the work will be done. We finalized the consultation process in Alfeld, Ehingen, Kirkniemi in the last couple of weeks, which means that we now can implement the social plans for the FTE reductions there. I would say most of that benefit we will see as of quarter 2 -- fiscal quarter 2 and the costs because some of the work on the -- particularly on the central organization have been done already in September, October. So the costs will be kind of divided over – over the quarter, quarter 1 and quarter 2. But the effects will mainly be as of quarter 2 next year. James Twyman: If I could sneak another one in. There have been substantial tariffs on importers into the U.S., from Asia and from Europe, which I think is around 15% at least. What has been the impact on domestic prices for paperboard and for coated fine paper? Obviously, the paperboard impact has been offset by other factors. But what have you been able to achieve in terms of price as a result of that? Marco Eikelenboom: Are you talking about European prices? James Twyman: No, U.S. prices in terms of the impact of the increased ____ 29:09 importers into the U.S. and... Stephen Binnie: Yes, that's a tricky question because you have your indirect impacts, and it creates opportunities for us. I'm not sure you can say that selling prices have gone up just because of tariffs. But Mike, I don't know if you want to elaborate further on the impact of tariffs on the European competitors on North American domestic prices. Michael Haws: 29:49 I guess my view on that, Steve, is that -- it hasn't had a direct impact on North American prices. There have been announcements from importers of increases and how much they're realizing, it would only be speculation on my part. And that has also allowed some of the markets to improve and orders to move from imported to domestic. Stephen Binnie: I think that's the important point, James, is that it's not so much for our domestic supply, it's not so much that it's been enabling us to increase selling prices. But what it is doing is creating opportunities for us to secure more volume. James Twyman: Okay. Well, maybe as an example, obviously, you're a big exporter to the U.S. from Europe. What have you found? Have you been able to raise prices? Or have you … Michael Haws: James, we're not a big exporter on boards. I think you were specifically talking boards, or was it -- was it graphic paper as well? James Twyman: Graphics as well, to be honest, sorry, yes. Michael Haws: Yes. So board we're not -- it's not material. Marco, would you -- would you want to talk on the graphics side? Marco Eikelenboom: Yes. On the graphics side, James, of course, we have tried to offset some of the increased cost due to the tariffs and to pass that on to our customer base, which, with the domestic competition in the U.S., is not easy. I would say that this has cost us volume, but we've been successful to around 50% of our -- of our incurred costs due to the tariffs. But it's not so much the pricing that we could get up. It's more the volumes that we -- that we started to lose because of this attempt that we did to pass on the tariffs. Operator: Our next question comes from the line of Sean Ungerer of Chronux Research. Sean Ungerer: Just the first question around the European cost savings. Just to be clear, as what’s been said on the call so far, sort of -- sort of run rate to sort of see these cost savings come through is only going to really filter through to the second half of the year. Is that the correct way to interpret that? Stephen Binnie: No. I think from -- you'll start to see it in Q2, so if I was to -- Marco touched on it, but you'll probably -- there'll be a little bit --there'll be some in Q2, more in Q3, Q4, and the final little chunk will be in Q1 of 2027 because a lot of these things that we -- these initiatives are happening now, as we speak, right? So you still have some of the costs in this quarter. But for the next 4 quarters beyond that you’ll -- the savings will progressively get larger. Sean Ungerer: Okay. Got it. And then just on the net debt target of below $1 billion, what is the sort of definition of medium term? Because if you look at the slide of the presentation, I think it sort of flags resuming dividends and growth, and considering share buybacks from 2028 when the target is reached. Am I interpreting that correctly? Or how should we think about that? Stephen Binnie: Yes. Look, it's hard to be definitive because clearly, it's going to be dependent on market conditions. We've obviously got a strong commitment to reducing CapEx over the next 3 years. I think that – I do think market conditions are going to improve, and profitability will pick up. Everybody can do their math. It's all going to depend on the level of profitability. If we can get back to normalized levels, we'll get there quickly. But I think it's going to -- it's going to be gradual. I mean, clearly, in 2026, market conditions are still relatively challenging. I do think we will get the ramp-up of Somerset. We will have better DP prices. Our CapEx is going to be $290 million. So I think there will be some strong cash generation this year. And then when you get to '27 and '28, I think there'll be further -- further cash generation. Listen, if it takes longer, obviously, we'll stay committed. We are laser-focused on getting this debt level down, and however long it takes, what's our best estimate? 3 or 4 years. Sean Ungerer: And then just to follow on another question around the packaging especially the pricing in North America. So if we sort of exclude the ramp-up of PM2, what is the core sort of board business pricing mix done sort of year-on-year at least? I mean, sort of listening to a couple of other competitors in the U.S., it seems like pricing was down about at least 3% to 4% year-on-year. Stephen Binnie: Yes, that’s right. Obviously, it depends on the mix and the different grades and all that kind of stuff. But if you look on average and some of the key product categories, you're talking $100 to $150 type decrease. Mike, I don't know if there's anything you want to add. Michael Haws: No, Steve, thank you. Sean Ungerer: That's great, and then, Steve, I appreciate the… Stephen Binnie: Mike, anything you want more? Sean Ungerer: No. No, we got it. Okay great. And then, Steve, I appreciate the guidance on the planned maintenance in Q1, and there's obviously a nice schedule for maintenance for the full year by quarter. Just trying to compare like-for-like compared to 2025, if we sort of strip out the [indiscernible] cost of ramp-up. I mean, what is your best estimate? Is planned maintenance going to be sort of roughly flat year-on-year or lower or higher…? We've obviously got a number for Q1. Stephen Binnie: If you -- yes, look, if you back out the whole Somerset thing, I mean, last year, you had -- in the U.S., you had Cloquet and this year, you've got Somerset. In South Africa, you've got Ngodwana, which you did have last year, oh there is, yes -- yes, it's on Page 28 -- yes, Page 28. So you've got different quarters, but you've got Ngodwana in both years. Perhaps a little bit higher would be -- and I'm looking at Graeme here. Cycle is a little bit higher because we've got that a little bit of a longer shut to fix the one piece of equipment that we need to spend time on, but it's not that material. Graeme? p id="60862666" name="Graeme Wild" type="E" /> No. I think more importantly, we're doing a full mill shut in that one just to do a full clean of systems that don't regularly get cleaned. So it is slightly longer, but not best material. Stephen Binnie: Yes so I think the conclusion out of all that, Sean, is that broadly -- I mean, obviously, Somerset -- taking out Somerset project last year, broadly, it's about the same as last year, maybe yes. Sean Ungerer: Okay. So call it like $70 million odd. Stephen Binnie: Yes. Sean Ungerer: Okay. Cool. And then, Steve, just going to North America in terms of coated freesheet. I mean, there's a couple of your competitors asked price increases for Q4. I'm assuming that will sort of benefit your business as well. Is there any sort of update there or traction or not -- no traction? Stephen Binnie: I'll let Mike go into more detail. Obviously, us taking out the machine has brought the market -- domestic market back into balance. And it does create opportunities on Somerset PM1. And I think we talked about that in our results announcement. So we'll obviously -- if there are opportunities to add value and make some graphics on PM1, we'll take advantage of that. But Mike, specifically to recent pricing moves in that. Michael Haws: I guess -- I guess the way I'd phrase that up, Steve, is the market is still overcapacity with the current coated freesheet assets in North America. And on the [web side], not as much traction as on the sheet side. The sheets are dominated by imports, which have had the tariff impact. And I'd kind of frame it up in that way. We are carouseling some graphic grades to PM1 as we're ramping up the volumes on -- at the Somerset mill. Stephen Binnie: So overall, there are certain grades where we've been able to get it, but others more challenging. But having said that, it's obviously a much tighter market conditions than Europe. Sean Ungerer: And then just last one for myself. I mean, what do you think is going to be the biggest catalyst in the short term to sort of see a rise in DP prices? Stephen Binnie: The biggest risk. Sean Ungerer: Catalyst. Stephen Binnie: Catalyst. Look, I do -- and again, I'll let Mohamed expand further. I think that it's clear that there's still a high correlation between paper pulp prices and DP prices. Obviously, paper pulp prices have gone up a little bit – little bit in recent months. And I know there's another price increase out there. I think that will help. And then obviously, secondly, as the kind of macroeconomic situation improves and the consumer environment gets better and the trade tensions that have been out there as they get resolved, I think all of that will help as well. So we think it's going to get progressively better. Mohamed, I don't know if there's anything you want to add there. Mohamed Mansoor: Yes, Steve, the only other thing I would just add is that the fiber prices also has a big impact on the DP price. And viscose staple fiber prices have stayed and operated in a fairly narrow band for a long time, but the operating rates have moved higher. The inventory levels have moved lower. And at some point, that's got to start showing up in the fiber prices moving up. And as soon as that happens, that is -- that could be a very important trigger to lift the DP price. Operator: [Operator Instructions] Our next question comes from the line of Lars Kjellberg from Stifel. Lars Kjellberg: I just want to come back to Somerset a bit. Steve, you talked about your great confidence in ramping up this machine over the next 12 -- 15 months or so. At the same time, most would say it's about 0.5 million tonnes of excess supply in the U.S. market and volumes are flat to down a couple of percent. So how will this be done? What is behind that confidence? What are your prime way to ramp your machine? Stephen Binnie: Yes. Look, I think it's a progressive process. We've been in discussions with customers for the last couple of years. And we know that we've got the best machines in the industry in the U.S. And we know that we are targeting the independent converters. So, it's going to be a progressive process. Some of our -- interestingly, and I'll let Mike expand further here. We've seen some reasonably good growth numbers in the last couple of months in terms of volumes coming out of the SBS markets. So it's a combination of -- in terms of the longer-term discussions that we've had, the -- our ability to service those independents and building on the relationships that we have. Clearly, and I said that on an earlier comment, there's going to be a price volume trade-off. And we've got to -- we've got to carefully manage that and optimize profitability as we go through that process. But Mike, do you want to talk further there? Michael Haws: I think if you -- if you just think about the market and the scale of the 2 assets that we now have as independent suppliers, it is absolutely the best largest scale machines in the SBS market. So we've got new equipment, highly technical. We've got a product match with our PM1 that was extremely well accepted in the field. And we're obviously a domestic supply. So we've seen opportunities as a result of some desire to switch to domestic from imports. And as the independent suppliers are looking to grow their business, they're clearly looking to grow with companies that are convicted around this business, which is clearly Sappi with the investments that we've made and not just the mill, but with our sales force, and our technology group with R&D. So we've had many business with customers. And I think it's a relationship piece that we're going to continue to build. And we feel as though things are progressing well. Is it a seller's market? It's clearly not. But we're making great progress and the product off the machine and the asset is running very, very well. Stephen Binnie: Lars, just -- and one other point to make is that remember, we have PM1 at Somerset. And we can -- and with margins healthy on the graphics side, we can leverage off that flexibility on PM1 as well on top of all the good stuff that's happening on PM2. Lars Kjellberg: Yes. Could you remind us also the yield benefit you would have relative to a standard U.S. SBS sheet and how you would compare with import FBB? Michael Haws: Probably we have about a 5% yield advantage up from SBS, which is a little bit less than FBB, but we also have a couple of fighter grades that we developed that are similar to FBB. Lars Kjellberg: Final question for me is, again, we're talking -- coming back to Europe, right, where there's -- as you pointed out, significant excess supply and it feels as if some volumes turning back that used to be exported from Europe. So are you seeing any incremental pressure from repatriation of overseas tonnes into the European market that makes that particular market when it comes to coated paper more challenging than it already is? Michael Haws: Look, that's one of the dynamics, isn't it, Lars? Yes, part of it, it is already there, and it's a continuing pressure point. Obviously, you have the indirect impact on tariffs, right, from the U.S., right? Other players can't get into the U.S., where do they look to sell their product in Europe. So it just compounds the challenges of Europe and adds to that excess capacity, and that's why it's very important that we're proactive taking -- matching our capacity to our demand and taking costs out of the business. So it just compounds the challenges we faced. Operator: There are no further questions. I will now hand back to Steve Binney. Please continue. Stephen Binnie: No, thank you. I just want to take the opportunity of thanking everybody for joining us today and look forward to discussing our results at the end of Q1. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen. Welcome to Universal Display Corporation's Third Quarter 2025 Earnings Conference Call. My name is Sherry, and I will be your operator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Darice Liu, Senior Director of Investor Relations. Please proceed. Darice Liu: Thank you, and good afternoon, everyone. Welcome to Universal Display's Third Quarter Earnings Conference Call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Brian Millard, Chief Financial Officer and Treasurer. Before Steve begins, let me remind you today's call is a property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the expressed written consent of Universal Display is strictly prohibited. Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call November 6, 2025. During this call, we may make forward-looking statements based on current expectations. These statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Universal Display disclaims any obligation to update any of these statements. Now I'd like to turn the call over to Steve Abramson. Steven V. Abramson: Thanks, Darice, and welcome to everyone on today's call. Third quarter revenue was $140 million, with operating profit of $43 million and net income of $44 million or $0.92 per diluted share. These results reflect timing dynamics as customer pull-ins in the first half of the year were more significant than previously thought. Based on current forecasts, we now expect full year revenues to be around the lower end of our guidance range of $650 million to $700 million. Our company was built on innovation and leadership, and that remains unwavering. From foundational research to high-volume commercialization, we continue to push the boundaries OLED technologies and materials. Today, our innovation engine is stronger than ever. Over the past decade, we've built a powerful artificial intelligence and machine learning platform that is transforming how we discover and develop new materials. By harnessing AI ML to accelerate material discovery, we're identifying breakthrough compositions faster, reducing development cycles and expanding the frontiers of phosphorescent OLED. This capability is opening new horizons for our materials pipeline, enabling us to efficiently broaden our portfolio of next-generation reds, greens, yellows, blues and hosts to meet evolving customer needs. We are also strengthening our foundation with strategic moves. Today, we announced a definitive agreement to acquire OLED patent assets from Merck KGaA, Darmstadt, Germany. This acquisition bolsters the building blocks for next-generation OLED performance. By integrating these assets into our R&D framework, we are accelerating our road map for high-efficiency devices. This transaction valued at $50 million and expected to close in January 2026, underscores our commitment to lead the OLED industry into its next era of growth and transformation. Blue continues to be a cornerstone of our innovation journey. The timing for the debut of FOLED blue and commercial products will be guided by the OLED market. When adopted, we believe our phosphorescent blue will be a game changer delivering breakthrough efficiency and performance for our customers, driving progress across the OLED industry, enhancing experiences for consumers and fueling growth for our company. Looking ahead, we expect rising OLED adoption and new OLED capacity coming online to drive growth in the OLED market. While macro uncertainties may persist, we believe that the OLED industry is entering a dynamic phase of expansion, primarily fueled by increasing demand for OLED and IT applications where penetration today is only about 5% of the market. According to Omdia market research, OLED units from 2024 to 2028 are projected to grow across the consumer landscape. OLED IT units which encompasses tablets, laptops and monitors are expected to increase by 170%. OLED smartphones are forecasted to grow by 14%. OLED TVs are expected to grow by 11%, and the foldable OLED and emerging automotive markets are both expected to nearly triple by 2028. Next year also marks a pivotal growth stage in medium-sized OLED manufacturing capacity with the world's first Gen 8.6 OLED fabs in Korea and China slated to come online. We believe this is the beginning of a multiyear OLED CapEx growth cycle as leading OEMs expand their adoption across their portfolio of IT products. Samsung's 15,000 plates per month Gen 8.6 OLED IT line is expected to start mass production in the second quarter of 2026. BOE's 32,000 plates per month Gen 8.6 fab is expected to begin production in the fourth quarter of 2026. The Visionox's 32,000 plates per month Gen 8.6 OLED production fab in Hefei is progressing well with initial equipment POs currently being placed. And just 3 weeks ago, TCL China Star broke ground on its first Gen 8.6 OLED plant in Guangzhou, China with a CapEx of approximately $4 billion and will have a design monthly capacity of 22,500 sheets. The digital world is accelerating towards intelligence and interconnectivity powered by AI, ultrafast networks and seamless experiences. This transformation demands displays that are not only brilliant, but highly efficient due to higher power consumption needs, that's where Universal Display leads. Our Universal FOLED technology and materials are raising the bar for energy performance and next-generation devices. By delivering superior power savings, we enable longer battery life, cooler operation and advanced functionality across smartphones and wearables to automotive and IT displays. And the horizon is even more exciting our breakthrough phosphorescent blue is poised to unlock up to an additional 25% of energy efficiency, paving the way for greater sustainability with performance in displays. And on that note, let me turn the call over to Brian. Brian Millard: Thank you, Steve. And again, thank you, everyone, for joining our call today. Revenue in the third quarter was $140 million compared to $162 million in the third quarter of 2024. Revenue for the first 9 months of the year was $478 million compared to $485 million in the first 9 months of 2024. For the full year, as Steve mentioned, we expect revenues to come in around the lower end of the guidance range of $650 million to $700 million. Amid ongoing macroeconomic uncertainty, this guidance reflects our best current assessment. We continue to estimate that our 2025 ratio of materials to royalty and licensing revenues will be in the ballpark of 1.3:1. Total material sales were $83 million in the third quarter of 2025, consistent with the prior year. Green emitter sales, which include our yellow green emitters, were $65 million. This compares to $63 million in the third quarter of 2024. Red emitter sales were $17 million, this compares to $20 million in the third quarter of 2024. As we have discussed in the past, material buying patterns can vary quarter-to-quarter. Third quarter royalty and licensing fees were $53 million, compared to $75 million in the prior year. This quarter included an out-of-period adjustment of $9.5 million, which reduced royalty and license fee revenues. Adesis' third quarter revenue was $3.7 million compared to $3.6 million in the third quarter of 2024. Third quarter cost of sales was $35 million, translating into total gross margins of 75%. This compares to $36 million and total gross margins of 78% in the third quarter of 2024. We continue to believe that total gross margins for the full year will be in the range of 76% to 77%. Operating expenses, excluding cost of sales, were $61 million in the third quarter of 2025 compared to $59 million in the third quarter of 2024. We continue to expect our 2025 OpEx to decline by a low single-digit percentage year-over-year. Operating income was $43 million in the third quarter, translating into operating margin of 31%. This compares to the prior year period of $67 million and operating margin of 41%. Operating income in the first 9 months of the year was $181 million compared to $186 million in the first 9 months of 2024. We now expect our full year operating margins to be in the range of 35% to 40%. The income tax rate was 19% in the third quarter of 2025. We expect the full year effective tax rate to remain around 19%. Third quarter 2025 net income was $44 million or $0.92 per diluted share. This compares to $67 million or $1.40 per diluted share in the comparable period of 2024. For the first 9 months of the year, net income was $176 million or $3.68 per diluted share. Consistent with the first 9 months of 2024 is $176 million or $3.69 per diluted share. We ended the quarter with approximately $1 billion in cash, cash equivalents and investments. Our Board of Directors approved a $0.45 quarterly dividend, which will be paid on December 31, 2025, to shareholders of record as of the close of business on December 17, 2025. Our capital allocation program reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. While third quarter results reflect timing shifts, including customer pull-ins earlier in the year and an out-of-period adjustment, we anticipate renewed momentum and growth in the fourth quarter. Driven by our technology leadership, strong business model and deep customer relationships, we are well positioned to deliver long-term value in this growing market. As we look forward, we are focused on accelerating innovation, broadening our solutions and services and supporting OLED adoption across an ever-widening range of applications. With that, I'll turn the call back to Steve. Steven V. Abramson: Thanks, Brian. Looking ahead, we are committed to shaping the future through leadership, innovation and growth. Universal Display was founded on the belief that science and imagination can transform industries and that spirit continues to guide us today. Last month, we announced the inaugural winner of the Sherwin I. Seligsohn Innovation Award, established to honor our late founder's visionary leadership. The winning submission explores using organic materials to emulate the human brain's ability to sense, learn and adapt. Sherwin believe in pushing beyond limits and this award celebrates that legacy by recognizing bold thinkers who are redefining what's possible. The same spirit of exploration extends us beyond OLEDs. Last week, our subsidiary, Universal Vapor Jet Corporation, UVJC, celebrated the grand opening of its new global headquarters and R&D center in Singapore. UVJC represents an additional chapter for our maskless, solventless, dry printing technology, UVJP, which is being developed for new frontiers, including semiconductors, pharmaceutical, batteries and photovoltaics while also positioning us for future opportunities in OLED TVs. This evolution reflects our ability to leverage core expertise into emerging markets that will help shape tomorrow's technologies. Innovation also thrives through collaboration, this year marks 25 years of partnership with PPG, a relationship that has been instrumental in scaling our phosphorescent OLED materials and enabling remarkable industry growth. From our early days as a pioneering start-up to our global operations today. This partnership exemplifies how shared vision and complementary strengths can create lasting impact, and we're excited what the next 25 years will bring. As we celebrate these milestones, we remain focused on the road ahead, advancing OLED technology, accelerating material discovery and expanding into new frontiers. The digital world is evolving rapidly, and we are committed to leading that evolution with innovation that is bold partnerships that are enduring and a future that is bright. I would like to thank each of our employees for their drive, desire, dedication and heart in elevating and shaping Universal Display's accomplishments and advancements. We are committed to being a leader in the OLED ecosystem, achieving superior long-term growth and delivering cutting-edge technologies and materials for the industry, for our customers and for our shareholders. And with that, operator, let's start the Q&A. Operator: [Operator Instructions] Our first question is from Brian Lee. Brian Lee: I had a couple here. I guess, first off, understandably the pull forward from Q3 into Q2 that's showing up in kind of the results from a top line perspective. Then when I look at full year guide, even at the low point of the guidance range for revenue, as you mentioned, Q4 is going to -- looks like it's going to be a quarterly record for you in terms of revenue. So just curious kind of what -- is there anything that slipped out from Q3 into Q4 timing-wise? And then if not, where is sort of the visibility around Q4 for that revenue kind of strength into year-end? Is that just product cycle-driven? Or are you seeing any new capacity being added in '26 starting to mobilize already in terms of material purchases here at year-end? Just trying to understand the Q4 strength. Brian Millard: Yes. Thanks, Brian. In terms of the Q4 guide, yes, your math is right that if we hit the low end of the guidance range, that will be a record. I think we posted $172 million of revenues in the second quarter of this year. So it would slightly north of that to hit the $650 million. And we continue to get forecasts from our customers on an ongoing basis. those are indicating that we're going to have growth in a strong Q4. So it's that information that's really giving us the confidence to put out the guide that we have. Brian Lee: Okay. Fair enough. And then again, at the low point of guidance, $650 million revenue or so you're basically flat year-on-year. And I know it sounds like Steve was saying at the beginning of the call, you're entering into a pretty encouraging backdrop of growth across all these new product categories and unit growth assumptions as well as capacity expansion. So how should we be thinking about sort of the growth trajectory off of the past 2 years where you've been kind of flattish into '26, what are some of the puts and takes? And as some of the, I guess, year-end weakness here in '25, is that potentially slipping into '26 here? Brian Millard: So there's -- as Steve mentioned in his prepared remarks, there's a number of things in terms of new capacity coming on in line next year that give us a lot of optimism about growth, not just next year but in the coming years across a variety of our customers, we've seen steady set of announcements over the last few years for new Gen 8.6 capacity with China Star as being the most recent. And in terms of the '24, '25 growth, there was a few onetime items in '24 that also made it a little bit of a challenging comp. And looking into next year, we certainly are projecting continued growth. Brian Lee: Okay. Great. Fair enough. Last 1 for me, and I'll pass it on. The LG display contract, I believe, that is up for renewal at end of the year. Any thoughts you can share around how those contract negotiations are faring? And then are there any potential implications for the blue commercialization time line from those contract negotiations? Brian Millard: So we're certainly in a dialogue with LG Display about a new contract. We fully expect there will be one we've been working with them for more than 15 years now. they're a long-term partner of ours. So we're in the process of finishing up those details in terms of the new contract. Operator: Our next question is from Mehdi Hosseini with Susquehanna International Group. Unknown Analyst: This is [ Manish mava ] on for Mehdi Hosseini. I just have 2 quick questions. First, so we just wanted to know like how much is Universal Display today as a percentage of the BOM cost for tandem display? And then in regards to phosphorus and blue when it does reach commercialization and gets adopted in volume, could you walk us through the impact it could have on your content per phone or your overall dollar content opportunity? Brian Millard: So on the first point in terms of our cost of the bill of materials, we are a very small portion of the bill of materials for displays, even single-layer displays and even tandem structures where there's somewhere between likely 1.5 to 2x the quantity of material in a tandem structure compared to a single layer. Even if you were to add a 1.5 or so factor on top of that single layer cost were still a very small portion of the overall cost structure of displays, regardless of whether it's smartphone or TV or what have you. On Blue, we certainly believe that phosphorescent blue has a premium price associated with it. We've been very consistent in that view. There's a significant investment we've made over many years of R&D resources and effort to bring it closer to commercialization. So we believe that it will be a premium to our ready green pricing, but still priced very reasonably such that it won't be a hindrance to adoption. Operator: [Operator Instructions] Our next question is from Martin Yang with Oppenheimer & Company. Martin Yang: I want to maybe dig into the end markets a bit more. with regards to your guidance, is there any incremental changes by end markets, for example, smartphones, ITs and TVs that gave you a different outlook for the year? Brian Millard: Martin, I think as it relates to this year, nothing noteworthy that's come up in terms of the specific end markets. Certainly, as we've previously discussed and as Steve mentioned on the call today, the IT market is where we see significant growth in the coming years with the new capacity coming online from our customers as well as OEM product road maps and their plans over the next few years to adopt more and more OLED displays across their product portfolio. We also, on the smartphone side, see foldables as a big opportunity for our business. certainly, the Square area being larger is compelling. This year, I wouldn't say there's anything abnormal that's come up on the foldable side, other than you continue to hear quarter after quarter more and more OEMs announcing increasing foldable models. And even if you're going the trifold route and previewing some of those tri-fold models. So as we head into the next few years, that's where we really see a lot of the opportunity for our business is the increasing surface areas and new form factors in smartphones as well as generally the IT market having greater adoption. Martin Yang: Next question on new capacity that are coming online in the next 2 years. What will be the helpful metrics to help us understand the capacity or the startup cost, the start of as how the material demand can impact your sales before they enter full commercial production? Brian Millard: So I think that there's always a seeding process that goes into turning on a new fab and getting it ready for mass production. We do see that routinely when new capacity comes online. In terms of data points to look for metrics, I mean it will certainly come through in our results when those orders come through. I think also our customers are getting obviously more efficient on an ongoing basis at how much material they need to use in each of those seating processes. But we would certainly expect to see some level of seating once those fabs are in preparation for mass production. Operator: This concludes the question-and-answer session. I would like to turn the program back over to Brian Millard for any additional or closing remarks. Brian Millard: Thank you all for your time today. We appreciate your interest and support. We're excited about the opportunities ahead and look forward to speaking to you next quarter. Operator: Thank you. This concludes today's call. You may now disconnect.
Operator: Good morning. My name is Steve, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Inc. 2025 Third Quarter Conference Call. This call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Vice President of Investor Relations, Mike Barker. Michael Barker: Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer, Kyle Larkin; and Executive Vice President and Chief Financial Officer, Staci Woolsey. Please note that today's earnings presentation will be available on the Events and Presentations page of our Investor Relations website. We begin today with a brief discussion regarding forward-looking statements and non-GAAP measures. Some of the discussion today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are estimates reflecting the current expectations and best judgment of senior management regarding future events, occurrences, opportunities, targets, growth, demand, strategic plans, circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, committed and awarded projects or CAP and results. Actual results could differ materially from statements made today. Please refer to Granite's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these forward-looking statements. The company assumes no obligation to update forward-looking statements except as required by law. Certain non-GAAP measures may be discussed during today's call and from time to time by the company's executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share and cash gross profit. The required disclosures regarding our non-GAAP measures are included as part of our earnings press releases and in company presentations, which are available on our website, graniteconstruction.com under Investor Relations. Now I'd like to turn the call over to Kyle Larkin. Kyle Larkin: Good morning. Before turning to our third quarter results, I wanted to highlight our most recent acquisition, Cinderlite, discuss how it aligns with our broader investment strategy and our commitment to deploying capital in ways to support growth and enhance shareholder value. In 2022, we introduced an investment framework that is designed to guide our investment decision-making from how we allocate CapEx to M&A and help drive margins and revenue growth across our existing businesses. This investment framework is anchored by 2 pillars, to support and strengthen and expand and transform. When we are assessing investments that are designed to support and strengthen our business, we are focusing on our growth competencies in our home markets. These types of investments include automation projects, new plants, aggregate reserves and bolt-on acquisitions that complement our vertically-integrated model. Since launching this framework, we've relied on it to assess and ultimately acquire a number of bolt-on acquisitions to support our strategy. In 2023, we acquired the Brunswick Canyon Court, an asphalt plant in Carson City, Nevada. This added 17 million tons of reserves and expanded our vertically integrated footprint in Northern Nevada. We then acquired Coast Mountain Resources in British Columbia, introducing the potential to barge 40 million tons of high-quality reserves salt to support our Pacific Northwest operations. This year, we added Papich Construction to bolster our California operations while also adding 40 million tons of reserves. Under the expand and transform pillar over the last 2 years, we've applied our investment framework as we build out our Southeastern platform with the acquisitions of Waymon Roberts, Memphis Stone & Gravel, Dickerson and Bowen and just recently at the beginning of the third quarter, Warren Paving. We are excited about our Southeastern platform. It is a high-quality and profitable vertically-integrated business with numerous opportunities for growth and further expansion. We expect to grow the platform organically with targeted investments to expand its distribution network, perhaps through the addition of more aggregate yards who by purchasing other strategic assets that will bring further capabilities to the platform. We also expect to build upon the Southeastern platform with M&A that will expand our footprint into new geographies and enable us to leverage the high-quality areas and distribution network of Warren Paving. Most recently, in early October, we announced our newest acquisition of Cinderlite, a well-established construction materials, landscape supply and transportation company based in Carson City, Nevada. Cinderlite operates 5 aggregate quarries and recycling yard and its operations are supported by a fleet of trucks and drivers. The acquisition complements our existing operations in Northern Nevada and expands our reach in a high-growth region. The acquisition adds approximately 100 million tons of aggregate reserves and an annual production volume at 975,000 tons, significantly enhancing our material reserve base in the area. These acquisitions reflect our disciplined approach to M&A, targeting high-quality material focused businesses that strengthen our vertically-integrated model and support long-term growth in line with our 2027 financial targets. Since 2021, we have more than doubled our aggregate reserves to a current total of approximately 2.1 billion tons for the full year of our acquisitions. We have increased aggregate production to approximately 25 million tons from 16 million tons in 2021. These investments have allowed us to increase Materials segment cash gross profit margin from 18% in fiscal year 2022 to 29% through the first 9 months of 2025. The progress has been tremendous, and we are excited to see materials become a larger component of our business. We continue to evaluate bolt-on opportunities to complement our operations and unlock synergies. Looking ahead, we'll also continue to evaluate investment opportunities to allow us to expand and transform our business by entering new geographies and building new vertically integrated platforms. We believe our disciplined approach to growth, grounded in our investment framework and supplemented with our operational excellence positions Granite to deliver consistent profitability and sustainable value creation for years to come. Now let's discuss our third quarter results, starting with the Materials segment. The Materials segment delivered an exceptional quarter, impressive growth on both the top and bottom line of our legacy business was bolstered by the inclusion of Warren Paving and Papich Construction for the last 2 months of the quarter. As I talk with our teams, I am encouraged that demand remains strong, led by the public market. I believe this environment should support volume growth both in aggregate and asphalt in the 2026 with orders as at the end of the third quarter, outpacing the prior year. Our Materials business has shown strong improvement in a relatively short period of time following our realignment to place materials experts in charge of materials business and centralized management functions, such as sales and quality control. We have made tremendous progress, but there's more to do to grow revenue and improve profitability in the segment from capital projects, including investments in aggregate plant automation and aggregate and asphalt plant efficiency to bolt-on acquisitions like Cinderlite to implementation of value-enhancing pricing across our geographies, I believe our materials business will continue to transform over the upcoming quarters and years. Now let's move to the Construction segment. We had another strong quarter with gains in revenue, gross profit and CAP. We ended the quarter with record high CAP and entered it with a new record high cap of $6.3 billion despite the third quarter being our highest revenue current quarter. This underscores both the strength of the market and the talent of our project pursuit teams. We remain focused on best value projects, which now represent a significant portion of our CAP. These projects allow us to collaborate with owners currently in the process, identify and mitigate risk and deliver work more efficiently. Best value delivery methods like construction manager, a general contractor or progressive design build are especially effective on complex projects. Our early involvement supports better planning, risk management and cost control. Larger best value projects are often broken into smaller work packages as they are collaboratively reviewed through workshops, allowing for more informed construction of the projects. These projects are generally completed faster and with significantly fewer claims than traditional delivery methods. While the timing of the construction portion of the best value projects can be difficult to predict, we've constructed more than 90 of them, and our confidence in the benefits of Best Value contracting continues to grow. In the third quarter, we had a number of projects ramping up, and I believe we should see revenue accelerate in the fourth quarter and into 2026 as these projects move forward. This continues to be the strongest market I have seen in my career. I believe we are positioned to grow our CAP portfolio and increase bid day margins in the fourth quarter and in 2026. With this market, I expect to achieve our organic growth targets of 6% to 8% through 2027. Now I'll turn it over to Staci to review our financial performance for the quarter. Staci Woolsey: Thanks, Kyle. We had an outstanding third quarter. Revenue increased $158 million or 12%. Gross profit increased $58 million or 28%. Adjusted net income improved $33 million or 36%. Adjusted EBITDA improved $67 million or 45%, and we ended the third quarter with year-to-date operating cash flow of $390 million. In the Construction segment, revenue increased $82 million or 8% year-over-year to $1.2 billion, driven by the recently acquired Papich Construction and warn paving businesses and our record CAP entering the quarter. Construction segment gross profit improved $22 million to $192 million with a gross profit margin of 17%. This 70 basis point increase is largely due to improved execution and performance across our higher-quality project portfolio. In the Materials segment, we continue to realize year-over-year cash gross profit margin improvement. In the third quarter, aggregate and asphalt volumes increased 26% and 14%, respectively, over last year, and the newly acquired companies added 1.4 million tons of aggregates and 177,000 tons of asphalt. The public market environment drove demand and supported price increases in both aggregates and asphalt. The Southeastern platform, including Warren Paving performed better than expected with pricing and volumes leading to a significant increase in asphalt margin in the quarter year-over-year. Through the third quarter, margin increases at the aggregates, asphalt and segment level are all ahead of 2025 expectations. We believe there are opportunities to continue to significantly expand the Southeast platform by leveraging Warren Paving's distribution network and driving further gains in margins. We plan to execute on these opportunities, both through strategic CapEx and through acquisitions. In addition, in our Western footprint, we expect to continue to strengthen our Materials segment and vertically integrated businesses through bolt-on transactions such as the recently acquired Cinderlite business. Turning to cash flow. I am once again pleased by our cash generation. We generated $290 million of operating cash flow through the first 9 months of the year. Historically, the third and fourth quarters are when we have seen the most cash generation as our teams are fully mobilized to project sites and working hard to progress projects before year-end. As expected, the third quarter followed this pattern, and I expect cash generation will also be strong in the fourth quarter, allowing us to surpass our operating cash flow target of 9% of revenue for the year. As of the end of Q3, cash and marketable securities were $617 million, and we had $1.3 billion of debt outstanding. With our cash and marketable securities, revolver availability of $580 million and strong cash flow generation, we remain in a great position to act on future M&A opportunities that may either bolt on to an existing home market or further expand our geographic footprint. While we will continue to be selective in our pursuits, I expect to achieve our goal of completing several M&A transactions each year. Now let's discuss our guidance for the rest of the year. As we stated previously, we expected an acceleration of revenue growth in the second half of the year with several projects ramping up. Some anticipated project starts shifted later into the second half of the year. And as a result, we are revising our annual revenue target to a range of $4.35 billion to $4.45 billion. This target contemplates a busy fourth quarter with increased organic growth, which will position us well for 2026. In addition, due to our strong performance through Q3 and work ahead of us in Q4, we are increasing our adjusted EBITDA margin guidance to a range of 11.5% to 12.5%. Finally, we expect CapEx this year to be approximately $130 million. On a long-term basis, we believe approximately 3% of revenue remains an appropriate expectation for our annual CapEx. Our annual guidance for SG&A as a percent of revenue of 9% and adjusted effective tax rate in the mid-20s are unchanged. Now I'll turn it back over to Kyle. Kyle Larkin: Thanks, Staci. I'll close with the following points. Our third quarter continued to demonstrate the strength of our people, the earnings power of our strategic plan and our vertically integrated model. We continue to grow CAP fueled by the public market at the federal, state and local levels. As I look at the bidding opportunities ahead of us over the fourth quarter and next 6 months, I believe we have excellent opportunities, skilled pursuit teams and proven relationships with our clients to continue to grow CAP and raise margins. While we have some work shift to the right, the quality of the work in our CAP portfolio as well as the opportunities ahead of us only strengthens my belief in being able to meet our growth and margin expectations in our 2027 guidance. Both our Construction and Materials segments are operating at a high level, and I expect further gains in the years ahead. The recent acquisitions of Warren Paving, Papich Construction and now Cinderlite demonstrate our commitment to executing M&A to both strengthen our existing markets and to expand into new markets. We have the financial capacity to act on M&A opportunities that should continue to drive cash flows and build our footprint. And my expectation is that we will continue to complete several acquisitions annually in the years to come. Finally, cash and cash generation remains a primary focus throughout the company. As in 2024, we are on track to deliver operating cash flows in excess of our target for 2025 and continue to drive significant shareholder value. Operator, I will now turn it back to you for questions. Operator: [Operator Instructions] The first question comes from Brent Thielman with D.A. Davidson. Brent Thielman: Yes, maybe you could just talk about the source of the first [indiscernible] you sound pretty positive but continue [indiscernible] opportunity. Operator: I'm sorry, Brent, your voice is not audible. Could you please come again? Brent Thielman: Yes. Can you hear me now? Operator: Yes, perfect. Brent Thielman: Okay. Sorry for that. Yes, Kyle, just on the strength of CAP, maybe you could talk about the sources that you're seeing there and it sounds like bidding opportunities are pretty fortuitous over the next several months, maybe quarters. Where do you see that coming from as you sit here today? Kyle Larkin: Well, I'd say that the overall market remains very strong. I think it's been that way now for a while. I think supported by the IIJA and our private markets. So we've seen that consistent theme now for a few years where we're just bidding more work, procuring more work and the margin associated with that work continues to improve. I think that's one of the drivers behind our margin expansion in the quarter. I think our teams are just doing a great job of bidding the right projects too and getting the right projects into CAP. I think we see that continuing. We expect our CAP balance to continue to grow in the balance of the year. And so for us to see a sizable increase in Q3, again, it's our biggest burn revenue month -- revenue quarter. based on low bids that we have today, some selections, depending on the timing of those awards, we expect to see our CAP balance continue to grow again nicely in the fourth quarter. So the market is really strong in all of our geographies. I would say, just a reminder, the IIJA will continue to see spend beyond its expiration in 2026. And we checked in with ARPA, the American Road Transportation Builders Association. And right now, it looks like the spend to date of the IIJA is around 50% through August. So there'll continue to be opportunities in the marketplace even beyond its expiration next September. So yes, the markets are healthy, and we think we're going to continue to build the CAP. Brent Thielman: Okay. And then I guess just shorter term in nature, but maybe what specifically is limited some of the conversion of this cap into revenue and you sound fairly confident in acceleration here in the fourth quarter. Maybe you could just speak on what you've seen so far? Kyle Larkin: Yes. Yes, we did speak on the last call about acceleration in the back half of the year. It is more weighted to Q4 than Q3. In Q4, we're looking at around an 8% organic growth rate in the quarter, which is a lot stronger than what we've seen certainly so far this year. And with the CAP that we have in place, we think that 8% growth rate organically is going to continue into 2026. So although we're not necessarily giving guidance yet for next year, but I think the way we're looking at it is an organic growth rate of 8% is pretty realistic as we go into the fourth quarter and into 2026. Operator: The next question comes from Steven Ramsey with Thomson Research Group. Steven Ramsey: I wanted to examine the guidance a little bit further, reflecting the better EBITDA margin. You called out materials orders and the high-quality project portfolio being the drivers of that. Can you talk about the balance of which of these 2 factors is the greater driver for the margin outlook? And given some of the work maybe is pushed out to next year, I would assume this bodes well for margins in 2026 as well. Kyle Larkin: Yes. Yes, that's right. And if you go back to earlier this year, we did expect this year to see margin expansion in both our Construction and our Materials segments. And we saw [indiscernible] in the quarter in construction in 2025, and we're trending ahead of that today. So our teams are just doing a really nice job getting the right work and executing at a high level on that work. And then we have talked before about a 3% margin expansion in our materials business. And we're trending a little bit ahead of that at product level. We're sitting right around 4%. So we're well ahead of where we thought we're going to be in 2025 based on margin expansion expectations. So that gives us a lot of confidence as we bridge towards 2027. So we have about 1.5% or so of margin expansion from an EBITDA perspective to get to the midpoint of that 13.5% in 2027. I would say we see about 1% still coming from construction. again, getting strong CAP, getting more margin on bid day and then really focused on operational excellence as we execute on those contracts. And we still believe there's another 3% or better margin expansion in our Materials segment. And of course, as we execute on these strategies within pricing, automation and just performing at a high level in our materials business by leveraging our materials playbook, we think that's going to be achievable. And what our team has been able to do so far in 2025 is right on, again, a little bit better, which gives us a lot of confidence that we're going to execute over the next 2 years towards that midpoint of 13.5%. Steven Ramsey: That's great to hear. Also wanted to stay -- keep in on the guidance, the operation -- cash flow from operations that is and the lower CapEx combination. First off, what is driving the upside to operating cash flow, and then when you think about reducing CapEx on a dollar basis, even with a larger base of assets, particularly more material assets from Warren, maybe share some on how you are adjusting the CapEx outlook for this year and the go-forward CapEx outlook, if I understand being lowered as a percentage of revenue? Staci Woolsey: Yes. Steven, I'll talk a little bit about the operating cash flow guidance first. We were able to achieve some claim settlements earlier this year and have some really good collections. And along with our steady operating cash flow just from our current operations, we've had -- we've been able to achieve higher than our target of 9%. And we think that, that will push us above the 9% target there. When we talk about CapEx, so we did have -- our original guidance was in the range of about, I think, $140 million to $160 million, which was a bit above the 3% target we talked about in capital allocation. And that included some strategic materials CapEx that the timing of that sometimes just shifts and also being very diligent and vigilant in looking at what types of investments we're making. And so some of that has shifted probably to next year. And so we were able to lower that CapEx guidance to about $130 million, that does include the new acquisitions of Warren paving and Papich Construction. So even considering those going forward, we still feel like about 3% is the right target. And occasionally, there will be some one-off things that are a little bit larger as we look at continuing to increase our materials reserves and other things like that. Operator: The next question comes from Michael Dudas with Vertical Research Partners. Michael Dudas: Kyle, share some observations you've had Warren and Papich in for about 2 months, I guess, 3 months now since the close. How do you like the aggregates on the river there, the opportunities that Warren provides you? And what are you seeing in their operations relative to best practice to what you could do through Granite? And is that really -- is that going to be a very good platform for you to focus on some of these forward integration and expansions in that market because it seems like there's a lot of demand and opportunity given your newfound strength positioning not only in the construction but the material side. Kyle Larkin: Yes. Thanks, Mike. It's a great question. And we're excited about where we're at with Warren and Papich. I think the integration so far has gone very well. And both of those businesses I think with Warren paving, we're excited because there's tremendous opportunities in that marketplace. And today, they're already exceeding the deal model in the first 2 months. And I think one of the things that we're seeing down in the Southeast is really, really strong aggregate demand. So it's a significant private investment that we knew was already taking place in the Southeast, and that's proving to be the case. And there's strong demand associated with data center infrastructure improvements and expansion and development. So we're already looking at ways that we can meet that demand. Now we have an extremely talented team at Warren Paving, and I get excited and we all get excited working with them because they have lots of ideas on how they can expand that business, increase production, expand their distribution network with yard managing costs and increasing internal sales. So we're just here to figure out ways we can best suppport them to those ends. And so we remain really excited about that opportunity and how we can best support and grow other business. Michael Dudas: I appreciate that. My follow-up is, Kyle, when you think about your best value or your CAP, you've really emphasized over the past several years, you talk about the timing of the preconstruction, construction design and full construction. Where are we in that cycle from say the -- that the contracts that you negotiated 3 years ago are they to the point where we could see some more conversion in construction? Could that be a tailwind for conversion for revenue backlog growth in the next couple of years? And how does that play out as we think about achieving some of the organic targets that you've put forth for the next couple of years? Kyle Larkin: Yes. I think -- I mean it's a good point. If you look at certainly where we are in 2025, that meaningful original guidance had our organic growth rate somewhere around that 6%. We're going to come in just underneath that. And next year, we're already seeing up towards that 8%, as I mentioned previously. Some of that is coming from the conversion of that cap and those best value projects. It can take some time to convert from the preconstruction contract into the construction contract. I know there's a few contracts that we'll be converting into construction contracts for 2026. And so that will help drive up that organic growth. So it's always hard to predict the timing of these things, sometimes these projects that are best value have some challenges. And that's why they're looking for a partner like us to come in and help them navigate some of those challenges. Some can be stakeholders. They're working with. It could be a city and there could be a county, it could be a railroad issue. And sometimes that reconstruction services can take more than the typical 2 years that we've talked about. There's actually a couple of contracts that we're looking at today. We've been in preconstruction for 4 and 5 years. So it can take a while to navigate through all those issues as we partner with our clients. And so I think that's going to help drive up that organic revenue growth in '26 and beyond. Operator: The next question comes from Kevin Gainey with Thompson Davis. Unknown Analyst: It's a good quarter. Maybe we can start with the guide and how you guys are thinking about both at the top and the bottom line from kind of the low end to the high end and what it would take to get to each? Kyle Larkin: For overall guidance, at this point, we feel pretty good about where we're at. Since we're through Q3 now, and we got our final Q4. I think the challenge for us and the opportunity for us in the fourth quarter always comes down to weather. I think that's one of the things that it can help us or hurt us, and we'll have to see how things shake out for the full quarter. So far in October, the weather has held and support of what we're trying to do. I think it's just going to continue strong execution by our teams in operations. And certainly, we have a lot of momentum through the first 3 quarters are performing at a high level. So we expect that to continue as well. So I think really, at this point in time, Kevin, it's going to come down to. Unknown Analyst: That's always the tricky part with Q4. Kyle Larkin: Yes, it is. Unknown Analyst: And then. Kyle Larkin: No, I'll turn it back to you, Kevin. Unknown Analyst: Maybe if we can talk about the organic materials segment and how that performed in the quarter? And how you're taking what you've got with Warren and how you might apply that there to maybe catch them up from like the standpoint of pricing and such any best practice there, too? Kyle Larkin: Yes. So far, we're actually pleased with our Materials segment in the quarter and the full year, as I mentioned earlier about the margin expansion. They've done a really nice job. Our teams have done a really as job expanding margins, just on track, a little bit ahead of where we thought we're going to be. Executing on that strategy, again, around pricing and the automation efforts and leveraging materials playbook. But we've also seen some nice volume increases. So we've seen mid-single-digit volume increases both on aggregate and asphalt. -- we expect it to be flat, slightly up, and it turns out we're going to be a little bit up in both. And it's also really nice to see that the orders are already up so far through Q3 and where we were certainly last year at the time. So I think these are pointing to continued volume growth in our Materials segment into 2026. So that's really good news. And hopefully, we'll see that private market start to come back a little bit stronger in '26, and that would continue to drive increased volumes in the year. So I think we also saw that our pricing increases help. So we saw some really nice kind of mid- upper single-digit price increases in 2025. We expect to see kind of mid-single-digit price increases in 2026. And of course, we're working closely with Warren. We're working closely with Papich. And we're as a collective team trying to figure out how we can leverage those same things, pricing, how we can automate some of those facilities and how we can leverage our materials playbook and learn from each other to just continue to get better. And that's going to allow us to get that additional 3% gross profit margin in our materials business, including Warren, including Papich through 2027. Operator: That was the last question. This concludes the question-and-answer session. I would like to turn the conference back over to Kyle Larkin for any closing remarks. Kyle Larkin: Okay. Well, thank you for joining the call today. As always, we want to thank all of our employees for the work they do every day. I would also like to take this opportunity to welcome our newest team members from Cinderlite. We're excited to have you on the team and look forward to building that together. Thank you for joining the call and your interest in Granite. We look forward to speaking with you all soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to Henkel conference call. [Operator Instructions] I will now hand over to Leslie Iltgen, Head of Investor Relations. Please go ahead. Leslie Iltgen: Good morning, and a warm welcome to everyone joining Henkel's Q3 2025 Results Conference Call today. I'm Leslie Iltgen, Head of Henkel's Investor Relations. Today, I'm joined by our CEO, Carsten Knobel; and our CFO, Marco Swoboda. Carsten will begin with an overview of the key developments and highlights in the third quarter. Marco will then follow with a more detailed review of the company's financial performance. As always, following the presentation, we will open up the lines and Carsten and Marco will be happy to take your questions. Before handing over to Carsten, please let me remind you that this call will be recorded and a replay will be made available on our Investor Relations website shortly after this call. By asking a question during the Q&A session, you agree to both the live broadcasting as well as the recording of your question, including salutation to be published on our website. Also, please be reminded that this presentation contains the usual formal disclaimer in regard to forward-looking statements within the meaning of relevant U.S. legislation. It can also be accessed via our website at henkel.com. As always, the presentation and discussion are conducted subject to this disclaimer. With this, it is my pleasure to hand over to our CEO, Carsten Knobel. Carsten, please go ahead. Carsten Knobel: Thank you, Leslie, and good morning to everybody. Warm welcome also from my side joining our conference call today. As always, we do appreciate your interest in our company, and we look forward to answering your questions. Walking you through the key developments in the third quarter, we will elaborate on Henkel's business performance and the full year outlook in more detail. So let me move straight to the key topics and the highlights of the third quarter. In Q3, we saw a clear acceleration in our top line development. Both business units recorded positive organic sales growth in the quarter. Starting with Adhesive Technologies, they show the positive price and volume development. The latter being supported by a partial reversal of the negative working day impact we had seen in the first half as well as by a continued strong performance in Electronics & Industrials. Consumer brands showed a positive volume development in the third quarter, which is encouraging to see. Also, the merger is in its final stages and we will have successfully concluded the transformation of this business unit by the end of this year. And with that, clearly 1 year ahead of plan compared to what we had originally expected when we started this journey. From a regional perspective, North America stood out with good organic sales growth supported by both business units. Further, I can also confirm that we continue to see a strong gross margin and the bottom line development. In regards to share buyback, we are well on track, having executed around EUR 700 million as of end of October. And finally, when it comes to our full year guidance, the ranges remain unchanged. Let's now take a deeper look into our Adhesive Technologies business where global megatrends like sustainability, mobility, connectivity, digitalization and urbanization create ample opportunities for further growth and allow us to drive customer-driven innovations across many different industries and applications. And more specifically, I would like to do a deep dive into the field of electronics today and showcase how these global mega trends translate into attractive growth opportunities with the solutions we offer. Driven by key industry trends, such as the rise of AI, new ways to construct devices and components or even regulatory changes, such as the introduction of the right to repair, the different markets and industries where our electronic solutions came into play are undergoing a significant transformation. We can clearly observe how the scope and the value of material-based innovation is expanding. The rapid advancements of artificial intelligence, where we enable cutting-edge solutions for globally leading industry players, the evolution of component and device design, which leverages our materials expertise or the increasing regulatory focus on sustainability, which we facilitate through debonding technologies. These are only a couple of examples. Overall, Electronics Solutions are expected to show a high single-digit market growth potential in the coming years. We are strategically well positioned to capitalize on this momentum through our comprehensive and diversified portfolio in Electronics Solutions across industries. A prime example is our Semiconductor Packaging business, which is forecasted for long-term exponential growth. To illustrate the breadth and the impact of our offering, I will now highlight 1 representative solution from 3 of our key -- from our 4 key segments: Semiconductor Packaging, Consumer Devices and Industrials. The immense rise of generative AI is reshaping the data center as well as the semiconductor landscape. As AI becomes more compute intense, there is a sharp rise in demand for advanced packaging, interconnects and thermal solutions that can support high-performance systems. Our portfolio addresses these needs with cutting-edge materials for thermal dissipation, electrical protection and high reliability bonding, critical for next-generation GPUs, CPUs and memory modules, especially optical transceivers. These solutions are already being deployed by a globally leading semiconductor and data center players, helping them scale computing power, reduce cooling costs, and enhance system reliability. These positions -- or this positions us for double-digit growth through 2030, aligned with industry forecasts for AI-driven data center expansion. Looking at Consumer Electronics. The push towards frameless immersive displays is driving demand for innovative materials that support flexible and edge-to-edge designs. Our proprietary potting solution for flexible display protection directly addresses this trend. It enables manufacturers to reduce bezel size, unlocking more active display areas, which is a significant gain in user experience and device aesthetics. Furthermore, it does not only improve design capabilities, but also increases device protection, enables a faster and simplified manufacturing process and even contributes to environmental responsibility by reducing the amount of conventional molded plastics and reducing CO2 emissions in manufacturing. This solution has rapidly gained traction, scaling to a double-digit million euro business within 2 years, outperforming market expectations and reinforcing our leadership in display material innovation. And coming to our last example within Adhesive Technologies, the evolution of camera modules. The camera module market is experiencing rapid growth across several industries. This surge is driven by the rising demand for advanced imaging, especially in consumer devices and automotive applications. Adhesive Technologies is well positioned to support this evolution with the most robust total solution portfolio in the market. Our offerings cover all critical aspects of camera module and sensor assembly from lens bonding, active alignment and underfill to lens barrel attachment. These solutions don't only enhance functionality but also significantly improve reliability. In automotive, for example, our one-step UV curve lens bonding technology enables our customers to reduce CO2 emissions and decrease manufacturing time, whereas traditional processes needs 2 steps in manufacturing. Ultimately, this is a leading -- well, this is leading to a double-digit growth for consumer devices and automotive camera solutions following the market projections through 2030. And now moving to our Consumer Brands. I would like to highlight that by the year end, we will have successfully concluded the merger and with that, the transformation of this business. We fundamentally reshaped our business, streamlined our organizational setup, actively shaped our portfolio, optimized our supply chain and enhanced operational excellence globally. All of this was achieved 1 year earlier than originally anticipated at the time we announced the merger. And accordingly, we are well underway to reach the targeted net savings of at least EUR 525 million by end of this year. Overall, we significantly improved the quality of the business across multiple dimensions, while at the same time, investing clearly more behind our brands. We have successfully built a strong multi-category platform with enhanced efficiency and competitiveness. For example, we materially improved our rankings in FMCG relevance in terms of size in Europe. In addition, the retailer perception rating in the U.S. significantly improved, which shows that we clearly strengthened our retailer partnerships. Overall, this demonstrates that we develop towards a more stronger and more relevant player in the industry. We have thus laid the foundation for solid, sustainable and profitable growth in the years to come. In Laundry & Home Care, we are a strong global player with leading brands. In Laundry, we are ranked #2 globally in our active markets. We are shaping the future of laundry by focusing on selective strategic growth opportunities in key categories and also iconic brands. We are also leveraging our technology leadership to drive differentiation and value. In Home Care, we are ranked #1 globally in our active markets. We are driving market leadership by combining our investments with advanced technologies and setting new standards in dishwashing and toilet care. Two good examples of how we leverage the growth opportunities with our top brands in Laundry Care are Persil and Perwoll. In Q3, Persil delivered positive growth driven by strong volume contribution. With the new Persil Giant Discs, which of course, also include the trusted Persil quality in combination with its innovative triple action deep clean formula, we address the need to meet modern laundry demand with heavy loads, tougher stains, malodor control and brightness boost of vibrant clothes. Each disc delivers 2x the cleaning power of regular detergent and enables efficient laundry care with fewer discs. In the first step, the Persil Giant Discs were introduced in selected markets in Europe, including countries such as our home market in Germany, Belgium, more countries will follow in the coming months. Beyond value-adding innovations, Persil also stands out for its pioneering brand communication. Just recently, we launched our first generative AI-powered TV commercial in Germany, reimaging Persil's iconic, lady in white for a new era. This makes us a frontrunner and underlines our leading position in the laundry market. So let's take a look at the spot. [Presentation] Carsten Knobel: In Fabric Care, Perwoll is our #1 brand and a great example for successful brand development, delivering double-digit growth in Q3 with balanced price and volume development. This performance is an excellent example of how we drive brand equity based on tech-driven innovations. We have constantly expanded our formulation portfolio with several different formulations, serving specific customer needs. And just recently, we launched the first Fabric Care product for all light colors, including white clothes based on our innovative triple renew technology. This innovation has further strengthened Perwoll's market-leading position with a presence now in over 40 countries. The key growth driver is our strategic focus on addressing geographical white spots, and further expanding our global footprint, including recent country rollouts in Egypt, the U.K. and South Korea. These initiatives have delivered strong benefits including market share gains of 190 basis points year-to-date in Fabric Care. And with this, turning now to our top 10 brands. We continue to see strong growth momentum. In the third quarter, our top 10 brands delivered strong top line growth with both positive price and volume development. Our top 10 brands have been outperforming the total business unit's organic sales growth year-to-date by around 300 basis points, driving a continuous increase in the sales share, which now accounts for around 60%. We will continue to invest in innovations and in brand equity. And in this context, tech-driven innovations are key in order to enhance the valorization of our portfolio in Consumer Brands and drive further top line growth, and we are keeping up with the appropriate investment levels behind our brands in order to fuel further growth. And now turning to our full year outlook. The guidance ranges remain unchanged. We continue to expect that both the adjusted EBIT margin as well as the adjusted EPS growth at constant currency will be well within our current outlook ranges. However, in case there is no noticeable improvement of the economic environment until year-end, organic sales growth for the group is expected to come in at the lower end of our current guidance range. This would, by the way, already broadly correlate with current consensus expectations. And with this, a good moment now to hand over to Marco, who will lead you through the key financials in more detail. Marco? Marco Swoboda: Yes. Thanks, Carsten, and good morning to everyone in the call also from my side. Bidding on what Carsten already shared, let me provide some more color on the drivers of the group sales performance in the third quarter of fiscal 2025. We achieved organic sales growth of 1.4%, which was driven by positive volume development, while pricing was stable and more on the business unit related specifics, certainly in a minute. Acquisitions and divestments reduced sales by 2.9%, reflecting the recent divestment of our retailer brands business in North America. FX was a headwind of minus 4.8% in the third quarter, reflecting, in particular, the weaker dollar and the related currencies. In nominal terms, sales amounted to EUR 5.1 billion, thus 6.3% below the prior year. Now to the drivers in the respective regions. Starting with Asia Pacific, where we achieved very strong organic sales growth of plus 4.9%. The Adhesive Technologies business delivered a very strong increase, which was particularly driven by the continued growth dynamics of our Electronics business in China. The Consumer Brands business recorded positive growth, which was fueled by very strong growth in Hair. India, Middle East, Africa showed double-digit growth of 10%, and that was supported by both of our business units. In Latin America, sales were below prior year due to weaker performance in Adhesive Technologies. In contrast, Consumer Brands reported positive growth driven by a very strong increase in Hair. In Europe, sales came in at minus 2%. Adhesive Technologies was slightly below the prior year. And while Craftsmen, Construction & Professional achieved positive growth, Mobility & Electronics as well as Packaging & Consumer Goods were down year-on-year. Consumer Brands recorded a negative development, reflecting the continued challenging market environment, particularly in the Laundry & Home Care, while Hair showed good growth. Moving on to North America, where we achieved good growth of 2.3%, a clear sequential improvement versus Q2. This was supported by both of our business units. The good development in Adhesive Technologies was driven by Mobility & Electronics as well as Craftsmen, Construction & Professional. The Consumer Brands business also reached good growth, which was fueled by a very strong increase in Hair while Laundry & Home Care came in flat. The Professional business also grew very strongly, reflecting a clear improvement in the region. Turning now to Adhesive Technologies in more detail. We reached sales of EUR 2.7 billion in the third quarter of fiscal 2025. Organic sales growth was 2.5% with positive pricing and good volume growth, which was supported by a partial reversal of the negative working day impact, which we had faced in the first half of the year. As expected, Adhesive Technologies showed a sequential improvement with good organic sales growth in Q3 in a still demanding environment. Pricing remained in positive territory, which again reflects the strength of our market position globally and the broad portfolio serving a broad variety of different industries. We saw the highest volume growth in Q3 when comparing this year's quarters within a still demanding market environment, albeit being supported by a partial reversal of the negative working day impact, which had impacted volumes in the first half. Regarding the remainder of the year, we expect volumes to remain in positive territory, while pricing is expected to remain robust. Let me now turn to the performance in the individual business areas, where we saw different dynamics. Mobility & Electronics was again the main growth driver with a very strong increase of 5.9%. This increase was mainly driven by continued double-digit growth in Electronics and very strong growth in Industrials. This could more than offset the still muted performance in Automotive, where we continue to see a challenging market environment. Packaging & Consumer Goods came in slightly below prior year. And while Consumer Goods showed positive growth, Packaging was negative due to overall lower demand. Craftsmen, Construction & Professional delivered organic sales growth of 2.2%, and that was fueled by strong growth of manufacturing and maintenance, good growth in Construction and positive development in Consumer and Craftsmen. Now moving to Consumer Brands. The business generated sales of EUR 2.4 billion, organic sales growth came in at 0.4%, driven by positive volume development, while the overall pricing effect was negative. In Q3, volume development returned to positive territory, marking a strong sequential improvement and driving positive organic sales growth. Pricing was slightly negative, particularly due to Laundry & Home Care, which also reflects the currently challenging environment with regards to consumer sentiment, while pricing in Hair was in positive territory. Encouraging to see was a sequential acceleration of organic sales growth in North America, which was also mainly driven by Hair. Last but not least, we will continue with our strong investments behind our brands to fuel growth. Now turning to the performance by business area. Laundry & Home Care reported organic sales growth of minus 1.5%, reflecting a challenging market environment. Home Care posted an overall stable development with still very strong growth in the Dishwashing category. Laundry Care was negative due to fabric cleaning, while Fabric Care delivered double-digit growth supported by top brands such as Perwoll. What clearly stood out within Consumer Brands was the very strong growth in Hair, which was driven by both the Consumer and the Professional business. The very strong growth of the Consumer business was driven by coloration and styling. Our professional business also grew very strongly, supported by a clear improvement in the North America region. Organic sales growth in other Consumer businesses remained below the prior year due to Body Care in North America and Europe. As Carsten already mentioned earlier, the ranges of our sales and earnings guidance for 2025 remain unchanged. We continue to expect that both the adjusted EBIT margin for both the group as well as the 2 business units as well as the adjusted EPS growth at constant currencies will be well within our current outlook ranges. However, in case there is no noticeable improvement of the economic environment until year-end, organic sales growth for the group as well as for both business units is expected to come in at the low end of our current guidance ranges. This would, by the way, already broadly correlated with current consensus expectations. Our expectations regarding foreign exchange, acquisitions and divestments impact direct material prices, restructuring expenses and CapEx for fiscal 2025 remain unchanged. With that, back to you, Carsten. Carsten Knobel: Marco, thank you so much. I would like to conclude today's presentation by summarizing the key highlights of the quarter. First, we saw a clear acceleration in our top line development with both business units recording positive organic sales growth in the quarter. Adhesive Technologies continues its trajectory of consistent robust growth despite the challenging environment we are navigating. Consumer Brands reached positive volume development in Q3 and positive organic sales growth. The merger is in its final stages, and we will successfully conclude it by end of the year. And with that, clearly ahead of plan compared to what we had originally expected when we started this journey. And from a regional perspective, North America stood out with good organic sales growth supported by both business units. Second, also encouraging to see is the continued strong gross margin and bottom line development. Third, in regards to our share buyback, we are well on track having executed around EUR 700 million at the end of October. And finally, when it comes to our full year guidance, the ranges remain unchanged. And with that, back to the moderator for the Q&A. Operator: [Operator Instructions] Our first question comes from Guillaume Delmas from UBS. Guillaume Gerard Delmas: I've got a couple of questions, both on Consumer Brands. The first one is on pricing development in the quarter because it turned suddenly negative. So maybe to start with, is it something you had been planning for some time? Or was it more in reaction to a more challenging consumer maybe competition environment? And from a category and region point of view, was this negative pricing quite broad-based or just mostly down to a few specific country category combinations. And lastly on this, what would be the outlook? So as in negative pricing to stay in the coming quarters? Or was this just a one-off? And then my second question is on your 2025 guidance specifically for Consumer Brands organic sales growth. So you flagged low end of the organic sales growth range likely. But even the low end of the range would imply a mid-single-digit performance in Q4. That would be a very significant sequential acceleration. So just wondering what the drivers should be for this marked Q4 step-up? And if what you achieved in October supports this mid-single-digit organic sales growth ambition? Carsten Knobel: Guillaume, that was more a speech than a question, but happy to take the question. So we start with your pricing topic. I will take that and Marco will then take the question related more to the guidance also related to the top line. So let's get started on the first one. So first of all, Guillaume, we had really a good Q3 in HGB with really positive volumes. You know that's the first time in this year. And we have seen really a sequential improvement. As also projected, we started with a minus 5% we had in Q2 the minus 1%. We are now at plus 1%. And therefore, I think we can be really happy with that development first. And second, we also expect that the Q4 will be stronger than the Q3, not only related only to volume, but also especially related to the total OSG in that context. For sure, there is a pricing which is negative in the quarter, but we should not only look at 1 quarter because if you look at the pricing year-to-date, we are with pricing year-to-date in positive territory, and we also expect pricing to remain positive -- in positive territory for the full year. So we will not guide on a specific quarter between price and volume. But as I said, that is very clear. The pricing now specifically maybe to Q3, why is the pricing lower? It is particularly more related to Laundry, so not to all categories because that was also part of your question within our portfolio. Home, Hair, be it Consumer, be it Professional is in the territory of neutral to positive when it comes to pricing. So in that context, this is more Laundry related. And within Laundry, it is also more Europe related. You may have -- you noticed that and you know that after, I would say, a little bit better consumer sentiment in Q2, the consumer sentiment, especially turned down again in Q3, and that is also related to the consumer behavior. And in Europe, you know that private labels are more outspoken. And in that context, that was for sure was a little bit more there. And on top, the market overall in Laundry was negative, not related to Henkel, but in the overall context. And yes, we also took normally, which was also planned. As we said, second half will be stronger than first half. That was not only related to top line but also related to innovations and also customer-related activities. So therefore, we have also some selected promotions, which are more outspoken in the second half than in the first half, but this is -- because you also had the question, is it planned or reactive? That is, as I said, already we planned because we talked already about that at the beginning of the year. And on top, as it's also very clear, there is no change in our valorization strategy. I think that is something which is part of our strategy since the beginning. I think I have highlighted that also again today with the example of Perwoll where we, based on the valorization took quite significant also price increases. And we are confident that we have a good portfolio. I alluded to our top 10 brands and the percentage around 60%. And the good growth, not only in an individual quarter but also year-to-date with a good balance of price and volume. I stop here. And in that context, now I hand over to Marco because your second question was related to the overall outlook for top line for the full year, respectively, for quarter 4. Marco, please. Marco Swoboda: Yes. So to the drivers of Q4, what we assumed here. So first, you need to see that we do have easier comparables in the fourth quarter when you then compare that in particular also with Q3 and the quarters before that. So comps is one topic. And then as we highlighted earlier, we're going to -- we do see more of our innovations hitting the second half of the year, and we said that also before, that is even more geared towards the fourth quarter. So also here, assumption around our strong launch and relaunch activities is behind. So we have activities going on for Vidal Sassoon in China, for example, or even in Persil, we talked about the Giant Discs and also around activities of Perwoll and Gliss. . And promotional activities is the next driver, of course, that we start to accelerate. So should see also more traction on that in the fourth quarter. And then also some pricing that we do expect in Q4, especially in emerging markets. Of course, there's still a lot of volatility around, and we talked about the consumer sentiment volatility earlier, and that's why we did also flag uncertainties around that. Operator: The next question comes from Patrick Folan from Barclays. Patrick Folan: Just going back to the question on promotional activity stepped up in the period. Should we expect this to be something that comes through more in Europe in Q4 and maybe in 2026? And I guess, sticking with kind of Consumer on -- we're looking at October, I'm under the impression that you had some launches that came out in the period. How have they gone? Or do you have any exit rate on the performance within those launches? And just sticking within Consumer, you talked about the top 10 brands making up 60% of your portfolio, which you guys have been talking about throughout this year. Can you maybe share some color on how you plan to improve the remaining 40%? What are the drivers there to get that improving to drive the overall portfolio forward? Carsten Knobel: Patrick, so to the first one, as I mentioned before, we had already planned, as I said, that the second half should be more outspoken in terms of top line than the first, which was mainly related to our activities, which we had planned and where we clearly stated these are more back-end loaded means more pronounced in Q3 and Q4, and that's also happening. That's also the point that we have seen also a better volume development in Q3. And again, I said it's selective promotions. There is no strategy change. And for sure, this is related to the innovations we are taking in Q3 and Q4 and in order to support that, we have done that. For 2026, because that was also your question, please understand that I'm not talking today about that. We are -- for sure, we have clear ideas and plans how to do that, but I would like to state a little bit on that when we are beginning of the year in terms of announcing also the guidance for the year in that part. The second part of your question was related to the top 10 brands. First of all, yes, we are investing quite significantly behind the top 10 brands, means investments in R&D, means investments in marketing. Consequence is, for sure, focus on innovations related to the top brands. They also continued in Q3 to deliver above-average growth. And as you mentioned rightly, the sales share has significantly increased over the last years, and we will work continuously to increasing that top 10 brand share also in the future. When it is related to the other 40%, I think part of that is also related to our portfolio strategy. And I said that we have certain categories which is mainly related to our Body Care part in the -- besides the top 10 brands, which is core, but it's not the investment case. It is in a clear portfolio, more a cash cow. And in that context, it delivers quite significant support when it comes to gross margin, absolute gross margins in order to invest in our focus areas. And therefore, that part will always remain. And for the other part, it is like we have done that now over the last couple of years. We look at our portfolio constantly. And if there is no change in performance, we will take respective measures as we have taken, I would say, very clear and straightforward in the last couple of years. And on top, you know that the Laundry segment is currently facing a more pronounced competitive environment, also related to the point I made before that the market overall is negative in the context of the consumer sentiment, which is impacting consumer behavior, which is also a more trend in the direction to private label-oriented brands. But from my point of view, as I always pointed that out, that's a temporary development. If sentiment comes back, I would significantly see then also a shift again towards the branded labeled businesses. Patrick Folan: Just following up on that, just on private label. Can you maybe share where you're seeing the pressure in private label? Is it mainly Europe or any countries specifically you want to call out? Carsten Knobel: No, as indicated before, it is predominantly in Europe. The private label share in Europe is around 20%, and that's something which you don't see in any other region in the part when it comes to Laundry, yes, that is pure Laundry. Operator: The next question comes from David Hayes from Jefferies. David Hayes: So my question is on the margin but short term and long term. So just on the short term, you look at the Consumer challenges that you talked about. And so the beginning of the year, you were thinking Consumer could do up to 3% organic. Now you're targeting 0.5%, but you're still well within -- as you said in the release, well within the ranges on margin and earnings. So just trying to understand what is offsetting that challenge, particularly on pricing, how is the margin still well within the ranges that you started with at the beginning of the year? And then I guess, secondly, on the longer-term on margin, are you still confident with these pricing pressures that the trajectory hasn't changed to get to 16% plus as you've talked about previously? Or these challenges continue, is that something that you'd have to kind of capitulate on and take longer to get there? Carsten Knobel: So related to the short term, I think what we clearly said today is that we are confident in both businesses for the margin situation that we will be well within the ranges we have been setting up. And the main reasons behind that is predominantly in the Consumer space, it is the net savings we are taking out of the merger situation where I clearly pointed out, we will at least reach the EUR 525 million until the end of the year. A year earlier than expected. That does not mean that in '26 there will be nothing more coming. I'm only saying, we know we reached it significantly earlier. We have efficiency gains in both divisions when it comes to the production setup, the supply chain setup, which we are predominantly driving, again, also in the second phase of the merger, but also relevant for our Adhesives business. And the valorization part is also very clear. I mentioned it before, valorization brings a significantly higher gross margins. But the good thing behind is that we can invest significantly more behind our brands. And by that, also looking now to your long-term question, bringing our long-term, I would say, investment in terms of brands into the right direction. And last but not least, it's the mix effect, which is also again valid for both businesses. In the context of Consumer, it's more related to the really fantastic development in Hair, in Consumer and in Professional. And in Adhesives, for sure, I was relating to the Electronics part not only for today, but also the prospects into the direction of 2030. So all of that is not only related to short term, but also to long term or better to say midterm, that we will reach the margin of around 16%, which we, I would say -- not that I would say, which we concluded in 2024 that we will reach that to a midterm means 2 to 4 years, average is 3 years. So we are on the right track. And if you look over the last couple of years of our margin development is continuously improving that. Operator: The next question comes from Christian Faitz from Kepler Cheuvreux. Christian Faitz: A couple of questions, please, from my side. In Adhesives, would you see any remarkable sales or order trends at this point in time in Q4 that your salespeople are suggesting that are different from Q3, i.e., pickup in Automotive demand or something like that? And then on the Consumer side, I mean, I understand the negative trend in Laundry, consumers trading down to private labels, particularly in Europe. But certainly, congrats on the strong results in Hair within Consumer. But why are Consumers not trading down also on Hair? Or is that really your innovative portfolio versus a lower base that's driving that? Carsten Knobel: Christian, thank you for these 2 questions. I take the second one, which is related to your Consumer part. And I'll let Marco talk about the Adhesives part in terms of when you said the sales and the order trends in Q4 if they are different to Q3. So when it comes to Consumer, I cannot -- sometimes it's difficult to talk about history. But the Laundry segment, at least since I'm in business, and that's now since 30 years, that was always the situation that in that context, private label was, yes, especially in difficult times, quite strong or existing. Why is it not in here? Difficult to predict. The main reason, I would say, is for sure, the situation that, especially if you think about color, coloring your hair and also styling your hair, you are visible outside or from the outside. And I think that's something where people have a lot of loyalty and also want to have a lot of security and certainty that what you would like to see yourself on your body is -- or in that context on your head on your hair is something where you have security that you get the results you want. And on top, coloration is not an easy thing from a technology perspective and therefore, also quite high entry barriers to get into that business. That has also been the case that you don't see private labels even not being able to get into that technique or technology. That's -- this is for me, the major reason why you don't see that in these categories. And therefore, we are more than happy and also lucky that we are in the Hair business. That we're one of the, I would say, most outspoken worldwide players in that context being the clear -- now in the meantime, the clear #2 in the professional business of hair after a company which is located in Paris or in France. And I think we will continue to drive that trend and also very happy with the current results with over proportional growth. I would say I stop here and hand over to Marco for the Adhesive question. Marco? Marco Swoboda: Yes, Christian, to your first question on Adhesives and sales trend. I mean, it's clear we said it's a very volatile environment. So that's why sometimes we say what is the trend is not easy to say. But when you look at the group, what has remained very strong over the whole year, that is, of course, the Electronics part, and that has developed very nicely and the more difficult environment, for sure, we face in the Automotive sector. And from that perspective, the trend is not what we see very much different beginning of the Q3, but also we just are in the beginning of the Q3, quite obviously. And when you look at those trends, also now looking more then, of course, longer into the future, you see also that general trend hasn't much change yet. So still the volatility and uncertainty is seen also in the industrial markets. When you look also at the IPX forecast for 2026, for example, at the moment, IPX is expected to come in at around 1.7%. If that is so, that would be even below the level of 2025. But we also know that the IPX also is very volatile in the expectation, but that shows also at the moment, it's very difficult to identify a clear trend. And even for 2026, it's supposed to be a muted industrial environment for the time being. And the same is in particular true for the sub-index of the light vehicle production index for 2026. On the other hand, I see no indication that Electronics and also our Industrial business environment shouldn't continue to grow. So these trends even seem to persist until into 2026. We are in overall, of course, confident on our performance of the teams and see also the resilience of our businesses. And in so far, of course, we're going to make up our mind beginning of next year, how that will evolve together with also the latest news on consumer sentiment that, of course, we will then look at and come out like always with the guidance for next year in March. Operator: The next question comes from Tom Sykes from Deutsche Bank. Tom Sykes: Just 2 quick ones. One on the Adhesives business. How big now is the services side of the business? Or if you like, the total that's kind of non-strictly volume related and what's the growth of that be, please? And then just is it possible to expand a little on your productivity comments in Consumer because obviously, you have had this outsized productivity gain. Do you think the setup now is something which you can produce year in, year out, slightly higher productivity than you did do prior to the merger? Or is it a period where you do get some productivity gains, but they may be a little lower because you brought some of those forward, please? Carsten Knobel: So to your first question, Adhesives, I assume when you talk about services, you mean or you relate that to the point where we have now significantly invested in the last 1.5 years in the so-called MRO business, maintenance, repair, overall business. If you look at that, it's around 20% of the business overall. And what is for me very promising, we bought these 2 companies, Critical Infrastructure and Seal For life, I think on 2 reasons. First of all, to create a new category for us. We had a certain business on that, but we wanted to make it significantly bigger. This we reached with that. That's one. But the even more important question is we are here for our purposeful growth agenda, means we want to overproportionately grow. And I think that is happening. Both acquisitions, if we take them together, year-to-date are growing double digit. And I think that is in the context of where we are in. You just heard Marco describing the industry sentiment with an IPX of around 2% in this year and also not a significantly different situation of next year with currently a forecast of 1.7. I think it's very good to have these outstanding categories like MRO, but also like Electronics in that context. So that's for your first question. The second one was related to productivity gains, especially in the Consumer business. Here the point is that we did quite a lot in the last couple of years. You know that we splitted our EUR 525 million in 2 phases, EUR 275 million related to phase 1 and around EUR 250 million in phase 2. And I mentioned it before, we are not only well underway. We're really, really over-delivering on that. And we expect, for sure, also further gains. But of course, for sure, in a lower dimension as in the last couple of years. And I mentioned before, even for 2026, we will significantly be higher than the EUR 525 million what I mentioned before. And therefore, it's really -- we are really on a good track record when it comes to creating additional savings on that. We have around 40% SKU reduction. We have more than 20% of complexity reduction, taking SKUs out, streamlining the processes. And we will also, in the next couple of years, benefit from that part. As I mentioned before, you cannot expect the same pace in the context of what we did since 2023. Operator: The next question comes from Mikheil Omanadze from BNP Paribas. Mikheil Omanadze: I have 2, please. First, could you please maybe provide some color on the strong Hair delivery and quantify retail and salon growth. Was there anything of one-off nature helping during the quarter? Was there maybe some moves of inventories at retailers or distributors which helped that strong number? And the second question would be on raw materials. As we look into 2026, are there any noteworthy moves on your key inputs that we need to be aware of? Carsten Knobel: Yes. So I take the first question related to Hair and Marco takes the second on the raw materials. So I mentioned it before when I talked in the context of Tom's question. So the Hair business is really a fantastic business we have at hand. For sure, we don't know that only since today, but really that was also in our portfolio discussions, one of our key focus areas and by that, trying to get our global category lead in Hair further improved. You're specifically asking for the current performance. So the Hair business showed a significant sequential acceleration versus Q2, reaching a very strong growth in the quarter, above 4%. The Consumer business posted a very strong growth in Q3 with the strongest contribution from color and styling as the 2 categories. Styling was very strong in Q3, especially driven by Europe and a double-digit growth in North America and hair colorants same with significant growth in Europe and double-digit growth in EMEA. So that is the one. The Professional business, also a very strong quarter in Q3 where almost all regions were contributing positively. And we were -- and we saw a very strong growth in North America and double digit in LatAm. And I have to tell you out of my personal travels, I recently visited our U.S. Professional business in Los Angeles, where the headquarter is and which stands for a significant part of our Professional business worldwide. And I can only tell you, we're working here with a couple of brands, but it's really a great brand setup, a great setup overall. And I'm really very confident that's also what I would like to get across that this business is not only good today, but there's also a very bright future going forward. And as you know, we have over proportionately gross margins on that business, which is also very helpful in our portfolio transformation or in our valorization strategy. So I'm very positive about that with a very strong performance also today or year-to-date. Hope that helps, Mikheil, and now hand over for your second question when it comes to raw materials. Marco Swoboda: Yes, to raw materials, is sure the volatility in the market is strong. So there's some caveat to, of course, what we do see for next year. But broadly, what trends we see is for 2026 somewhat similar to this year. We see on the petrochemical feedstock side, that shall remain rather flat. So no significant increase, no significant decrease. While on the other hand, natural feedstocks for example, palm kernel oil, we expect a rather upward trend also to continue into 2026. . And then on the precious metal side that -- where we have seen quite some upward trends and that may continue. That is was suggested by the expert opinions for the time being. But I also need to point out that on the precious metal side, that is rather a pass-through on our end, so will not impact really our margin. So that's what we currently see for the market. Carsten Knobel: And with that, let me thank you for your questions. And let me also close today's call with reminding you of the upcoming financial reporting dates. We are looking forward to connecting with you again in March, to be precise, 11th of March when we will publish our annual report. And with this, we would like to thank you, in the name of Leslie and also Marco, to thank you for joining our call today. Have a good day. Take care, and goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to the Talos Energy Third Quarter 2025 Earnings Call. [Operator Instructions]. This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Mr. Clay Johnson, VP of Investor Relations. Clay Johnson: Thank you, operator. Good morning, everyone, and welcome to our third quarter 2025 earnings conference call. Joining me today to discuss our results are Paul Goodfellow, President and Chief Executive Officer; Zach Dailey, Executive Vice President, Chief Financial Officer; and Bill Langin, Executive Vice President, Exploration and Development. For our prepared remarks, please refer to our third quarter 2025 earnings presentation that is available on Talos' website under the Investor Relations section for a more detailed look at our results and operational update. Before we start, I'd like to remind you that our remarks will include forward-looking statements subject to various cautionary statements identified in our presentation and earnings release. Actual results may differ materially from those contemplated by the company. Factors that could cause these results to differ materially are set forth in yesterday's press release and our Form 10-Q for the period ending September 30, 2025, filed with the SEC. Forward-looking statements are based on assumptions as of today, and we undertake no obligations to update these statements as a result of new information or future events. During this call, we may present GAAP and non-GAAP financial measures. A reconciliation of certain non-GAAP to GAAP measures is included in yesterday's press release, which is furnished with our Form 8-K filed with the SEC and is available on our website. And now I'd like to turn the call over to Paul. Paul Goodfellow: Thank you, Clay, and good morning. I would like to start by thanking the entire Talos team for their hard work, dedication, and unwavering commitment to the safety and delivery of our business. The results we'll discuss today are a direct result of their efforts. We're pleased to report 0 serious injuries or fatalities year-to-date, underscoring our steadfast commitment to the health and well-being of our employees and contractors. Additionally, our environmental stewardship remains a core focus with a spill rate significantly below industry averages, exemplifying our commitment to protecting the community's environment in which we live and operate. Our team has made significant progress since we announced our enhanced corporate strategy in June. Our transformation into a leading pure-play offshore E&P company is centered around 3 strategic pillars: improving our business every day, growing production and profitability, and building a long-lived scale portfolio, all underpinned by a disciplined capital allocation framework. Since our strategy announcement, we've taken decisive steps to execute on this vision. I'd like to highlight a few key actions we've taken so far. We strengthened our leadership team with the appointments of Zach Dailey as Executive Vice President and Chief Financial Officer, and Bill Langin as Executive Vice President of Exploration and Development. Both bring deep oil and gas expertise and leadership to Talos. I want to welcome them to the Talos team. We continue to drive progress through our improving our business everyday initiative, surpassing our 2025 optimal performance plan targets during the quarter, further strengthening Talos' position as the low-cost E&P operator in the Gulf of America, and we've had a very promising exploration discovery at Daenery's. I'll share more details on that shortly. Now turning to third quarter results, which represented another quarter of consistently delivering on our commitments and executing on our strategy. I'd like to highlight a few key takeaways. First, we delivered outstanding operational performance that translated into strong financial results. Production of over 95,000 barrels of oil equivalent per day exceeded the high end of our guidance range, with approximately 70% comprised of oil. The absence of storm activity, solid base performance from our assets, and high facility uptime drove this outperformance. The team did an excellent job of operating our deepwater facilities, and huge recognition is deserved by all. A great example of operational excellence by our teams is the successful debottlenecking efforts at our Talos-operated Tarantula facility, which enabled production from the Katmai field to average over 36,000 barrels of oil equivalent per day. Additionally, we completed the Sunspear workover ahead of schedule and returned the well to production in late September. The well is back online and flowing to the Talos-owned Prince facility. The second key takeaway is the continued generation of free cash flow, underscoring the strength of our business model and the ability to convert operational success into meaningful free cash flow generation. During the quarter, we delivered $103 million in free cash flow, significantly exceeding consensus estimates. This performance reflects our disciplined capital allocation, great operational execution, and ongoing focus on cost management. The substantial free cash flow enables us to return capital to our shareholders and maintain a strong balance sheet, positioning us well for the long term. Year-to-date, we've generated approximately $400 million in free cash flow. We also delivered on our commitment to return capital to our shareholders. The robust free cash flow generation allowed us to repurchase approximately 5 million shares for $48 million in the quarter, and Zach will provide more details on our return to capital program later on. Looking at Slide 8, a key element of our strategy is driving continuous improvement across every part of our business. We set a year-end 2025 target of delivering an additional $25 million in free cash flow, and I'm proud to report that we have achieved that ahead of schedule during the third quarter, with over $40 million already realized. The team is actively working on incremental opportunities for the balance of 2025, and we look forward to sharing a further update on this at the end of the year. The accelerated delivery, combined with outstanding execution in exceeding our 2025 target, gives us excellent momentum towards achieving our annualized $100 million target in 2026 and beyond. Now I'd like to turn your attention to Slide 9. Our advantaged cost structure continues to differentiate us from our offshore peers. Year-to-date, we've successfully lowered our operating expenses by almost 10% from just under $17 a barrel in 2024 to $15.27 a barrel in the third quarter of this year. We've achieved these results by maintaining a laser focus on continuous improvement across our operations. This progress is driven by more than 60 initiatives implemented company-wide to reduce cost and enhance efficiency, all aligned with our commitment to improving the business every single day. These outcomes are especially noteworthy given the extensive facility turnarounds and maintenance activities carried out throughout 2025. Over the past 3 years, while the industry trend for E&Ps in the Gulf of America has been an increased cost structure, Talos' relentless efforts in proactively managing the cost base have resulted in a reduction in operating costs on a unit basis. In fact, for the first half of this year, our operating costs are on average 40% lower than those of the peer group. This advantaged cost structure has helped us to generate top decile EBITDA margins in the E&P sector for this year. While commodity price volatility remains an ongoing challenge across the industry, we remain focused on projects that offer low breakeven economics and more stable production profiles. Looking ahead to the fourth quarter and into early 2026, our teams will commence drilling activity at the Talos-operated Brutus, Cardona, and CPM projects and the non-operated [Indiscernible] and monument projects. These development projects have broken even at the $30 and $40 a barrel. We've improved our 2025 operational and financial outlook, reflecting continued progress in driving efficiency and disciplined capital execution. We now expect full-year oil and oil equivalent production to be approximately 3% higher than prior guidance. For the fourth quarter, we anticipate a production mix averaging 72% oil. In addition, we further reduced our full-year operating expense and capital guidance by 2%, driven by the structural cost savings from our optimal performance plan efforts. As we approach the end of 2025 and look ahead to '26, we will exit the year with strong operational momentum. While it is still early to talk about 2026 in detail, we expect our 2026 program to deliver flat year-over-year oil volumes while investing in both near-term development and longer cycle projects that will come online over the next couple of years. Our focus remains on delivering strong financial outcomes while continuing to invest in high-quality development projects for our future.  At Talos, we remain laser-focused on improving our business every day through driving efficiencies and further optimizing our advantaged cost structure. Now I'd like to provide a brief update on our successful discovery at Daenerys.  The well was drilled to a total vertical depth of approximately 33,200 feet and confirmed oil pay in multiple high-quality sub-salt Miocene sands, validating our geological models. We drilled the well ahead of schedule and under budget, demonstrating that we can deliver solid operational performance to underpin our growth strategy.  We've temporarily suspended the wellbore to preserve its future utility and are now planning an appraisal well, which we expect to spud in the second quarter of 2026. The appraisal program is designed to test the northern part of the prospect. It is strategically planned to penetrate multiple prospective intervals, enabling a thorough assessment of reservoir and fluid properties.  Additionally, the well has been engineered to support multiple future sidetracks, allowing for further appraisal and development. As part of our balanced capital program, exploration remains a vital element of Talos' strategy. We are committed to driving sustainable growth and value creation over time while maintaining strong operational execution underpinning near-term financial delivery. Successful exploration discoveries have the ability to add reserves, extend production horizons, and ultimately enhance shareholder returns.  The Daenerys discovery is a prime example of our second strategic pillar, continuing to pursue organic growth opportunities in the Gulf of America. And finally, we will continue to advance the third strategic pillar by selectively evaluating projects with significant potential in the Gulf of America and other conventional basins that align with our technical capabilities to ensure we are building a long-lived scale portfolio. And with that, I'd like to turn it over to Zach.  Zachary Dailey: Thanks, Paul, and thanks for the introduction. Talos is a great company with a bright future ahead, and I'm excited to join the team. The strategy Paul laid out a few months ago to be the leading pure-play offshore E&P is well underway, and the company delivered measurable results against that strategy during the third quarter.  As Talos' new CFO, I'll continue to focus on our disciplined capital allocation framework, maintaining a resilient balance sheet that prioritizes financial flexibility and returning capital to our shareholders. I'll now walk through a few key takeaways from our Q3 results and provide an update on other financial matters.  During the third quarter, we returned $48 million, or 47% of our free cash flow, to shareholders via share repurchases. Year-to-date, we've returned over $100 million to shareholders, reducing our outstanding share count by 6%. Going forward, we continue to see share repurchases as the preferred return vehicle, as there is compelling upside to our equity valuation.  Briefly addressing the balance sheet. As of the end of the third quarter, we held $333 million in cash and maintained a leverage ratio of just 0.7x. With an undrawn credit facility and approximately $1 billion in total liquidity at quarter's end, we're well-positioned to navigate the current oil price environment. We remain committed to a strong balance sheet, which provides the flexibility to execute our strategy, invest in high-return projects, and remain resilient through the commodity price cycle. During the quarter, we recorded a noncash impairment of $60 million related to the full cost ceiling test under the SEC guidelines. As a reminder, this test primarily compares the net capitalized cost of our oil and gas properties to the present value of future net cash flows from our proved reserves using a trailing 12-month pricing, which we expect to continue lower in the fourth quarter of the year.  Next, I want to highlight what I think is a positive and innovative development for Talos related to the offshore surety bond market in the Gulf of America. Recently, we've seen the surety market tighten substantially with reduced bond capacity and lower risk tolerance of surety providers, which has resulted in some offshore Gulf of America companies facing collateral calls from their surety providers.  As a reminder, our surety bond agreements give our surety providers the right to demand collateral up to the full amount of the bond at any time. In response to the rapidly evolving surety market, we worked proactively with our surety providers to develop a practical solution where they have agreed to forgo their right to demand additional collateral in exchange for Talos agreeing to post collateral of approximately 3% of our outstanding surety bond portfolio each year through 2031.  This equates to approximately $40 million to $45 million per year. The first year will be funded with a letter of credit, and we have the option over the next several years to fund the commitment with either LCs or cash. This novel approach, signed earlier this week, provides us with certainty amid volatility in the surety market.  Finally, let me share a quick overview of our hedge positions. For the fourth quarter, we've hedged approximately 24,000 barrels of oil per day with a floor price of $71 per barrel. Looking ahead to the first half of 2026, we've hedged roughly 25,000 barrels per day with floors above $63 per barrel. These hedge positions are an important component of our risk management strategy, providing cash flow protection and helping ensure stability in a volatile commodity price environment.  Finally, our disciplined approach to capital allocation and strong balance sheet are the foundation for our high-performing business that is well-positioned for the future. With that, I'll turn it over to Paul for his closing comments.  Paul Goodfellow: Thank you, Zach. In closing, our continued focus on capital discipline, operational excellence, and generating free cash flow has driven meaningful success throughout 2025. These efforts directly support our clear vision for Talos to become a leading pure-play offshore E&P, well-positioned to benefit from the growing importance of offshore resources in meeting global energy demand. We believe Talos is uniquely equipped to capitalize on this opportunity, and we look forward to keeping you updated on our progress. With that, we'll open the line for Q&A. Thank you.  Operator: [Operator Instructions]. So now your first question comes from Tim Rezvan with KeyBanc Capital Markets. Timothy Rezvan: I wanted to start digging into the strong run rate at Tarantula. Paul, your predecessor, had talked in 2024 about options to expand throughput, maybe closer to 40,000 a day. And I think you teased this option yourself last quarter. So, as we look at this run rate, was this just one-off strong execution? Or is this maybe the start of efforts to grow that throughput?  Paul Goodfellow: Yes. Thanks, Tim. It's very much the latter. And so, as I mentioned in the last quarter, we've had really strong performance from Katmai from the Katmai wells. And so we start to look at what is the best way to optimize that fully in alignment with sort of the strategic pillars that we have laid out, but we want to work our way into it. So what you've seen in the third quarter is the first step of that, which is maximizing throughput with the facility base that we have without actually injecting any additional capital into it. The second phase that we're looking at studying at the moment is, let's say, an expansion of about 20% capacity that will be through a larger debottlenecking study that we do in the first part of 2026, with execution throughout the remainder of '26 into the start of '27. The third phase of that, which we're also studying at the moment, is much larger and linked to the Katmai North opportunity and prospect that we have where we have proprietary seismic, very high-quality seismic using latest technologies such as the OBN technology to actually look at that opportunity and that broader expansion, which could be significant, would then be as a result in combination with the drilling and exploitation of Katmai North, if that's where we choose to go towards the end of '26 and '27. So it's very much a structured approach, very much fits in the fairway of improving our business each and every day by, yes, having a clear view and line on the enterprise, but working our way into it and making sure that each day we are a little bit better. Timothy Rezvan: So is it fair to assume we may get an update on your course or next steps with the 2026 guidance? Paul Goodfellow: We'll certainly give an update on where we are in that process as we talk about the '26 plan. Timothy Rezvan: And as my follow-up, I know the West Vela rig is scheduled to go back to Daenerys in the second quarter. You gave some context on what you're trying to do. Given that you had one penetration there, how do you think about the cost and maybe the timing of the second well relative to what you did the first time, because your first well did come in under budget and quicker than expected? Just any context on what you're doing there would be helpful. Paul Goodfellow: Thanks, Tim. Let me pass that over to Bill, who's joined us today, and he can provide some comments on that. William Moss: Yes. Thanks, Tim, and thanks, Paul. So I would say we're really proud of the teams here at Talos for the way the subsurface teams characterize the opportunity predrill and then the drilling organization for delivering really outstanding performance as they delivered that first well. So at the moment, yes, we are targeting a second quarter next year spud of the appraisal well to test a separate fault block to the north. And we'll penetrate multiple objective sections that we think have the opportunity to really push our decision forward on whether this is ultimately a development for us or not. Obviously, we'll target the same outstanding performance that the teams have delivered in the past to continue to demonstrate that, as we seek to grow, we can underpin that growth with outstanding performance. Operator: Our next question comes from Ms. Greta Drefke with Goldman Sachs. Margaret Drefke: I was wondering if you could provide a bit more color on the near-term opportunities remaining for the $100 million in savings plan beyond the $40 million that you've already executed on. Where do you think you have the clearest line of sight from here before year-end? Paul Goodfellow: Thanks, Greta. Look, let me start by saying we're incredibly proud of the organization in terms of how they've taken the challenge and not just delivered on it, but exceeded on it. I think when we started, many would have said it's an incredibly high bar that we've set. I think the organization has shown that through working in an integrated way, really challenging each other on where the opportunities are, that they've been able to deliver on that. And now it's about us building on that momentum as we go into 2026. And I think, as I've said before, there's no one simple and clear area where we see the biggest opportunity. The reality is, we see opportunities across the totality of all that we do. Clearly, there's a big focus on the capital expenditure. You just heard Bill talk about the drive we have to not only match the performance on the discovery well, but to try and beat that as we go into the appraisal mode, whether it's on how we think about the gathering of data from a seismic point of view. We've seen great progress on the operational front, both in terms of availability, uptime, cost of maintenance, et cetera, et cetera. And we also see, as I think I've mentioned before, opportunities in the supply chain space to actually work maybe more collaboratively against common outcomes with our great supply chain partners. And so there's not one particular line that we are driving against. We're looking at all our spending and all the opportunities for volume and value enhancement, and production enhancement as well. As we look into 2026, it's across that broad waterfront that we see the opportunities. And I think the split I've mentioned before, roughly 1/3, 1/3, 1/3 between production enhancement, the capital uplift, or the capital efficiency, and the commercial opportunities, probably still holds true, Greta. Margaret Drefke: Makes a lot of sense. Thank you very much. And then just a follow-up on costs. You outlined TE's operating cost structure in your slide deck and how it compares to some of the peers in the Gulf of America. Can you speak a bit about what the key drivers are in your view that allow for your lower cost structure? I would appreciate your view on the durability of that note. Paul Goodfellow: Yes. The answer to the second part of your question is we're building this as the normal way that we do work. So this is how we do work. It is not special for this quarter, which is why I think you've seen us build off the very strong foundation we had coming out of 2024 as we have driven through 2025. And clearly, it's about having that ownership mentality, which is core to everybody at Talos, that we act like an owner as we think about where to spend money and making sure we spend money that has a return on it. And whether that's for an operator out in a facility, making sure that we're driving maintenance from a proactive point of view, look after it versus fix it when it breaks, or whether it's in the development teams, thinking about how we can actually get more throughput through the facility. It really is that sort of building, that culture of excellence and always looking to be a little bit better tomorrow, that as a leadership team, we are trying to drive. Operator: Our next question comes from Michael Scialla with Stephens. Michael Scialla: I want to see if you could make a few more comments on Daenerys. You didn't give us any indication of the pay that was found with the discovery well. Any changes to the prospect size there? And I guess, based on Bill's comments, it sounds like the Northern Fault block needs to work for you to feel like you have a commercial discovery there. Is that fair? Paul Goodfellow: Thanks, Michael. Let me pass it to Bill again. William Moss: Sure. So we found through pay in 3 separate zones in Daenerys, all of which we think have the potential to exist across the fault to the north. But as we've seen repeatedly in the Gulf of Mexico over the past 10 years, we need to confirm the presence of those as we cross different geological boundaries. So, as we drill the fault block to the north, we need to test for the existence of those pay intervals and the fluid quality that exists there as well. And there is an additional prospective interval that we see as well. So we're hoping to see similar and if not better, results as we penetrate that other fault block. Michael Scialla: And is it reading too much into it that that fault block really needs to pan out before you would pursue a development? Or is there still enough resource there potentially to where you could have a commercial discovery even if you did not find what you're looking for with the Northern fault block? William Moss: It depends on the outcome. So there are multiple opportunities options for development. If we were to see a significantly positive outcome in that Northern fault block, it would dictate a very different development concept than if we were to see an average or more negative outcome. On the more negative side, we look to potentially combine with other opportunities in the area to create enough economic synergy to proceed as well. So at this point, it's not a non-op switch by any stretch. It will be highly dependent on what we see, not just in Varis, but how that neighborhood develops.  Paul Goodfellow: And I think, Michael, maybe to add to that, this is the art of exploration, which is very seldom is it a one penetration and all decisions become clear. We have a very clear road map dependent on how the next well goes. We may need a subsequent appraisal beyond that, dependent on what we find.  Clearly, we look at other opportunities within the local geological environment as well. And we appreciate the question, but we'll drill the appraisal well in the second quarter of next year. We'll update from that. And I think at that point, we'll have a much clearer picture, along with our partners, in terms of which is the pathway that we think is the best pathway for commerciality.  Michael Scialla: I want to ask about your CapEx guide. You've got a range in there still of $40 million difference between the low end and the high end, and we're 2 months away from the end of the year. So, anything you can say on the difference between the activity or events between the low and the high end?  Paul Goodfellow: Yes. I mean, look, as you come towards the end of the year, of course, there are projects that may start just in the year or may slip into the early part of 2026. Some of those in the nonoperated space are reliant on other projects that are proceeding them. And so it really is looking to give a guide around that uncertainty of that arbitrary line that's called December 31.  Michael Scialla: So, really just timing, you're not contemplating any different changes to the program at this point?  Paul Goodfellow: No.  Operator: Our next question will be with Phu Pham from ROTH Capital.  Phu Pham: So my first question is about the M&A. Last week, we saw a private U.S. producer, LLOG potential sale of $3 billion. So I just want to hear your thoughts about deals and about the M&A environment in general.  Paul Goodfellow: Thanks, Phu Pham. You're a little bit difficult to hear, but I think you're asking about the M&A environment on the back of LLOG. Look, I think as we said in our remarks, clearly, we keep an eye on what is happening in the market. We set ourselves a very high bar that we need to sort of pass to go beyond looking, and we look both within the Gulf of America as well as basins outside of that.  And I'm not going to speculate beyond that in terms of what we may or may not be looking at. But I'd just reiterate the same as we think about capital discipline and execution discipline, the way that we'll look at any inorganic opportunities, be it from the lease sale to anything that may be at the asset or the corporate side, will be with that same high bar of discipline and rigor.  Zachary Dailey: Paul, if I might complement the thing I'd add on top of that is any M&A opportunity, just like any exploration opportunity in or outside of the Gulf of America, we look for things that really complement our existing advantaged skill sets in the subsurface and our low-cost operations that we could bring to bear whether it's in exploration or on the M&A front, we think those are the types of opportunities that ultimately create value for our shareholders.  Phu Pham: And my second question, maybe about the production. We saw that this quarter, we did not have any storms, and I think production was better even though we exited the downtimes. So you said that part of the outperformance was that the uptime was better. So was there anything news? And are we going to continue to see that in the future?  Paul Goodfellow: Yes. So clearly, we benefited from a quiet storm season through the third quarter. And if you look at the sort of beat we have, that probably accounted for 2/3-ish of the beat, 2/3 to 3/4 of the production beat. But of course, the fact that we had really well-run operations where we're executing as planned allowed us to take advantage of that lack of storm. And so the 2 are somewhat interdependent.  Yes, we had the tailwind of no storms, but the sort of self-help of building a really robust, excellent operating organization allowed us to take advantage of that. And then on top of that, we saw a further uplift because of the throughput that we had, the debottlenecking that we've done, and the excellent operational base performance that the team has delivered.  Operator: And our last question for today will be with Nate Pendleton from Texas Capital.  Nathaniel Pendleton: Congrats on the strong quarter. While I understand that you have not officially guided to 2026 yet, looking at the schedule outlined on Slide 10, it seems that you have a nice cadence of projects coming online with first oil on 4 of these projects in the second half of 2026. With that in mind, how should we think about the shape of that production next year, given the commentary about the flat year-over-year outlook?  Paul Goodfellow: Thanks, Nate, and thanks for the comments. I mean, look, we're still in the process of building out the plan. There's a lot more that goes around the new oil projects that you're referring to on the slide there in terms of how we think about turnarounds and the maintenance that we need, how we think about the optimization activities that we will take on an asset-by-asset type of basis and of course, how we will plan around the hurricane period of the year again.  So I think the overall shape from a planning perspective will look similar to this year, which is you will see a dip in the middle of the year, primarily related to potential weather and some of the turnaround activities that we do with new oil being added, in the first half, from those first few projects that are out on the schedule. With a further uptick towards the back end of the year, as projects such as the non-operated MOU field come online. But I think the key is to think about the way we're framing it, which is driving towards flat oil production year-on-year.  Nathaniel Pendleton: And then perhaps for Zach here. Regarding the surety agreement that you talked about in the prepared remarks, is this an arrangement that you plan to use on future bonds? And can you provide some context on the outlook for the surety market, given it has been a point of focus for other industry peers as well?  Zachary Dailey: Yes. Thanks, Nate. I appreciate the question. This really is a positive development for Talos, and I'm glad you asked about it. Like you said, the offshore surety bond market has tightened over the last year or so. I think part of it is a lower risk tolerance from the sureties. There's been some reduced bond capacity. And like I said in my comments, other Gulf of America companies have faced collateral calls on their bonds.  So what we've done is proactively engaged our sureties and entered into a pretty unique agreement that's beneficial to both sides, and ultimately, it gives us certainty to plan our business amidst that volatile environment. So we're excited about putting that together, and it's positive for us.  Operator: Ladies and gentlemen, that was our last question for today. I will now turn the call back to Paul Goodfellow for closing comments. Please go ahead, Paul.  Paul Goodfellow: Thank you, Emma, and thank you all for joining today and for your interest in Talos. I'd like to close by again, just recognizing our dedicated teams and their commitment to provide safe, reliable, and responsible energy that is vital to power the world. And we look forward to updating you at the end of the year on our progress toward the strategic plan that we've laid out. And as always, I very, very much appreciate the questions and the interest that you show. Thank you all. Operator: Thank you very much, Paul. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to Kelly Services Third Quarter Earnings Conference Call. [Operator Instructions] Today's call is being recorded at the request of Kelly Services. [Operator Instructions] I would now like to turn the meeting over to your host, Mr. Scott Thomas, Kelly's Head of Investor Relations. Please go ahead. Scott Thomas: Good morning, and welcome to Kelly's third quarter conference call. With me today are Kelly's Chief Executive Officer, Chris Layden; and our Chief Financial Officer, Troy Anderson. Before we begin, I'll remind you that the comments made during today's call, including the Q&A session, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. We do not assume any obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. In addition, we'll discuss certain data on a reported and on an adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. For more information regarding non-GAAP measures and other required disclosures, please refer to our earnings press release, presentation and once filed Form 10-Q, all of which can be accessed through our Investor Relations website at ir.kellyservices.com. With that, I'll turn the call over to Kelly's Chief Executive Officer, Chris Layden. Chris Layden: Thank you, Scott, and good morning, everyone. It's great to be with all of you. Let me start by saying what a privilege it is to serve as CEO of Kelly, the sixth in our storied history and the first to be selected from outside the company. Having spent my entire career in this industry, I've known and admired Kelly for many years. Our brand is iconic, synonymous with the industry we created when we were founded by William Russell Kelly in 1946. Since then, Kelly has connected millions of people to work, improving families, communities, economies and the world. This is also a company I've competed with. Throughout my career leading commercial organizations and customer pursuits, I've experienced up close Kelly's ability to win in the market. Our diverse portfolio of businesses has significant scale in attractive specialties and differentiated global capabilities that are widely recognized as leading the industry. With our Education business, Kelly has proven the ability to drive rapid organic growth in emerging markets, having established a dominant position in K-12 staffing and tripling the revenue of the business since 2020. This is among the best examples in our industry of what's possible when a team combines clear vision, sound strategy and consistent execution. Instead, I've watched a business that has acquired scale in higher-margin, higher-growth specialties like technology and telecom, moving up the value chain as a consultative partner to employers, seeking differentiated technical solutions. At the same time, SET has continued to win and retain market share in our established life sciences and engineering specialties, where for years, Kelly has led the market as the second and fourth largest staffing provider, respectively. In ETM, Kelly brings enterprise customers unmatched global workforce capabilities and insights to our technology-enabled and AI-powered offerings delivered at scale. This includes talent solutions, business process outsourcing and staffing services, which Everest just recently recognized as leading the market. I've seen firsthand the competitive advantage that this breadth and depth of capabilities creates as employers increasingly seek partners who can meet their total talent management needs. Because of these assets, Kelly's track record of driving value for customers, including many of the largest employers in the world is as strong as any company in this space. Never have our core strength and ability to enhance flexibility and agility in an employer's workforce been more important than they are today. As I step into this role, the operating environment is evolving, driven by a dynamic macroeconomic landscape, a sluggish labor market, global and domestic policy shifts and the AI boom. The impact of these trends on our industry is significant, and Kelly is not immune. These dynamics were more visible in our results in the third quarter. Despite continuing to capture growth in more resilient markets, our performance as a company fell short of expectations. Our team and I know that we can achieve more, having proven as much in the organic growth and margin expansion that Kelly has delivered in recent years. But to consistently win in the market and unlock Kelly's full potential, it's critical that we maximize our core strengths and address head-on opportunities to improve our strategy and execution. To better understand where these opportunities exist, I'm spending much of my time in the field meeting with and listening to our employees and customers. Through my conversations with our team, it's clear that we have a highly engaged group of workforce experts who are passionate about winning in the market and serving our clients and talent. The expertise and high level of service they provide are among our key differentiators that drive employers to choose Kelly to meet their workforce needs. In meeting with many of our top customers, I've heard how Kelly's tailored solutions and unique insights are helping our clients maintain a competitive edge in their industries. I've also had the pleasure of connecting with the investment community who have shared with me their growing interest in the value creation opportunity we have here at Kelly. During my time in the field, a few common themes have emerged. First, it's fundamentally important to customers that it'll be easy to do business with Kelly. We must ensure our structure and processes are designed with customers in mind, and they must be straightforward and intuitive to navigate. Next, the scale Kelly has acquired in higher-margin, higher-growth specialties is a tremendous asset that has repositioned the company in the market. This has created inroads with employers in attractive end markets who are eager to know how our expanded capabilities can meet their evolving needs. Completing the integration of these investments is critical to our ability to realize their full value and capitalize on these growth opportunities. And finally, much work has been done by our team to reduce complexity and improve efficiency. This work continues today with the efforts underway to consolidate disparate front-, middle- and back-office systems, leveraging the leading technology stack we obtained when we acquired MRP. We must continue to assess our resources from technology platforms to our workforce mix to ensure they're optimized to drive profitable growth. These early observations are helping inform how we move forward on the next leg of Kelly's strategic journey. I'll share more in a moment about our short-term priorities and long-term focus. First, I'll turn it over to our CFO, Troy Anderson, to provide more details on our results in the quarter. Troy Anderson: Thank you, Chris, and good morning, everybody. Before I walk through our results, as a reminder, beginning in the third quarter, the Motion Recruitment Partners acquisition we completed in the second quarter of 2024 is fully in our year-over-year comparable results. Thus, I will only speak to reported and adjusted results for the current quarter. Revenue for the third quarter of 2025 totaled $935 million, a decrease of 9.9% versus Q3 of last year. This was lower than our expectations, most notably due to lower-than-expected growth in the ETM staffing specialty, education and select other specialties. As we discussed last quarter, we had discrete impacts from reduced demand from the federal government and 3 of our top customers. Combined, these impacts drove approximately 8% of year-over-year revenue decline, consistent with our expectations, leaving us with an underlying decline of 2%, excluding these impacts, which is in line with industry performance. Kelly's underlying performance reflects positive trends in each business area that reinforces our confidence in our strategy. Education continued its long-running streak of quarterly growth and achieved a 90% fill rate overall in the quarter for the first time. Within SET, the telecom specialty achieved double-digit growth in the quarter after strong growth in the second quarter, while the engineering specialty has grown each quarter this year. SET's underlying performance was consistent with the second quarter and continues to outperform the market. And within ETM, staffing underlying revenue has been consistent across the quarters despite the macro variability. Outcome-based solutions, excluding contact center and Payroll Process Outsourcing, or PPO, both continued to grow in the quarter and have shown growth all year. Finally, our managed service provider, or MSP specialty, showed modest growth in the quarter for the first time this year, reflecting the new customer wins we have referenced in prior quarters. For Q3 revenue by service type, staffing services reflects modest growth in our education business and pressure from government, large customer and macro environment impacts in SET and ETM. Our outcome-based offerings, excluding Contact Center solutions, were down year-over-year, reflecting timing of both project demand and new business within SET and ETM. Talent Solutions was down modestly year-over-year in the quarter, reflecting a mix of performance across the individual specialties. Perm fees represented approximately 1% of revenue, which was consistent with the prior year. Drilling down into revenue by segment, Education grew 0.9% year-over-year in the quarter, driven primarily by ongoing fill rate improvement. While we believe we won our fair share of the new business opportunities for the school year, we saw a number of decision delays in light of the broader macro environment and the fill rate improvement benefit was lower year-over-year given our maturing customer portfolio, thus the relatively lower growth in the quarter. As a reminder, education volumes and revenues are reduced significantly in the third quarter due to the summer break. In the SET segment, revenue was down 9% in the quarter or 3.5% excluding the federal government impact. Our Telecom and Engineering specialties continue to be growth areas within SET, while Life Sciences and Technology saw year-over-year declines consistent with the second quarter. In the ETM segment, revenue declined 13.1% year-over-year or an underlying decline of 1.9%. Staffing services revenues declined 16.4%, driven primarily by the large customer and federal contract demand reductions, along with lower hours volume across other clients. Outcome-based revenues decreased by 17.2%, reflecting demand pressure from the large contact center customer that has fully run off as of the end of the quarter. Excluding Contact Center, ETM outcome-based solutions grew modestly. Talent Solutions revenue decreased 1.4% overall, reflecting growth in PPO, MSP new customer wins and reduced customer volumes and recruitment process outsourcing. Reported gross profit was $194 million, down 12.5% versus the prior year quarter, primarily from reduced revenue. The gross profit rate was 20.8%, a decrease of 60 basis points compared to the prior year quarter and a 30 basis point sequential increase. The sequential lift, which is typical with the seasonality of our business, was more muted than we expected given the revenue dynamics, along with elevated employee-related costs in the quarter. Education's GP rate increased 20 basis points, while SET declined 80 basis points and ETM declined 60 basis points. We made significant progress improving our SG&A expense profile in the quarter with reported SG&A expenses of $194.4 million, a decrease of $24.6 million or 11.2%. On an adjusted basis, SG&A expenses decreased 9.7% year-over-year, reflecting the momentum we are gaining on structural and volume-related cost optimization efforts. Expenses increased in our Education segment in support of the revenue growth, while expenses decreased across the rest of the company. With the increased revenue pressure, we're enhancing our efforts to drive durable and sustainable efficiencies in our operating model through technology enhancements, including leveraging AI, process efficiencies and multiple other levers. Existing initiatives like the formation of the ETM segment and integration of MRP and other acquisitions within SET are progressing well and will drive both go-to-market and cost efficiencies going forward. In connection with our various efforts, we recognized $4.7 million of charges in the quarter, down from $6.4 million in the second quarter. These included costs associated with improving technology and processes across the enterprise as well as severance expenses and executive transition costs. We expect to see these expenses increase in the fourth quarter as we make continued progress and expand upon our various optimization efforts. Related to the realignment of SET and acquisition integration, during the quarter, we assessed the current goodwill reporting units and determined it was appropriate to combine them into a single SET segment reporting unit. As a result of the assessment, along with declines in the current and projected business performance driven by macroeconomic and industry conditions, we concluded that there was a triggering event for a noncash goodwill impairment totaling $102 million in the quarter. We are excluding the impairment from our adjusted results. Additionally, with the impairment activity, we were also required to reassess the recoverability of our deferred tax assets. While we have confidence in our business over the future recoverability time period, with a 3-year cumulative loss position in our near-term actual and expected financial performance, it was necessary to record a valuation allowance of $70 million, which is also noncash and excluded from our adjusted results. As a result of the goodwill impairment and tax valuation allowance, our reported loss per share was $4.26 for the quarter. On an adjusted basis, earnings per share was $0.18 compared to $0.21 in the prior year, with the decline over the prior year primarily due to lower profitability and discrete tax items. Adjusted EBITDA was $16.5 million, a decrease of 36.7% versus the prior year period, while adjusted EBITDA margin declined to 1.8%, both of which were below our expectations, reflecting the revenue and gross profit declines I previously noted. SET expanded margins by 60 basis points year-over-year despite the lower gross profit due to their expense optimization efforts. ETM saw margin pressure due to the elevated revenue and gross profit declines despite substantial progress on their SG&A. Education experienced margin compression due to the seasonality of that business. Moving to the balance sheet and cash flow. We are generating strong operating cash flow this year with $94 million through the third quarter, up significantly versus the prior year. Total available liquidity as of the end of the quarter was $269 million, comprising $30 million in cash and $239 million of available liquidity on our credit facilities, leaving us ample capital allocation flexibility. Total borrowing of $118 million increased versus the prior quarter due to our normal working capital seasonality. Our debt-to-EBITDA leverage ratio was less than 1 at the end of the quarter. We don't expect a material change in our net debt position over the remainder of the year from normal operations. We ended the quarter with $40 million remaining on our current Class A share repurchase authorization. We continue to believe the data demonstrates that the company is measurably undervalued by the market. With that backdrop and our capital allocation flexibility, we anticipate being active in our repurchase program during the remainder of the year. We also maintained our quarterly dividend of $0.075 per share. These actions reflect our confidence in Kelly's strategy and our commitment to opportunistically deploying capital in pursuit of attractive returns for shareholders. As we look at the fourth quarter, we are assuming no material change in the macroeconomic or industry dynamics and a positive resolution to the federal government shutdown during the quarter. For revenue, we expect a decline of 12% to 14% in the quarter, which includes 8% of negative impact associated with reduced demand from discrete large customers and for federal contractors, consistent with the third quarter impact. Excluding these items, our underlying revenue decline would be 4% to 6%. The incremental revenue decline relative to the third quarter is primarily due to the strong growth we saw in the fourth quarter of last year and includes a modest impact related to the government shutdown. For adjusted EBITDA, we expect margin of approximately 3% in the quarter. This represents a sequential increase of 120 basis points, consistent with the prior year change despite the incremental revenue pressure and a decrease of approximately 70 basis points year-over-year in the quarter, consistent with what we experienced in the third quarter. While we're not providing specific guidance beyond the fourth quarter, as we look out over the next few quarters and the anticipated residual year-over-year impacts from the reduced demand for federal contractors and from the 3 large customers in ETM, it's likely we'll see continued revenue and margin pressure at least through the first half of 2026. As Chris said, across Kelly, we're addressing head-on opportunities to continue to improve our execution. This includes in the finance organization, where we're well underway with implementing measures that will enhance our agility, efficiency and business impact in this evolving operating environment. I'm grateful to all of the Kelly team members for their unwavering commitment and resilience as we position the company for growth and enhanced profitability over the long term. I'll now turn the call back to Chris for his closing remarks. Chris Layden: Thank you, Troy. As we move forward, our immediate focus is on stabilizing Kelly's performance and actions to this end are underway. We're moving swiftly to align resources with current demand trends while continuing to drive structural efficiencies across the enterprise. As part of this effort, we made the difficult but necessary decision last month to implement strategic restructuring actions that resulted in a targeted workforce reduction. These actions address excess capacity while further streamlining our organizational structure following the consolidation of the OCG and P&I businesses into the single ETM segment. We're also continuing and, where possible, accelerating our technology modernization initiative within SET and ultimately across the enterprise. This initiative will unlock substantial growth and efficiency opportunities, making it easier for our employees to serve our customers and talent, reducing expenses associated with managing disparate and outdated systems and enabling more rapid innovation and integration of AI. While executing our near-term priorities, we're also keeping our sights set on the future. As I conclude my initial assessment of the business, our team is aligned where we must focus longer term to accelerate progress on Kelly's strategic journey. First and foremost is growth. Growth is the single most important value creation lever at this stage in Kelly's journey. To drive organic growth, we'll continue to enhance how we go to market, especially with our large enterprise customers to bring to bear the full strength of Kelly's portfolio and win more market share. We'll also continue to drive inorganic growth by pursuing targeted investments that add scale and capabilities in higher-margin specialties. We'll focus on evolving our product mix as well to address changing buyer preferences such as the shift towards statement of work solutions and to capitalize on the AI boom. Our widely recognized Global Re:work Report found nearly half of executives surveyed are struggling to find the talent with the right operational and technical skills in AI. This unmet demand represents a significant opportunity to position Kelly as the partner of choice for employers, navigating the transition to an AI-enabled workforce. Next, we'll continue to focus on efficiency. This means continuing to align resources with demand, while reengineering our cost base to drive further structural efficiencies. That includes our initiatives to modernize our technology stack and integrate legacy acquisitions. And finally, culture. Culture is fundamental to how we'll achieve our ambitions and win in the market. We're committed to building on the strong culture that exists here at Kelly, doubling down on customer centricity, visibility and accountability. I look forward to sharing with you more about these areas of focus and our progress as we move forward. We're navigating a complex moment for our industry and/or company. These circumstances call for decisive action to address near-term dynamics while positioning the company to realize the significant value creation opportunity before us. There is much work to be done, but I'm excited and energized to meet this moment together with our team and contribute my operational experience to accelerate our progress. Our core strengths, an iconic brand, a differentiated portfolio and an engaged team give me the confidence that we'll emerge more agile, resilient and primed for growth. I'm grateful to the Board of Directors for placing their trust in me to lead Kelly at this moment on the company's journey. I also want to extend my appreciation to Peter Quigley for his support as I stepped into this role and for his distinguished service to the company over the last 23 years. And to our team, thank you for welcoming me with openness and enthusiasm. I look forward to working alongside you to realize our collective ambitions and create long-term value for all of our stakeholders. Operator, you can now open the call to questions. Operator: [Operator Instructions] Our first question, we'll go to Joe Gomes from NOBLE Capital. Joseph Gomes: I wanted to start out, Troy, I don't know if you can kind of break out these discrete between the federal government and the large customer impacts. I know in total, it was, I think you said roughly 8%. But I don't know if you could break that down what was for the federal government, and what was for the large customers? Troy Anderson: Yes, Joe, thanks for the question. They're roughly equal. So it's roughly 2 points each, plus/minus a little bit. But I'd say, generally speaking, they're roughly equal. Joseph Gomes: Okay. And I know, Chris, you just talked about some of this go-to-market here, optimizing large enterprise customer share of wallet. When I -- you see that, and I understand that goal, but then I also see, hey, 3 customers had a significant impact on revenue this quarter. How are you kind of like squaring that circle and making sure that we get even more concentrated in some big customers, the same things don't happen down the road. Chris Layden: Yes. Thanks, Joe. This is Chris. And it's a good question. And let me just start by reiterating that we know Kelly can achieve more. We saw the headwinds, and we know there's also execution gaps that we're going to continue to address head on. One of the things that you heard me talk about is the breadth and depth of our portfolio. And as we've gone and acquired really significant scale over the last few years, that's also built on a foundation where we've had incredible strength, right, #1 in education, #2 in science, #4 in engineering, just outside the top 10 in our technology business, Everest recognized specialization and strength in our MSP, BPO and Staffing Services. And so as I'm talking to customers, not only the 3 impacted, but also the thousands of customers we're working with from around the globe, they want to be doing more with Kelly. They want to make sure that it's easy to work with us, that we're bringing all of our capability to them. And one of the things I have been impressed with is -- I saw this from the outside before I got here, and I've been even more impressed as I've joined, is the depth of these relationships, the length of time we've been working with customers around the world. And we know we'll continue to partner with them in new ways as we continue to make sure that we're showing up and that we're easy to work with, and we're showing up with all of our capabilities. So we do have opportunity as we move forward around some of that execution, but that's what we're taking head on. And again, I have some confidence as I've been engaging with customers over the last 60 days. Troy Anderson: Yes, Joe, this is Troy. I would just add that, again, these 4 discrete items are somewhat unique and completely unrelated, just happen to all be around the same time. But it's -- the macro environment affected each of them in varying ways. policy decisions affected them in varying ways and their industry challenges are also affecting them in varying ways. So it's less about customer concentration, and it's more about stickier services and just growing -- we have relationships, by the way, with all those customers still and still very significant for at least 1 or 2 of them. So anyway, I just wanted to remind the -- since we didn't really get into the details of what they were, but remind everybody of that. Joseph Gomes: Appreciate that. And one more for me, if I may. Troy, you got a slide here in the deck about the revenue trends, and you kind of break out excluding discrete impacts. And if I take a quick glance at those that quarter 1, quarter 2, quarter 3, they're pretty much trending the wrong way. And just trying to get an idea, I understand the federal government shutdown. But what else needs to occur in the macro environment that you think we can start to see these revenue trends reverse and start becoming positive or as opposed to negative and/or start growing again as opposed to trending downward? Troy Anderson: Yes, it's a fair question. Again, I would say that SET -- and again, they're somewhat unique across the 3 segments. SET is fairly consistent across the quarters. We had great strength in telecom, double-digit growth there this quarter after nearly double digit last quarter. Engineering has been growing all year and consistent rate of decline in technology and life sciences. So we did expect a little bit more out of SET this quarter, but we're still pleased that we -- despite the broader environment around us that we saw at least consistent performance and some strength there in those 2 areas. Education, again, somewhat of a unique dynamic there, market, some decision delays. Those are decisions we still expect to win in -- at a future date, but there was some hesitancy in the market just given some of the policy changes and dynamics around the broader macro environment. So we expect education to continue to grow and us win our fair share, if not more. We've been taking share in a growing market there. And then on ETM, again, the underlying still low single digit. We think we're competitive in the market, as Chris said, highly ranked by the industry experts, and we saw growth in MSP. So we're starting to realize the benefits of some of the new logo wins there. Staffing has been consistent across the year despite the macro headwinds, the underlying staffing. And really, that decline there was just less growth in PPO and a bit of a downturn in RPO, recruitment process outsourcing. So there's different dynamics in each, and there's significant opportunity in each, as Chris outlined in his prior response. So I think it's just a matter of moving us forward with some of the initiatives and getting through some of the softness that we see more in the macro dynamics around us. Operator: Our next question comes from the line of Kevin Steinke from Barrington Research Associates. Kevin Steinke: So I wanted to start out by asking about the various factors in the operating environment that you noted in your earnings release are currently impacting your results, largely the macroeconomic landscape and sluggish labor market. But on top of that, you specifically added in the AI boom. And so I'm just kind of wondering what you're seeing in terms of the impact of AI on demand for your business currently? And on the flip side, you also mentioned that could be an opportunity over the longer term as your customers look to find IA talent. So maybe if you could walk through the dynamics you're seeing with AI currently. Chris Layden: Yes, Kevin, thanks. This is Chris. We really see there to be an opportunity to continue to capture new AI growth opportunities. And from our standpoint, really not just in the SET business, but in ETM and in Education, we've got a unique opportunity in the market based on our capability to bring employers a flexible, more scalable solution as they're bridging into a more AI-enabled workforce. We think that's going to unlock a lot of value in a way that will combine the power of people and technology. And we have that opportunity as we move up the value chain in our SET business with a lot of the work we're doing in things like data modernization and other digital work, that's solutions-based business. And again, that's in growing demand. And as we indicated in our prepared remarks, more broadly across employers in our research, 50% told us that they are struggling to find the right operational and technical skills to help them navigate this transition into the AI-enabled workforce. So we see it as a real opportunity for us on the go-to-market side. Now internally, you heard Troy and I both talk about how we are going to continue to accelerate the modernization of our technology stack, the technology stack that we acquired when we acquired MRP. That continues to be a priority as we think about ways to improve both process and efficiency across our teams and bring our teams new tools. And a lot of that is underway. The integration of those AI-based tools in our recruiting process in our client portals, and we're going to continue to see that add value and drive opportunities for efficiency and productivity over the next couple of quarters. Kevin Steinke: Okay. Great. So it sounds like AI offers a nice longer-term growth opportunity for you. I was just curious if in the shorter term, perhaps are some customers kind of holding off or delaying hiring decisions as they assess the impact of AI on their businesses and as they assess whether they need to add as many people in the past, given that AI will bring them greater productivity. I'm just wondering if that's having any short-term impact on demand for your services? Chris Layden: Well, let me start, and I'll have Troy build on it. First, I think we just need to step back in the broader context of what we've been seeing, a pretty sluggish labor market. And many of the businesses that would support some of the disruption maybe you've seen and the lack of job growth that we've seen really pretty consistently across every month this year is a bit embedded already in the workforce dynamics. And so we see and have been seeing that sluggish impact all year. Now outside of that, we continue to see companies invest in bridging themselves into a more AI-enabled workforce. And we believe there could actually be opportunities, not only on the solutions side of how we can help companies navigate that, but it also could be an indication at some point on the staffing part of our business that companies use flexible labor as a bridge into that as they're navigating more certainty around the demand for their products and services. And so we'll continue to be navigating those indicators that will impact both parts of our business, our staffing and our solutions. Troy Anderson: Yes. Kevin, I would just add, this is Troy. The -- I wouldn't say there's been a change this quarter versus last quarter or 2 quarters ago in terms of any impact that AI may have had in terms of our positions, the type of positions we staff or the type of opportunities we pursue. But we are seeing an uptick in our ability to leverage AI in terms of providing support to our customers, be it with our platforms from a workforce management perspective in the ETM space, be it some of the solutions that we're bringing to bear in SET, not just in the technology vertical, but also in telecom and engineering and life sciences. So I mean there's -- we're starting to be able to now move upstream into bumping into some of the major consulting players with some of our nimbleness and the capability that we bring, trying to fill that gap that Chris highlighted about companies not being able to find the right skills and the right workers. So -- yes, so no real change in what we've seen. And if anything, it's creating more opportunity for us to bring our solutions to bear. Kevin Steinke: Okay. Great. All right. So I just wanted to get a little more insight on education. You mentioned just some delayed decision-making there due to macro factors. And I'm just kind of trying to relate the macro environment to the K-12 space and perhaps why customers have been holding off on decisions there. Troy Anderson: Yes, sure. This is Troy. The -- so I guess two things. One, again, I want to highlight across our portfolio, billion-dollar business now, largely in the K-12 substitute teacher, we achieved a 90% fill rate in the quarter for the first time ever. So that is a tremendous value that we deliver to our clients. And we have -- some of our largest customers are closer to 100% even. So we have tremendous offering there and value that for our customers. The new business there are really new opportunities for outsourcing. It's less about us and competitors taking each other's customers, and it's more about us competing with in-house offerings. Even when we lose a client here or there, it's usually they bring it back in-house that it's stabilized, and they now feel confident they can run it in-house. They may have implemented a technology solution that enables them to do that. But that, again, doesn't happen very often. What we saw with the -- so two things, really, the fill rate, we are maturing that portfolio. We've had tremendous growth there over the last number of years. Chris highlighted in his comments, we've tripled that business over the last 5 years. And so as those clients mature, I mean, you can only get to 100%. You can't get above that. And so as all those relationships mature, and we're operating in that 90-plus percent range, we're just not going to get as much fill rate lift across the portfolio that we've seen over the last few years that has been supplementing the new business wins, but we'll continue seeing some benefit there. So a little bit less benefit there than we've seen in prior years. And then the decision delays is really just around -- keep in mind, back in the summer, there was a $6 billion grant from the Department of Education that was withheld and put under review right around the time where certain decisions might have been made. Typically, these awards are done in the spring, late spring and early summer and then implemented for the new school year. So there was the future of the Department of Education, just -- there was just a lot of noise in the system and for a school district to venture into this new space of outsourcing their substitute teacher delivery, some felt like that was not a step they were ready to take. The work has been done. The relationships have been built. The value proposition has been sold. And so now it's just -- it's more of a when than an if on those. So we have confidence that we'll get, again, more than our fair share of those as they come back to market. Kevin Steinke: Okay. Got it. That's helpful. And can you just talk a little bit more about the time line on the integration work going on in the SET segment. Chris, I believe you said you're looking to even accelerate that a bit and just tie that to completion of the process, I think you said would be also beneficial with taking that SET offering to the market in an integrated way and driving greater growth out of that offering. Chris Layden: Yes, exactly. And as I mentioned a little earlier, we have significant scale, and we've deployed about $900 million of capital, mostly in the SET business. And our customers, as we're talking to them, continue to want to leverage those capabilities, not just in technology, but technology and telecom, technology and life sciences. And so what we're doing is accelerating the modernization of that tech stack. We acquired -- when we acquired MRP, they had a leading tech stack. We were in the process of looking at various ways to integrate our disparate front, middle and back office. We have selected the tech stack that we acquired when we bought MRP and are in the process now of migrating the rest of the organization to that tech stack. We're starting with the integration, though, of our SET business. And so we really -- we know that, that will give us an unlock as we go to market, making sure that it's easy for our internal teams to be collaborating, winning new business, helping go to market faster, leveraging that tech stack. And then as we get SET integrated and the legacy SET acquisitions integrated into that technology stack, we will also be bringing through our education and ETM segments. And so that is all underway, and all of it is on schedule. Troy Anderson: Yes, Kevin, I might just add, this is Troy. The -- we have a big cut over here at the end of the year with the legacy acquisitions being integrated into the MRP tech stack and then in '26, the rest of SET, and we'll start making -- as Chris just indicated, we'll start moving some of the enterprise capabilities, likely leading with the human capital management component along with the rest of SET and then quickly follow that with education and ETM beyond '26. So those are some of the key near-term milestones around that. The go-to-market side of SET has been integrated. The management teams and the sales teams and the like there, but they're on separate systems, as Chris said. And so that creates some inefficiencies and some challenges with some of the collaboration, but we'll get through that here pretty quickly. Again, first big cut over into the year and then through '26. Kevin Steinke: Okay. Great. Yes, that's helpful. I guess, lastly, you talked about the fourth quarter outlook assuming a positive resolution to the government shutdown. I mean it sounds like the impact is -- on you has been pretty modest, but kind of what's the swing factor there in terms of this shutdown dragged on even longer than we expect? Troy Anderson: Yes. So we can measure the direct impact, right? We know what our government business is. We were fortunate that there was a larger percentage of the positions that we have that were deemed essential. And so that was a pleasant surprise if there's such a thing in the dynamic. But -- so less than a point. It goes all the way through the quarter, maybe closer to a point of revenue impact, and we tried to capture that in the 12 to 14 expectation, give us some room there. What we can't measure really is the indirect impact. So just yesterday, right, 10% of flights across 50 major airports being reduced, 10%. That's going to have a ripple effect. There could be other ripple effects in other industries the longer this goes on. So that's a bit of a wildcard that we don't know. So really, all we know right now is what we can directly see. And I think the longer this goes on, it's not going to help anybody. Operator: Our next question comes from the line of Marc Riddick from Sidoti. Marc Riddick: So I was wondering if we could talk a little bit on the cash usage and prioritization. Maybe we can start with what we're looking at for CapEx for this year, and then how the technology plays into what -- how that might skew '26? And then I have a follow-up after that. Troy Anderson: Yes, sure, Marc. This is Troy. The CapEx year-to-date is about $7 million, probably be $10-ish on a full year basis, plus or minus a little bit. Some of that spend on the technology deployment is cloud-based implementation work. So it doesn't show up as CapEx, but it still gets capitalized. third-party labor and some of the software costs, et cetera. So it's up in the operating section of the cash flow statement. But overall, again, strong cash flow for the year. And with that, we're seeing the opportunity to -- with some of the debt paydown that we've done this year, we're seeing the opportunity to -- in the fourth quarter here, given the share price and just the undervaluation of the stock also engage in some repurchase activity. So I think net-net, as I said in my prepared remarks, no material change in the -- our net debt position relative to the third quarter here, which is about $90 million-or-so, $118 million in debt and $30 million in cash. And the wildcard could be if perhaps there's a small tuck-in acquisition or something like that, that we're able to get over the goal line before the end of the year. But otherwise, that's what we're expecting. Marc Riddick: Okay. And then you kind of led yourself into where I was going next, which is acquisition. What you're seeing with the pipeline currently, maybe valuation-wise? And are you seeing how many opportunities out there vis-a-vis maybe 6 months ago or so? There seems to be a little bit of a pickup in activity there overall. So I was sort of wondering what your appetite is at the present time? And/or should we -- as far as larger acquisitions, are we things sort of on the sidelines for larger acquisitions now, or how you're feeling about that? Troy Anderson: Yes, it's a fair question. The -- I mean we're active. We have an active corporate development team. They're constantly evaluating pipeline. We've been expanding our network of sources for opportunities. We have seen some certain assets that are fairly richly valued and that we've passed on or that we've thrown in maybe an inquiry, but quickly decided that was going in a direction we didn't want to go. But we continue to be active. We're looking at across -- primarily in the SET and Education areas, type of opportunities, therapy add-ons, some of the other add-ons that we can do in the SET verticals, be it technology, be it engineering or life sciences. But as we sit here today, unlikely that there's a large acquisition in the near term, but we never say never. But certainly, we're going to continue looking at building upon the scale that we've achieved. We're going to continue looking at adding capabilities. We believe we have a great foundation to be building upon both organic growth and inorganic growth. And so that's -- we've got strong cash flow, and we expect to continue to be able to deploy capital opportunistically across the various options, as I mentioned earlier. Operator: Our next question comes from the line of Jessica Luce from Northcoast Research. Jessica Luce: First of all, I don't know if it was already touched on, but I have a brief question and then a follow-up. First, in terms of the current macro environment having an impact on the quarter, just to go a bit deeper, how would you characterize the sales cycle for the business overall? Chris Layden: The sales cycle is still really robust. And we're continuing in some of the work I shared in my prepared remarks, our focus on growth is at the core of what we're doing right now, making sure that we are in front of our customers, helping them understand all of the ways that we can add value. And we're going to continue to make sure that all of Kelly is coming to our largest enterprise customers. We've also seen in our SET business, a really strong retail pickup this year, which has been driven -- driving some of the stability in the SET business and some of the growth in engineering and in telecom. And then finally, in the education space, as Troy indicated earlier, we're #1 in the market on the heels of a 90% fill rate in the quarter. It is maybe as exciting of a time as any to go and sell with that track record of success. And we are everywhere in the market, talking to districts, they're in-sourcing their model and helping them understand how we could add value as their partner. So we're going to continue to have that be a priority as we drive growth into the future. Jessica Luce: All right. And then just as a brief follow-up again, if it was touched on or not. In terms of the pricing environment for the 3 segments, do you see any specific pressures within any of the segments? Chris Layden: I'll maybe start, and Troy, you feel free to weigh in. We're going to continue, I would say, overall, just to kind of set the stage to be disciplined in how we're going to approach new opportunities in the market. We're not going to go by business. We continue to see rationality in terms of where we play. We've got a huge opportunity to continue to move up the value chain in the statement of work solutions-based business, particularly in SET, and that continues to be a priority. And we're going to continue to monitor that over the next couple of quarters. I don't know, Troy, if there anything else you want to add? Troy Anderson: Yes. I think as we look across the 3 segments, Education and SET are, I'd say, stable. The spreads there are stable too, actually improving as, again, we move up the value chain with both current and prospective clients on new opportunities. And then I would say it's a little more mixed in ETM as we -- some of the large enterprise as they come up for renewals, of course, we're trying to work with them on their cost structure. And so there could be a little bit of concession here or there. But generally speaking, I'd say maybe we see a little bit in ETM and actually more positive momentum than the other two. And it's not really translating. Our gross profit was, I commented, not as strong as we were expecting, down 60 basis points year-over-year, but it was really more a function of the business mix and some elevated cost of service in the quarter versus really spread or pricing pressure. Operator: This concludes the question-and-answer session. I would now like to turn it back to Chris Layden for closing remarks. Chris Layden: Thank you all for joining today. That concludes, we'll see you next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Sappi Q4 2025 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Binnie, CEO. Please go ahead. Stephen Binnie: Good day. Thank you, everybody, for joining. As always, I'll go through the investor presentation calling out page numbers as I move through. I'm just starting briefly on page 2, just drawing your attention to the forward-looking statements disclosure. Turning to page 3, which is summarizing the year as a whole, the financial year 2025. And it's fair to say it was a challenging year, marked by ongoing global economic weakness. We did see difficult market conditions across all our segments actually, and obviously, partially driven by the weak economic conditions, but also the global trade tensions. As a result of all that, we saw downward pressure on selling prices. And from a materiality perspective, particularly on dissolving pulp, they dropped quite sharply during the year. And on the paper side, added to that, we have seen excess supply globally in our key market segments. Despite all those challenges, we did have some operational highlights. We saw our DWP and packaging volumes growing year-on-year. And in the graphic paper space, we were able to gain market share. Thrilled to say that we've obviously completed the Somerset PM2 conversion and expansion, and that's an important step in our strategy and the machine is performing well. In Europe, we continue to make further rationalization to take cost out of the business and to improve capacity utilization. Then on slide 4 is a summary of the quarter itself. Relative to the prior quarter, Q3 of this financial year, numbers up a little bit. However, the market conditions remained challenging. We did see sales volumes pick up for pulp and packaging, and we also benefited, obviously, because there was no maintenance shuts. Regionally, Europe continues to be in a challenging place. The economic situation there is still difficult for us. And across many of the paper grades, we see excess capacity. North America, obviously, beginning the ramp-up of the -- the Somerset 2 conversion. We saw improvements in volumes and modest improvement in profitability. Obviously, you're not at optimized levels, but we start to see that improvement come through. And in South Africa, I think South Africa had a pretty good quarter, actually. Obviously, lower dissolving pulp prices are the big story there. But on the packaging side, a reasonable quarter, albeit that on the packaging side, even selling prices there globally have an impact on the South African business. Slide 5 has the bridge from last year to the current year. And the big story is obviously the lower selling prices and its impact on our business. It's across all the segments, and that kind of dwarfs all the other variables when you look year-on-year to give us the $111 million. On Slide 6, we did see relative to the prior quarter, we did see variable costs coming down in each of the regions. Pulp at relatively low levels. And obviously, that benefits the paper business, but obviously indirectly has a negative impact on DWP prices. Energy prices coming down a little bit as well, but really across the board. And then turning to slide 7, which is the evolution of our net debt and our leverage over the last few years. And obviously, we saw the peak through the COVID period. We saw it coming down substantially. We made a decision to invest at Somerset, obviously. And then in the current year, we've got the higher CapEx, which is now behind us. We also were negatively impacted by the exchange rates, the fact that a significant proportion of our debt is denominated in euros. And when you convert that to dollars, you get the negative impact. But having said that now, the investments are now behind us, and we would expect our debt to start coming down. You saw it coming down a little bit in this quarter, and we would expect that to continue over the next quarters ahead and into the next few years. And then the debt maturity profile is reflected on page 8. And maybe just a couple of callouts. Firstly, on the short-term debt, which is 2026, you can see we've got a chunk of short-term debt in the box there, the $224 million. We are - and we did put out an announcement on this. We are in the process of terming out some of that debt and making good progress, and we'll give an update as soon as -- as soon as that's complete. Perhaps the other major refinancing that we've got coming up over the next few years is the 2028 bonds, Eurobonds, it is about at EUR 400 million. We obviously monitor the markets, and we'll pick the right time to refinance that as we move into the new year. And then on cash flow and CapEx, obviously, a tough year and lower profitability, which has meant that we utilized cash during the year and you add in the CapEx as well. So $360 million that we utilized during the year. CapEx going forward, 2026, we are estimating at $290 million. And then 2027, we're committed to keeping that below $300 million. We haven't finalized the number yet, but it will be below $300 million. Taking that forward into Page 10. As you all know, we gave a recent update on some of the work that we're doing on the balance sheet on the funding side. Obviously, with the lower profitability, our leverage ratio increased. And because of that, we proactively renegotiated our covenant levels through next year, great support from the banks, unanimous support, and we've negotiated significant -- enough headroom to manage through this peak time. We're terming out the short-term debt, as I said, and overall, with that debt reduction focus back to basics, focusing on productivity, cost containment. At the same time, we've obviously stopped the dividend, and we have some initiatives to reduce costs, particularly in the European business, and I've got a slide on that just now. The Thrive strategy is reflected on Page 11. And obviously, our focus in the short to medium term is this back to basics, but we must never lose sight of our strategic focus. And obviously, operational excellence is key to Back to Basics, maximizing productivity and efficiency and reducing costs. We continue to focus on enhancing trust across all our stakeholders. In terms of growing our business, we're not going to be taking on any projects or any material projects in the next couple of years. Our focus is on ramping up the projects that we've done and primarily, obviously, that's the Somerset PM2. Ultimately, we're laser-focused on getting the debt below $1 billion. We know it's going to take a couple of years, but with all the actions that we're taking, and we're confident that we'll get there in the medium term. And then obviously, with a strong focus on our maturity profile, which I talked about already. Slide 12, I'm not going to repeat because a lot of this is similar to the prior slide, just to say that we are in this consolidation phase, focused on costs, focused on efficiency, maximize production. We've got a $60 million target to take out costs in Europe, and that -- much of that's already been made public, but it's not just Europe. We are focusing on the other regions and at the corporate level. And on top of all that, working capital optimization. It's only once we complete all that, that we would consider dividend payments and any growth opportunities. The Slide 13 just talks about our capital allocation priorities, and I've touched on this. So I'm not going to repeat everything here. But obviously, strongly focused on reducing debt, ramping up on PM2, ensuring we get a return on capital employed above our costs -- above 2% of our WACC -- 2% above WACC. And then making sure that we optimize our product portfolio and matching graphic paper capacity to market demand. Slide 14 is a specific slide on Europe, which we thought would be useful. It just breaks down the $60 million saving that we've got. You can see it's across some -- the mills and at the corporate level or the central regional level. We're closing 2 machines at Alfeld, at Kirkniemi. At Ehingen, we are reducing shift details. And at Gratkorn, which is our #1 mill in Europe, looking at a number of initiatives to optimize product -- production and profitability. Then turning to the segments. And again, I'm not going to go into detail, but just to summarize, and I'm on Slide 16. The demand -- the underlying demand for DWP remains good. And we are fully sold out, and we continue to have our customers pushing for volume. The challenge is obviously that global prices have come off, and that's linked to various macroeconomic conditions. And I also think that the lower paper pulp prices have not helped as well with carouseling and substitution there. But overall, volumes are good. Also on the production side, things are going -- going better as well. Packaging, a really tough year -- sorry, Slide 17. Packaging, a tough year across all the regions, actually. Europe, a modest recovery. But as I said earlier, the European economy continues to be challenging, and there's overcapacity in all the key product categories. North America, we've begun that ramp-up. The machine is performing well. We're adding volumes, and we're confident that we'll continue to do that in the quarters ahead. South Africa had a very good citrus market season, which is our primary product -- that's our primary market for our South African containerboard business, a good season. The only challenge -- well, the one challenge we have is that global containerboard prices are weak, and that does have an impact on domestic selling prices. And then on graphics, we continue to be proactive in terms of managing our capacity. In North America, the domestic markets tightened. Obviously, we took out PM2 out of graphics. So that supported the market balance, and I think it has helped ensure that we have stable selling prices and good margins. Europe, the challenge in Europe is the excess supply, and that obviously impacted on selling prices in that region, which had a negative impact on profitability. And then Slide 19, just a very brief summary of the regions. And all in all, you can see selling prices across the board down. And then some of it, we did get cost savings in Europe to offset some of that, however, not enough. And then in North America, cost’s up, obviously, because we had the initial ramp-up at Somerset and that obviously impacts on efficiencies and usage and the likes. And then in South Africa, we did have some of the -- some of the raw material costs up year-on-year, some of the chemical costs and wood costs there. Slide 20 has some of our key awards and the highlights. I'm not going to go through all of them. We're particularly proud of our rankings in the Forbes Best Employer and top companies for women. We were 144 in the world for top companies for women, the second in South Africa, really very proud of that. But even best employers as well globally to come in at 289. And when you look at the companies on that list, we're very proud of that. Other than that, we continue to focus on our science-based targets and our wood certification, which gives us a strategic advantage. And then you can see the links to our reports there as well. Turning to the outlook, and I don't intend going through every bullet. I'm on Slide 22. I think it's fair to say that the market conditions continue to be challenging. We do believe that as we progressively move through 2026, things will get better. DWP has stabilized. You saw a little bit of an increase in that quarter, and we continue to think that that will be the case as we move through 2026. We'll obviously have the benefit of the ramp-up in PM2 as we progress quarter-on-quarter. And then on the graphics side, it's about proactively managing that capacity. The cost side, yes, some of the -- some of the raw material costs are relatively low, and we'll look for opportunities there. We do have a maintenance shut -- scheduled maintenance shut at Somerset. That's an 18-month shut, which will have an impact of about $20 million, and we obviously took that into account in our guidance. You've heard me say it many times, back to basics, focus on what we can control, focus on efficiency, focus on cost, debt reduction, very disciplined capital allocation. And taking all that into account and the shut, obviously, we estimate that the EBITDA for -- the adjusted EBITDA for the first quarter of 2026 will be below that of the first quarter we've just reported on. So, operator, I've gone through the presentation. I'm now going to put it back to you for questions. Operator: [Operator Instructions] Our first question comes from the line of Brian Morgan of RMB Morgan Stanley. Brian Morgan: Steve, if I can ask 2 questions. First question is on Europe. Pretty torrid quarter, September quarter, like saw what the rest of the -- the rest of the paper packaging management, but none of them were EBITDA negative. So just a question on that is, was there -- in terms of those machines that you closed during the quarter, were there sort of non-normal effects coming through EBITDA, which we can reverse out in coming quarters? Stephen Binnie: Brian, I think specifically, the two machines that we took out were negative -- negative EBITDA. Obviously, by taking those out and optimizing the product mix and the cost base associated with that, we do think we can get improvement there. One of the challenges we face is that at Alfa specifically, our energy costs have risen substantially since the pre-COVID times. And it’s -- it's meant that those -- those machines that we're closing became uncompetitive, and we've moved around our portfolio. And that combined with obviously all the other initiatives, we're focused on getting the packaging back to positive EBITDA. Brian Morgan: Okay. So, without -- without any tailwinds from the market, you'd expect that European business to turn EBITDA positive even modestly? Stephen Binnie: Are you talking about -- yes, in the year? Yes, next year, yes, definitely. Yes. Brian Morgan: Yes. Okay. 2026. So, without any tailwind, any pricing benefits or anything like that, you would expect an improvement? Stephen Binnie: Yes. Brian Morgan: Okay. Steve, could you just flesh out PMT now? Just I'd be interested to know if you worked out how much of an EBITDA headwind that conversion had for you through the course of FY '25? And then also, if you could just chat to us a little bit about how to think about maybe an EBITDA ramp-up. I know you don't give us numbers but just help us to think about how that might evolve over the next couple of quarters. Stephen Binnie: Yes. Interesting question. Look, I mean, obviously, we had the direct costs of the downtime, and we revealed that in the last two quarters, and I'm looking at my colleagues, I think it was $22 million and $21 million. So, there was about $40-odd million specifically. But then you obviously had the indirect impacts of the efficiencies at the mill. Brian, I don't have that as a specific number. But clearly, it's north of $10 million. I don't have that as a-- as an absolute number, but -- but it had a material impact on the profitability. Now obviously, on top of that, going forward, you're going to have the additional volumes because we've doubled the capacity of the machine. Now Q1, we've got the shut, and you've got to take that into account when you -- when you're quantifying profitability of the North American business. But progressively beyond that, we're still very confident in the ramp-up. We've been signing up customers. We've been adding volumes. Yes, obviously, the delay had an impact. Yes, we have that trade-off between price and volume, which we've got be – we’ve got to delicately manage. You know that and this is public, SDS prices in the U.S. have come down a lot over the course of the last 18 months. And we've got to carefully manage that, but we are confident on the ramp-up. And we know the machine is performing well. We know that the customers like the quality of the product coming off there. And we're still committed. We said it all along that by the time we get to the end of Q4 of this -- this new financial year, we're confident that the machine can be substantially full. Operator: Our next question comes from the line of James Twyman of Prescient. James Twyman: Two to start with from me. The first one is the energy credit gain that you always get in Europe in Q1. Could you give us some idea of the scale of that and whether that's included in your guidance? And secondly, the 5 measures you're doing in Europe, could you give us some idea about broadly when you expect them to give a return and when and what the costs are? Stephen Binnie: Okay. I think on the first one, just to clarify your question, obviously, energy costs in Europe have been rising, and there has been increased costs. And the way that these rebates work is that you incur the cost -- higher costs across the year. And then at the end of the year, you get rebates based on your usage. So it's an offset of the higher costs that you have during the course of the year. Yes, you're right. Typically, the rebates occur in Q1, but not always. And it's difficult to give a -- to pinpoint exactly when we get them. Typically, they're somewhere between EUR 20 million and EUR 30 million. And by the way, it's not unique to Sappi, it is over -- it's all the industry players in Europe. Typically, they are between EUR 20 million to EUR 30 million. We don't know the exact numbers as we sit here today for what we've done this year. We have a rough idea, but we don't know the exact. In terms of our guidance, yes, that would be incorporated into our guidance. James Twyman: Okay. So, you would have included that the number -- somewhere in that range of number in your Q1 guidance. Stephen Binnie: Indeed. But ____ 26:25 to stress, it is an operational -- it's an offset of an operational cost, I think, is the important point. And then your second question? James Twyman: Yes. Sorry, yes. My second question was just in terms of these 5 measures, your big measures you're doing in Europe. … When should we start expecting that return? And when do you expect the costs to -- that EUR 40 million of cost to be incurred? Stephen Binnie: Yes. I'll let Marco go into more detail. Just from our side, obviously, you have to be sensitive about the discussions with labor and following a process, which we've been going through. And maybe the other point before I hand to Marco, EUR 60 million benefits, EUR 40 million costs. Those are the headline numbers, but obviously, that's phased. And Marco, maybe you want to go into more detail. Marco Eikelenboom: Yes. Yes, James, this is very much a staged approach. We've highlighted the 5 units basically where most of the work will be done. We finalized the consultation process in Alfeld, Ehingen, Kirkniemi in the last couple of weeks, which means that we now can implement the social plans for the FTE reductions there. I would say most of that benefit we will see as of quarter 2 -- fiscal quarter 2 and the costs because some of the work on the -- particularly on the central organization have been done already in September, October. So the costs will be kind of divided over – over the quarter, quarter 1 and quarter 2. But the effects will mainly be as of quarter 2 next year. James Twyman: If I could sneak another one in. There have been substantial tariffs on importers into the U.S., from Asia and from Europe, which I think is around 15% at least. What has been the impact on domestic prices for paperboard and for coated fine paper? Obviously, the paperboard impact has been offset by other factors. But what have you been able to achieve in terms of price as a result of that? Marco Eikelenboom: Are you talking about European prices? James Twyman: No, U.S. prices in terms of the impact of the increased ____ 29:09 importers into the U.S. and... Stephen Binnie: Yes, that's a tricky question because you have your indirect impacts, and it creates opportunities for us. I'm not sure you can say that selling prices have gone up just because of tariffs. But Mike, I don't know if you want to elaborate further on the impact of tariffs on the European competitors on North American domestic prices. Michael Haws: 29:49 I guess my view on that, Steve, is that -- it hasn't had a direct impact on North American prices. There have been announcements from importers of increases and how much they're realizing, it would only be speculation on my part. And that has also allowed some of the markets to improve and orders to move from imported to domestic. Stephen Binnie: I think that's the important point, James, is that it's not so much for our domestic supply, it's not so much that it's been enabling us to increase selling prices. But what it is doing is creating opportunities for us to secure more volume. James Twyman: Okay. Well, maybe as an example, obviously, you're a big exporter to the U.S. from Europe. What have you found? Have you been able to raise prices? Or have you … Michael Haws: James, we're not a big exporter on boards. I think you were specifically talking boards, or was it -- was it graphic paper as well? James Twyman: Graphics as well, to be honest, sorry, yes. Michael Haws: Yes. So board we're not -- it's not material. Marco, would you -- would you want to talk on the graphics side? Marco Eikelenboom: Yes. On the graphics side, James, of course, we have tried to offset some of the increased cost due to the tariffs and to pass that on to our customer base, which, with the domestic competition in the U.S., is not easy. I would say that this has cost us volume, but we've been successful to around 50% of our -- of our incurred costs due to the tariffs. But it's not so much the pricing that we could get up. It's more the volumes that we -- that we started to lose because of this attempt that we did to pass on the tariffs. Operator: Our next question comes from the line of Sean Ungerer of Chronux Research. Sean Ungerer: Just the first question around the European cost savings. Just to be clear, as what’s been said on the call so far, sort of -- sort of run rate to sort of see these cost savings come through is only going to really filter through to the second half of the year. Is that the correct way to interpret that? Stephen Binnie: No. I think from -- you'll start to see it in Q2, so if I was to -- Marco touched on it, but you'll probably -- there'll be a little bit --there'll be some in Q2, more in Q3, Q4, and the final little chunk will be in Q1 of 2027 because a lot of these things that we -- these initiatives are happening now, as we speak, right? So you still have some of the costs in this quarter. But for the next 4 quarters beyond that you’ll -- the savings will progressively get larger. Sean Ungerer: Okay. Got it. And then just on the net debt target of below $1 billion, what is the sort of definition of medium term? Because if you look at the slide of the presentation, I think it sort of flags resuming dividends and growth, and considering share buybacks from 2028 when the target is reached. Am I interpreting that correctly? Or how should we think about that? Stephen Binnie: Yes. Look, it's hard to be definitive because clearly, it's going to be dependent on market conditions. We've obviously got a strong commitment to reducing CapEx over the next 3 years. I think that – I do think market conditions are going to improve, and profitability will pick up. Everybody can do their math. It's all going to depend on the level of profitability. If we can get back to normalized levels, we'll get there quickly. But I think it's going to -- it's going to be gradual. I mean, clearly, in 2026, market conditions are still relatively challenging. I do think we will get the ramp-up of Somerset. We will have better DP prices. Our CapEx is going to be $290 million. So I think there will be some strong cash generation this year. And then when you get to '27 and '28, I think there'll be further -- further cash generation. Listen, if it takes longer, obviously, we'll stay committed. We are laser-focused on getting this debt level down, and however long it takes, what's our best estimate? 3 or 4 years. Sean Ungerer: And then just to follow on another question around the packaging especially the pricing in North America. So if we sort of exclude the ramp-up of PM2, what is the core sort of board business pricing mix done sort of year-on-year at least? I mean, sort of listening to a couple of other competitors in the U.S., it seems like pricing was down about at least 3% to 4% year-on-year. Stephen Binnie: Yes, that’s right. Obviously, it depends on the mix and the different grades and all that kind of stuff. But if you look on average and some of the key product categories, you're talking $100 to $150 type decrease. Mike, I don't know if there's anything you want to add. Michael Haws: No, Steve, thank you. Sean Ungerer: That's great, and then, Steve, I appreciate the… Stephen Binnie: Mike, anything you want more? Sean Ungerer: No. No, we got it. Okay great. And then, Steve, I appreciate the guidance on the planned maintenance in Q1, and there's obviously a nice schedule for maintenance for the full year by quarter. Just trying to compare like-for-like compared to 2025, if we sort of strip out the [indiscernible] cost of ramp-up. I mean, what is your best estimate? Is planned maintenance going to be sort of roughly flat year-on-year or lower or higher…? We've obviously got a number for Q1. Stephen Binnie: If you -- yes, look, if you back out the whole Somerset thing, I mean, last year, you had -- in the U.S., you had Cloquet and this year, you've got Somerset. In South Africa, you've got Ngodwana, which you did have last year, oh there is, yes -- yes, it's on Page 28 -- yes, Page 28. So you've got different quarters, but you've got Ngodwana in both years. Perhaps a little bit higher would be -- and I'm looking at Graeme here. Cycle is a little bit higher because we've got that a little bit of a longer shut to fix the one piece of equipment that we need to spend time on, but it's not that material. Graeme? p id="60862666" name="Graeme Wild" type="E" /> No. I think more importantly, we're doing a full mill shut in that one just to do a full clean of systems that don't regularly get cleaned. So it is slightly longer, but not best material. Stephen Binnie: Yes so I think the conclusion out of all that, Sean, is that broadly -- I mean, obviously, Somerset -- taking out Somerset project last year, broadly, it's about the same as last year, maybe yes. Sean Ungerer: Okay. So call it like $70 million odd. Stephen Binnie: Yes. Sean Ungerer: Okay. Cool. And then, Steve, just going to North America in terms of coated freesheet. I mean, there's a couple of your competitors asked price increases for Q4. I'm assuming that will sort of benefit your business as well. Is there any sort of update there or traction or not -- no traction? Stephen Binnie: I'll let Mike go into more detail. Obviously, us taking out the machine has brought the market -- domestic market back into balance. And it does create opportunities on Somerset PM1. And I think we talked about that in our results announcement. So we'll obviously -- if there are opportunities to add value and make some graphics on PM1, we'll take advantage of that. But Mike, specifically to recent pricing moves in that. Michael Haws: I guess -- I guess the way I'd phrase that up, Steve, is the market is still overcapacity with the current coated freesheet assets in North America. And on the [web side], not as much traction as on the sheet side. The sheets are dominated by imports, which have had the tariff impact. And I'd kind of frame it up in that way. We are carouseling some graphic grades to PM1 as we're ramping up the volumes on -- at the Somerset mill. Stephen Binnie: So overall, there are certain grades where we've been able to get it, but others more challenging. But having said that, it's obviously a much tighter market conditions than Europe. Sean Ungerer: And then just last one for myself. I mean, what do you think is going to be the biggest catalyst in the short term to sort of see a rise in DP prices? Stephen Binnie: The biggest risk. Sean Ungerer: Catalyst. Stephen Binnie: Catalyst. Look, I do -- and again, I'll let Mohamed expand further. I think that it's clear that there's still a high correlation between paper pulp prices and DP prices. Obviously, paper pulp prices have gone up a little bit – little bit in recent months. And I know there's another price increase out there. I think that will help. And then obviously, secondly, as the kind of macroeconomic situation improves and the consumer environment gets better and the trade tensions that have been out there as they get resolved, I think all of that will help as well. So we think it's going to get progressively better. Mohamed, I don't know if there's anything you want to add there. Mohamed Mansoor: Yes, Steve, the only other thing I would just add is that the fiber prices also has a big impact on the DP price. And viscose staple fiber prices have stayed and operated in a fairly narrow band for a long time, but the operating rates have moved higher. The inventory levels have moved lower. And at some point, that's got to start showing up in the fiber prices moving up. And as soon as that happens, that is -- that could be a very important trigger to lift the DP price. Operator: [Operator Instructions] Our next question comes from the line of Lars Kjellberg from Stifel. Lars Kjellberg: I just want to come back to Somerset a bit. Steve, you talked about your great confidence in ramping up this machine over the next 12 -- 15 months or so. At the same time, most would say it's about 0.5 million tonnes of excess supply in the U.S. market and volumes are flat to down a couple of percent. So how will this be done? What is behind that confidence? What are your prime way to ramp your machine? Stephen Binnie: Yes. Look, I think it's a progressive process. We've been in discussions with customers for the last couple of years. And we know that we've got the best machines in the industry in the U.S. And we know that we are targeting the independent converters. So, it's going to be a progressive process. Some of our -- interestingly, and I'll let Mike expand further here. We've seen some reasonably good growth numbers in the last couple of months in terms of volumes coming out of the SBS markets. So it's a combination of -- in terms of the longer-term discussions that we've had, the -- our ability to service those independents and building on the relationships that we have. Clearly, and I said that on an earlier comment, there's going to be a price volume trade-off. And we've got to -- we've got to carefully manage that and optimize profitability as we go through that process. But Mike, do you want to talk further there? Michael Haws: I think if you -- if you just think about the market and the scale of the 2 assets that we now have as independent suppliers, it is absolutely the best largest scale machines in the SBS market. So we've got new equipment, highly technical. We've got a product match with our PM1 that was extremely well accepted in the field. And we're obviously a domestic supply. So we've seen opportunities as a result of some desire to switch to domestic from imports. And as the independent suppliers are looking to grow their business, they're clearly looking to grow with companies that are convicted around this business, which is clearly Sappi with the investments that we've made and not just the mill, but with our sales force, and our technology group with R&D. So we've had many business with customers. And I think it's a relationship piece that we're going to continue to build. And we feel as though things are progressing well. Is it a seller's market? It's clearly not. But we're making great progress and the product off the machine and the asset is running very, very well. Stephen Binnie: Lars, just -- and one other point to make is that remember, we have PM1 at Somerset. And we can -- and with margins healthy on the graphics side, we can leverage off that flexibility on PM1 as well on top of all the good stuff that's happening on PM2. Lars Kjellberg: Yes. Could you remind us also the yield benefit you would have relative to a standard U.S. SBS sheet and how you would compare with import FBB? Michael Haws: Probably we have about a 5% yield advantage up from SBS, which is a little bit less than FBB, but we also have a couple of fighter grades that we developed that are similar to FBB. Lars Kjellberg: Final question for me is, again, we're talking -- coming back to Europe, right, where there's -- as you pointed out, significant excess supply and it feels as if some volumes turning back that used to be exported from Europe. So are you seeing any incremental pressure from repatriation of overseas tonnes into the European market that makes that particular market when it comes to coated paper more challenging than it already is? Michael Haws: Look, that's one of the dynamics, isn't it, Lars? Yes, part of it, it is already there, and it's a continuing pressure point. Obviously, you have the indirect impact on tariffs, right, from the U.S., right? Other players can't get into the U.S., where do they look to sell their product in Europe. So it just compounds the challenges of Europe and adds to that excess capacity, and that's why it's very important that we're proactive taking -- matching our capacity to our demand and taking costs out of the business. So it just compounds the challenges we faced. Operator: There are no further questions. I will now hand back to Steve Binney. Please continue. Stephen Binnie: No, thank you. I just want to take the opportunity of thanking everybody for joining us today and look forward to discussing our results at the end of Q1. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to AstraZeneca's 9 months and Q3 2025 webinar for investors and analysts. Before I hand over to AstraZeneca, I'd like to read the Safe Harbor Statement. The company intends to utilize the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward-looking statements. Please carefully review the forward-looking statements disclaimer in the slide deck that accompanies this presentation and webcast. There will be an opportunity to ask questions after today's presentation. [Operator Instructions] And with that, I'd now like to hand the conference over to the Head of Investor Relations at AstraZeneca, Andy Barnett. Andrew Barnett: A very warm welcome to AstraZeneca's Year-to-Date and Third Quarter 2025 Presentation, Conference Call and Webcast for Investors and Analysts. I'm Andy Barnett, Head of Investor Relations. And before I hand over to Pascal and other members of our executive team, I'd like to cover some important housekeeping items. Firstly, all of the materials presented today are already available on our AstraZeneca Investor Relations website. Next slide, please. This slide contains our cautionary statements regarding forward-looking statements, including the safe harbor provision, which I'd encourage you to take the time to read carefully. We will be making comments on our performance using constant exchange rates, or CER, core financial numbers and other non-GAAP measures. A non-GAAP to GAAP reconciliation is as usual, contained within our results announcement. All numbers quoted are in millions of U.S. dollars unless otherwise stated. And next slide, please. This slide shows the agenda for today's call. And following our prepared remarks, we'll open the line for questions. As usual, we will try and cover as many questions as we can during the allotted time, although please limit the number of questions that you asked to allow others a fair chance to participate in the Q&A. And with that, please advance to the next slide, and I will hand over to Pascal. Pascal Soriot: Thank you, Andy, and welcome, everyone. I'm pleased to report that our strong growth momentum and pipeline delivery have continued through the first 9 months of 2025. Total revenue grew by 11%, driven by continued demand for our innovative medicines and core EPS increased by 15%. Since our full year results in February, we've achieved 31 regulatory approvals across key regions and the pace at which we are bringing new medicines to patients continues to accelerate. Importantly, we've announced positive results from 16 Phase III trials and 6 of our data sets were presented in plenary sessions at major conferences, a clear reflection of the importance of this data to the medical community. Please advance to the next slide. Combined, our global reach and diverse sources of revenue have a significant strength, ensuring low concentration risk and resilience to regional disruptions. We have continued to deliver strong growth across therapy areas and geographies. In the first 9 months, our oncology franchise grew by 16%, reflecting the ongoing demand for our medicines across the globe. Our Biopharmaceuticals and Rare Disease franchises were also up 8% and 6%, respectively, with strong growth from our newer medicines more than offsetting the loss of exclusivity of a limited number of mature brands, including Brilinta, Pulmicort and Soliris. Importantly, we continue to see robust growth across all key geographies, particularly in the U.S. and the emerging markets outside of China, where revenues were up 11% and 21%, respectively. Please move to the next slide. We are in a unique catalyst rich period, one that I'm excited to say, look set to continue well beyond 2026. Shown here are the high-value positive studies we've announced in 2025. And as you can see, we are delivering success across all of our key therapy areas. Since our last quarterly update, we've announced four additional positive Phase III study readouts. DESTINY-Breast05 together with DESTINY-Breast11 that read out earlier this year marks an important advance for patients with early HER2-positive breast cancer that could potentially benefit from a HER2. TROPION-Breast02 has the potential to establish Datroway as a new standard of care in triple-negative breast cancer. The Bax24 trial results reinforce the best-in-class profile of baxdrostat in treatment-resistant hypertension. And finally, TULIP-Subcu will enable us to bring a more convenient subcutaneous administration of Saphnelo to SLE patients. All these positive Phase III readouts continue to give us confidence towards our $80 billion 2030 ambition. Next slide, please. I'd like to address recent developments for AstraZeneca in the United States. The U.S. remains our largest market and is projected to account for around 50% of our total revenue by 2030. We announced a landmark agreement with the U.S. government which provides greater clarity around pricing and a 3-year exemption from tariffs. The agreement will lower the cost of many prescription medicines for American patients, while safeguarding Americas cutting-edge Biophamaceutical innovation. With the administration support, we are now working with others to deliver price equalization across wealthier markets, an approach that offers a more sustainable future for governments, industry and patients. In addition, we continue to focus on clinical trial diversity and further enhancing our clinical trial footprint in the U.S. To support our growth ambitions, we've been steadily expanding our global manufacturing capacity including broadening our U.S. footprint over the last several years. Last month, I was pleased to break ground on our new Virginia facility joined by Senator, Lutnick; Governor, Youngkin; and Dr. Ross. And lastly, I'm grateful for our shareholders to voting through our proposal to harmonize our listing structure in London, Stockholm and New York. AstraZeneca ordinary shares will be listed on the New York Stock Exchange from February next year. This new listing structure will offer flexibility to access the broadest available pool of capital, including in the U.S. and enable more shareholders to participate in AstraZeneca's exciting future. And with that, please advance to the next slide, and I will hand over to Aradhana. Aradhana Sarin: Thank you, Pascal, and good morning, good afternoon, everyone. As usual, I will start with the reported P&L. Next slide, please. Total revenue increased by 11% in the first 9 months. Product sales grew by 9% with strong growth seen across the business in key regions. Alliance revenue increased by 41%, driven by continued growth for both Enhertu and Tezspire in regions where our partners book product sales. Next slide, please. This is our core P&L. Our core gross margin in the first 9 months was 83%. We continue to anticipate a slight decrease in the core gross margin for the full year versus 2024, due to the Medicare Part D reform, Brilinta LOE, Soliris biosimilars and increased profit sharing from partnered products. Similar to prior years, we anticipate the core gross margin in the fourth quarter to be lower than in the third quarter, driven by the usual seasonal pattern with more sales from lower-margin products like FluMist and Beyfortus. R&D expenses increased by 16% in the first 9 months, driven by sustained high activity, including many clinical trials having enrolled ahead of plan. We've also made significant investments in high-value pipeline opportunities, such as our I/O bispecifics, weight management and cell therapy portfolios. As a percentage of total revenue, core R&D costs accounted for 23.3%, and we continue to expect R&D to land at the upper end of the low 20s percentage range for the full year. We have continued to make progress towards our 2026 margin goal and remain on track, as you can see from our 9-month results with core operating margin at 33.3%. Operating leverage continues to remain a focus internally. And again, as you can see from the first 9 months, product revenue grew at 11% and SG&A grew at 3%. Core EPS of $7.04 represents CER growth of 15%. Next slide, please. We have seen strong cash flow inflow from operating activities in the year-to-date, up by 37% versus the prior year to $12.2 billion, driven by robust underlying business momentum. In the year-to-date, we saw CapEx of $2.1 billion. And as previously stated, we anticipate an increase of around 50% for the full year versus 2024, which implies a step-up in the fourth quarter which also is normal as in prior years. Our capital allocation priorities remain unchanged. We currently have interest-bearing debt of close to $33 billion, which is a level we're comfortable with as we plan to continue making investments to support future growth, build our supply chain globally and further strengthen our R&D pipeline. Our net debt-to-EBITDA ratio currently stands at 1.2x. Turning to guidance. Today, we are reiterating our full year guidance with total revenue and core EPS anticipated to increase by high single-digit and low double-digit percentage, respectively, at constant exchange rates. We expect our strong revenue momentum in growth brands to continue. I would like to remind you that in the fourth quarter of 2024, we booked more than $800 million in sales-based milestones under collaboration revenue. This year, we do not anticipate any significant milestone revenue in the fourth quarter, which will affect the year-over-year growth rate comparisons for the fourth quarter. In addition, in China, while growth has been strong throughout the year, fourth quarter revenues are anticipated to be affected by VBP-associated stock compensation costs for Farxiga, Lynparza and Roxadustat and the usual year-end hospital budget capping, in addition to tender order variability in emerging markets. Similar to prior years, we also anticipate a sequential step-up in both R&D and SG&A expenses in the fourth quarter versus the third quarter. With that, please advance to the next slide, and I will hand over to Dave, who will take you through the incredible performance of our oncology and hematology business. David Fredrickson: Thank you, Aradhana. Next slide, please. Oncology total revenue grew 16% in the first 9 months to $18.6 billion with broad-based double-digit growth across U.S., Europe and emerging markets. The U.S., in particular, continued to report strong year-over-year growth of 19%, highlighting robust demand for our medicines, which substantially outpaced the increased liabilities resulting from Medicare Part D redesign. Emerging markets also delivered impressive performance with 20% growth during the period. Focusing on third quarter performance, we achieved robust 18% growth for the second quarter in a row. Tagrisso delivered sales of $1.9 billion in the third quarter, representing 10% growth on the prior year. Widespread demand across all major regions reinforces Tagrisso's role as the backbone of care for EGFR-mutated lung cancer. The first-line lung cancer combination market continues to expand with FLAURA2, the clear leader, in terms of new patient starts and total scripts. The compelling overall survival results presented at the World Congress of Lung Cancer and subsequently published in the New England Journal of Medicine will drive further leadership. Calquence remains the leading BTK inhibitor in first-line CLL across major markets, with total revenues increasing by 11% to $916 million in the third quarter. In the U.S., we continue to see increased demand more than offset the impact of Part D redesign with improved market share versus the same period last year. We're seeing positive early signs of adoption for AMPLIFY in Europe and expect this trajectory to continue through the remainder of the year with the U.S. launch anticipated in the first half of 2026. Lynparza, which remains the leading PARP inhibitor globally delivered revenues of $837 million in the third quarter, up 5% year-on-year with consistent growth across key regions. Truqap total revenues of $193 million in the third quarter represented 54% growth versus Q3 last year. With the AKT/PTEN biomarker altered population almost fully penetrated, growth is now primarily driven by increased uptake of the PIK3CA population and ongoing launches in developed and emerging markets. This was another outstanding quarter for our I/O franchise with growth of Imfinzi and Imjudo of 31% and 14%, respectively. We see continued enthusiasm for Imfinzi in the new lung indications, ADRIATIC and AEGEAN and in bladder cancer with NIAGARA, alongside further expansion in our more established indications such as HIMALAYA and CASPIAN. We are also starting to see early signs of adoption of MATTERHORN in the U.S. following its Category 1 NCCN guideline inclusion and eagerly await regulatory decisions. Enhertu total revenues grew 39% in the third quarter with ongoing launches of the DESTINY-Breast06 indication, further strengthening our leadership position in HER2-low metastatic breast cancer. The strong initial uptake in China following NRDL enlistment has persisted through Q3 as we achieve even broader coverage and continue to drive adoption. Positive readouts across HER2-positive breast cancer at ASCO and ESMO are anticipated to further drive growth with data now spanning across the spectrum of HER2-positive disease. And finally, Datroway continues to make inroads in hormone receptor positive breast cancer across the U.S. and Europe. And this quarter, we have started to see encouraging early signals of uptake in the previously treated EGFR-mutated lung cancer space following U.S. approval and NCCN guideline inclusion. We are confident in carrying our strong performance from the first 9 months through to year-end as we continue to expand the reach of our innovative medicines. With that, please advance to the next slide, and I'll pass over to Susan to cover key R&D highlights from the quarter. Susan Galbraith: Thank you, Dave. Just over 2 weeks ago at the European Society of Medical Oncology, AstraZeneca delivered multiple pivotal data sets with the potential to reshape clinical practice, including two featured in presidential sessions. This underscores the quality and breadth of our science and reinforces AstraZeneca's leadership in bringing new advances to patients worldwide. DESTINY-Breast11 and 05 advanced Enhertu into the early treatment setting for HER2-positive breast cancer, highlighting its potential to become a foundational therapy in early disease and ultimately increasing the likelihood that more patients could be cured of breast cancer. In DESTINY-Breast11, treatment with Enhertu followed by THP prior to surgery resulted in a pathologic complete response rate of 67% in patients with high-risk HER2-positive early-stage breast cancer, the highest ever reported rate in the Phase III registrational trial in this setting. We also saw an early trend towards an event-free survival benefit with Enhertu followed by THP. Importantly, this regimen demonstrated a favorable safety profile versus the 5-drug AC-THP regimen with lower rates of Grade 3 or higher adverse events, serious adverse events and treatment interruptions. This makes DESTINY-Breast11 the first regimen in over a decade to significantly improve outcomes in the earliest treatment setting for HER2-positive breast cancer, and these data are now under FDA review. In DESTINY-Breast05, Enhertu reduced the risk of disease recurrence or death by 53% compared to T-DM1 in patients with high-risk HER2-positive early breast cancer following neoadjuvant therapy, with over 92% of patients treated with Enhertu free of invasive disease at 3 years. This data set offers a critical second opportunity to reduce recurrence risk in this patient population. Taken together, DESTINY-Breast11 and 05 have the potential to transform early-stage HER2-positive breast cancer by reducing metastatic recurrence and bringing patients closer to cure. And this represents a blockbuster opportunity across the alliance. We also shared data from the TROPION-Breast02 trial, which evaluated Datroway versus chemotherapy as a first-line treatment for patients with locally recurrent inoperable or metastatic triple-negative breast cancer for whom immunotherapy is not an option. These patients typically have poor outcomes with the current standard of care and 5-year overall survival rates of just 15%. TB02 included those with the poorest prognosis often excluded from clinical trials, such as patients with a short disease-free interval and those presenting with brain metastases at baseline. In TB02, Datroway delivered an unprecedented 5-month improvement in median overall survival versus chemotherapy, along with a statistically significant and clinically meaningful 43% reduction in the risk of disease progression or death. In addition, almost 2/3 of patients experienced a complete or partial response to Datroway, double the rate seen with chemotherapy, alongside a manageable safety profile, low rates of discontinuation and no treatment-related deaths. These data clearly differentiate Datroway and together with its convenient 3-weekly dosing, position it to reshape the TNBC landscape for the 70% of first-line patients who are not suitable for immune checkpoint inhibitors. Our other key Phase III readout at ESMO was POTOMAC. This trial moves Imfinzi into earlier-stage bladder cancer, demonstrating that adding 1 year of Imfinzi to BCG induction and maintenance therapy delivers both early and sustained disease-free survival benefits with a 32% reduction in risk of recurrence or death compared to BCG alone in high-risk non-muscle invasive bladder cancer. With this Imfinzi regimen, 87% of patients remained alive and disease-free at 2 years, highlighting its potential to change the trajectory for these patients and further building on Imfinzi's impact in muscle-invasive disease as shown in NIAGARA. These results reinforce the strength of our bladder program, and we very much look forward to data from the VOLGA trial in cisplatin-ineligible muscle invasive bladder cancer, which is now expected in the first half of next year. In addition, we presented Phase III data from CAPItello-281 for Truqap in combination with abiraterone and androgen deprivation therapy in PTEN-deficient metastatic hormone-sensitive prostate cancer. Taken together, these pivotal data sets strongly support our strategy to advance novel therapies into earlier-stage disease, where they have the greatest potential to improve patients' lives. We also presented significant new data at ESMO across our early programs, including first-in-human results for our folate receptor alpha ADC, AZD5335 or torvusam, in platinum-resistant relapsed ovarian cancer. New data for our PARP1 selective inhibitor, saruparib, in combination with androgen receptor pathway inhibitors in metastatic prostate cancer, updated findings for rilvegostomig in checkpoint inhibitor naive lung cancer, which compares favorably to current PD-1-based therapies and encouraging new results for the combination of rilvegostomig and Datroway in bladder cancer. All these results build our confidence in the long-term strength of our pipeline, positioning us to deliver innovation well beyond 2030. Before closing, I want to highlight the upcoming American Society of Hematology Meeting in December, where we will present updates of our CD19/CD3 T-cell engager, surovatamig, and our CD19 BCMA dual CAR-T AZD0120. These pipeline assets both have $5 billion-plus non-risk-adjusted peak year revenue potential, and we will build our position in hematologic malignancies with the opportunity to set new standards across this space. And with that, please advance to the next slide, and I'll pass over to Ruud to cover Biopharmaceuticals performance. Ruud Dobber: Thank you so much, Susan. Next slide, please. Our Biopharmaceuticals medicines delivered a strong performance in the year-to-date with total revenue reaching $17.1 billion, reflecting growth of 8%. Starting with R&I, we saw growth of 40% in the quarter, driven by strong performances across our inhaled and biologic portfolio. The growth medicines now constitute over 60% of the therapy area's revenue and have grown at an impressive rate of 30% year-to-date. Our products now make up half the new-to-brand prescriptions for the severe asthma biologics segment in several markets. Fasenra continues to lead in eosinophilic asthma. We were pleased to see growth accelerating to 20% in the quarter with Fasenra's product profile being strengthened by uptake in EGPA and our first revenues from China. Tezspire continued its rapid market share gains in severe asthma with 47% growth in the quarter. Its growth potential has been further enhanced by recent approvals in the United States and the EU for chronic rhinosinusitis with nasal polyps based on the WAYPOINT trial, which demonstrated a significant reduction in nasal polyp size and nearly eliminated the need for surgery. Breztri grew at 20%, driven by market share gains in the growing triple class. All revenues today come from COPD patients, and we have now filed regulatory submissions for asthma in all major regions following the positive readouts from the KALOS and LOGOS trials. We are pleased to receive a positive CHMP recommendation for our next-generation propellant, which has 99.9% lower global warming potential, a key milestone towards our company's sustainability goals. Breztri will be the first of our inhaled medicines to transition to the next-generation propellant. Saphnelo, our biologic medicine for SLE, continues to win share in the intravenous segment of the market and grew at 44% in the quarter. In September, we announced positive high-level results based on the interim analysis from the TULIP subcutaneous study, which paves the way for Saphnelo to reach SLE patients who prefer a subcutaneous option. TULIP-SC recently received a positive CHMP recommendation in the EU. Total revenue from the CVRM therapy area was flat in the quarter, reflecting the loss of exclusivity for Brilinta, which saw a revenue decline of 56%. Farxiga delivered 8% growth despite a slight decline in Europe due to the earlier-than-expected entry of generic competition in the United Kingdom. Lokelma grew 30%, maintaining its leading share in the potassium binder class for chronic kidney disease and heart failure patients. In anticipation of further growth for Lokelma, we were excited to have recently opened an expanded manufacturing facility in Texas. In addition to the strong product performances in the year-to-date, I'm also particularly excited to see the number of high-value biopharma trials due to readout in 2026. And with that, I will now hand over to Sharon to discuss the latest developments for baxdrostat, the next NME we anticipate to launch in biopharma with more than $5 billion peak year revenue potential. Sharon Barr: Thank you, Ruud. Next slide, please. At AstraZeneca, our ambition is to transform care across interconnected cardiorenal and metabolic diseases where multiple risk drivers and organ systems overlap. Hypertension is a key part of this challenge. And in the past 20 years, there has been very limited innovation. For example, around half of patients currently treated in the U.S. remain uncontrolled while on multiple medicines. Baxdrostat is designed precisely for these patients. As a reminder, baxdrostat is a once-daily, highly selective and potent aldosterone synthase inhibitor, targeting the aldosterone pathway at its source. Excess aldosterone is well established as a driver of hypertension and broader cardiorenal disease. By limiting aldosterone production, baxdrostat provides a clean targeted mechanism that has the potential to enable more patients to reach their treatment goals, particularly those with uncontrolled or resistant hypertension. In the third quarter, we presented the first Phase III data for baxdrostat monotherapy with the BaxHTN trial at the European Society of Cardiology. We were also delighted to report the positive high-level results for the Phase III Bax24 trial. Collectively, these readouts reinforce our confidence in baxdrostat's more than $5 billion potential as a franchise. In the BaxHTN trial for patients with uncontrolled and treatment-resistant hypertension on maximally tolerated background therapy, baxdrostat delivered the largest systolic blood pressure reduction reported in a primary analysis to date. At 12 weeks, placebo-adjusted reductions were 8.7 and 9.8 millimeters of mercury on the 1 and 2 milligram doses, respectively. Responses were highly consistent across prespecified subgroups, and we saw a powerful target engagement with a 60% to 65% reduction in serum aldosterone at week 12. Importantly, this reduction was sustained over time. Furthermore, in the randomized withdrawal period, patients continuing baxdrostat saw further reductions in blood pressure out to 32 weeks. Baxdrostat also demonstrated a favorable tolerability profile. Adverse events were mostly mild with no off-target hormonal effects and no clinically relevant drug-drug interactions observed. Confirmed hyperkalemia above 6 millimole per liter was 1.1% in both dose arms, and we saw low discontinuation rates of 0.8% and 1.5% for the 1- and 2-milligram doses, respectively. 24-hour control of hypertension matters clinically. Early morning blood pressure variability is strongly correlated to the risk of cardiovascular events. So sustained control of blood pressure between doses is important. Baxdrostat's long half-life is a key differentiator. In an ambulatory sub-study of BaxHTN, we saw substantial reductions in 24-hour average and night-time systolic blood pressure. Building on this, we recently reported positive high-level results from the Phase III Bax24 trial, which was conducted in the most difficult-to-treat patients, those with resistant hypertension. In Bax24, baxdrostat demonstrated a statistically significant and highly clinically meaningful reduction in ambulatory 24-hour average systolic blood pressure. Efficacy was observed across the entire 24-hour period, including early morning. We look forward to sharing you exciting data with the medical community at the American Heart Association this coming weekend. These results solidify baxdrostat's potential as a first and best-in-class option for patients with uncontrolled and resistant hypertension, offering convenient once-a-day dosing with sustained blood pressure control around the clock. We are advancing our regulatory filings and rapidly progressing our robust clinical development program for baxdrostat, both as a monotherapy and in combination with dapagliflozin. And with that, please proceed to the next slide, and I'll pass over to Marc to cover Rare Disease. Marc Dunoyer: Thank you, Sharon. Can I get the next slide, please? Rare Disease medicine grew 6% to $6.8 billion in the first 9 months of the year, driven by growth in neurology indications, increased patient demand and continued global expansion. In the third quarter, Ultomiris grew 17%, driven by patient demand growth across indication, including the competitive MG and PNH markets. Soliris revenues continues to decline due to the successful conversion to Ultomiris as well as biosimilar pressure in Europe. Strensiq grew 28% and Koselugo grew by 79%, respectively, due to strong underlying demand for these medicines. Koselugo's growth also benefited from some tender orders in emerging markets. We continue to see great momentum across the rare disease portfolio with recent approval for Koselugo and Ultomiris that further our geographic reach for this medicine. Please advance to the next slide. We presented data from our Phase III PREVAIL trial, investigating gefurulimab on our dual branding nanobody targeting C5 in patients with generalised myasthenia gravis. Gefurulimab demonstrated 1.6 point improvement from baseline, placebo adjusted in myasthenia gravis activities of the living total score at week 26. The MG-ADL total score change from baseline reached 4.2 points at week 26 in the gefurulimab-treated patients. A clinically meaningful improvement in MG-ADL total score was observed as early as week 1 and was sustained through week 26. Gefurulimab demonstrated rapid, complete and sustained complement inhibition. Gefurulimab also met all secondary endpoints, including quantitative myasthenia gravis total score, where gefurulimab demonstrated a 2.1 point improvement at week 26 compared to placebo. A pre-specified measurement at week 4 also made statistical significance, again demonstrating the rapid onset of action of gefurulimab in patient with gMG. The PREVAIL trial was conducted in a broader gMG patient population compared with prior trials of C5-targeted therapies. Gefurulimab is a convenient, self-administered subcutaneous once-a-week treatment with the potential for two delivery option, a pre-filled syringe and auto-injector, which would be the first in gMG. We believe that the strength of this data and convenient administration, gefurulimab has a potential to become a new first-line therapy following immunosuppressive therapies. I also wanted to update on other important Phase III data we had this year. Analysis of the 52 weeks results on the CALYPSO trial to further characterize eneboparatide are ongoing. We will continue monitoring these patients in the open-label extension. For anselamimab, we have shared clinical results from the Phase III CARES program with regulatory authorities. Following further discussion, we plan to submit for the pre-specified patient subgroup in which anselamimab demonstrated a highly significant improvement in both time-to-all-cause mortality and frequency of cardiovascular hospitalization compared to placebo. And finally, efzimfotase alfa, we expect to announce results from all Phase III studies, HICKORY, CHESTNUT and MULBERRY in the first half of next year. Together, these three trials cover patients across pediatric, adolescent and adult hypophosphatasia population. And with that, please advance to the next slide, and I will hand over to Pascal. Pascal Soriot: Thank you, Marc. Next slide, please. As I mentioned at the start of this call, we are in the midst of an unprecedented catalyst switch period, one which is anticipated to extend through 2026 and beyond. We look forward to exciting readouts in each of our key therapy areas in 2026, which on a combined basis represent a risk -- sorry, risk-adjusted peak year revenue opportunity of more than $10 billion. Our exceptional performance for the first 9 months so has delivered a core operating margin of 33.3%. This is a clear demonstration that despite the opportunities to invest in this rich pipeline, we remain committed to driving operating leverage and we remain on track for both our 2026 margin target of mid-30s and our $80 billion 2030 revenue ambition. Next slide, please. In closing, I'm very pleased to report that we are making exciting progress across our transformative technologies, which have the potential to drive AstraZeneca's growth well beyond 2030. We are moving at pace with our oral PCSK9 inhibitor, laroprovstat. And now we have three Phase III trials ongoing, and we are looking forward to the results from our Phase II trials across our weight management portfolio next year. We're driving forward with our ADC and our radioconjugate portfolio with the first Phase III of our wholly owned ADC sone-vedo reading in the first half of next year. Supporting our ambition to replace current immune checkpoint inhibitors with next generation bispecifics, we now have 14 Phase III trials underway for rilvegostomig and volrustomig. And we are continuing to strengthen our hematology portfolio with our first Phase III trial already underway for our CD19 CD3 T-cell engager surovatamig, and we are planning to advance CD9, BCMA, CAR-T, AZD0120 into Phase III next year. And lastly, our first gene therapy is now entering the clinic. And with that, please advance to the next slide, and we will move to the Q&A. Pascal Soriot: As Andy mentioned at the start of the call, please limit the number of questions you ask to allow others a fair chance to participate. For those online, please use the raise hand function on Zoom, and with that, let's move to the first question. Our first question is from Michael Leuchten at Jefferies. Over to you, Michael. Michael Leuchten: Two questions for you, please. One, thank you for the comments around the environment in Washington. Just wondering if you could comment on what is the risk of residual activity coming from the administration? How confident are you that the deal that AstraZeneca has managed to secure removes enough of the overhang? So, we don't have to look over our shoulders constantly as we think about R&D productivity and the cost of innovation. And the second question for you, Pascal, the $10 billion number that you just mentioned in terms of the catalyst potential coming out of the '27/'28 period, is that part of the $80 billion? Or is that incremental potential already on top of that? Pascal Soriot: So, the first question, what I would say about this is that we have addressed the four points in the President's letter. And the four points, as you know, they covered Medicaid, they cover prospective equalization, direct to consumer and also returning to the U.S. government, some of the potential price increases for existing products. And so, we've covered all of this. So, now our expectation is that essentially, we have an agreement with the U.S. government, and we don't expect anything more to come. But of course, we are not the government, so we cannot guarantee anything. We can only say that our expectation from the discussions we've had, our expectation is that this agreement is delivering what the President was looking to achieve. On the $10 billion, this is part of our $80 billion. This is, by the way, not a 2030 number. It's a peak year revenue number. It's a risk adjusted $10 billion. But certainly, it will contribute to achieving our 2030 ambition. There is more to come. We have a number of readouts next year and we expect from the readouts to expect another $10 billion -- actually $11 billion of risk-adjusted sales to come out of these readouts, assuming, of course, they are positive, we could get even more. So, as I said before, it is quite unprecedented for us as a company to have such a rich series of readout across not only oncology but also hematology, cardiovascular disease, respiratory disease, immunology, rare disease. So really, I would say, the company is firing from all engines in terms of our ability to innovate and come up with new products. So with this, I'll move to Sarita Kapila at Morgan Stanley. Sarita, over to you. Sarita Kapila: Thanks for taking my questions and the comments on 2026 margins. Perhaps you could indicate your level of comfort on where 2026 consensus sits at the low end at 34% and talk about the step-up to get there? And then more broadly, could you speak about the pushes and pulls, please, on 2026 margin? And then secondly, there's been a lot of investor focus on the Roche persevERA trial coming in Q1 '26, which is looking at duradestrant in all-comer breast cancer. Could you talk about the potential read across to camizestrant? Are there any notable differences between the molecules or any differences in the trial design that could increase chances of SERENA for success versus persevERA and why it may not be a good read? Pascal Soriot: Thank you, Sarita. So, it's really three great questions. The first two, Aradhana, can you cover, and Susan with -- can you pick up the persevERA question and Ruud to camizestrant? Aradhana Sarin: Sure. Thanks, Sarita. Though as you've seen, we've had very strong momentum in all our growth brands. And with this momentum going into the year-end, we hope it continues and expect it to continue in all markets and all brands. The key headwind in 2026 will really be the loss of Farxiga in both U.S. as well as China. And that's something that we had anticipated and are obviously planning around. We're right now going through our budget process, and we'll take all these different pushes and pulls as well as the recent agreement with the U.S. government and all those impacts into account. As we set our budget, we will continue to invest behind growth brands and plan for new launches such as baxdrostat, cami and dato. And given all the portfolio, I think we'll continue to invest in R&D towards the high end of the 20% given all the progress in the ADC and the cardiovascular and weight management portfolio. So, those are some of the pushes and pulls. And you've seen the performance and the continuous margin progression as well as the SG&A, which we have maintained very strong leverage over and R&D, obviously, is where we always find great opportunities. So, while we remain disciplined, we're going to continue investing behind that. Pascal Soriot: Just before Susan covers the next point. I think, Aradhana covered really very well. Our view of 2026 one, maybe a piece I wanted to add is that, some people may be wondering about the impact of the agreement with the U.S. government. What I would say on this is that, Aradhana covered it, we have a very broad portfolio geographically and also a broad portfolio of new products, new launches, and we think we can absorb the impact of this agreement. We're confident we can absorb it in '26 and beyond and really doesn't affect our 2030 ambition and doesn't affect our midterm ambition. So, over to you, Susan with persevERA. Susan Galbraith: Thanks, Pascal. So just as a reminder, camizestrant with the data that we showed in both the SERENA-2 study and then with the recent SERENA-6 study in first-line, has really shown the best profile of all of the oral SERDs that have reported so far. We've had the best hazard ratio versus fulvestrant in both the ESR mutant as well as in the wild type. But the fundamental point is, as you move from second line to first line, there's an increase in the endocrine sensitive part of the population. So, for those wild-type patients, they can still be expected to benefit because what you're doing is, you're inhibiting both the transcriptional signal downstream of the estrogen receptor regardless of whether it's wild type or mutated. And you're also reducing the amount of that receptor through degradation to very low levels, and we showed that in the SERENA-3 study. So, both those mechanisms of action are expected to be superior to the aromatase inhibitor component of current first-line backbone therapy. In terms of cost comparisons, I would point out that the SERENA-4 study is a larger study than persevERA. And we've designed it to enrich for patients that have got endocrine sensitive profile based on the clinical inclusion/exclusion criteria. So, we've designed it taking into account what we've previously learned and including from trials such as persevERA, et cetera, to optimize for the opportunity for success in that first-line setting. Pascal Soriot: Thank you, Susan. So the next question is Justin Smith at Bernstein. Over to you, Justin. Justin Smith: Just a couple on Wainua for Sharon or Ruud. Just firstly on CARDIO-TTRansform. Just your thoughts on whether that could meaningfully reshape treatment guidelines long term? And then also just your thoughts on whether any new simpler diagnostic tests are coming soon to potentially expand the cardiomyopathy population? Pascal Soriot: So Sharon, do you want to cover and Ruud if you have anything to add please jump in. Sharon Barr: Sure. So, we look forward to the readout of the Phase III CARDIO-TTRansform study in 2026. Do we have the potential to meaningfully transform that treatment algorithm for patients? I think what we're able to demonstrate with the CARDIO-TTRansform study is both the role of silencers in adequately treating disease and in a planned subset, key secondary endpoint readout will be looking at the effect of eplontersen in patients who have tafamidis. And so that will give us the opportunity to be able to address that key question for patients comparing the effect of silencer plus stabilizer versus silencer, which I think will be very important in guiding patient treatment decisions. And then finally, AstraZeneca is in a unique position in developing new therapies for patients living with ATTR amyloidosis and that we also have Alexion 2220, the amyloidosis depleter in our portfolio. And we continue to work towards creating a combination approach of a depleter and a silencer, which we think could be truly pivotal for patients living with ATTR amyloidosis. Now with regards to diagnosis, we know that's a key part of the patient journey. And we know that this is not simply a hereditary disease. The hereditary variants are rare, but the disease is not. This is also a disease of the aging. So, being able to screen for and detect patients earlier in their disease progression will be really fundamental to offering patients improved outcomes. So to that end, we are exploring a number of different opportunities to be able to more accurately and earlier diagnose ATTR amyloidosis. And those include AI-informed models that allow us to identify patients on screening with echocardiogram or potentially EKG as well as developing new biomarker assays to be able to detect soluble amyloid. So, we continue to work on all fronts to be able to drive both earlier detection and earlier treatment. Pascal Soriot: Thanks, Sharon. Ruud, anything you wanted to add or? Ruud Dobber: No. Just like everyone, everyone is eagerly waiting for the results. What hasn't mentioned yet by Sharon is that, this is the largest CM trial so far in ATTR cardiomyopathy. And if successful, hopefully, we will see a CV mortality benefit, which, of course, is extremely important for treating cardiologists. Now on top of that, we are very pleased to see, let's say, the progress we are making in the first indication, the PN indication. So we can only hope for patients and also for the company and other interested that the ATTR-CM trial will be positive, and we will know that in the course of 2026. Pascal Soriot: Sachin Jain, Bank of America. Sachin Jain: I've got one each for Sharon and Susan on Phase III starts you've each referenced. So for Sharon, I wonder if you could just remind us of the obesity portfolio, the oral and amylin as we look for Phase II data next year. How are you thinking about your target competitive profile given the competitive landscape has rapidly changed? Obviously, with oral, we've seen the ortho data since you last presented. And with amylin, we've had the Lilly data out today. And then for Susan, I think you referenced the Phase III start for the BCMA CAR-T, where we see data at ASH and $5 billion peak. Just looking at the abstract, it looks like you've got 100% MRD negativity in almost fourth-line patients. So just wondering how you're thinking about the fastest route to market for that and beyond efficacy, how you're seeing differentiation on safety and administration. Pascal Soriot: Thank you. Sharon, do you want to start? And then Susan? Sharon Barr: Sure. So Sachin, as you know, we are moving forward with multiple molecules in our weight management portfolio. That is AZD5004 that's currently in Phase II for patients with obesity and type 2 diabetes. AZD6234, that's our long-acting amylin peptide, subcutaneous injectable that is also in Phase II for the same patient populations. And ACD9550, and that's our dual GLP-1 glucagon receptor agonist, also subcutaneous injectable also in Phase II. As we move all three of these forward at pace, of course, we're looking to have highly competitive molecules that give us reason to believe that these could be valuable treatment options for patients. As we move forward, we're also thinking about the potential for market segmentation, and we know that there will be room for multiple mechanisms. And the bar is high. We've seen the very interesting data from Eloralintide today. And so that gives us more reason to believe that a selective amylin receptor agonist similar to 6234 has the potential for efficacy in terms of weight loss and better sugar control for patients with type 2 diabetes. So, we have seen no red flags to date and continue to move forward at pace and expect to enter Phase III pending competitive data and we will be making those decisions in 2026. Susan Galbraith: So, in terms of the 0120, which is the CD19 BCMA dual CAR, thanks for the question, Sachin. We will be presenting data in the later-line patient population at ASH. This includes patients who are triple-class refractory and a substantial proportion that have had prior BCMA CAR-T therapy. So, what the data show is that, we do have a really impressive response rates and complete response rates in evaluable patients that are also progressing, and they tend to evolve over time. There's a relatively small number of patients that are currently MRD evaluable, but you rightly point out in that small number in the abstract, all of them have achieved MRD negativity. The overall profile of this cell is as dosed is attractive. We have no Grade 3 CRS and no ICANS in the dataset that we've presented in the abstract. And I think the -- both the efficacy and the safety profile is related in part to the FasTCAR manufacturing, which Gracell had developed, which is helping to deliver this predictable CRS profile and deep and early responses. So, we're very excited about the prospects for this. And we want to reiterate that we're going to start Phase III trials for this next year. And again, we'll be taking this forward in multiple settings, in multiple myeloma. Pascal Soriot: Thank you, Susan. The next question is from Richard Vosser at JPM. Richard Vosser: Two questions, please. Firstly, one, just following up on the TB02 Datroway data at ESMO. Maybe you could talk about the read across. From the better tolerability you showed relative to competing products there, both to your Datroway trials, but also more importantly, across the other ADC programs, what can we learn from that? And then secondly, maybe a more commercial rollout question. Just the Imfinzi or Imfinzi sales were very, very strong this quarter. I wonder if you could give a little bit more color on the rollouts. You highlighted bladder and lung, but how should we think about the runway of growth from here for Imfinzi? Pascal Soriot: Susan, do you want to cover the first one? And David, the Imfinzi rollouts question? Susan Galbraith: Sure. Thanks for the question. So yes, we're delighted with the TROPION-Breast02 data that was presented at ESMO. And I think this does speak to the actual design of this ADC, which similar to the Enhertu design, is based on linker stability. So it's really important to have linker stability so that you're actually delivering a higher proportion of the payload actually to the tumor cells and less exposure in the peripheral circulation. That drives the difference in terms of the bone marrow toxicity profile that you see with Datroway compared to some other TROP2-based ADCs. And I think that also speaks to the fact that we then delivered a higher response rate, longer progression-free survival and this 5-month improvement in overall survival, which I think is a differentiated profile. So that -- first of all, within the breast cancer space, it increases the confidence in the early-stage studies, the TROPION-Breast03, which is in the post neoadjuvant setting, a little bit analogous to the DESTINY-Breast05 setting. And that's in combination, of course, with Imfinzi, the TROPION-Breast04 setting, which is in the neoadjuvant treatment of PD-L1 negative breast cancer and then TROPION-Breast05, which takes that double-up combination of Datroway and Imfinzi also into the first-line setting. So with those studies, plus, of course, the lung cancer studies, the AVANZAR studies, I think the profile that we've got is one that we're confident about, and we look forward to having the future readouts in the coming months and years. David Fredrickson: Thanks, Susan. With respect to the Imfinzi growth drivers in '25 and outlook moving forward, I think it has really been a great example of delivery against multiple new life cycle expansion opportunities. The primary growth drivers have been with Adriatic and small cell, AEGEAN in early lung cancer and then also NIAGARA has also been an important area of growth. All three of those represent opportunities for us to continue to see full year benefits across the globe as we launch those. Now, there is competitive pressures that we face on all of those. With that said, our differentiation, I think, is strong and our first-mover advantage is clear. I would also just point out that very importantly, we've got positive studies with MATTERHORN, with strong overall survival that was presented at ESMO. We've got POTOMAC. Those are both studies that we are looking forward to hopefully achieving regulatory approvals across the globe. And there will be further readouts as well that we have coming forward from here. So, the Imfinzi trajectory is one that has been both strong and I anticipate will be sustained. Pascal Soriot: Thank you, Dave. Next question is from Peter Verdult at Exane. Peter Verdult: Peter Verdult here, BNP. Apologies for any background noise. Two questions for you, Pascal. I thought it was noteworthy at the investor event, the ESMO cancer event. You called out baxdrostat in your opening remarks. KOLs that we're speaking to, say, they see sort of placebo-adjusted blood pressure lowering in sort of 11, 12, 13 range. Their excitement around this asset is going to be cranked up. So, I know you can't talk to the data. We're going to have to wait until Sunday. But when you look at consensus expectations down at $2 billion, would you expect that expectations for this asset materially increase post the Bax24 data? And then secondly, we've talked about the political environment in the U.S. I mean, the industry wants to and has to invest more in the U.S., wants to invest more in China. Where is that leaving Europe? I mean Europe, what's the political environment in Europe? Are the politicians waking up to the direction of travel. Do you think that the innovation debate can be genuinely had in Europe? Or are you more, you say, sanguine about the outlook of -- regarding innovation being paid for in Europe? Pascal Soriot: Thank you, Peter. So, let me start with baxdrostat and then maybe I'm sure, Ruud, who is very excited about this product, will want to add some more. I'm personally very excited about this product, because not only because hypertension -- uncontrolled hypertension is a big problem. A lot of people are on three drugs and still uncontrolled. That drives kidney disease, heart disease, cardiovascular events. So that's a big unmet need, much, much bigger than people understand really. The second reason is the effect on aldosterone, the 60%, 65% reduction that Sharon mentioned a bit earlier, I think will prove over time a massive benefit. Because aldosterone has not only effect on blood pressure, but also a deleterious effect on the organ. It still has to be proven, but I think there's good reason to believe it is actually the case because it docks on not only aldosterone receptor, but also the other aldosterone receptors and are not blocked by traditional MRIs. And if you have too much aldosterone in your body, it drives organ damage over time. So, I think this is going to prove really a big deal. And then you will see the data we have over 24 hours. This is really important because you need to control blood pressure at night in particular, the early morning. Sharon mentioned it. That's when people tend to have cardiovascular events, strokes, MIs. So again, this long-lasting effect over 24 hours is important. And I can tell you, you won't be disappointed with the blood pressure reduction, you would see. Ruud, anything you want to add in terms of the question about peak sales and the potential for this agent? Ruud Dobber: Yes. No, of course. And we are very excited, and hopefully, on Sunday, you will see why. I'm not going to speculate whether it is more than the peak $5 billion peak year sales we've articulated. The only thing I can say, Peter, is that we have, in total, seven studies on this program as we speak. And there are a few studies also in the fixed dose combination with dapagliflozin. And Pascal was alluding to that. Yes, blood pressure in itself is important to control that. But it has a quite devastating effects on the kidney, and we truly believe that the combination of a well-known product like dapagliflozin plus the potential effect -- the positive effect of baxdrostat will be a very substantial driver whether it is $5 billion or perhaps even $10 billion. Time well tell. But there is an enormous amount of excitement, not only in the company, but more importantly, among physicians for these products. And let's not forget, that's my last remark that if a 10-millimeter mercury increases your risk of a MACE event with 30%. So I think you will see a renaissance of the treatment of hypertension with a product like baxdrostat. So very exciting. Pascal Soriot: Thank you, Ruud. The the U.S. political environment, I mean, we've talked a lot about it. And this issue has been long coming in my opinion. Because, if you go back 20 years or so, there was limited difference in pricing between the U.S. and Europe. Let's talk about Europe for a second, really. And over time, what has happened is, there's been a growing difference mostly because in Europe, we've been facing price cut, clawbacks, a whole cottage industry of price reductions and control of access. And if you look at healthcare costs today, well, 20 years ago, I guess, healthcare, 20%, 30%, 15% of healthcare costs were dedicated to pharmaceuticals, innovative pharmaceuticals in particular. Today, you are at 7%, 8%, 9%. And one of the lowest is the U.K. with 7% of healthcare costs dedicated to innovative pharmaceuticals. And you got to ask yourself, I mean, what can you do with 7%? Not much. It creates limited room for innovation and innovation that can save lives, but also reduce healthcare costs by delaying or delaying things like dialysis, saving patients' lives and in cancer, et cetera, et cetera. So, I think there has to be a rebalancing. Because the U.S. for the last number of years has been really paying for the cost and the risk associated with innovation. We should never forget the risk. Everybody talks about the cost, but there's a massive risk. I mean, we have a portfolio committee. And very often, we spend several hundred million dollars in one meeting. And if those studies fail, it's a lot of money in the rubbish bin. We've been lucky. This year, we've had almost 90% success rate with our Phase III, but it's -- that's not the norm, right? So, people have to realize innovation is expensive, but it's also very risky. So, I think there has to be a rebalancing, and Europe has to cover a little bit more of this innovation by increasing budgets allocated to innovative pharmaceuticals. And finally, I would say that if you look at innovation, it's happening in the U.S., very rapidly now it's happening in China, and there's not so much in Europe. So, it would be great for everybody, starting with patients. If Europe was also innovating a lot in our industry, it will also attract investment from companies and drive economic growth. Now whether we are able to show the benefit of these investments to governments in Europe is still to be seen, but there's clearly benefits to patients, of course, but it also benefits to healthcare cost as innovation can drive healthcare costs down. And there is also economic benefit as the Life Sciences sector can drive economic growth like we see in the U.S., we see now in China. So, whether we succeed or not, I don't know, but the danger for Europe is that a lot of these new technologies that we are talking about, they need new capacity, new manufacturing capabilities. And right now, this is going to happen in the U.S. And so, the risk is in 15, 20 years, Europe realized that they have lost control of their supply chain for some of those most important innovative technologies, because they are manufactured in the U.S. and in China. So more to come, and of course, a lot of convincing to try to achieve, but we'll see whether we are able to do that or not. So, we see. I'll move to the next question, Mattias Häggblom at Handelsbanken. Mattias Häggblom: Mattias Häggblom, Handelsbanken. Two questions, please. Firstly on Farxiga, following the validation of the pattern in U.K. and subsequent generic launch, remind me why this loss would not encourage generic companies to explore similar challenges elsewhere in Europe prior to pattern exploration in '28. And why the situation in the U.K. was unique? And then secondly, for Sharon, Marc will present Phase III data for its oral PCSK9 inhibitor this weekend. Once we get the detailed data, what in particular will your team be studying to better understand its clinical profile and how it compares with your own small molecule PCSK9 inhibitor currently in Phase III? Pascal Soriot: And the first one I can quickly cover for -- in the interest of time, Mattias, it's a very specific U.K. law. We can cover the details separately with you if you want offline. But just for everybody's interest, it's a very specific U.K. law that doesn't apply to other countries. And the PCSK9 question, Sharon, do you want to cover that? Sharon Barr: Sure. I'd love to. So as you know, our own laroprovstat is a true small molecule inhibitor of PCSK9 currently in Phase III. We have shared the Phase II data. They're very encouraging. And we note that because our PCSK9 is a true small molecule, it does not require solubility enhancers, and it doesn't require fasting. And so, it offers a target patient profile that we think is very attractive for both monotherapy and combination approaches. And in fact, we're exploring combination approaches with a small molecule Lp(a) that is in our portfolio in Phase I, and it also allows us to easily combine with statins, which is standard of care. We were thrilled to see that with combinations, we were able to bring 80% of patients on study to their LDL-C lowering goals. And so, we think that we're in a very solid place in the competitive landscape. Now of course, we'll be watching Merck's data to understand how we can continue to meaningfully differentiate ourselves in this landscape as we continue to work on our go-forward plans. We remain very positive about the potential for laroprovstat in this environment and for the potential to really meaningfully change patients' lives because dyslipidemia is not yet solved. We know the majority of patients aren't reaching their LDL-C lowering goals. And so, there's still a major unmet medical need in the marketplace. Pascal Soriot: Thank you, Sharon. So, we still have quite a number of questions. So, can I suggest that we go one question per person, and we on our side will try to be short in our responses. So the next one is Seamus Fernandez. Over to you, Seamus. Seamus Fernandez: So my one question is on the competitive developments and the evolution of the treatment of asthma and COPD. Just hoping, Ruud, if you could comment on your, I guess, primary competitors outside of Dupixent, but GSK specifically making moves to advance long-acting agents both depemokimab and their potential long-acting CSLP program. Can you just help us with your thoughts specifically on the value of having long-acting agents in that marketplace? And how your own -- whether it be pipeline pursuits or separately, your own existing portfolio is built to defend against that? Ruud Dobber: Yes. Thank you so much for your question. And let me first emphasize that, where we are as a company with both Fasenra and Tezspire, is very pleasing. We have for the second quarter -- consecutive quarter, sales of above $0.5 billion for Fasenra. So, the product is now annualizing of more than $2 billion a year. And the reason I'm mentioning it is that, in all the market research and our own experience in the last few years across all geographies, clearly, efficacy is the #1 reason to prescribe products. And I think that's very important in the choice of physicians. Having said that, there's always room for further other modalities. And AstraZeneca is putting a lot of effort in order to generate the first inhaled T-slip molecule, which is quite exciting in order to broaden the patient access for severe uncontrolled asthmatics. We think there's a high unmet medical need. For the simple reason that still too many patients are suffering from severe asthma and are not eligible for injectable. So, moving earlier in the treatment paradigm with an inhaled T-slip if it is working, of course, and we will know that in the course of 2026, I think will be a huge advantage for so many patients still suffering. But all in all, it's clear that there are great products. We are in a very good position. We're the market leader in new-to-brand prescriptions, as I mentioned in my prepared remarks, but there's still an enormous opportunity to further accelerate the bio penetration. And last but not least, we are a verge in order to launch Fasenra in China, which is another very important growth driver for us as a company. Pascal Soriot: The next question is from Matthew Weston at UBS. Matthew Weston: Thank you, Pascal. I think it's probably a question for Dave, but you flagged in your comments that '25 has been or seen a very significant benefit from new patients due to lower Part D co-pays. Of course, that's allowed companies to bring free drug patients into paid coverage. As we think about '26, do we need to consider a significant slowdown in the underlying growth of some of your assets as that free drug warehouse bolus runs out? And if yes, which product should we be most aware of? Pascal Soriot: Dave, do you want to cover this? David Fredrickson: Yes, Please. Thanks, Matthew, for the question. So, I think just to take a small step back, if we compare what we'll expect to see in Q2 -- excuse me, Q1 '26 versus '25. First, we'll have a good, if you will, apples-to-apples comparison because both quarters will include the impact of the Part D liability. Secondly, I think also we will continue to see benefit of patients staying on commercial medicine who had switched over this year or were otherwise abandoning. So, I think that one of the things that is really important here is that if you take a look at the oral medicines Tagrisso and Calquence in particular, although it's also true of Lynparza. They have fairly long durations of therapy, CLL with treat to progression, Tagrisso in terms of the early settings but also indeed what we see with FLAURA2. So, I would expect that patients who've come over to commercial medicine as opposed to being on free drug that we'll continue to see the benefit of those patients and the TRxs come into 2026. The bolus patients who would have been your prevalent pool who came on as the co-pay cap went from the mid-300s down into the 2,000s. We may not see that repeat. But I really do think we're going to see demand coming forward from new patients, new indications. And I think that we'll see good oral growth moving forward on our assets. Pascal Soriot: Thanks, Dave. Maybe I could add that, a year ago, you may remember a number of people were worried about the impact of the part D liability on our growth rate. And you can see we've been able to manage that as we said we would, and Dave and his team have been doing an amazing job driving usage and growing our share and growing the volume, to compensate for this part D liability that we've had to absorb in 2025. The next question is from Steve Scala at Cowen. Steve, over to you. Steve Scala: Actually, a question on Calquence. Is the upper end of the peak sales guidance of $3 billion to $5 billion is still achievable given the positive data from competitors Calquence's 2027 IRA negotiated price, which you presumably have by now and IMBRUVICA's IRA negotiated price. And related to all this, was the Calquence IRA price in line with your expectations? Pascal Soriot: Dave, I think it's for you again. David Fredrickson: Steve, thanks for the question. On your last piece, we will share the IRA negotiated price on Calquence once that's public, which will be happening later this quarter. What I do want to comment on, though, with respect to your peak year sales question, recall that when we put forth the ambition for 2030 in 2024, we had visibility at that time into the fact that we anticipated that the Calquence would be an IPA. So that's absolutely consistent with the expectations that we had. We expected that we would get positive data from AMPLIFY. That's come through and been part of what we've seen. And I think that we've seen really even better than we expected volume growth of Calquence, particularly within the United States. So, in terms of the assumptions that went into the projections that we put forth or the ambition that we put forth in 2024, I think it's been positive news, against that and good momentum against those figures. I'm happy that we've seen good share growth in the United States this year on the work that we're doing. We're seeing AMPLIFY in Europe with good initial uptake and we look forward to the AMPLIFY opportunity in the U.S. I do want to note that remember that there are no BTK/BCL-2 combinations for finite that are approved in the U.S. in frontline CLL. There's a large number of patients that are receiving a finite treatment that don't involve BTK at all, and we see this as an important opportunity for the asset going forward. Pascal Soriot: Thanks, Dave. So, still lots of growth coming from those approved or soon to be approved indications. And -- we also have escalate in DLBCL that is still to come. Next question is Rajan Sharma, Goldman Sachs. Rajan Sharma: I just wanted to get your thoughts on Enhertu's trajectory from here, given that we now have the DB09 and the DB11 data and PDUFA next year, which have been seen historically as two of the largest opportunities. Some of our KOL feedback has suggested that initial uptake may be a little bit tentative to begin with. So yes, we'll just be keen to get your thoughts on that. And do you expect those potential approvals during the first half to drive an immediate step-up in Enhertu's growth in '26 and '27? And then just thinking further out, do you think you'll be reaching peak penetration in breast cancer as you approach your 2030 target? Pascal Soriot: Thank you. So question, we'll switch up to David, go ahead. David Fredrickson: All right. We'll do. So first of all, I think as we take a look at 09 and the combination of both 05 and 11, let's take those in two separate parts. DESTINY-Breast09 is clearly a very important opportunity to move Enhertu from the later line metastatic setting or the second-line plus metastatic setting that we're in today into a frontline setting. The reason that, that is important is, first and foremost, many more patients will have the opportunity to benefit from an Enhertu. Because unfortunately, the number of patients that are able to receive a second-line therapy goes down just as patients unfortunately either pass away or they're unable to receive further treatment. So, opening up that population is going to be really important. Secondly, the duration of therapies that we see because of the long PFSs within DB09 are really important. And that's as a result of this treat to progression, new paradigm that's being established. And I think that on this, it's important to note that one of the things that's been really well received by the clinical community is the lack of cumulative toxicity that is associated with Enhertu and what we're seeing within these studies. That cumulative toxicity is in large part why there's been discontinuation of the taxanes in some of the other metastatic settings. And so, we're really looking for this to be an opportunity to make sure that we're driving to the way that DB09 was designed, which is treat to progression. DB05 and DB11 in early stage, they represent a blockbuster opportunity together. This is a great opportunity to bring Enhertu into early settings. And I think that in terms of when will we expect uptake, certainly, the clinical community does follow guidelines. DB09, we anticipate coming into guidelines sometime soon, we would hope. Remember that the New England Journal of Medicine publication just came through just very, very recently. And we'll obviously look forward to making sure that the progress that we've made on the early studies gets published as well. Pascal Soriot: So, we'll try the last four questions in the time that remains. Let's go with one question per person and be short in our responses. Luisa at Berenberg. Over to you. Luisa Hector: Thank you, Pascal. I wanted to return to the 2030 ambition. Because you've talked about and we've seen there's unprecedented success rate this year. So is the $80 billion now conservative? Can you comment at all on the mix that you're seeing with the success and what that means for profitability? And although the ex U.S., you're sticking at 50% ex U.S. contribution, are there any changes in timing of launches or the mix of the ex U.S. in light of that U.S. deal? Pascal Soriot: Thank you, Luisa. Not long ago, people were thinking the $80 billion was not achievable. Now it's going to be a soft goal. It remains an ambitious goal. And of course, we are very excited with all this new positive readouts. But it's a risky business. That's what I said not long, a few minutes ago. So, we have to remain cautious with the readouts that are coming next year. We don't know. I hope to God, we continue to have a high positive success readout -- in our readouts, but we can't be sure. So, let's stick to the $80 billion. It's an ambitious goal. And if we can overachieve of course, we'll do our very best to overachieve. Now in the second question with the profitability, we want to be a growth company until 2030, but also beyond 2030. So certainly, we can assume -- we can assume profitability increases, but you also have to understand we will want to continue investing in R&D. We have tremendous technologies in our hands, cell therapy, T-cell engagers, radioligands, which we haven't talked about today, all of those are making good progress. So, we certainly would want to invest in those from an R&D perspective, but also from a commercial perspective. And beyond oncology, we have a lot to do also in biopharma and rare disease. So, we're not going to commit to any profitability target or improvement beyond what we've already said in the past. Aradhana, anything you wanted to add to this? Aradhana Sarin: No, not at all. It's a long answer, obviously, with all moving parts. So, maybe another time to reach out. Pascal Soriot: Good. so, the next question is from Gonzalo Artiach at Danske Bank. Gonzalo Artiach Castanon: Gonzalo Artiach at Danske Bank. I have one for Marc on gefurulimab and the data has been recently presented. It seems that the efficacy and safety signals have come fairly in line with Ultomiris in MG. How should we understand the dynamics between these two products in MG? And also I wanted to ask if you have any plans ahead for gefurulimab in other indications where Ultomiris is now approved. Thank you very much. Marc Dunoyer: First of all, thank you very much for the question on the rare disease. So, if you remember what the trial of gefurulimab was done in patients earlier than the trials we have done historically with Ultomiris. You will remember that Alexion was a pioneer company to obtain the first approval with modern medicine in myasthenia gravis. And subsequently, we -- after Soliris, we developed Ultomiris and now we go one step earlier. The other important factor of gefurulimab is a mode of administration, a subcut weekly provided in either prefilled syringe or an auto-injector that can be injected in 15 seconds. So, it's a very patient convenient, patient easy type of administration. And the speed of onset has been demonstrated in the study and also the sustainability is as good as it was for Ultomiris. So, that's what I can say about gefurulimab. Pascal Soriot: Thank you, Marc. And the last question is from Simon Baker at Redburn. Over to you, Simon. Simon Baker: Just changing the subject slightly. We don't ask many questions on. But one for Susan, could you give us an update on your confidence in sone vedotin as we come up to the gastric Phase III data in H1 '26? And also some thoughts on the broader scope of Claudin18 beyond gastric? Susan Galbraith: Thanks for the question. So, sone vedotin is a Claudin18.2 ADC with an MMAE tubulin-based payload. And we've seen encouraging response rate data in late-line patient populations. We are investigating this versus current standard of care, but we're also looking within the potential to take it into earlier line settings, including in combinations. And you all have seen, of course, that there are exciting opportunities for MMAE-based ADCs in combination with I/O therapy. So, that represents a significant opportunity to sone v. Claudin18.2 is expressed in a high proportion of gastric cancer more than 50% of patients. So it's a much bigger opportunity than the HER2 high group, if you want to compare with what we've seen with HER2. And I think, it's also expressed in pancreatic cancer. And we are looking at the data in pancreatic cancer as well. I mean, of course, there the bar is high. So, what we've done is go forward with the gastric cancer opportunity first, and we'll continue to explore the opportunity for this and also a topo-based ADC with a Claudin18.2 targeting also in pancreatic cancer, just to see which payload works best. Pascal Soriot: Thank you, Susan. So in closing, maybe a few words back to Luisa's question. I realized I didn't totally answer Luisa's question. As the pipeline develops, you can see we'll have a lot of Specialty Care products moving forward. And of course, those tend to drive higher profitability as we know. But we also have products that will address conditions like weight loss, metabolic conditions, metabolic disease and those, of course, require more investment. So, I think overall, you can suddenly assume improvement of profitability from a commercial viewpoint. The R&D, we want to continue spending at the -- in the low 20s, as we've done in the past. But as I said before, we will not commit to any direction of travel of our profitability, because we need to see how the pipeline develops, and that's what we've said in the past. And more frankly, we've been good and lucky. We have had a very high success rate, and I hope it continues. And if it does, then we have to support all these products. So with this, thank you so much for your great questions and your interest, and I wish you a good rest of the day.
Operator: Greetings, and welcome to the Fortuna Mining Corp. Q3 2025 Financial and Operational Results Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Carlos Baca, VP of Investor Relations at Fortuna Mining Corp. You may begin. Carlos Baca: Thank you, Paul. Good morning, ladies and gentlemen, and welcome to Fortuna Mining's conference call to discuss our financial and operational results for the third quarter of 2025. Hosting today's call on behalf of Fortuna are Jorge Alberto Ganoza, President, Chief Executive Officer and Co-Founder; Luis Dario Ganoza, Chief Financial Officer; Cesar Velasco, Chief Operating Officer, Latin America; and David Whittle, Chief Operating Officer, West Africa. Today's earnings call presentation is available on our website at fortunamining.com. Statements made during this call are subject to the reader advisories included in yesterday's news release, the webcast presentation or management discussion and analysis and the risk factors outlined in our annual information form. All financial figures discussed today are in U.S. dollars unless otherwise stated. Technical information presented has been reviewed and approved by Eric Chapman, Fortuna's Senior Vice President of Technical Services and a qualified person as defined by National Instrument 43-101. I will now turn the call over to Jorge Alberto Ganoza, President, Chief Executive Officer and Co-Founder of Fortuna Mining. Jorge Durant: Good morning, and thank you for joining us today. The third quarter was a strong one for Fortuna, not only in terms of operational delivery, financial results and continued buildup of Fortuna's balance sheet, but also in the meaningful progress we have made in positioning the company for the next stage of growth. But let's start with safety. By the end of October, we achieved 318 days or 9.7 million work hours without a lost time injury, our longest streak yet. Our total recordable injury frequency rate improved to 0.86, down from 1.6 a year ago. These results demonstrate our collective commitment to ensuring everyone returns home safe and sound. Turning to the numbers. We realized an average gold price of $3,467 per ounce, up 5% from the second quarter and up 20% from the first quarter of the year. Attributable net income reached $123.6 million or $0.40 per share, driven by a $69 million impairment reversal at our Lindero mine. Adjusted net income was $0.17 per share, impacted by higher share-based compensation due to a rising share price and a $7.4 million foreign exchange loss in Argentina, which both together account to approximately $0.04 per share. Our strong free cash flow from operations was $73 million with net cash from operating activities before working capital changes at $114 million or $0.37 per share, surpassing analyst consensus of $0.36. During the quarter, we recorded $13.5 million in withholding taxes related to the repatriation of $118 million from Argentina and Côte d’Ivoire. We expect regular repatriations moving forward. Overall, our business benefits from higher realized gold prices, improving margins and strong cash generation. As a result, our liquidity position at the end of the quarter stands at a solid $588 million with a growing net cash position of $266 million. This enables us to accelerate our pursuit of multiple high-value opportunities in the asset portfolio across different stages of the project life cycle. In Côte d’Ivoire, at Séguéla, our flagship mine, we are expanding the life of mine and boosting annual gold output through exploration success at Sunbird and Kingfisher deposits. In Senegal, our predevelopment stage Diamba Sud project boasts strong economics, advancing towards a construction decision in the first half of next year. In Salta, Argentina, we're excited to drill for gold at one of the largest untested high-level epithermal anomalies in the north of the country. The Cerro Lindo project, held privately for years, now offers us an exciting exploration opportunity. Our strategic investments announced this year in Awalé Resources and JV with DeSoto Resources position us with exciting gold prospects on both the Ivorian and Guinean sites of the prolific Siguiri Basin, which straddles these 2 countries. And we continue advancing a pipeline of early-stage projects in Mexico, Peru and Côte d’Ivoire. Our consolidated cash costs remained below $1,000 per ounce. And all-in sustaining cost at our mines is tracking within guidance. Lindero's all-in sustaining cost has been trending lower every quarter to the current $1,500 per ounce range, where we expect it will stabilize. At Séguéla, the story is inverse. We expect to complete the year on the upper end of guidance but we're coming from a low all-in sustaining cost of $1,290 in first quarter of the year to the current $1,738 in the third quarter. This is driven mainly by timing of capital investments and the impact of higher gold price on royalty payments. As key investments at Séguéla are completed in Q3 and into Q4 to support our 2026 expanded production of 160,000 to 180,000 ounces of gold, we expect to see all-in sustaining cost in the range of $1,600 to $1,700 per ounce range. Caylloma will finish just outside its guidance range due to relative metal prices used in gold equivalents. As you know, Caylloma has a significant base metal lead/zinc component to its production. Now turning to growth. For Diamba Sud project in Senegal continues to advance at pace on a fast-track approach. In mid-October, we released the Preliminary Economic Assessment for an open pit and conventional carbon-in-leach plant, confirming strong economics that support our goal of reaching a Definitive Feasibility Study and a construction decision in the first half of 2026. Using a gold price of $2,750, the after-tax internal rate of return of the project is 72%, and the net present value at a 5% discount is $563 million. The mineralization at Diamba Sud remains wide open, and we are drilling nonstop with 5 rigs, expecting to add resources by the time the DFS is published. On October 7, we filed the Environmental and Social Impact Assessment, expecting the certificate of acceptance in the first half of next year. Site camp early works are progressing with an approved $17 million Phase 1 budget, and the government is being very supportive, and we have received consent to move ahead with a Phase 2 early works, including the water dam excavations and excavations for other key infrastructure. We plan to fast track front-end engineering design activities during the feasibility work to shorten and derisk the development time line by securing long-lead equipment early. Diamba is a project that can bring additional 150,000 ounces of gold of annual production on average for the first 3 years of operations. Regarding the business environment in key jurisdictions for us, both Côte d’Ivoire and Argentina held national elections in late October. In Argentina, the government's electoral victory in Congress and Senate strengthened its mandate for advancing structural economic reforms. Argentina's business climate has improved significantly and we remain optimistic about the country's trajectory. In Côte d’Ivoire, President Alassane Ouattara was reelected for a fourth term with a decisive majority. We anticipate the continuation of pro-business and pro-investment policies that have made Côte d’Ivoire one of the fastest-growing and most resilient economies in West Africa. In summary, Q3 was a strong quarter for Fortuna. Our safety record continues to set new benchmarks. Our operations remain resilient and our growth projects are advancing according to plan. We entered the final quarter of the year with a solid balance sheet, strong cash generation and a clear path of near- to mid-term organic growth driven by Diamba Sud and Séguéla expanded gold output. I'll now hand the call over to David Whittle, our Chief Operating Officer for West Africa, and Cesar Velasco, Chief Operating Officer for LatAm, who will review their respective operational results. We can start with you, David. David Whittle: Thank you, Jorge. Séguéla achieved another impressive quarter, delivering excellent results in both production and safety. This positions Séguéla well to exceed upper production guidance for 2025. We have gold output now projected to surpass 150,000 ounces. Our dedication to safety and environmental excellence remains steadfast, and we are making steady progress toward our goal of zero harm across all our operations. I'm pleased to report that no injuries occurred at any of our West African locations during the quarter. At Séguéla, we produced 38,799 ounces of gold, maintaining consistency with prior quarters and surpassing the mine plan. Mining during the quarter totaled 272,000 tonnes of ore at an average grade of 3.66 grams per tonne gold, along with 4.43 million tonnes of waste, resulting in a strip ratio of 16.3:1. The processing plant treated 435,000 tonnes at an average grade of 3.01 grams per tonne gold, with throughput averaging 208 tonnes per hour for the quarter. Ore was primarily sourced from the Antenna, Ancien and Koula pits. During the quarter, we received permitting approvals for 5 satellite pits, including the Sunbird, Kingfisher and Badior open pits. Several major projects also advanced successfully over the third quarter. The 8.5 million TSF lift was completed, providing tailings storage at current throughputs until late 2029. The replacement of the transmission tower at the Sunbird pit, a $9 million project, progressed well, and we are now prepared to commence pre-mining operations for the Sunbird pit in Q4. The rock breaker and the primary crusher was commissioned and is operating effectively, further debottlenecking the processing circuit and the 6-megawatt solar plant project is expected to be complete in the first quarter of 2026, which will help to reduce power costs. Séguéla performance resulted in a cash cost of $698 per ounce and an all-in sustaining cost of $1,738 per ounce, both aligning with our budget. Site costs continue to be managed efficiently with the increased all-in sustaining costs primarily attributed to royalties on the higher gold price. Exploration drilling at the Sunbird underground project continued in the third quarter with encouraging results. The ongoing success of this drilling, combined with the results from the Kingfisher Deposit provides us with a resource base that offers further opportunities to optimize production from Séguéla. Whilst current process plant throughputs are focused on maximizing available capacity with minimal investment, we're now investigating in options to further enhance process plant throughput. Drilling is continuing with 5 drill rigs at the Sunbird underground deposit in Q4, aiming to further expand the underground resource. Engineering studies and permitting activities will continue in Q4 and 2026, with the expectation of commencing underground mining operations in 2027. The Kingfisher Deposit remains open in all directions and further drilling will be undertaken in 2026 to convert inferred resources to indicated status and further expand the resource. At our Diamba Sud project in Senegal, exploration, environmental permitting and feasibility activities made significant progress during the quarter, government approvals were received for early works programs, ESIA was submitted for approval and the PEA was published. Following the rainy season, drill rigs have been remobilized for further drilling at the Southern Arc deposit at Diamba with the aim of enhancing the resource base and building on the strong PEA results. Thank you, and back to you, Jorge. Jorge Durant: Thank you, David. Cesar? Cesar Velasco: Thank you, Jorge, and good afternoon, everyone. I am pleased to report that both Lindero and Caylloma ongoing multiple safety initiatives are driving continuous improvement and reinforcing a culture of accountability and care across all of our operations, delivering excellent safety performance. At Lindero in Argentina, we had a strong quarter, achieving our highest gold production this year. Gold output reached 24,417 ounces, a 4% rise from 23,550 ounces in the second quarter, driven by a 5% increase in gold grade and effective inventory recovery from the leach pad. We placed 1.7 million tonnes of ore on the leach pad at an average head grade of 0.60 grams per tonne containing about 32,775 ounces of gold. With 1.5 million tonnes of ore mined and a favorable strip ratio of 1.9:1, we are well aligned with our mining plan. Processing performance was robust with continued optimization of the crushing circuit achieving an average throughput of 1,061 tonnes per hour, about 8% above the 2024 average, demonstrating progress in our operational efficiency initiatives. However, on September 27, we experienced an unexpected shutdown of the primary crusher due to mechanical issues involving high amperage and overheating of the pitman shaft, specifically traced to the premature wear of the primary wear parts such as the bushings and bearings. Replacement parts have been secured and corrective actions are underway to resolve the structural misalignment. We anticipate the crusher will be fully operational by mid-November. Meanwhile, we have implemented effective mitigation strategies such as using a portable jaw crusher and direct Run-of-Mine ore screening to ensure uninterrupted operations. Consequently, we do not foresee any impact on our annual production target. Regarding costs, the cash cost in Q3 was $1,117 per ounce of gold compared to $1,148 per ounce in Q2, marking a 3% improvement due to higher ounces sold and stable operating conditions. The all-in sustaining cost decreased significantly to $1,570 per ounce from $1,783 per ounce in the second quarter, a notable 12% reduction, supported by lower costs, reduced sustaining capital, higher by-product credit and a 7.7% increase in ounces sold. Overall, Lindero delivered strong performance this quarter, supported by disciplined cost management, resilient production and solid margins of approximately $2,500 per ounce to our ASIC based on current gold prices. At Caylloma in Peru, we delivered another steady and reliable quarter of production, meeting operational expectations. The Caylloma mine continues to exceed all of its physical and cost targets for the year, reflecting strong operational execution. However, our reported metal equivalents are being impacted by the silver and base metal conversion factor, which affect the calculation of both the gold and silver equivalent production. In terms of costs, the cash cost per silver equivalent ounce was $17.92 compared to for $15.16 in Q2, mainly due to slightly lower silver production and higher realized silver prices. The all-in sustaining cost increased modestly to $25.17 for silver equivalent tonnes from $21.73 in Q2, primarily due to the same factors and fewer silver equivalent ounces sold. Despite these cost movements, Caylloma maintained healthy margins, supported by strong base metal prices and disciplined operational control. With the current strength in silver prices, we're looking to access some of the highest grade silver zones that Caylloma is known for. These areas, which are better suited to conventional mining methods are becoming economically attractive and once again, under the present price environment. In summary, the third quarter highlighted strong production growth at Lindero, steady performance at Caylloma and lower unit cost across the region. Our teams in Argentina and Peru continue to execute with discipline and focus, maintaining momentum in operational reliability, cost efficiency and safety as we move into the year's final quarter. Back to you, Jorge. Jorge Durant: Thank you. I'll now hand the call over to Luis, our CFO, who will review financial results. Luis Durant: Thank you. So we have reported net income attributable to Fortuna of $123.6 million or $0.40 per share. This result includes a $70 million noncash impairment reversal at the Lindero mine, which includes $17 million of low-grade stockpiles. After adjusting for noncash nonrecurring items, attributable net income was $51 million or $0.17 per share. This represents a strong 56% increase year-over-year and a 14% sequential increase over Q2. The growth was driven mainly by higher metal prices. The cash cost per ounce for the quarter was $942, broadly aligned with the prior quarter and slightly above Q3 of 2024 as a result of higher mine stripping ratios at Lindero and Séguéla after our mine plans. We have reported 2 nonoperational items impacting our results this quarter. The effect of our stock-based compensation of the increase in our share base during the period, representing a one-time increase to share-based expense of $6.3 million and a foreign exchange loss of $7.4 million. The foreign exchange loss was mostly attributable to our Lindero operations in Argentina as the peso experienced a sharp 14% devaluation in Q3. For the first 9 months of the year, our FX loss related to the Argentinian operations amounts to $10 million, of which over half is related to the accumulation of local currency cash balances. However, I want to emphasize that we implemented structures to preserve the value of these funds and the FX loss on local cash balances for the full year is fully offset in our income statement through the interest income, investment gains and derivative line items. We were able to restart repatriation in the month of July from Argentina, and under current conditions, we expect to maintain local cash balances at a minimum. In Q3, a total of $62 million were repatriated, net of withholding taxes. Our general and administration expenses for the quarter were $26.3 million. This represents an increase over the prior year of $12.6 million. This was due mainly to higher stock-based compensation as explained, plus an increase in corporate G&A of $4 million related mostly to timing of expenses. Our annual corporate G&A remains relatively stable at around $28 million to $30 million, and the breakdown is provided in Page 11 of our MD&A. Moving to our cash flow statement. Our capital expenditures for the quarter totaled $48.5 million. Of this, we classified $17 million of growth CapEx, which primarily consists of investments in the Diamba Sud project of $6.8 million and exploration activities of around $10 million. Our anticipated capital expenditures for the full year have adjusted upwards slightly from the $180 million previously disclosed to approximately $190 million. This increase primarily reflects added exploration allocations due to continued exploration success at Séguéla and Diamba. In terms of free cash flow, we generated $73.4 million from ongoing operations, up from $57.4 million in the prior quarter, reflecting the effect, again, of a higher gold price. And our net cash position increased by $51 million after growth CapEx and other items. All of this brings our total liquidity to $588 million, and our net cash position to $266 million. This represents an increase of over $200 million year-to-date. In the current price environment, we expect this trend to accelerate. That's it for me. Back to you, Jorge. Jorge Durant: We would now like to open the call to questions. Paul, please go ahead. Operator: [Operator Instructions] And the first question today is coming from Mohamed Sidibe from National Bank. Mohamed Sidibe: Maybe just starting with your strong balance sheet, strong free cash flow that you're printing and the elevated gold and silver prices. How are you thinking about your capital allocation priorities. I know you have Diamba coming up. But specifically as it relates to capital return to shareholders as you're looking into next year. Jorge Durant: As you pointed out, we have a pipeline of near-term growth. So that is the first priority we have with respect to capital allocation. We expect we'll be making a construction decision on Diamba Sud next year in the first half of the year. We're advancing early works that are trying to derisk the time line and shorten the time line also for first gold at Diamba by advancing these early works. We are also scoping right now the potential to expand our Séguéla process infrastructure. As you recall, Séguéla was originally designed at 1.25 million tonnes per annum. We're currently running the plant at 1.75 million tonnes per annum, and we're currently doing scoping -- starting scoping work to expand it to the range of 2.2 million, 2.3 million tonnes per annum. Additional to that, as you have seen, we're expanding exploration work across the 2 regions, LatAm and West Africa. We just expanded into Guinea through a JV with DeSoto. We are expanding our exploration in Argentina. We're currently drilling in Mexico. We're currently drilling in Peru. So that is our first priority and where we believe we can add most value right now. Second, we have our share buyback program in place. We were quite active with the share buyback program at the beginning of the year, end of last year. We repurchased approximately $30 million worth of stock. The share buyback program remains in place, and today is our preferred way to return to -- capital to shareholders. And we have made a pause in the last 2 quarters with the share buyback program, but we could be active in the market again anytime. Mohamed Sidibe: Great. And then maybe if I could shift to operations. So Lindero, the unexpected shutdown and mindful that this has no impact on your annual production target, given the mitigation measures. But how should we think about this for cost into Q4? Should we -- could we see any potential impacts on that front? And any color would be appreciated there. Jorge Durant: Yes. I'll let Cesar address the question. Cesar Velasco: Sure. Well, in particular to cost, we have been able to compensate some of those cost in specifically with regards to the portable rental jaw crusher. So we're offsetting that cost with other noncritical initiatives that we had in Lindero. So we don't expect our cost to be significantly impacted in Q4. That should address. Operator: [Operator Instructions] There were no other questions from the lines at this time. I will now hand the call back to Carlos Baca for closing remarks. Carlos Baca: Thank you, Paul. If there are no further questions, I'd like to thank everyone for joining us today. We appreciate your continued support and interest in Fortuna Mining. Have a great day. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Unknown Executive: [Audio Gap] But before anything else, I just want to remind you, and I've done it previously, and now it's particularly important, the partial carve-out that took place in November last year with the carve-out of the Inmocemento Group. You know that this is very important because until the end of the financial year, the results in the bottom line will not be fully comparable, and I'm sure you've been able to see this. That's the reason why last year and until September 2024, we entered EUR 148.6 million corresponding to the carve-out of the cement and real estate activities. And as we already reported on the first -- in the first quarter, the euro has become stronger against other currencies. And so exchange rate differences have become quite significant. And this also is related to the adjustment we made in certain assets following the equity method in both areas of the environmental department. So this, together with the negative exchange rate differences of the provisions and the adjustments made together with the EUR 148.6 million corresponding to discontinued activities that have disappeared now, but were present last year. All of this explains the fall of the attributable net profit of this financial year. I also want to mention that it is also true that at the level of the P&L in the top line, the strength of the euro has already been noticeable with a certain impact, close to 1% of our earnings in terms of income and EBITDA. Well, having said this, our earnings are basically focused in the even quarters. Well, if you look at the evolution of our exploitation activities starting by the environment unit, what we have seen is that the turnover of environment went up by 11.5%, reaching EUR 3.4 billion. And here, I would have to mention the contribution from new contracts, both in Spain and the United States. This -- I should also add the effect of the acquisitions we carried out in the U.K., although this has been diluted slightly, but Urbaser, heavy recycling should be mentioned. Now in terms of geographies, you know that we have 4 platforms, starting by the Atlantic, which includes the business in Spain, which accounts for 50% of the income, and this business grew by 7%, up to EUR 1.7 billion. And here, we have kept evolving quite normally in our activities, both for collection, street cleaning and also there's been very good performance of other municipal services and the management of industrial waste. This is waste related with the private sector. Now as regards to the U.K. platform, income rose by double digits because of, first of all, the consolidation because of the acquisition of the U.K. Urbaser Group, and this is why we reached over EUR 700 million. And I would also like to mention that the underlying activities at a constant perimeter had a homogeneous evolution except for the landfill activity, which did experience a lower level of activity than in the previous year. Now in Central Europe, we are present in 6 or 7 countries in the region. As you know, in the Eurozone, income increased by 4.9%, reaching EUR 508 million. And we had a higher contribution, particularly in Poland and in the Czech Republic with an increase in the number of contracts, both for collection and treatment. And we did record, and this is a growing trend, year-on-year, showing negative variations, the selling prices of negative raw materials that we manage, particularly in treatment, which in Central Europe is quite significant. Now the fourth platform in environment was the United States and revenues were EUR 342.7 million, plus 24%. So we're growing very significantly. Just remember the acquisition in the Central North area of Florida of a company called Hell Recycling, which is in charge of processing different types of waste related with residential waste, but also collection progressed very well. We do have to mention, although it didn't have much of an effect in the turnover, an acquisition we carried out in July. So there was only a contribution for 2 months. This is a company in Fort Lauderdale devoted to the recovery of waste. And this is the advancement we had in recovery. We started this activity in the U.S. and also waste collection contracts evolved very well. And there's also the Hell Recycling business. And I also want to mention in the Atlantic platform, which also includes Spain, which I mentioned first, it also includes France and Portugal. Here, we reached EUR 111 million in revenues. The lion's share, about 7% is France, and this is the acquisition we carried out last year of the ESG group, which means that now we have our own legal presence in France for waste collection and street cleaning. And the underlying activity was also good. And Portugal, also made progress by 4.4%. So the EBITDA for the environment unit grew to 11% over EUR 500 million. This growth is absolutely very similar to the growth in revenues. So I don't have much to say about the stability of the margins, which persisted. The margin is 15.6% as compared with 15.7% of the previous period. Now if you talk about the water cycle group called Aqualia, here, the turnover increased by 8.7% to EUR 1.5 billion. Here, we had quite a homogeneous growth, both in integrated cycle, we -- in general, although there's been a little bit of everything, but we've increased both in terms of volumes and rates. And this was accompanied by a growth in the technology and network activity, which is essentially linked to the development of ESP, specific ESP for the Water sector. And it is very closely connected to our concession-based business. So it is induced by our activities -- our integrated activities. Now if you look at the different jurisdictions in Spain, we rose by over 11%, our revenues. Here, there was quite a significant increase, and this is a reflection of the activities, the health of the activities in the country. So in Spain, everything was very positive over the period. Now if we look at Central and Eastern Europe, but before that, I just want to remind you that the main stays here are the business that we own in the Czech Republic and Georgia, where we increased by 5.4%, EUR 196 million. In the Czech Republic, rates were revised. This was within the plans linked to our proprietary structure and the fact that we are a fully regulated business. And this has to do with the CapEx that we are -- so rates are reviewed as we review our CapEx. In Georgia, there was a significant increase in consumption. So this increase was more related with the increasing consumption rather than with an increase in rates, both in residential and industrial customers. And this made it possible both in the Czech Republic and Georgia to reach this 5.4%, and it's allowed us to compensate for the effect of the exchange rate, which I mentioned at the beginning because in Georgia, the local currency lost value, lost 5.4% with respect to the euro. In other European countries such as Portugal, Italy, France, here, the increase was 6.6%, EUR 87 million. Just to give you some color, there was a rate review in Sicily, although we still experienced the effect of the lack of water -- of crude water as a result of the drought. This is something that we managed to compensate for with increases in our rates. Now if we look at other markets, leaving Europe behind, if we look at the Americas, here, the turnover also rose by double digit, 12.6%, EUR 156.4 million. There was a consistent growth and quite a substantive growth in the U.S. based on the activities in that country. We reached EUR 67 million. And here, there was an increase in rates, and also there was an increase in consumption, similar to the consumption in Colombia, another important country in the Americas. And in Technologies and Networks, we also carried out the development of some plants in Mexico and Peru. Lastly, the last platform I want to mention within Aqualia, apart from Europe and the Americas is MENA, the Middle East and Africa. Well, it's really Northern Africa, Algeria and Egypt. Here, we did experience a slight fall of 4.8%, EUR 115 million. And this was because of the effect of the rate review in our contract in Algeria in the desalting plants where there were some adjustments introduced according to some rate measures. But this was compensated for because we had higher activity in countries like Saudi Arabia in our counseling and execution business in the -- in 2 clusters we have been awarded in the country. It's really 2 regions in Saudi Arabia. And we also had to compensate for the negative effect of the strengthening of the euro against the riyal. So all in all, the EBITDA followed a very stable pattern. It grew a little bit less than revenues, 5.2% to EUR 319.2 million. I would just mention that the margin, which was 23.8% as compared with 24.6% experienced a small variation because the contribution of Technology and Networks was slightly higher moving towards integrated cycle. So margins were structurally lower. And this, as you know, tends to give rise to small adjustments in the increase of EBIT versus revenues and the operational margin. Right. As far as construction is concerned, in the 9 months, the turnover became positive to over EUR 2 billion. Here, there were no surprises. I wouldn't mention any unexpected occurrence, everything went according to plan. Perhaps I should mention that at present, the infrastructure contracts are the most important ones, both roads and railways. Now in terms of the main markets, in the Spanish market, the turnover rose by 4.9% to EUR 921 million. We also made progress in works both -- well, it's rehabilitation of roads and some other works that we had to cut it out, which were unexpected. We carried out some work for the flash floods in Valencia. Now in other European countries, the increase was similar to that of Spain, about 5%, EUR 645 million. And here, we kept advancing in our important contracts in the Netherlands, then the railways in Romania, where we have a traditional presence. And just as the -- I just want to mention that the motorway exploited by FCC concessions in the country was completed in Wales in the U.K. Which -- since it's been completed, it ceased to contribute. Now in -- then I would like to mention other areas where there were large works that we -- in the United States and Canada, particularly in Toronto. This was a large road in Pennsylvania. And as I said, for Europe, these compensated for the satisfactory completion of the Maya train in Mexico. Finally, in the Middle East and Africa, the MENA area, like in Aqualia, we incorporated Australia into this region. And we did have a reduction in revenues, EUR 119 million. And here, we were not able to compensate for this loss with new works because there was -- we completed the works of the Riyadh metro in Saudi Arabia and also the customer completed the works were conducted in the NEOM tunnel, but both projects were extremely successful. There was some compensation from our project to develop social infrastructure in Cairns in Australia, in the northeast of the country. So the EBITDA, however, went down a little, 0.3%, EUR 121 million. Now the margin EBITDA sales stayed stable, 5.6%. I think that last year, it was 5.7%. But this is just the effect of a combination of the programming of different works. And in construction, I'm sure you've seen this in the report we have sent, the most important thing to mention here has to do with the increase in our portfolio because since December last year to the end of September, we had a growth of 46.8%. Our portfolio is approaching EUR 10 billion, EUR 9.3 billion. Here, we had quite a significant amount of international contracts, which account for 2/3 of total with an increase of 60.8%, over EUR 6 billion. And again, we can talk about the platforms where we are already consolidated. One of the most important projects was the Scarborough project in Canada together with a line of the New York Metro and the enlargement in Canada of another metro line. In Spain, we also had increases in our portfolio. So this increase was of 23.8%. So these were new contracts in Spain. We are specialized in the construction of stadiums, particularly in Valencia and also high-speed lines that are being built by the railway authorities. So it is important to mention that the increase of the -- the improvements are happening across our different departments, but I just wanted to make a specific mention to construction because the increase was particularly high. Now to finalize, I just want to talk about concessions. Here, the turnover reached EUR 81.4 million, growing by 38%. And given its relative size and its good evolution, well, you will have seen that this is the area that made the greatest progress. And here, there are 2 effects to be mentioned. One of them is the development of new business and the other one is the perimeter. But I want to say that traffic and the number of passengers in the infrastructures that we exploit has also made some contributions. So the organic perimeter also evolved healthily. But the business is basically -- our concessions are concentrated basically in Spain, EUR 77.9 million, an increase of 48.4%. Here, I just want to remind you that there's the kick-off of the 8 itinerary, a concession we have in the region of Aragón and a new project, which is for a motorway in Ibiza Island, and this started in June last year. Now internationally speaking, I just want to mention a concession that does make a contribution to our revenues. Another one -- we have another one that follows the equity method, but we have the Coatzacoalcos underwater tunnel, which evolved very well. But then we decided to remove one of the businesses in Portugal. But all in all, internationally, which is just COTUCO, we had an increase of 6.8%. So the EBITDA for concessions is EUR 44.6 million, an increase of 8.3% with respect to the previous year. As you know, and I want to mention it again, the EBITDA advanced less than revenues, but that was because of the development of the concession in Aragón before it starts operating. That's why its gross margin went down quite significantly, but there was no other effects for provisions or any other incident that could explain that difference between the variations of revenues and of EBITDA. Well, that's about all I had to share with you. As you may have seen, the results as compared with previous quarters were quite good with increases in excess of 7%. I might perhaps mention the evolution of the portfolio. You know that we are a group that has over 85% of its activity coming from the waste management business and the water integrated cycle -- integrated water cycle business. But our portfolio makes us -- well, it means that we are very reassured in terms of our future prospects. That's all from me. So if you have any questions, please do not hesitate to ask them. Operator: First question, why are the EBITDA margins going down for Water and Services in the first quarter -- in the third quarter? Unknown Executive: Well, services, I guess you mean environmental services. As I said before, for the environment, 15.6% as compared with 15.7%. I don't think it's a huge reduction. This variation is really very small. We did increase quite -- well, perhaps we increased in waste collection and other services, but the difference is really very, very small, practically negligible. In the case of Water, which is, I think, important to mention, the thing is that Technology and Networks is now more significant. That is where we include 2 types of projects. First of all, the things we do to develop works where we have a contract that we call essentially BOT that is we obtain a partial water cycle to construct a water treatment plant, a desalting plant and that normally is attached to a lower margin. But the area of Technology and Networks has to do with our integrated cycle concessions because we are -- these are works that cannot be postponed. This is just water consumption for drinking water for families. So we need to do this as fast as possible. So -- and 80% of the work we do under Technology and Network falls in this category. And even if the margin for us is very satisfactory, it is a lot lower than the margins of other businesses in concessions that may go from 25% to 40%. So when there's more in Technology and Networks, when there's more work in Technology and Networks, of course, it's logical that there should be a fall in the margins, but that's the only explanation. Operator: Next question, what was the reason for the selling off of an additional share in the Services unit? And how are you going to use the money obtained from the sale? Unknown Executive: Well, as you know, in this transaction, we have an agreement. We have signed the selling agreement. The money has not yet been paid to the group. I would say that the same -- the reason is the same as in 2018 when we sold a share of our Water business. Obviously, it was a minority share. So we retain full control of the activity. But what we did there is circulate the capital used in an efficient way. So we retain the operational control of the business. And this -- and so the know-how still lies with us and with our units. And the idea is basically to optimize the use of the capital invested by the group. This is the same thing we did for Aqualia. And what are we going to use the money for? Well, we'll have to wait, first of all, for the money to be paid to us. And when that happens, we will decide how to put it to the best use. Operator: Next question. What can we expect from the working capital for the end of the year? Unknown Executive: Well, with respect to the working capital, the evolution that we have experienced in the first 9 months has been quite homogeneous with respect to the activity we had until June. And let me look at the figures because I don't remember them off the top of my head. In December, yes, 2024, it was also homogeneous year-on-year. So the expansion we recorded was quite similar. And I would say that what we can expect is that we will have a recovery. We always recover. You know that -- you know it's difficult to quantify things under the working capital heading, but the expansion we had in September is quite similar to the one published in June. And it should go down by the end of the year. But this is only normal. It's part of the ordinary pattern of this chapter. Operator: Next question. What investments can we expect for 2025 and 2026? Unknown Executive: Well, in terms of investments, as any other group, we -- there's a combination of the ones that have been contracted and the ones we aspire to achieve. Last quarter, we achieved EUR 1 billion in payments for investments, and this is quite a significant figure given the size of our activity and our generation of cash flow. Now with the investments we have made until now, I think we -- I think that this year, we could stand at a similar level. Now for 2026, we could also achieve similar levels. I mentioned some investments that will have to be materialized. And you know that we are very selective in our activities. Last year, for example, they were concentrated in environment and water treatment. These are the 2 activities that demand the largest amount of CapEx. And of course, we aspire to grow, but in a very selective way. And in 2023, we'll stand at similar levels in terms of the application of our cash flow, similar to 2025, I mean. Operator: Next question. Will you have growth in construction at the end of 2025? Unknown Executive: Yes, I think we should. From the first half to the 9 months to the third quarter, you've seen that there's been some increase already. But I would just like for you to analyze our portfolio. Of course, we can't -- you can't really apply a simple equation. You can't say that if the portfolio has grown by 45%, revenues will also increase by the same measure. But this cannot be done because some of our new contracts are long-term contracts, railway contracts, but we want to establish a close connection with the customer, with early contractor involvement format where customers become more involved in the design phase. So by their very nature, these are long contracts with great technical complexities, but this also requires a greater collaboration from the customer so that the contract is longer term. And this, of course, makes it easier to manage the complexities of our contract. So what I want to say is that these contracts are going to be longer term. Of course, we could end up at the same variation of 1.2. But for a project based on projects -- for an activity based on projects such as construction, we feel really very comfortable because there's quite a large amount of visibility. There's no further questions. So if there's no further questions, I just want to thank you very much for your time. I guess that you will now have time to review all the documentation we have sent. And as I said, we remain at your entire disposal through the usual channels. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, welcome to the Lenzing AG Analyst Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rohit Aggarwal, CEO. Please go ahead. Rohit Aggarwal: Thank you very much. Ladies and gentlemen, welcome to the presentation of Lenzing's results for the first 9 months 2025. With us today is also Nico Reiner, our CFO. Let's go through our agenda for today. I'll start with a summary of the key developments, followed by the market update as well as our refined strategy. Nico will then guide you through the financials, and I will talk about our investment highlights as well as the outlook. And as usual, at the end, we are looking forward to your questions in our Q&A session. Let's start with the overview of the key highlights for the first 3 quarters. The market continued to remain challenging, and it's even more important that we have refined our strategy with a clear focus on premiumization and excellence. Revenue and EBITDA continued to improve in the first 9 months, supported by a strong first quarter. However, market headwinds impacted us continuously in quarter 3. The market environment is marked by geopolitical uncertainty and especially the aggressive customs policy. EBITDA was additionally negatively impacted by restructuring one-offs. Operational excellence continues to be key for us, and we are further raising the bar on our agility and flexibility. Liquidity is one of our key priorities, and we made great progress. After this year's refinancing, our liquidity cushion reached a very solid level of EUR 1 billion. What remains unchanged are our core strengths, innovation and sustainability, where we were just confirmed as worldwide leader. This leads us to a confirmed EBITDA outlook by year-end. However, it needs to be said that visibility remains quite limited. International tariff measures have very much characterized the last couple of months globally. In Q1, markets were impacted only in a very limited way by tariff developments and Lenzing achieved a strong result. However, the escalation from reciprocal tariffs followed in early April. This has led to both supply and demand shocks impacting global value chains. Ongoing and repeatedly changing international tariff measures and the resulting uncertainty led to tangible stress along the textile value chain and impacting consumer confidence negatively. The direct impact for Lenzing is limited, however, leads to indirect effects on both demand and prices. On a more positive side, I can say that the nonwoven markets were less affected by these tariff developments. To mitigate the tariff impact, Lenzing took actions in 4 ways. Number one, we maintain very close contact to our customers and regional value chains to handle the situation in the best possible way and to strengthen demand visibility. Number two, we believe that we are better positioned than other fiber manufacturers given our global footprint, which allows us to shift fiber volumes between our production sites in order to manage cost and trade impact. Number three, we further strengthened our operational efficiency, which includes the target to reduce around 600 jobs in Austria, mainly in administration. Number four, we decided to start a review of strategic options, including a potential sale for the Indonesian production site, which supports our strategic focus on branded, high-performance fibers with higher margins. Let's look now in more detail how the markets have developed. The relevant markets for Lenzing are textiles, nonwovens on the fiber side as well as dissolved wood pulp. When adjusted for inflation, demand for apparel worldwide was up 2% in the first 9 months of 2025 versus a year ago. Consumer sentiment remains low, which is negatively impacting discretionary spending with elevated saving rate and a wait-and-see attitude. Growth driver was the U.S., which was driven by consumers pulling forward purchases in quarter 2 and quarter 3 in response to tariffs, while Europe and China were mostly flat in a challenging macro and cost of living environment. Let's turn our attention to nonwovens. Here, end markets show higher resiliency with a relatively stable consumer demand. Compared to previous years, the seasonality period with weaker demand lasted a bit longer into September. However, I can say that the development in October was promising given also a more positive sentiment towards 2026. The trend towards less plastics is ongoing, and the carbon footprint and other sustainability credentials are increasingly becoming a differentiator for nonwoven manufacturers and brands driven by consumer awareness and retail commitment, especially the U.S. and regulatory pressure in Europe. DWP demand is mostly driven by the production of regenerated cellulosic fibers. The production cuts we have seen in the viscose industry in quarter 2 were negatively impacting DWP demand and prices accordingly. As operating rates in viscose plants increased in quarter 3 and paper pulp prices stabilize, DWP prices saw some support, at least in U.S. dollar terms. Let's have now a look at the fiber prices on the Chinese market. Please keep in mind that prices shown on this slide are generic market prices. Generic viscose prices in China increased gradually in the third quarter in U.S. dollar terms. In July and August, demand improved and inventories fell as peak season was on the horizon. However, the pace of price increases remained cautious. At the end of September, the price of medium-grade generic viscose fiber stood just 2% higher compared to the end of second quarter at RMB 13,050 per ton. However, due to the weakened U.S. dollar, prices have decreased in euro terms, which is impacting Lenzing negatively. The situation on the cotton market did not change much in the third quarter, and international cotton prices fluctuated on a low level within the range. Dissolving pulp prices stopped falling in the third quarter with support from improved demand from viscose plants and some temporary supply constraints. In the third quarter, imported hardwood DWP prices went up by 2% to USD 818 per ton. Here again, prices in euro terms have decreased due to the weakened U.S. dollar. Lenzing prices are mainly traded at a premium compared to generic prices as the current share of specialties is at around 90%, and we are gradually withdrawing from the lower-margin commodity segments. Let us now turn to the development of costs. Energy and chemical costs remain significantly higher than historical levels, especially energy prices in Europe, but at least they decreased somewhat in quarter 3 compared to the second quarter. Geopolitical conflicts such as Russia, Ukraine and the Middle East continue to fuel the volatility of European gas prices. Lower demand due to warmer weather led to somewhat reduced gas prices in summer. Caustic soda prices remain high across regions, but reduced in general compared to Q2 due to weaker seasonal demand. Even with a slight improvement in the second quarter, both energy and chemical costs remain a major challenge for fiber production. As the relevant markets for us still show no signs of a sustainable recovery, it is even more important that we continue to keep our full focus on cost excellence, which remains a key pillar of our performance program. In 2024, we already realized over EUR 130 million in cost savings, and we do expect cost savings to further increase to annual cost savings of more than EUR 180 million for this year. We are clearly well on track to meet this target as well. To make it clear, we're talking about our recurring targets with an ongoing impact beyond this year as well. We can certainly be satisfied with our success so far, but there are still improvement areas ahead of us in order to maximize our full potential. As communicated about a month back, we are refining Lenzing strategy. Our refined strategy is built around 4 strategic priorities that together unlock value and prepare Lenzing for the future. Unlocking value happens in the first 2 pillars, premiumization and excellence. Premiumization means that we will concentrate more strongly on our branded and innovative fibers like TENCEL, VEOCEL and ECOVERO and gradually step back from less profitable commodity segments. By doing so, we improve margins and position Lenzing in areas where we can truly differentiate. The second is excellence. We are embedding a culture of efficiency and discipline across the group, not just through one-off savings, but by institutionalizing cost control, optimizing our footprint and streamlining structures. This makes us leaner, more agile and more resilient. We are implementing tough but necessary measures. By the end of 2025, around 300 positions will be reduced in Austria, mainly in overhead, supported by a social plan and with full assistance for those affected. This is expected to result in annual savings of over EUR 25 million from 2026 onwards. By 2027, another 300 positions will be reduced through internationalization as we strengthen our footprint in Asia and North America. Both measures will lead to total annual savings of more than EUR 45 million, latest fully effective before end of 2027. The third pillar is innovation. Now here, we will focus resources on fewer but higher impact projects, accelerating time to market and ensuring that our pipeline continues to provide the next generation of premium fibers, whether in textiles or nonwovens. And finally, sustainability. This has always been part of Lenzing's DNA, but going forward, it will be leveraged even more as a value driver. With growing regulation and customer demand for sustainable products, our leadership in this area is a true competitive advantage. Taken together, these 4 priorities, premiumization, excellence, innovation and sustainability ensure that we just don't react to changes in the market, but actively shape them, creating long-term value for customers, employees and shareholders. Innovation and sustainability remain the foundation of Lenzing's long-term strategy that they are what sets us apart from our competition. Even as we streamline, we will not compromise in these areas. On the innovation side, our pipeline continues to create real opportunities. One example is our new TENCEL HV100 fibers. The fiber features variable cut lengths designed to mirror the irregularities of natural fibers and brings undefined rawness of nature into TENCEL Lyocell portfolio for woven products such as denim. On the sustainability side, our leadership is recognized worldwide. We have just been reaffirmed our EcoVadis platinum status. And with this, Lenzing is now in the top 1% of companies in sustainability performance. We've also just been confirmed as a global leader in the Canopy sustainability ranking as we have taken once again first place in this year's Hot Button Report published by the Canadian nonprofit organization, Canopy. These achievements are not just certificates, they are an asset that strengthens our brand, enhances customer partnerships and increasingly drives premium pricing. And with this, I hand over now to Nico for an update on financials. Nico Reiner: Thank you, Rohit, and a warm welcome from my side as well. The third quarter was negatively impacted by weakened fiber demand in continuously challenging markets with revenues decreasing by 3% year-on-year. EBITDA decreased by EUR 27 million to EUR 72 million. This was partially driven by the decrease in revenue just to mention. In addition, one-off restructuring costs for the headcount reduction program to mitigate market impact in the amount of EUR 13 million have also negatively impacted EBITDA. Additionally to that is to mention that we had the annual maintenance shutdown of LDC in the third quarter. Looking at the first 9 months in total, both our revenues and our margins increased, thanks to the measures that we have actively taken. Revenue increased by EUR 14 million in the first 9 months compared to the 9 months of 2024 and reached EUR 1.97 billion. EBITDA increased by EUR 77 million to EUR 340 million as the number of CO2 certificates held continued to increase, we decided to sell some of them in the amount of EUR 37 million in the first 9 months of this year, which positively impacted the EBITDA. Depreciation was at EUR 320 million, including an impairment of EUR 82 million, which I will talk about on the next slide. This led to an EBIT of EUR 21 million, which compares to EUR 38 million in the first 9 months of '24. Income taxes amounted to EUR 6 million compared to EUR 78 million in the first 9 months of '24, and the financial result was minus EUR 119 million compared to minus EUR 72 million in the first 9 months of '24. As a result, there was a loss of EUR 169 million for Lenzing shareholders, which compares to a loss of EUR 135 million in the first 3 quarters of 2024. Let's make it clear. Even though Q3 was negatively impacted by one-offs such as the restructuring costs, we are not satisfied with the result. However, on a positive note, we saw some stability in fiber demand in September compared to July and August. And October looks also more promising with a currently quite stable order book situation. Let's move to the next slide. As communicated, our refined strategy also addresses reviewing selected sites, including the Indonesian plant where potential sale is under consideration. In this context, noncash impairment losses on noncurrent assets, in particular, property, plant and equipment of EUR 82.1 million were carried out. The impairment losses have a negative impact on EBIT, but not effect on EBITDA. EBIT, excluding the impact of the impairment, would have been slightly negative at minus EUR 6 million, which compares to minus EUR 88 million reported EBIT. Please note that this impairment amount is not audited for Q3 closing and therefore, subject to change. Looking now at cash flow. Trading working capital further decreased and was down by 6% compared to the end of the second quarter due to lower inventory levels. With regards to CapEx, Lenzing continues to put a clear focus on maintenance and license to operate projects as part of its performance program and CapEx remained on low levels of EUR 32 million in Q3. As you can see, we continue to have a very disciplined approach to capital allocation. As a result, unlevered free cash flow more than doubled to EUR 103 million in Q3, and we clearly continue to have a very clear focus on free cash flow generation. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. Even though the markets were challenging in the third quarter, net financial debt continues to move into the right direction and came further down by EUR 35 million to about EUR 1.4 billion by the end of September. On the right side, you see the development of our liquidity cushion, it increased by EUR 23 million compared to the end of last quarter and reached a very solid level of EUR 993 million. Let us look at our debt maturities on the next slide. Let's have a short recap on the refinancing measures we have taken recently. In October last year, we have converted the project financing of our Brazilian joint venture of USD 1 billion into a stand-alone corporate finance structure with a further shift of debt maturities. The successful placement of the new hybrid bond in the amount of EUR 500 million in July this year followed the EUR 545 million syndicated loan secured in May. Those measures marked further milestones in the professional and forward-looking management of our capital structure. With this, we have proven to have access to capital markets despite challenging times, and we have essentially secured our financing through 2027. We can now continue to fully focus on executing our successful performance program aimed at improving margins and free cash flow as well as implementing the refi strategy. With this, I hand over back to you, Rohit. Rohit Aggarwal: Thank you, Nico. Let me summarize now why Lenzing represents a compelling investment case today. First, we are recalibrating our asset base. That means moving away from a volume-driven model towards one that prioritizes economic value creation. We are reviewing underperforming assets, including the Indonesian side and focusing investment where returns are highest. Second, we are refocusing the organization. With leaner structures, institutionalized cost discipline and a stronger international footprint, particularly in North America and Asia, we are aligning resources with future growth opportunities. Third, we are resharpening our market focus. We are withdrawing from commoditized fibers and concentrating on premium branded products and resilient nonwoven applications. This makes our business less cyclical and more predictable. Finally, we are positioned to regain valuation. We combine a proven ability to execute, whether it's savings, refinancing, EBITDA growth with unique differentiation through innovation and sustainability. This is how we will restore investor competition and create long-term value. We now come to the outlook. I can clearly say that thanks to our performance program, the operational performance in the first 9 months 2025 was solid despite the still challenging market environment in the third quarter. In terms of fiber demand, I expect that we have already passed the low point with a positive development in September compared to July and August. As Nico also mentioned, we have seen continued promising developments in October and the order book situation looks currently quite stable. We assume relatively stable demand in pulp and have a cautious outlook on the generic fiber market development in the fourth quarter of 2025. We expect energy and raw material costs to remain on elevated levels. However, market visibility remains still on relatively low levels. While the market has not helped us so far, we continue to take the future in our own hands. We expect operational results to continue to be positively impacted by the performance program, and we keep the expectation for EBITDA for 2025 financial year to be higher than in the previous year. By 2027, we target approximately EUR 550 million EBITDA, assuming stable market conditions. With this, I will hand over back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from the line of Christian Faitz from Kepler Cheuvreux. Christian Faitz: Two questions, please. First of all, your free cash flow continues to be on a nice good trajectory. Congrats on that. Would you be able to provide us a free cash flow guidance for the few months remaining in the year? And then second of all, can you tell us a bit about the capacity utilization? I note, obviously, your statements that things in terms of order income have improved, I guess, from September also into October. But where are your capacity utilizations at this point in time versus historical trends? Rohit Aggarwal: Thank you, Christian. First question with regard to potential outlook on the fourth quarter for the free cash flow, Nico, please? Nico Reiner: Yes. Thank you. So overall, as we have communicated now since, I think, meanwhile, 7 or 8 quarters, we are very much focused on generating free cash flow. And we are continuing this journey. So we overall will still work heavily to improve our free cash flow generation, and we are also clearly positive to have a positive further continuation of that story. But nevertheless, don't forget in the fourth quarter, there are always some one-timers, especially in regards to interest payments and so on. But overall, I think we will clearly continue the journey with a positive free cash flow for 2025. Christian Faitz: The second question with regards to the utilization, capacity utilization, can you give us some indication there? Rohit Aggarwal: Yes. Thanks, Christian, for that question. What I can say is the year has been a bit of a roller coaster given what we spoke about from a tariff leading to a lot of uncertainty in the value chain. So we've seen movements through the year, which were pretty strong starting quarter 1. We did see the books getting a bit slowdown in quarter 2, quarter 3, and then we are seeing now a recovery. At this point in time, I can say that we are running fairly back to normal capacity utilization. Of course, based on plants and products, it could vary slightly. But by and large, I would say we are recovering almost back to a full normalized state. Operator: [Operator Instructions] The next question comes from the line of Patrick Steiner from ODDO BHF. Patrick Steiner: Patrick Steiner speaking. Two questions from my side. Firstly, on your annual expected cost savings of EUR 45 million due to the personnel reduction of the roughly 600 jobs in Austria. You said it will take full effect by the end of 2027. What can we expect for 2026 and '27 in absolute terms? That's the first one. And the second one, in your Q3 report, you wrote that you expect that the passing of higher costs related to tariffs will lead to falling demand in the U.S. by next year at the latest. Could you please elaborate further on this and how this might hit you in terms of timing and so on? This would be nice. Rohit Aggarwal: Thank you, Patrick. So the first question with regards to the [ wave ] or how does EUR 45 million personnel cost reduction savings will be reflected in 2026 and 2027. This one for you, Nico, please. Nico Reiner: Yes, Patrick. So we do have our program here separated in 2 waves. So there is wave #1. Wave #1 would mean the first 300. And as already mentioned and commented during the presentation, there will be a EUR 25 million ticket jumping in 2026 and then as a continued improvement also going forward. And for the second phase of cosmos, here, we see further improvement starting already in 2027 and then fully being embedded in 2028. So in 2028, we see the additional EUR 20 million. So if you would sum it up EUR 25 million plus the EUR 20 million, that's the EUR 45 million ticket we have been talking. I think that gives a relatively clear picture. Unknown Executive: Then the second question from Patrick is with regards to the expected falling demand that we expect in the U.S. in terms of overall apparel demand. Rohit, please. Rohit Aggarwal: Yes. Sure, Patrick, thank you for that question. We've seen a bit of consumer behavior in Americas, which has been largely trying to circumvent or delay. And therefore, they have been doing -- putting forward their purchases in terms of apparel. So there have been a lot of pre-purchasing that has happened, and therefore, that we saw impact on the value chain kind of playing out through quarter 3. The prices are going to be looking to move up in the U.S. market. We expect that most of the retail would be affected. And we are continuously monitoring that very, very closely. Now if you look at and compare that to overall other supply chains outside textiles, we have seen that, by and large, those demands have stayed pretty flat in terms of -- and consumer behavior has not been impacted that significantly. But again, it's too early at this stage to make any prediction on how that will play out because it will be the scale of what level of price increases the retailers are able to put on the shelves and also how much of efficiency gains will happen in the supply chain through managing the cost mitigation around the tariffs. So -- but on our side, we are looking to continue to move our product into nonwovens and then we are able to find ways to offset our tariffs and then pass price increases where the contracts allow. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rohit Aggarwal for any closing remarks. Rohit Aggarwal: Well, thank you very much for joining us today, and we appreciate the questions. We hope to be able to see you again on March 19 when we will disclose our full year results for 2025. So look forward to interacting that time. Thank you very much for joining us again. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good day, and welcome to the Unisys Corporation Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michaela Pawerski, Vice President of Investor Relations. Please go ahead. Michaela Pewarski: Thank you, operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its third-quarter 2025 financial results. Joining me to discuss those results are Mike Thomson, our CEO and President, and Deb McCann, our CFO. As a reminder, today's call contains estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that current expectations, assumptions, and beliefs forming the basis of these statements include factors beyond our ability to control or precisely estimate. This could cause results to differ materially from expectations. These items can be found in the forward-looking statements section of yesterday's earnings release furnished on Form 8-K and in our most recent Forms 10-K and 10-Q filed with the SEC. We do not assume any obligation to review or revise any forward-looking statements in light of future events. We will also refer to certain non-GAAP financial measures, such as non-GAAP operating profit or adjusted EBITDA, that exclude certain items such as postretirement expense, cost reduction activities, and other expenses the company believes are not indicative of its ongoing operations, as they may be unusual or nonrecurring. We believe these measures provide a more complete understanding of our financial performance. However, they are not intended to be a substitute for GAAP. Reconciliations for non-GAAP measures are provided within the presentation. Slides for today's call are available on our investor website. And with that, I'd like to turn the call over to Mike. Michael Thomson: Thank you, Michaela, and good morning, and thank you for joining us to discuss the company's third quarter 2025 financial results. We continue to demonstrate our steady focus on improving delivery and operational efficiency, which is helping us successfully navigate the macroeconomic uncertainty in the market and other headwinds impacting revenue. We remain on track to meet or exceed the midpoint of the improved non-GAAP operating profit margin guidance of 8% to 9% provided last quarter, as we expect to generate $110 million of pre-pension free cash flow for the full year. We're on track to meet our increased L&S expectations of $430 million for the current year, $40 million above our original expectations, supported by strong retention and consumption trends in our high-value software ecosystem. These trends have now helped generate upside in each of the past 3 years, and we're increasing our projection for out years to approximately $400 million of average annual L&S revenue for the 3 years of 2026 through 2028. The quarter also reflects our commitment to executing the pension strategy we laid out and the realization of the benefits we said we would achieve. We said we would remove substantially all market volatility from our aggregate U.S. pension contributions, and those have remained stable. Our pension debt has come down with our quarterly contributions, and we executed an annuity purchase in September to remove more than $300 million of U.S. pension liabilities, over half of our stated $600 million target by the end of 2026. While revenue was light relative to the color provided last quarter, much of this was related to timing, including a shift of a large license and support renewal, which closed early in the fourth quarter. Timing on Ex-L&S hardware pass-through also contributed to the quarterly miss on top line. Additionally, market dynamics affecting the PC cycle and IT budgets continue to cause clients to pause or delay project initiation, slow the pace of transition for some new business, and limit market penetration of newly introduced solutions. Some of the early signs of improvement we've seen at the U.S. state and local clients lost some steam as concerns about federal funding returned, leading up to the ongoing U.S. government shutdown. Our revised full-year outlook reflects some additional revenue timing elements, including a shift in expected fourth quarter revenue recognition from upfront to over time, which will generate future revenue. We could see some of the headwinds that challenged Ex-L&S growth this year persist for a few quarters, so we're acting quickly to adjust our approach to mitigate those impacts. At the same time, feedback from clients, partners, and industry analysts has only increased our confidence in the positioning of our solutions and our ability to establish baseline Ex-L&S growth over time. Meanwhile, we're still delivering on profit dollars and free cash flow priorities. The most important elements required to achieve that success are the continued execution of our L&S solution, which we continue to outperform, and the efficiency gains in Ex-L&S delivery, where we're stepping up our efforts. We have already made significant improvements in our Ex-L&S gross margin and have identified incremental opportunities within workforce optimization and the application of AI-driven productivity solutions. Looking at all these factors, we believe we're on a path to improving our growth profile over time, continuing to enhance profit, chip away at the pension deficit and liabilities, and ultimately fully remove our U.S. pension liabilities. Looking at client signings, the third quarter total contract value increased 15% year-over-year, driven by a strong quarter in Ex-L&S renewals. New business TCV of $124 million was in line with the solid levels of new business in the second quarter. Year-to-date, our new business signings are slightly positive relative to 2024, which was a strong year for new business signings, some of which are still building up their full revenue run rates and are showing expansion opportunities. The pricing environment remains competitive, which is not unusual. Clients want to share in the AI cost savings, and in some cases, their expectations may be unrealistic. We've also seen some competitors undercutting on price based on aggressive assumptions for the size and pace of future AI-related efficiencies, and we think that they're taking on a high degree of risk in those cases. We are seeing these dynamics on a handful of renewals and, in certain cases, have been willing to accept certain attrition, especially at clients prioritizing cost over value and offering limited potential for us to expand into higher-value solutions. We continue to take a disciplined approach aligned to our priorities of profit dollars and cash flow, and we believe clients are beginning to adjust their expectations as they're gaining knowledge on how the use of the emerging technology applies to their ecosystems, which allows us to build competitive advantages in our portfolio. We have large new business opportunities within our extensive existing client base, and many of our third-quarter wins highlight our ability to expand those relationships. In many cases, our wins reflect a close alignment between solution development and our clients' efficiency priorities. For example, in Digital Workplace Solutions, we signed a renewal with a global industrial manufacturing client that included significant new scope to transform and streamline IT support. As part of this engagement, we will transition the existing service desk to our next-generation service experience accelerator, and we'll also deploy virtual tech cafes and migrate IT service management capabilities to a new platform to streamline IT support without sacrificing quality. This engagement also includes a new scope in CA&I solutions, such as automating network operations monitoring to both improve processes and reduce costs. In cloud application and infrastructure solutions, we signed an expansion deal expected to drive significant cost savings for a public sector client in Australia. Leveraging our deep multi-cloud expertise, we proactively identified an opportunity to optimize their hybrid infrastructure by eliminating a high-cost platform, resulting in migration project work and ongoing managed services revenue for us and millions of dollars of annual cost savings for our clients. During the quarter, we renewed one of our largest public sector infrastructure managed services contracts, a 7-year extension to managed data center environments for a large U.S. state government. We also introduced a new cyber vault solution to protect critical infrastructure used by all of the state's cabinet-level agencies, spanning revenue, public health, transportation, and more. The enterprise computing solutions. We signed a new scope contract with a large European financial services client to consolidate some core systems onto one of our platforms. We will provide transformation services through our proven migration factory to accomplish this project and help our clients execute their simplification and rationalization program. Our deep expertise in the financial services sector has been a key driver of new business in the ECS segment. And in the third quarter, that also included a noteworthy new logo win for our modern core banking industry solution with a financial institution in Latin America. Branch banking remains an important channel in the region, and we've developed a differentiated offering that integrates branch and digital banking with central core banking technology, incorporating capabilities from our recent partnership with Thought Machine. Our innovative end-to-end offering will consolidate legacy systems for customer management, deposits, loans, accounting, treasury, and compliance into a single secure, scalable solution that will become the backbone of our clients' financial operations. I now want to discuss our solution portfolio, including some trends we're seeing in client demand and where we're focusing our investment, innovation, and partnership efforts. We allocate a significant portion of our capital expenditures to our ClearPath Forward solution in the ECS segment, which we discussed in more detail in an investor education session earlier this quarter, a recording of which is available on our investor website. A core element of our ClearPath Forward 2050 strategy is the continued evolution of our operating systems and the surrounding ecosystem of products, industry solutions, and modernization services. We are continually expanding several dimensions of ClearPath Forward, including speed, security, and resilience, to maintain a strong value proposition that has allowed us to retain clients for decades and support increasing consumption. In the third quarter, we released updates to one of our ClearPath Forward operating systems, expanding cloud compatibility and making significant post-quantum cryptography security algorithm enhancements. Looking at our industry solutions portfolio. In Travel and Transportation, we completed the integration of our in-transit system to our cargo portal, which means our platform now allows detailed tracking across the cargo journey in accordance with International Air Transport Association standards. In banking and financial services, we're seeing client interest in quantum-enhanced fraud detection for financial transactions, a topic on which members of our ECS team recently published research accepted by the International Conference on Quantum Artificial Intelligence following a rigorous peer review. In DWS and CA&I, we continue to invest in our AI-driven portfolio that's based on technology-led delivery models. This is beginning to allow us to show up in the market with higher-value offerings at better price points, making us more competitive in the market. This puts pressure on the top-line growth but allows for reduced cost of delivery and better margin profile. In Digital Workplace Solutions, we're already seeing this in the uptake of our service experience accelerator. During the quarter, we rolled out this solution to additional clients and continue to see roughly 40% deflections away from human support to automated support handled by our Agentic AI agents. Data from early client adopters also indicates an improvement in the end-user experience. In a service where marginal change has meaning, we're seeing a substantial 28% increase in user engagement and a 24% decrease in abandonment on average. Our knowledge management capabilities are identifying gaps in approximately 10% of support tickets and addressing them with automated content generation to improve the accuracy of the training data and the effectiveness of our Agentic AI agents. In field services, we've invested in Salesforce's agent force technology, which leverages Agentic AI to automate scheduling, rescheduling, and pre- and post-work summaries while continuously learning and making autonomous decisions to improve and optimize dispatch efficiency over time. During the quarter, Unisys became an authorized Apple product reseller, adding MacBooks and iPads to our existing device subscription service, which provides comprehensive life cycle management with intelligent device refresh and a flexible, predictable cost model. This partnership enables client decision-making based on the users' needs rather than supplier limitations. In Cloud, Applications & Infrastructure Solutions, our application factory is taking shape and yielding a growing pipeline of new opportunities. Application development is a bright spot within the public sector, with clients remaining interested in modernizing inefficient platforms, including for criminal justice information, identity access management, and licensing and permitting. We also continue to cross-sell and upsell new opportunities for our CA&I solutions at existing enterprise computing solution clients, primarily related to ClearPath Forward clients seeking to modernize their application layer and expand digital capabilities. We're also making a push to cross-sell CA&I solutions into our base of ECS clients in the financial services and public sectors that use our business process solutions, where we believe our workflow and process knowledge, combined with industry expertise, is a unique combination. In both DWS and CA&I, we continue to view the market of midsized enterprises, those with $1 billion to $5 billion of annual revenue, as a relatively untapped market opportunity where we have all the ingredients to effectively compete and source significant new revenue. These clients typically value personalized service, which they're not receiving from larger providers, and have less organizational complexity, allowing them to establish their relationship with us at a higher level and more quickly. Given that our digital workplace solutions are market-leading even for the largest enterprises, we see the mid-market commercial sector as a larger opportunity to build leadership and differentiation, particularly within our CA&I solutions. A top priority heading into year-end is defining more clearly a set of CA&I solutions tailored for this segment of the market and with a streamlined and repeatable sales motion. This involves solidifying preferred partners and building more standard architectural solutions and delivery frameworks, just as we've done in IT service management with Freshworks and EasyVista and in licensing and permitting with Clarity. We are already enhancing our cybersecurity portfolio in this manner, an area where our pipeline is growing and where we're seeing strong secular growth tailwinds and market demand. We're leaning in with partners like Dell and Microsoft to develop end-to-end security managed service playbooks, integrating security tooling, standardized solution frameworks, and repeatable sales motions. We've also begun designing a standard architecture for Unisys intelligent operations specific to midsized enterprises that can also incorporate private AI clouds. Running AI workloads exclusively in public cloud environments is very expensive and cost-prohibitive for mid-market clients. We're exploring potential technology partners with OEMs, data centers, and GPU as a service providers, so we can offer our clients alternative private AI frameworks with Unisys service wrappers to bring down those costs. Before turning the call over to Deb, I want to provide an update on the industry recognition, including the growing acknowledgment in higher-growth areas of the market. In the third quarter, we received a new leader ranking in cloud services for mid-market enterprises. We were also recognized for the first time or appeared in new reports in cybersecurity, Agentic AI services, and AI-driven application development. This was in addition to maintaining leader positions in a number of updated reports put out in multi-cloud, digital workplace, and generative AI services. These recognitions come from highly respected firms such as Avasant, Everest, IDC, and ISG and give credence to our strategic focus on application development, AI services, and penetration of the mid-market. The majority of the clients and prospects rely on industry experts in some manner when choosing IT service providers. So our steady rise in many quarters should open up new business opportunities in areas of the market we want to penetrate to support Ex-L&S growth in our new solutions. Finally, I want to mention that Unisys was named to Time Magazine's 2025 list of World's Best Companies for the first time, recognizing us amongst global organizations that exemplify excellence in today's corporate landscape. Our investments in upskilling and development opportunities for our employees are an important component of that excellence and support a stable workforce, maintaining our low voluntary attrition, which was 11.7% on a trailing 12-month basis. With that, I'll turn the call over to Deb to go through our financials in more detail. Debra McCann: Thank you, Mike, and good morning, everyone. As a reminder, my discussion today will reference slides from the supplemental presentation posted on our website. I will discuss total revenue growth, both as reported and in constant currency, and segment growth in constant currency only. I will also provide information excluding license and support or Ex-L&S to allow investors to assess the progress we are making outside the portion of ECS where revenue and profit recognition is tied to license renewal timing, which can be uneven between quarters. To echo Mike's comments, we remain in a good position to achieve our increased profitability and free cash flow outlook to maintain our strong liquidity position. And we took another step forward on the journey to removing our U.S. pensions with the annuity purchase we executed in September. While we have faced some Ex-L&S revenue headwinds, our license and support cash engine is being powered by our base of high-quality clients who continue to commit to and increase consumption on our platforms. At the same time, we are fine-tuning our strategy to ensure we capitalize on the advantages offered by technology like Agentic and generative AI and quantum encryption to expand the scope of our efficiency initiatives and deliver innovation that advances our clients' efficiency goals. Looking at our results in more detail, you can see on Slide 4 that third quarter revenue was $460 million, a decline of 7.4% year-over-year or 9% in constant currency. We had an approximate $12 million impact from the shift in timing on a license and support renewal that closed just outside the quarter, which will benefit L&S's fourth quarter revenue. Excluding license and support, third quarter revenue was $377 million, down 3.9% or 5.8% in constant currency. This was below our expectation of $390 million we shared with you last quarter, due to foreign exchange movement and dynamics I will cover now as I discuss the constant currency segment revenue. Digital Workplace Solutions revenue was $125 million in the quarter, down 5.8% year-over-year. Year-to-date, DWS revenue is down 2.9%. The third quarter decline was driven in part by the shift of low-margin hardware revenue, some in the fourth quarter and some into 2026. Volumes in some of our traditional PC field services were also lighter than we expected, and a pickup in PC refresh activity was dampened by Microsoft's extension of security support for the significant number of devices still running on Windows 10. Third quarter Cloud Applications and Infrastructure Solutions revenue was $180 million, a 6.8% decline compared to the prior year period. This segment has our highest public sector exposure, where activity levels have already been suppressed, and the uncertainty around federal funding heading into the government shutdown caused incremental slowing. That impact continues to be primarily concentrated at U.S. state and local governments, though we were pleased to secure meaningful renewal TCV with some of these clients at an improved margin. Year-to-date, CA&I revenue is down 5% due to volumes in the public sector. Enterprise computing solutions revenue was $133 million in the third quarter, a 13.9% year-over-year decline due to the cadence of L&S renewal signings, which have a higher fourth quarter concentration than last year. Within the segment, L&S revenue was $83 million compared to $105 million in the prior year quarter. Specialized services and next-generation compute solutions revenue grew 1.7%, benefiting from new business and application services we are delivering for clients in both travel and transportation and financial services. Trailing 12-month signings of approximately $2 billion translate to a book-to-bill of 1.1x for both the total company and our ex-L&S solutions, and we exited the quarter with a backlog of $2.8 billion, flat year-over-year. As Mike touched on, the complexity and pace of negotiations have continued to elongate cycles on some renewals in DWS and CA&I. Moving to Slide 6. Third quarter gross profit was $117 million, a 25.5% gross margin, down from 29.2% a year ago as a result of the cadence of L&S renewals. Ex-L&S gross profit was $70 million, and Ex-L&S gross margin was 18.6%, up 70 basis points year-over-year, largely due to lower cost reduction charges in the quarter. Excluding that benefit, we continued to make incremental gains in delivery efficiency to maintain profitability despite revenue decline. Our investments in workforce optimization are helping us hold on in, on incremental opportunities to improve delivery, and we plan to act quickly to capitalize on those. I will now touch briefly on segment gross profit. DWS's gross margin was 16.2% in the third quarter, essentially flat year-over-year. As Mike discussed, we are leaning heavily into technology to automate delivery. CA&I's gross margin was 19.6% in the third quarter, relatively flat year-on-year. We were pleased to maintain profitability, especially given the higher margin profile of CA&I solutions being impacted by public sector uncertainty. Segment margins continue to benefit from automation and optimizing workforce and labor markets, as well as synergies we are achieving from centralizing application capabilities. ECS's gross margin was 46.2% in the third quarter, down from 58.2% a year ago, which was due to the timing of L&S renewals and mix from integrated system sales. As a reminder, our L&S solutions have a fairly fixed cost base, and the very high concentration of license renewals is expected to drive a significant sequential increase in fourth quarter ECS gross margin. Moving to Slide 7. Third quarter GAAP operating loss was $34 million, which included a $55 million noncash goodwill impairment in the DWS segment related to the near-term industry dynamics, challenging volumes, and the pace of client signings. Non-GAAP operating profit was $25 million, a 5.4% non-GAAP operating margin, which is in line with our expectations for mid-single digits. SG&A in the third quarter declined slightly year-over-year and is down 8% year-to-date, driven by our initiatives to streamline corporate functions, real estate, and technology. We are pushing to accelerate the remaining cost takeouts and increase our overall rationalization program to maximize savings in 2026. We had a third-quarter net loss of $309 million, which included an approximate $228 million one-time noncash pension expense related to the annuity purchase transaction in the quarter. As we previously discussed, this is an important element of our pension removal strategy. The quarter also included a $4 million foreign exchange loss. As we mentioned last quarter, we ended our hedging program on intercompany loans, which removed the cash impact of the hedge settlements but increased P&L FX volatility, impacting GAAP net income. Adjusted net income was negative $6 million or a loss of $0.08 per share. Turning to Slide 8. Capital expenditures totaled approximately $18 million in the third quarter and $59 million year-to-date, relatively flat year-over-year. A significant portion of capital expenditures relates to relatively steady levels of solution development for our L&S platforms, while we maintain a capital-light strategy in our Ex-L&S solutions. Pre-pension free cash flow, which is free cash flow prior to pension and postretirement contributions, was $51 million in the third quarter and $15 million year-to-date. We generated $20 million of free cash flow in the third quarter, an improvement from $14 million in the prior year period. During the quarter, we made $30 million of contributions to our global pension plans and received a $25 million one-time payment related to a favorable legal settlement in the fourth quarter of 2024. Moving to Slide 9. Cash balances were $322 million as of September 30 compared to $377 million at year-end, reflecting our use of $50 million cash on hand as part of our $250 million discretionary pension contribution. Our liquidity position is strong with no major debt maturity until 2031, and our recently renewed $125 million asset-backed revolver remains undrawn. Our net leverage ratios are 1.8x and 3.7x, including pension deficit. We expect lower net leverage at year-end, given the strong profit contribution we expect from L&S renewals, and expect leverage to gradually come down over time as we contribute to our pensions, though not in a straight line. I will now provide an update on our global pension plans. Each year-end, we provide detailed estimated projections for expected global cash pension contributions and GAAP deficit relative to our quarterly updates. These projections change based on factors, including funding regulations and actuarial assumptions. The deficit is also impacted by our planned contributions, some of which go directly towards deficit reduction. After the upsized senior notes issuance in June and a one-time $250 million contribution, the pro forma 2024 year-end U.S. pension deficit was approximately $500 million. As of September 30, we estimate the deficit to be approximately $470 million. We are forecasting approximately $360 million of remaining cash contributions to our global pension plans in aggregate through 2029, which includes approximately $24 million of pension contributions in the fourth quarter, including both U.S. and international. Of the $360 million of contributions we are forecasting through 2029, approximately $230 million is associated with our U.S. qualified defined benefit plans, relatively unchanged from last quarter. As we discussed on last quarter's call and during our dedicated pension investor education event, the historical pension contribution volatility that was primarily in our U.S. qualified defined benefit plans was substantially removed by increasing fixed income allocations of plan assets to match the duration of plan liabilities. As a result, our contributions through 2029 are not expected to fluctuate more than 3% in aggregate per annum, providing a high degree of certainty as to our future funding requirements. During the quarter, we completed an annuity purchase that removed approximately $320 million of pension liabilities, more than half of the $600 million we aim to remove before the end of next year. This involves transferring $320 million of liabilities and a similar amount of planned assets to a third-party insurer. Annuity purchases reduce ongoing maintenance costs and allow us to remove liabilities at lower premiums than would be paid on a full takeout. I will now discuss our full-year financial guidance and additional color provided on Slide 10. For the full year, we now expect constant currency growth of negative 4% to negative 3%, which equates to a reported revenue decline of 3.6% to 2.6%, which continues to assume full-year license and support revenue of approximately $430 million. This implies fourth quarter revenue of approximately $570 million, which assumes $185 million to $190 million of L&S revenue. We expect to come in at or above the midpoint of our upwardly revised non-GAAP operating margin guidance range of 8% to 9%, implying a fourth quarter non-GAAP operating margin in the mid-teens due to the concentration of L&S revenue we expect. We are pleased that this translates to non-GAAP operating profit that is slightly above our original full-year guidance. This stems from the strength and stability in our ClearPath Forward software ecosystem, as well as diligent execution to enhance delivery and operational efficiency and foreign exchange favorability. We will continue to act with agility to remove additional costs where needed to align with revenue levels in certain areas of the business. We continue to expect to generate approximately $110 million of pre-pension free cash flow. This reflects full-year assumptions listed on Slide 10. As a reminder, pre-pension free cash flow is difficult to predict with precision, as the exact timing of some larger L&S collections and how those fall around year-end could shift collections between the fourth quarter and first quarter of 2026. Operator, please open the line for questions. Operator: [Operator instructions] Our first question will come from Rod Bourgeois of DeepDive Equity Research. Rod Bourgeois: I could ask a long-winded question on AI, but I'll make it short-winded. How are you seeing AI's impact overall on your P&L? Michael Thomson: Rod, it's Mike. Thanks so much for joining and for the question. Really appreciate it. Although a short-winded question, it may be a long-winded answer. As you would expect, lots of impacts in regard to the application of AI. In general, what I would say to you is that the impact of our transformation of our delivery model, which allows us to continue to deliver our solutions in a more, I'll say, cost-friendly way or reducing our delivery cost, certainly helps our margin profile, and we've seen a lot of green shoots in that regard. As I mentioned in some of my prepared remarks and Deb did as well, there's a knock-on impact to the top line for that. Typically, the AI component of a lower delivery cost means that our clients are seeing some of the benefit of that, and we share some of that savings with our clients, but it makes us obviously a lot more profitable and allows us to be a lot more competitive from a pricing perspective. We think that's the right way to approach that in regards to the new solution uptake. Then, obviously, as we continue to grow and add new logos to the mix, the application of those new logos certainly has an uplift that is much more top-line and bottom-line accretive because we've already baked that into our model. We're seeing, as you know, within our L&S business, increases in our consumption rate. We think that's pretty much driven by the application of AI across the board. This whole data abstraction layer, we are seeing some nice improvements in our HPC business. So clearly, with ClearPath Forward consumption, we've increased that guidance, as you know, and we're actually talking about the increase of the out years '26 through '28. I think we started that dialogue a couple of years back, thinking that would be about $360 million per annum. And now we're talking about $400 million on average per annum for those 3 years. So significant uptick in L&S related to consumption that we think is AI related. Certainly, AI in our delivery efficiency and hitting those real strategic objectives of increasing our profitability and our delivery. And in some of those cases, too, Rod, by the way, it's not only about just margin improvement in those accounts. We're looking at expansion and new scope, and growing those accounts in a bigger way through the application of this technology-led delivery. So the scale is one part of it, but certainly the volume is the other part. So we're obviously huge believers. We've talked for a while about how we think this is exponentially helping us to continue to compete on a greater and greater scale with some of our competitors. We've got it essentially sprinkled in throughout our delivery, whether that's in intelligent operations embedded in just AI management and orchestration of compute within CA&I, whether it's embedded in ECS from a ClearPath Forward delivery and navigation and whether it's in field services and/or service desk inside of DWS, all of our solutions essentially have that baked in and continue to grow in that manner. Rod Bourgeois: Then I guess as an extension of that and applying it to the results for the quarter, despite the revenue shortfall, you seem on track to meet your margin and free cash flow targets. So I'd like to ask what's enabling the margin performance to come through even though revenues are coming in less than planned? Michael Thomson: Yes. Great question, Rod. Thanks for that. Well, look, the first and most obvious is the increase in L&S. So that's obviously a higher profit component, and we're seeing a step-up in that, which is giving us margin pull-through. The second, and probably less obvious, is that there are plenty of green shoots embedded in Ex-L&S for our new solutions. We've had quite a bit of renewal activity this year. It's probably an unusually high renewal activity coming through in the year and being able to sign those accounts with our new solutions at a better margin profile and in a lot of cases, being able to expand either expansion of the work that we're doing or add new scope to those renewals is also benefiting us from a margin profile. So I think what you're really seeing here on the top line is you're seeing some reduction or accretion in top line related to either contracts that have accreted off or the slowness of some of the PC cycle or some hardware shifting. But all 3 of those are lower margin accreted off. And what we're adding is a higher margin addition. So right now, the top line is suffering a little bit from the accretion being a little higher than the addition, but we feel like that's the right path from our perspective, and we've tried our best here to fully delever what the risk is for the remainder of the year for the impacts that we've been seeing over time, whether that's the PC refresh cycle, whether that's a slowdown in the adoption of Microsoft 10 to 11 or whether that's just the uptake in project work in public sector due to the prevailing issues there in the U.S. with the government shutdown and others. So a little bit of a balance. But in general, it's allowed us, and I think it proves our margin continues to improve in our new solution delivery. I mean, just as a reminder, over the course of the last 3 years, we've improved that gross margin in Ex-L&S by almost 600 basis points, and we continue to see an opportunity to continue to see that expansion, regardless really on what's going on, on the top line. Debra McCann: And also, Rod, this is Deb. Just to add, we also increased some of the SG&A savings we talked about at Investor Day; we're accelerating some of those. Some of those were through 2026. We've accelerated some of those into '25, and we're ramping up our efforts overall on rationalizing our cost base. Michael Thomson: Yes. Look, I think Deb mentioned too in her prepared remarks around the variability of that workforce. So clearly, we're going to take some level of action to make sure that we continue the margin improvement that we've been seeing over the last couple of years. Rod Bourgeois: And then just a final quick one here as inputs to the modeling. Can you give your view on the pace of your delivery improvement going forward, and how that would impact Q4 cost reduction charges specifically? Michael Thomson: Yes. Thanks, Rod. So look, I mean, we've always been and continue to refine our delivery costs. And so there is some level of BAU cost reduction that you normally see. I would expect that you'll see some of that increment in Q4, and the cadence will probably be a little higher in Q4, just to mirror the variability in the workforce. I don't think it's going to be like a crazy significant increase in that, but there certainly will be actions taken to mitigate the exposure that we've seen on top line or some of the derisking efforts that we're going to do to maintain the margin profile. Operator: The next question comes from Mayank Tandon of Needham & Company. Unknown Analyst: This is Brandon on for Mayank. I guess I was just wondering what are you guys seeing on the demand front in cloud spending, particularly on the AI front. I know you guys mentioned like increased competition. But I guess what are you guys doing to navigate those increased competition dynamics that you guys are seeing? Michael Thomson: Brandon, thanks for the question, and thanks for your participation in the call. Look, the demand is certainly there. I will tell you, I was just on the road, frankly, in Europe, and met with a whole host of clients and just had what we call a CIO and CTO forum and had a big discussion with 20-some-odd potential clients and existing clients in that forum. So clearly, the demand is there for the application of AI. I think what we're bumping up against is the application of that technology into an ecosystem that is very sensitive. There are many attributes that need to be addressed, security being one of the primary ones involved with that. So there's money there, certainly to be spent. The demand is there. We continue to get validation from clients and industry analysts that our solutions are there and what they want. And as I mentioned, the competition continues to be fairly aggressive in that. So we've got to really make sure from a defensive posture that education is key and really having those dialogues around what that output looks like and why our client-centricity model and being, I think, a little bit pragmatic in how it gets adopted, where it gets adopted, and the time of adoption is really important. So there's an equal amount of hype as there is an equal amount of practicality in the adoption of these AI models. And I think from our perspective, we're taking a tack to really try to be very conscious around setting the right expectations with our clients, not promising things we can't deliver. And in some cases, where those expectations aren't met, then we have to attrit that potential client opportunity because we're not looking for a race to the bottom here. We're really talking about adding value and experience to our clients. And one of the stats I like to use when having discussions with our clients and potential clients is that for our top 50, on average, we've serviced those clients for roughly 20 years. You don't have that level of experience with the client base because you're looking at a short-term adoption of a technology.  We really like to think our technology is state-of-the-art, and we want to talk about the future and how we get our clients to the future. So the demand is certainly there. Our solutions certainly meet that demand. And the key is really about client education and setting an adoption road map.  Unknown Analyst: Then I know you guys last quarter, you guys touched on the public sector, I think specifically for the cloud business. I was wondering if you guys mentioned the call a little bit, but any update on that with the government shutdown in terms of client conversations and client demand with the shutdown?  Michael Thomson: Yes. Great question. Thanks, Brandon. So yes, we did talk about that last quarter. In fact, last quarter, we mentioned that we started to see a little bit of green shoots in the public sector and thought that sector was coming around a bit from a project orientation. That has reverted. That I'll say, the influx of project work is basically really quiet. Now, Deb mentioned in her remarks, and I think it's important, we've got a lot of renewals and have had a lot of renewals this year in the public sector, and are doing well to renew those particular accounts. But we're not seeing the uptick in the project work that we had started to see.  So there are a couple of areas where we're leaning in. We talked about that a little bit on the call, but we talked about the justice system. We talk about access management and things like that. There are what I would consider nondiscretionary areas in the public sector where the demand is fairly constant, and there's some project work in that space. But clearly, there continues to be a pause in project work in the public sector, specifically related to the U.S. public sector.  I wouldn't say that holds true across the board. We mentioned on the call about an Australian client that we had some good success with an expansion in other regions. But the U.S. public sector is also where a good chunk of our CA&I business is allocated. So there's definitely been a pause in project work there. And so the green shoots that we started to see in Q2 have really subsided. And I think there's a little bit of a wait-and-see approach here, and we expect that that's going to continue for a couple of quarters. So we're sitting tight. We're having good conversations with folks, but there's a lot of uncertainty there.  Operator: The next question comes from Anja  Soderstrom of Sidoti.  Anja Soderstrom: A lot of them have been covered already. But I think you mentioned you're starting to see pricing pressure. Is that something you only started to see now in the third quarter? Or can you talk a little bit more about that?  Michael Thomson: Yes. Now, we did mention that. I wouldn't say it's something we're just seeing in the third quarter. As you know, this is a highly competitive space that we're in. I would say in the third quarter and especially as we go through renewal cycles with clients, there are more and more players in that renewal cycle. And frankly, in a couple of instances, we've seen competitors really just undercut pricing to, in my mind, levels that we're just not willing to go to.  We've made a commitment as a management team that we're going to stay disciplined in the contracts that we're signing. We know we've got value. We know that we can bring that value to our clients. But we're not just going to sign contracts to maintain a top line if it's not helping our bottom line. Our objectives were very clear, and we continue to follow them. We're trying to grow profit dollars. We want that margin percentage to increase. We're increasing cash flow, or obviously moving positively in the cash flow arena. And we think that's the better way to drive shareholder value. And so that pricing pressure, I think, is certainly relevant and continues to be relevant in our discussions. But please don't take that comment to think that we're not competitive in pricing. We are. We're right there in every deal that we're talking about, but there's a limit to how far we're willing to go. And from our perspective, if the client doesn't have the capability for us to grow or the capability or want to move to our next-gen solutions, we're really not interested in just resigning a contract at lower values for the old delivery model.  Anja Soderstrom: And then also, just maybe go over some puts and takes for the free cash flow for 2026.  Michael Thomson: Sure. Deb, do you want to take that?  Debra McCann: Yes. So, as far as 2026, we're not giving guidance at this point for 2026, and we'll discuss that when we report the fourth quarter. But there are, to your point, a lot of moving pieces. So obviously, with the capital market transformation we did, right, we lowered our pension contributions, but the interest expense will move higher. And so there are moving parts that, as we're formulating our plan for '26, we'll lay out to you when we report that next quarter. But I think the key thing is the biggest driver, L&S, is clearly a big driver at a 70% margin. So as we finalize that number, we said on average $400 million, and those are 70% margins. So those have a big impact.  But I think what's most important is we feel we have a really strong liquidity position. So as we go into 2026, right now, our cash balance is $320 million. If you look at the cash color we've given to hit about $110 million pre-pension, that puts us about $390 million of cash by the end of the year. So we feel like we'll be entering 2026 in a good place from a liquidity perspective. And we also have that $125 million ABL, we just renewed that, which is also undrawn. So we feel good from a liquidity position. And as we shape the algorithm, what that's going to look like in '26, we feel confident in that.  Anja Soderstrom: And then also, if I understand correctly, the lower L&S this quarter was due to some being pushed into the fourth quarter and into 2026. Can you just elaborate on that a little bit and what you're seeing there?  Michael Thomson: Yes. So just to be clear, the push in the quarter got signed in the early days of Q4 for L&S. So that's not anything into '26. That is really just a shift of something we thought was going to sign by September 30, signed in October. All of it was signed, all of it is in-house. So, no real issue from an L&S cash perspective, just the quarterly timing. Deb, anything? Debra McCann: Yes. No, no, that's just all within this year.  Operator: [Operator Instructions]. And our next question will come from Arun Seshadri of Forza.  Arun Seshadri: Just a couple from me. It sounds like the book-to-bill is still pretty strong. So does that reflect confidence, I guess, were there timing impacts in Ex-L&S as well? And sort of what are you seeing in terms of that renewal activity? You talked a little bit about renewal activity being enhanced this year. I guess those 2 are potentially related. But any color there?  And then secondly, is there any way you could size that renewal in L&S that moved over to Q4, that would be helpful?  Michael Thomson: Yes. So I'll start that, and Deb, I'll ask you to kind of chime in here with some color as well. So you're right, the book-to-bill, I think we were at 1.1, is what we're talking about on book-to-bill. And clearly, that's a solid book-to-bill and happy with that, and aligned to our contracting models and our normal modeling for our forecasting. So, the renewal cycle that I talked about, and I was actually talking more about Ex-L&S. L&S, we've talked about the renewal cycle quite a bit.  And as we've indicated, that renewal cycle is actually increasing our L&S expectations over the next 3 years. So I'm going to discount that for a second, Arun, and based on your question, and really speak about Ex-L&S. So, for this year, just to give you a sample, the Ex-L&S renewal cycle for this year is about 3x what it will be for next year. So it gives you a sense of the baseline that we're actually renewing this year. And if you think about that, the resources it takes to go after all of those renewals are also obviously putting some pressure on the work that we're able to do in new logo acquisitions.  So there's a pretty high renewal cycle this year. We've been very successful in that renewal cycle. Now I'm not saying we've renewed every single contract that was out there. And a couple of them, as I've mentioned, we didn't because the investment that the client was looking for us to make was not conducive to the pricing that we expected to get. So, a couple of those contracts we did not renew. But the lion's share we did, and for many of those, we've actually renewed them at better margin profiles and have increased some scope and/or expansion in those accounts.  We've been pleased so far with the ability to renew those and to renew that work under our new delivery model. That's really key that we're converting these clients upon renewal to the delivery model that's technology-based, and that's an important element of that cycle because that brings in the enhanced margin profile.  So again, happy with the current book-to-bill, happy with the progress we're making on renewals. We have quite a bit of renewals coming up in Q4. Progress on those has been very good. So again, pleased with where we're at there. Would I have liked to win every single one and get them at higher margins? Sure. Is that a realistic assumption? Probably not. Deb, anything you want to add to that?  Debra McCann: Yes. Just as you can see, I mean, the TCV year-to-date, right, Ex-L&S renewals, is $572 million versus last year, $321 million. So, a 78% increase over last year, just to demonstrate how big the renewal cycle has been this year. And then, related to your point on the L&S renewal that shifted out, that was just a few days after the quarter. That was about $12 million we had mentioned of revenue that shifted out in 1 quarter. But it will not impact the full year.  Arun Seshadri: And you also have a fairly significant expectation, I think, for Q4 that's factored into the numbers, and it sounds like your confidence is pretty high in terms of those Ex-L&S renewals in Q4.  Michael Thomson: Yes. I think Deb's comment on the renewals was the L&S component. And of course, we're super confident in the L&S component. And we're also confident in the Ex-L&S component of renewals. So look, everything that we're not confident about has been baked into our updated guidance. So we feel pretty good about what's out there to close. And obviously, at this point in the year, we have pretty good insight into how the next couple of months are going to close out.  Debra McCann: Yes. But to your point, Arun, the L&S renewals, a few days slip, can shift. And so we mentioned that throughout the script, right, that we do have high expectations for Q4, which we feel confident in, but there is always that slip of an element.  Michael Thomson: Yes. Wonderful point, Deb. And really, if you think about it, Arun, our talk on that has always been around not if, but when. So we're really confident that it's going to renew, and we're very confident that it's going to renew in the timing that we expect it to. But as we've just seen in this quarter, a shift of a couple of days makes a difference.  Operator: The next question comes from Matthew Galinko of Maxim Group.  Matthew Galinko: If we see the other side of the government shutdown in the relatively near future, do you expect a quick return on forward momentum on project work that's been gummed up? Or how quickly do you see the market responding to things opening up?  Michael Thomson: Matt, thanks for the question. Good to talk to you again. Look, I don't think our expectations are that it's going to be a light switch effect where the government opens back up and all of a sudden, all this project work starts to open up immediately. As we indicated last quarter, we just started seeing some green shoots on that work, and then it shut back down. So we think that's going to linger, frankly, for a couple of quarters.  So do I think it's going to be like a Q1 recovery if the government opens up before then? No, I do not. We've got to reengage. They've got to reassess what the outputs of that government work are. The focus is going to be on nondiscretionary work first and then project work second. So we're baking into our expectation that, that's going to be several quarters prolonged.  Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michael Thomson for any closing remarks.  Michael Thomson: Thank you, operator. Before we wrap up, I just want to reiterate a few key points we hope you take away from today's call. First, the trends remain strong in our most powerful profit and cash driver, which is L&S Support Solutions. We plan to meet our increased expectation of $430 million for this year and have increased our expectations for the average annual L&S revenue in our years from '26 through '28 to $400 million per year.  Second, while the market dynamics posted headwinds in our Ex-L&S business that we don't expect to dissipate overnight, we're adjusting our approach to mitigate those impacts. And importantly, we're continuing to deliver on our profit and cash flow objectives.  Then lastly, we're building momentum in our AI-led solutions with technology-first delivery models. This is making us more competitive, supporting our margins, and enabling us to scale our most differentiated innovation more quickly. And we're seeing more and more clients and industry analysts support the belief in that momentum. So I'd like to just make sure we take away those 3 points from today's call. And operator, thank you for your time, and you can close the call.  Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good day, and welcome to Smith Micro Software's Financial Results for the Third Quarter ended September 30, 2025. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Charles Messman, Vice President of Marketing. Please go ahead, sir. Charles Messman: Thank you, operator. We appreciate you joining us today to discuss Smith Micro Software financial results for the third quarter ended September 30, 2025. By now, you should have received a copy of our press release with the financial results. If you do not have a copy and would like one, please visit the Investor Relations section of our website at www.smithmicro.com. On today's call, we have Bill Smith, our Chairman of the Board, President and Chief Executive Officer; and Tim Huffmyer, our Chief Operating Officer and Chief Financial Officer. Please note that some of the information you will hear during today's discussion consist of forward-looking statements, including, without limitations, those regarding the company's future revenue and profitability, our plans and expectations, new product development and availability, new and expanded market opportunities, future product deployments, growth by new and existing customers, operating expenses and the company's cash reserves. Forward-looking statements involve risks and uncertainties, which could cause actual results or trends to differ materially from those expressed or implied by our forward-looking statements. For more information, please refer to the risk factors included in our most recently filed Form 10-K. Smith Micro assumes no obligation to update any forward-looking statements, which speaks to the management's beliefs and assumptions only as of the date they are made. I'd want to point out that in our forthcoming prepared remarks, we will refer to specific non-GAAP financial measures. Please refer to our press release disseminated earlier today for a reconciliation of these non-GAAP financial measures. With that said, I'll turn the call over to Bill. Bill? William Smith: Thanks, Charlie, and thank you for joining us today for our third quarter 2025 conference call. I am pleased with the progress we have made overall as we continue to advance our discussions around key customer initiatives and identify new opportunities aimed at broadening the reach of our products, setting the stage for future growth. More recently, we implemented some strategic changes across our organization as part of a broader effort to realign our cost structure in line with our long-term business goals, strengthen our financial foundation and accelerate our path to profitability. These cost reduction measures will save the company approximately $7.2 million in annualized costs. The strategic organizational changes we've made affected approximately 30% of the overall workforce and were in part enabled by the completion of certain key development efforts. While difficult, these changes were a necessary and meaningful step forward toward enhancing organizational efficiencies and accelerating the company's path to profitability. We are building a culture of continuous improvement and operational efficiency, and we'll continue to assess and optimize our spending in the coming quarters, while we continue to invest in strategic areas that support innovation and to deliver exceptional value to our customers and stakeholders. We have also made several structural changes to streamline operations and enhance agility, which will enable us to accelerate the delivery of our solutions to market. The timing of these adjustments has been carefully planned and aligns with the completion of our core SafePath 8 platform development efforts. With these initial changes complete, we believe we will be very close to breakeven and expect to be profitable in mid-2026. Additionally, to further support our financial position and business objectives, we also announced a strategic round of financing, which Tim will cover in greater detail a little later in the call. With the opportunities that are in front of us and the efficiencies we have achieved, I truly believe we are entering a new phase of our journey as we progress to return the company back to growth and profitability. Regarding these opportunities, I am pleased to report that our pipeline remains strong and continues to grow. We are engaged in ongoing activities and customer trials in both North America and Europe. We are witnessing a meaningful shift in the carrier market that includes a renewed focus on family subscribers. As 5G growth begins to plateau, carriers are actively seeking new avenues for expansion, and families represent a high-value opportunity. They consistently demonstrate lower churn rates, higher lifetime value and increased spending across devices, data plans and services. Our expanded SafePath platform now offers a more comprehensive ecosystem of tools and flexible delivery mechanisms tailored to family needs. This not only opens new revenue streams, but more closely aligns with carriers' core business strategies, such as selling devices and rate plans rather than relying on traditional secondary sales of value-added services, which have become less of a priority. I believe we are very well positioned to capitalize on these changes. Now let's turn the call over to Tim for a deeper dive into our financials. I'll follow up with more updates later in the call. Tim? Timothy Huffmyer: Thanks, Bill. Let me start by covering a few recent transactions. As previously announced, in July, we closed a follow-on offering of approximately $1.5 million prior to fees and expenses. In September, we closed on a few notes purchase agreements, which provided approximately $1.2 million of cash to the company in exchange for short-term notes and warrants. In October, we announced a strategic cost reduction in our organization, as Bill indicated. This was primarily comprised of our workforce reorganization. It will result in a cost savings of $1.8 million per quarter as compared to the second quarter of 2025 or $7.2 million reduction in costs for 2026. This excludes payment of employee separation costs. As Bill indicated, these efforts are part of our broader initiative to realign the company's cost structure with long-term business goals, strengthen the financial foundation and accelerate our path to profitability. And finally, yesterday, we announced the completion of a private placement and follow-on offering. Both offerings have been priced based on the market value of the offered securities as of the time of signing the purchase agreement, and the company will issue approximately 4 million shares and an equivalent amount of warrants exercisable for 1 share of the company's common stock at an exercise price of $0.67 per share. The aggregate gross proceeds of the two offerings are expected to be approximately $2.7 million, which includes a committed investment of $1.5 million from Bill and the other Smith. We are excited about this additional funding round as the company pushes to expect -- to breakeven in 2026. Now let's cover the financial results for the third quarter of 2025. For the third quarter, we posted revenue of $4.3 million compared to $4.6 million for the same quarter of 2024, a decrease of approximately 6%. When compared to the second quarter of 2025, revenue decreased by $73,000 or 2%. Last quarter, we had guided to a revenue range of $4.4 million to $4.8 million, and we slightly missed that guidance. The reason for the lower-than-expected revenue is directly related to the company's expectation of launching an additional SafePath feature with an existing carrier customer. The contract for that feature did not get finalized as expected. Therefore, the revenue was not recognized. The company has completed the development effort related to this feature, and we will wait on prioritization from the carrier customer. Year-to-date revenues through September 30, 2025, were $13.4 million versus $15.6 million through the third quarter of last year, a decrease of approximately 14%. During the third quarter of 2025, Family Safety revenue was $3.5 million, which decreased by approximately $410,000 or 10% compared to the third quarter of the prior year. Family Safety revenues decreased by approximately $97,000 or 3% compared to the second quarter of 2025, primarily driven by the decline in the legacy Sprint Safe & Found revenue. During the third quarter of 2025, CommSuite revenue was $792,000, which increased by approximately $148,000 compared to the third quarter of 2024. Revenue from CommSuite increased by approximately $15,000 compared to the second quarter of 2025. As previously mentioned, we sold our ViewSpot product for $1.3 million on June 3. And as such, other than transition services fees, we will no longer have any future revenue from this product. ViewSpot revenue was $26,000 and $65,000 for the third quarter of 2025 and 2024, respectively. In the fourth quarter of 2025, we are expecting consolidated revenues to be in the range of approximately $4.2 million to $4.5 million. The upper end of this guidance range includes some initial revenue related to the launch of the previously referenced new feature at the existing carrier customer, which we previously anticipated would have occurred in the third quarter. For the third quarter of 2025, gross profit was $3.2 million compared to $3.3 million during the same period of the prior year, a decrease of $116,000, primarily due to the period-over-period decline in revenues. Gross margin was at 74% for the quarter compared to 72% realized in the third quarter of 2024. The gross profit of $3.2 million in the third quarter of 2025 matched sequentially the $3.2 million of gross profit realized in the second quarter of 2025. In the fourth quarter of 2025, we expect gross margin to be in the range of 74% to 76%. The increased margin percentage is directly related to lower costs from the cost reductions completed in October. For the year-to-date period ended September 30, 2025, gross profit was $9.8 million compared to $10.7 million during the corresponding period last year. Gross margin was 73% for the September 30, 2025 year-to-date period as compared to the 68% in the same period last year. Once we realize a full quarter of the cost benefits in 2026, we expect our margin percentages to be between 78% to 80%. Our longer-term gross margin target is 85%, which we will continue to work towards. GAAP operating expenses for the third quarter of 2025 were $7.7 million, a decrease of $2.1 million or 22% compared to the third quarter of 2024. The difference was a result of changes in personnel, stock compensation costs and other cost reduction activities. GAAP operating expenses for the year-to-date period ended September 30, 2025, were $34.5 million compared to $55.6 million in the prior year-to-date period, a decrease of $21.1 million or 38% compared to last year. This period-over-period decrease was primarily attributable to the goodwill impairment charge of $24 million recorded in the first quarter of 2024 as compared to the goodwill impairment charge of $11.1 million in the second quarter of 2025, coupled with the cost reduction activities that we have executed along with a decrease in amortization expense associated with our intangible assets. Non-GAAP operating expenses for the third quarter of 2025 were $5.7 million compared to $6.8 million in the third quarter of 2024, a decrease of approximately $1.1 million or 16%. Sequentially, non-GAAP operating expenses decreased by approximately $200,000 or 3% from the second quarter of 2025. We expect an approximate 15% decline in non-GAAP operating expenses in the fourth quarter of 2025 as compared to the third quarter of 2025 as we begin to see some of the impact of our most recent reorganization. Non-GAAP operating expenses for the year-to-date period through September 30, 2025, were $17.8 million compared to $22.4 million for the year-to-date period ended September 30, 2024, a decrease of $4.7 million or 21% compared to last year. As previously mentioned, we expect our 2026 non-GAAP operating expenses to be reduced by approximately $7.2 million as we realize the full benefit of the recent reorganization. The GAAP net loss attributable to common stockholders for the third quarter of 2025 was $5.2 million or $0.25 loss per share compared to a GAAP net loss of $6.4 million or $0.54 loss per share in the third quarter of 2024. GAAP net loss attributable to common stockholders for the 9 months ended September 30, 2025, was $25.4 million or $1.30 loss per share compared to GAAP net loss attributable to common stockholders of $44.3 million or $4.17 loss per share for the 9 months ended September 30, 2024. The non-GAAP net loss attributable to common stockholders for the third quarter of 2025 was $2.6 million or $0.12 loss per share compared to a non-GAAP net loss attributable to common stockholders of approximately $3.6 million or a $0.30 loss per share in the third quarter of 2024. Non-GAAP net loss attributable to common stockholders for the 9 months ended September 30, 2025, was $8.2 million or $0.42 loss per share compared to non-GAAP net loss attributable to common stockholders of $11.8 million or $1.11 loss per share for the 9 months ended September 30, 2024. Within today's press release, we have provided a reconciliation of our non-GAAP metrics to the most comparable GAAP metric. For the third quarter of 2025, the reconciliation includes adjustments for intangible asset amortization of $1.3 million, stock compensation expense of $600,000, depreciation expense of $71,000, changes to the fair value of warrants of $34,000 and a deemed dividend of $635,000. For the year-to-date period, the non-GAAP reconciliation includes adjustments for intangible asset amortization of $3.8 million, stock compensation expense of $2.8 million, goodwill impairment charge of $11.1 million, executive transition costs of $78,000, depreciation of $217,000, changes to the fair value of warrants of $137,000, a deemed dividend of $635,000, partially offset by the ViewSpot sale of $1.3 million. Due to our cumulative net losses over the past few years, our GAAP tax expense is primarily due to certain state and foreign income taxes. For non-GAAP purposes, we utilized a 0% tax rate for the third quarter of 2025 and 2024. The resulting non-GAAP tax expense reflects the actual income tax expense during the period. From a balance sheet perspective, we reported $1.4 million of cash and cash equivalents as of September 30, 2025. This concludes my financial review. Now back to you, Bill. William Smith: Thanks, Tim. As I mentioned at the beginning of the call, our SafePath platform is tailored for families and includes SafePath OS for Kids Phones and SafePath OS for Senior Phones. Carriers can deploy our SafePath OS software solution to offer devices from existing inventory that are tailored to meet the needs of kids and seniors and their families. This expansion has generated meaningful interest and opened several new conversations with our current and prospective carrier partners, and we have trials currently underway with mobile operators around the world. We remain focused on delivery and expect to get them to the finish line in the next few quarters. Now let me provide a quick update on our current customers. We remain enthusiastic with the continued rollout of our SafePath Kids solution with Orange Spain, which supports the 2-year rate plan for kids. We've maintained a strong partnership with the Orange Spain team, collaborating closely on new go-to-market opportunities. Concurrently, we are advancing the next phase of the product road map with a planned launch later this year that introduces new functionality designed to broaden our market reach. These enhancements have been strategically developed to meet evolving customer needs and are expected to be well received, strengthening our position in the region. We're also making solid progress with the expansion of our footprint beyond Spain with ongoing conversations across other Orange entities. These discussions are gaining traction and reflect growing interest in our solutions. More broadly, we have active trials and engagements across Europe, and I remain highly encouraged by the momentum of our current pipeline. With AT&T, we're actively collaborating our new marketing initiatives as we gear up for the upcoming holiday season. Many of these efforts are tied to a recent product update that significantly expands our market potential. Secure Family is now available to any family regardless of their mobile carrier that they use. It's no longer limited to AT&T wireless customers. This expansion not only broadens our addressable market, but also unlocks new cross-promotion opportunities. I am optimistic about the road ahead as we continue to build on our strong and trusted partnership with AT&T. I remain optimistic about our progress with Boost, especially as we explore new opportunities following the announcement of our expanded SafePath platform capabilities. These expanded offerings have sparked fresh conversations and opened the door to broader engagement. Additionally, we are seeing continued momentum through targeted holiday marketing campaigns and ongoing monthly messages, most notably around visual voice mail. These messages are set to run through the end of the year and further support our growth efforts. With T-Mobile, we remain energized by our continued discussion around the expansion of the SafePath platform and the new opportunities that it can deliver. As I discussed on our last call, T-Mobile has added additional team members to our working group who are very interested and engaged in our current solution as well as our portfolio expansion. With relationships continuing to strengthen across the organization, I believe there remains substantial growth potential ahead with T-Mobile. In conclusion, we believe we have taken key steps to strengthen the company's financial position, establishing a firm foundation from which we can grow. I truly believe the renewed family focus occurring in the carrier market worldwide opens an enormous new opportunity for Smith Micro Software. With the core development of our SafePath 8 platform complete, coupled with a new, faster and more agile delivery organization going forward, we are aligned well with the market today. Our Connected Life vision brings what I believe is the most expansive and powerful offering in the market today. Our family digital lifestyle ecosystem spans the entire family digital safety journey for families from kids to seniors and every family member in between. We are confident we are on a path to profitability. Our mission is not yet complete, but we have implemented the necessary steps to get us there. I am extremely confident in our plan and our team's ability to execute. With that, let me turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] And at this time, we are showing no questions in the queue. So I would like to turn the conference call back over to Charles Messman for any closing remarks. Charles Messman: I want to thank everybody for joining today. Should you have further questions, please feel free to call us. Thank you, guys, and have an awesome day.
Operator: Greetings, and welcome to the Fortuna Mining Corp. Q3 2025 Financial and Operational Results Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Carlos Baca, VP of Investor Relations at Fortuna Mining Corp. You may begin. Carlos Baca: Thank you, Paul. Good morning, ladies and gentlemen, and welcome to Fortuna Mining's conference call to discuss our financial and operational results for the third quarter of 2025. Hosting today's call on behalf of Fortuna are Jorge Alberto Ganoza, President, Chief Executive Officer and Co-Founder; Luis Dario Ganoza, Chief Financial Officer; Cesar Velasco, Chief Operating Officer, Latin America; and David Whittle, Chief Operating Officer, West Africa. Today's earnings call presentation is available on our website at fortunamining.com. Statements made during this call are subject to the reader advisories included in yesterday's news release, the webcast presentation or management discussion and analysis and the risk factors outlined in our annual information form. All financial figures discussed today are in U.S. dollars unless otherwise stated. Technical information presented has been reviewed and approved by Eric Chapman, Fortuna's Senior Vice President of Technical Services and a qualified person as defined by National Instrument 43-101. I will now turn the call over to Jorge Alberto Ganoza, President, Chief Executive Officer and Co-Founder of Fortuna Mining. Jorge Durant: Good morning, and thank you for joining us today. The third quarter was a strong one for Fortuna, not only in terms of operational delivery, financial results and continued buildup of Fortuna's balance sheet, but also in the meaningful progress we have made in positioning the company for the next stage of growth. But let's start with safety. By the end of October, we achieved 318 days or 9.7 million work hours without a lost time injury, our longest streak yet. Our total recordable injury frequency rate improved to 0.86, down from 1.6 a year ago. These results demonstrate our collective commitment to ensuring everyone returns home safe and sound. Turning to the numbers. We realized an average gold price of $3,467 per ounce, up 5% from the second quarter and up 20% from the first quarter of the year. Attributable net income reached $123.6 million or $0.40 per share, driven by a $69 million impairment reversal at our Lindero mine. Adjusted net income was $0.17 per share, impacted by higher share-based compensation due to a rising share price and a $7.4 million foreign exchange loss in Argentina, which both together account to approximately $0.04 per share. Our strong free cash flow from operations was $73 million with net cash from operating activities before working capital changes at $114 million or $0.37 per share, surpassing analyst consensus of $0.36. During the quarter, we recorded $13.5 million in withholding taxes related to the repatriation of $118 million from Argentina and Côte d’Ivoire. We expect regular repatriations moving forward. Overall, our business benefits from higher realized gold prices, improving margins and strong cash generation. As a result, our liquidity position at the end of the quarter stands at a solid $588 million with a growing net cash position of $266 million. This enables us to accelerate our pursuit of multiple high-value opportunities in the asset portfolio across different stages of the project life cycle. In Côte d’Ivoire, at Séguéla, our flagship mine, we are expanding the life of mine and boosting annual gold output through exploration success at Sunbird and Kingfisher deposits. In Senegal, our predevelopment stage Diamba Sud project boasts strong economics, advancing towards a construction decision in the first half of next year. In Salta, Argentina, we're excited to drill for gold at one of the largest untested high-level epithermal anomalies in the north of the country. The Cerro Lindo project, held privately for years, now offers us an exciting exploration opportunity. Our strategic investments announced this year in Awalé Resources and JV with DeSoto Resources position us with exciting gold prospects on both the Ivorian and Guinean sites of the prolific Siguiri Basin, which straddles these 2 countries. And we continue advancing a pipeline of early-stage projects in Mexico, Peru and Côte d’Ivoire. Our consolidated cash costs remained below $1,000 per ounce. And all-in sustaining cost at our mines is tracking within guidance. Lindero's all-in sustaining cost has been trending lower every quarter to the current $1,500 per ounce range, where we expect it will stabilize. At Séguéla, the story is inverse. We expect to complete the year on the upper end of guidance but we're coming from a low all-in sustaining cost of $1,290 in first quarter of the year to the current $1,738 in the third quarter. This is driven mainly by timing of capital investments and the impact of higher gold price on royalty payments. As key investments at Séguéla are completed in Q3 and into Q4 to support our 2026 expanded production of 160,000 to 180,000 ounces of gold, we expect to see all-in sustaining cost in the range of $1,600 to $1,700 per ounce range. Caylloma will finish just outside its guidance range due to relative metal prices used in gold equivalents. As you know, Caylloma has a significant base metal lead/zinc component to its production. Now turning to growth. For Diamba Sud project in Senegal continues to advance at pace on a fast-track approach. In mid-October, we released the Preliminary Economic Assessment for an open pit and conventional carbon-in-leach plant, confirming strong economics that support our goal of reaching a Definitive Feasibility Study and a construction decision in the first half of 2026. Using a gold price of $2,750, the after-tax internal rate of return of the project is 72%, and the net present value at a 5% discount is $563 million. The mineralization at Diamba Sud remains wide open, and we are drilling nonstop with 5 rigs, expecting to add resources by the time the DFS is published. On October 7, we filed the Environmental and Social Impact Assessment, expecting the certificate of acceptance in the first half of next year. Site camp early works are progressing with an approved $17 million Phase 1 budget, and the government is being very supportive, and we have received consent to move ahead with a Phase 2 early works, including the water dam excavations and excavations for other key infrastructure. We plan to fast track front-end engineering design activities during the feasibility work to shorten and derisk the development time line by securing long-lead equipment early. Diamba is a project that can bring additional 150,000 ounces of gold of annual production on average for the first 3 years of operations. Regarding the business environment in key jurisdictions for us, both Côte d’Ivoire and Argentina held national elections in late October. In Argentina, the government's electoral victory in Congress and Senate strengthened its mandate for advancing structural economic reforms. Argentina's business climate has improved significantly and we remain optimistic about the country's trajectory. In Côte d’Ivoire, President Alassane Ouattara was reelected for a fourth term with a decisive majority. We anticipate the continuation of pro-business and pro-investment policies that have made Côte d’Ivoire one of the fastest-growing and most resilient economies in West Africa. In summary, Q3 was a strong quarter for Fortuna. Our safety record continues to set new benchmarks. Our operations remain resilient and our growth projects are advancing according to plan. We entered the final quarter of the year with a solid balance sheet, strong cash generation and a clear path of near- to mid-term organic growth driven by Diamba Sud and Séguéla expanded gold output. I'll now hand the call over to David Whittle, our Chief Operating Officer for West Africa, and Cesar Velasco, Chief Operating Officer for LatAm, who will review their respective operational results. We can start with you, David. David Whittle: Thank you, Jorge. Séguéla achieved another impressive quarter, delivering excellent results in both production and safety. This positions Séguéla well to exceed upper production guidance for 2025. We have gold output now projected to surpass 150,000 ounces. Our dedication to safety and environmental excellence remains steadfast, and we are making steady progress toward our goal of zero harm across all our operations. I'm pleased to report that no injuries occurred at any of our West African locations during the quarter. At Séguéla, we produced 38,799 ounces of gold, maintaining consistency with prior quarters and surpassing the mine plan. Mining during the quarter totaled 272,000 tonnes of ore at an average grade of 3.66 grams per tonne gold, along with 4.43 million tonnes of waste, resulting in a strip ratio of 16.3:1. The processing plant treated 435,000 tonnes at an average grade of 3.01 grams per tonne gold, with throughput averaging 208 tonnes per hour for the quarter. Ore was primarily sourced from the Antenna, Ancien and Koula pits. During the quarter, we received permitting approvals for 5 satellite pits, including the Sunbird, Kingfisher and Badior open pits. Several major projects also advanced successfully over the third quarter. The 8.5 million TSF lift was completed, providing tailings storage at current throughputs until late 2029. The replacement of the transmission tower at the Sunbird pit, a $9 million project, progressed well, and we are now prepared to commence pre-mining operations for the Sunbird pit in Q4. The rock breaker and the primary crusher was commissioned and is operating effectively, further debottlenecking the processing circuit and the 6-megawatt solar plant project is expected to be complete in the first quarter of 2026, which will help to reduce power costs. Séguéla performance resulted in a cash cost of $698 per ounce and an all-in sustaining cost of $1,738 per ounce, both aligning with our budget. Site costs continue to be managed efficiently with the increased all-in sustaining costs primarily attributed to royalties on the higher gold price. Exploration drilling at the Sunbird underground project continued in the third quarter with encouraging results. The ongoing success of this drilling, combined with the results from the Kingfisher Deposit provides us with a resource base that offers further opportunities to optimize production from Séguéla. Whilst current process plant throughputs are focused on maximizing available capacity with minimal investment, we're now investigating in options to further enhance process plant throughput. Drilling is continuing with 5 drill rigs at the Sunbird underground deposit in Q4, aiming to further expand the underground resource. Engineering studies and permitting activities will continue in Q4 and 2026, with the expectation of commencing underground mining operations in 2027. The Kingfisher Deposit remains open in all directions and further drilling will be undertaken in 2026 to convert inferred resources to indicated status and further expand the resource. At our Diamba Sud project in Senegal, exploration, environmental permitting and feasibility activities made significant progress during the quarter, government approvals were received for early works programs, ESIA was submitted for approval and the PEA was published. Following the rainy season, drill rigs have been remobilized for further drilling at the Southern Arc deposit at Diamba with the aim of enhancing the resource base and building on the strong PEA results. Thank you, and back to you, Jorge. Jorge Durant: Thank you, David. Cesar? Cesar Velasco: Thank you, Jorge, and good afternoon, everyone. I am pleased to report that both Lindero and Caylloma ongoing multiple safety initiatives are driving continuous improvement and reinforcing a culture of accountability and care across all of our operations, delivering excellent safety performance. At Lindero in Argentina, we had a strong quarter, achieving our highest gold production this year. Gold output reached 24,417 ounces, a 4% rise from 23,550 ounces in the second quarter, driven by a 5% increase in gold grade and effective inventory recovery from the leach pad. We placed 1.7 million tonnes of ore on the leach pad at an average head grade of 0.60 grams per tonne containing about 32,775 ounces of gold. With 1.5 million tonnes of ore mined and a favorable strip ratio of 1.9:1, we are well aligned with our mining plan. Processing performance was robust with continued optimization of the crushing circuit achieving an average throughput of 1,061 tonnes per hour, about 8% above the 2024 average, demonstrating progress in our operational efficiency initiatives. However, on September 27, we experienced an unexpected shutdown of the primary crusher due to mechanical issues involving high amperage and overheating of the pitman shaft, specifically traced to the premature wear of the primary wear parts such as the bushings and bearings. Replacement parts have been secured and corrective actions are underway to resolve the structural misalignment. We anticipate the crusher will be fully operational by mid-November. Meanwhile, we have implemented effective mitigation strategies such as using a portable jaw crusher and direct Run-of-Mine ore screening to ensure uninterrupted operations. Consequently, we do not foresee any impact on our annual production target. Regarding costs, the cash cost in Q3 was $1,117 per ounce of gold compared to $1,148 per ounce in Q2, marking a 3% improvement due to higher ounces sold and stable operating conditions. The all-in sustaining cost decreased significantly to $1,570 per ounce from $1,783 per ounce in the second quarter, a notable 12% reduction, supported by lower costs, reduced sustaining capital, higher by-product credit and a 7.7% increase in ounces sold. Overall, Lindero delivered strong performance this quarter, supported by disciplined cost management, resilient production and solid margins of approximately $2,500 per ounce to our ASIC based on current gold prices. At Caylloma in Peru, we delivered another steady and reliable quarter of production, meeting operational expectations. The Caylloma mine continues to exceed all of its physical and cost targets for the year, reflecting strong operational execution. However, our reported metal equivalents are being impacted by the silver and base metal conversion factor, which affect the calculation of both the gold and silver equivalent production. In terms of costs, the cash cost per silver equivalent ounce was $17.92 compared to for $15.16 in Q2, mainly due to slightly lower silver production and higher realized silver prices. The all-in sustaining cost increased modestly to $25.17 for silver equivalent tonnes from $21.73 in Q2, primarily due to the same factors and fewer silver equivalent ounces sold. Despite these cost movements, Caylloma maintained healthy margins, supported by strong base metal prices and disciplined operational control. With the current strength in silver prices, we're looking to access some of the highest grade silver zones that Caylloma is known for. These areas, which are better suited to conventional mining methods are becoming economically attractive and once again, under the present price environment. In summary, the third quarter highlighted strong production growth at Lindero, steady performance at Caylloma and lower unit cost across the region. Our teams in Argentina and Peru continue to execute with discipline and focus, maintaining momentum in operational reliability, cost efficiency and safety as we move into the year's final quarter. Back to you, Jorge. Jorge Durant: Thank you. I'll now hand the call over to Luis, our CFO, who will review financial results. Luis Durant: Thank you. So we have reported net income attributable to Fortuna of $123.6 million or $0.40 per share. This result includes a $70 million noncash impairment reversal at the Lindero mine, which includes $17 million of low-grade stockpiles. After adjusting for noncash nonrecurring items, attributable net income was $51 million or $0.17 per share. This represents a strong 56% increase year-over-year and a 14% sequential increase over Q2. The growth was driven mainly by higher metal prices. The cash cost per ounce for the quarter was $942, broadly aligned with the prior quarter and slightly above Q3 of 2024 as a result of higher mine stripping ratios at Lindero and Séguéla after our mine plans. We have reported 2 nonoperational items impacting our results this quarter. The effect of our stock-based compensation of the increase in our share base during the period, representing a one-time increase to share-based expense of $6.3 million and a foreign exchange loss of $7.4 million. The foreign exchange loss was mostly attributable to our Lindero operations in Argentina as the peso experienced a sharp 14% devaluation in Q3. For the first 9 months of the year, our FX loss related to the Argentinian operations amounts to $10 million, of which over half is related to the accumulation of local currency cash balances. However, I want to emphasize that we implemented structures to preserve the value of these funds and the FX loss on local cash balances for the full year is fully offset in our income statement through the interest income, investment gains and derivative line items. We were able to restart repatriation in the month of July from Argentina, and under current conditions, we expect to maintain local cash balances at a minimum. In Q3, a total of $62 million were repatriated, net of withholding taxes. Our general and administration expenses for the quarter were $26.3 million. This represents an increase over the prior year of $12.6 million. This was due mainly to higher stock-based compensation as explained, plus an increase in corporate G&A of $4 million related mostly to timing of expenses. Our annual corporate G&A remains relatively stable at around $28 million to $30 million, and the breakdown is provided in Page 11 of our MD&A. Moving to our cash flow statement. Our capital expenditures for the quarter totaled $48.5 million. Of this, we classified $17 million of growth CapEx, which primarily consists of investments in the Diamba Sud project of $6.8 million and exploration activities of around $10 million. Our anticipated capital expenditures for the full year have adjusted upwards slightly from the $180 million previously disclosed to approximately $190 million. This increase primarily reflects added exploration allocations due to continued exploration success at Séguéla and Diamba. In terms of free cash flow, we generated $73.4 million from ongoing operations, up from $57.4 million in the prior quarter, reflecting the effect, again, of a higher gold price. And our net cash position increased by $51 million after growth CapEx and other items. All of this brings our total liquidity to $588 million, and our net cash position to $266 million. This represents an increase of over $200 million year-to-date. In the current price environment, we expect this trend to accelerate. That's it for me. Back to you, Jorge. Jorge Durant: We would now like to open the call to questions. Paul, please go ahead. Operator: [Operator Instructions] And the first question today is coming from Mohamed Sidibe from National Bank. Mohamed Sidibe: Maybe just starting with your strong balance sheet, strong free cash flow that you're printing and the elevated gold and silver prices. How are you thinking about your capital allocation priorities. I know you have Diamba coming up. But specifically as it relates to capital return to shareholders as you're looking into next year. Jorge Durant: As you pointed out, we have a pipeline of near-term growth. So that is the first priority we have with respect to capital allocation. We expect we'll be making a construction decision on Diamba Sud next year in the first half of the year. We're advancing early works that are trying to derisk the time line and shorten the time line also for first gold at Diamba by advancing these early works. We are also scoping right now the potential to expand our Séguéla process infrastructure. As you recall, Séguéla was originally designed at 1.25 million tonnes per annum. We're currently running the plant at 1.75 million tonnes per annum, and we're currently doing scoping -- starting scoping work to expand it to the range of 2.2 million, 2.3 million tonnes per annum. Additional to that, as you have seen, we're expanding exploration work across the 2 regions, LatAm and West Africa. We just expanded into Guinea through a JV with DeSoto. We are expanding our exploration in Argentina. We're currently drilling in Mexico. We're currently drilling in Peru. So that is our first priority and where we believe we can add most value right now. Second, we have our share buyback program in place. We were quite active with the share buyback program at the beginning of the year, end of last year. We repurchased approximately $30 million worth of stock. The share buyback program remains in place, and today is our preferred way to return to -- capital to shareholders. And we have made a pause in the last 2 quarters with the share buyback program, but we could be active in the market again anytime. Mohamed Sidibe: Great. And then maybe if I could shift to operations. So Lindero, the unexpected shutdown and mindful that this has no impact on your annual production target, given the mitigation measures. But how should we think about this for cost into Q4? Should we -- could we see any potential impacts on that front? And any color would be appreciated there. Jorge Durant: Yes. I'll let Cesar address the question. Cesar Velasco: Sure. Well, in particular to cost, we have been able to compensate some of those cost in specifically with regards to the portable rental jaw crusher. So we're offsetting that cost with other noncritical initiatives that we had in Lindero. So we don't expect our cost to be significantly impacted in Q4. That should address. Operator: [Operator Instructions] There were no other questions from the lines at this time. I will now hand the call back to Carlos Baca for closing remarks. Carlos Baca: Thank you, Paul. If there are no further questions, I'd like to thank everyone for joining us today. We appreciate your continued support and interest in Fortuna Mining. Have a great day. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's third quarter 2025 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through November 13 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. [Operator Instructions] This call will be limited to an hour. Presenting today from American States Water Company are Bob Sprowls, President and Chief Executive Officer; and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements, and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions and known and unknown risks uncertainties and other factors. Listeners should review the description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. Statements made on this conference call speak only as of the date of this call, and except as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statements. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please proceed. Robert Sprowls: Thank you, Bailey. Welcome, everyone, and thank you for joining us today. I'll begin with brief highlights to our quarter, Eva will discuss some financial details, and then I'll wrap it up with updates on regulatory activity, ASUS, dividends and then we'll take your questions. I'm pleased to report that recorded earnings per share for the third quarter were $0.11 per share higher compared to the third quarter of last year, an increase of 11.6%. Favorable variance is attributable to the receipt of final decisions from the California Public Utilities Commission or CPUC in January 2025 for our regulated water and electric utilities general rate cases which authorized new water rates for 2025 to 2027 and authorized new electric rates for 2023 to 2026 and higher earnings for our contracted services business, American States Utility Services, or ASUS, of $0.08 per share, due mostly to increases in construction activities during the quarter. For the year-to-date September 30, earnings were $2.63 per share, $0.21 per share higher than last year or 8.7%. We continue to invest in our water and electric utility systems for the long-term benefit of our customers. Our regulated utilities are on pace to invest a combined $180 million to $210 million in infrastructure investments this year. In addition, our water utility recently received CPUC approval to provide water services at another new planned community that will be built out over time with the first development expected to serve up to 3,800 customer connections during the next 5 years. And over the longer term, 20-plus years, allows for the construction of 17,500 total dwelling units at full build-out. ASUS continues to enter into U.S. government awarded contract modifications for new construction projects and was awarded $28.7 million in new capital upgrade construction projects during the 9 months ended September 30 of this year. These newly awarded projects are expected to be completed through 2028. I'd also like to mention that we are pleased to be recognized on Times America's Best Midsize Companies 2025 list and are 1 of only 2 investor-owned water utilities on the list. Companies are ranked by revenue growth, employee satisfaction and sustainability transparency. In addition, American States Water Company is the only water utility included in Barron's 100 Most Sustainable Companies for 2025. Companies were scored across 230 environmental, social and governance performance indicators from workplace diversity to greenhouse gas emissions. We believe these recognitions reflect our strategic growth plans, commitment to our workforce and focus on our initiatives and disclosures in the sustainability areas and these will remain priorities for the company. With that, I will turn the call over to Eva to discuss earnings and liquidity. Eva Tang: Thank you, Bob. Hello, everyone. Let me start with our third quarter results. Recorded consolidated earnings were $1.06 per share for the quarter as compared to $0.95 per share for the third quarter of 2024. For our water utility Golden State Water reported earnings were $0.86 per share as compared to $0.84 per share last year. The $0.02 per share increase in 2025 was largely due to new 2025 water rates as a result of receiving a final decision in Golden State Water's general rate case proceeding. Higher gain generated on investments held to fund a retirement plan and lower interest expense, partially offset by higher operating expenses and a higher effective income tax rate. Lastly, there was a decrease in earnings of $0.02 per share due to the dilutive effect from the insurance of equities under AWR ad market offering program. Our Electric segment earnings were $0.04 per share for the quarter as compared to $0.02 per share for the same quarter last year, a $0.02 per share increase primarily due to receiving the final CPUC decision on the electric general rate case with the new 2025 electric rates as compared to 2022 rate used to record revenues during the third quarter of last year. Earnings from ASUS were $0.19 per share for the quarter compared to $0.11 per share for the same quarter last year. That is an increase of $0.08 per share, which Bob will discuss further later. Lastly, losses from our parent company were $0.03 per share for the quarter when compared to losses of $0.02 per share for the same quarter last year, due largely to an increase in interest expense resulting from higher borrowing levels from AWR's credit facility. Consolidated revenue for the third quarter increased by $21 million when compared to the same quarter of 2024. Revenues for the water segment increased by $8.3 million, largely as a result of receiving the final decision in Golden State Water's general rate case with new rates effective January 1, 2025. Revenues for Electric segment increased by $4.3 million, mainly due to new 2025 electric rates as compared to 2022 rates used to record revenue during the same quarter of 2024. Revenues from ASUS increased $8.4 million, primarily due to higher construction activity during the quarter due to timing. Turning to Slide 9. Supply costs increased by $4 million, mostly due to higher overall per-unit purchased water cost included in customer rates in 2025. Looking at total operating expenses other than supply costs. Consolidated expenses increased by $10.3 million compared to 2024. This increase includes the impact of the Electric general rate case decision issued in January which authorized higher operating expenses, primarily for vegetation management and other wildfire mitigation efforts. These costs were previously excluded from customer rates and are not expensed -- were not expensed in the third quarter of last year, as they were being tracked in memorandum accounts. They are now included in adopted Electric revenue. In addition, the increase was due to higher ASUS construction expenses and higher overall operating expenses. These higher expenses were partially offset by lower interest expense, net of interest income, primarily due to decreases in interest rates and overall borrowing levels partially offset by reduced interest income from a decrease in regulatory asset balances. Lastly, there was an increase in other income net of other expense due largely to higher gains generated on investments held to fund a retirement plan during the quarter as compared to the same period in 2024 due to financial market conditions. Slide 10 shows the EPS bridge comparing reported EPS for the third quarter of 2025 against the same period for 2024. Moving on to Slide 11. Consolidated earnings for the 9 months ended September were $2.63 per share compared to $2.42 per share for the same period in 2024, an increase of $0.21 per share. The increase is largely generated from higher earnings at our regulated utilities. Turning to liquidity on Slide 12. Net cash provided by operating activities was $202 million for the year-to-date September compared to $134.2 million for the same period last year, with the increase largely related to the implementation of new rates at our regulated utility funds approved to generate proceedings as well as various approved surcharges or additional base rate from advice letter filings. In addition, the increase also resulted from differences in timing of income tax payments, billing and cash receipts for construction work at military basis at ASUS and the timing of its vendor payments. For investing activities, our regulated utility invested $151.8 million on company-funded capital projects in the first 9 months of this year and we project to be on target to reach $180 million to $210 million for this year. For financing activities, American States Water under its ad market offering program raised the proceeds of $40.2 million during the 9 months ended September 30, net of issuing cost and legal costs, leaving a remaining balance of $68 million available for issuance under the program. In July, Standard & Poor's Global Ratings affirmed a credit rating of A stable for American States Water and A+ stable rating for Golden State Water. These are some of the highest credit rating in the U.S. investor-owned water utility industry. With that, I'll turn the call back to Bob. Robert Sprowls: Thank you, Eva. On the regulatory front, as previously mentioned, in January of this year, the CPUC issued a final decision in connection with the recent water general rate case that covers rates for 2025 through 2027. We have discussed the details of this rate case decision in our prior earnings releases and calls. We have begun preparation for our next water rate case expected to be filed by July 1, 2026. As a reminder, the final decision ordered Golden State Water to transition from a full decoupling mechanism and a full supply cost balancing account, which were requested again in the general rate case application to a modified rate adjustment mechanism known as the Monterey-Style Water Revenue Adjustment Mechanism, or MRAM and an incremental cost balancing account for supply cost effective January 1, 2025. Without the continuation of a full revenue decoupling mechanism and a full cost balancing account for water supply, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix. Final decision adopted the company's MRAM rate design proposal, which authorizes Golden State Water to increase the revenue requirement in the fixed services charges to between 45% and 48% of the revenue requirement depending on the rate making area, representing approximately 65% and of the water utilities fixed cost in aggregate. It also approved Golden State Water's sales forecast and its request for the continuation of a sales reconciliation mechanism, which would allow the company to adjust its sales forecast throughout the general rate cycle to address significant fluctuations in consumption. In August 2023, Golden State Water entered into an agreement which was subject to CPUC approval to purchase from a developer, the water and wastewater system assets in a development located in California's Central Coast region. This is a new planned community, which will serve up to approximately 1,300 customer connections at full build-out, which is anticipated to occur by 2034 under the current construction schedule, barring any future delays. On December 5, 2024, the CPUC approved a final decision granting Golden State Water's certificate of public convenience and necessity that establish rates for water and sewer services, including the company's recovery of the purchase price through future customer rates in this new San Juan Oaks and service area. After receiving CPUC approval and finalizing other closing procedures, in May of this year, the parties completed the closing of the transaction, which included the initial installation and conveyance of water and wastewater system assets of $10.7 million by the developer a noncash transaction to Golden State Water recorded during the second quarter of 2025. That resulted in an increase in the company's utility plant with corresponding increases in advances and contributions in aid of construction. In the future, Golden State Water will take ownership of the incremental water and wastewater system assets in phases as they are completed and ready to accommodate new connections. In addition, Golden State Water and the Public Advocates Office of the CPUC filed a joint motion with the CPUC in March to adopt a settlement agreement to authorize initial rates for water service in the new Sutter Pointe service area. Last week, the CPUC approved the settlement agreement in its entirety. The approval establishes initial water service rates for 2026 through 2028 and authorizes various balancing and memorandum accounts for this area. This new planned community in Northern California will be built out over time with the first development expected to serve up to 3,800 customer connections during the next 5 years. And over the longer term, 20-plus years allows for the construction of 17,500 total dwelling units at full build-out, as part of the overall plan approved by the respective counting. Turning our attention to Slide 15. We present the growth in Golden State Water's adopted average water rate base from 2021 through 2025 which increased from $980.4 million in 2021 to $1,455.8 million in 2025. That represents a compound annual growth rate of 10.4% over the 4-year period using 2021 as the base share for the calculation. Golden State Water anticipates a robust and sustained growth in its rate base over the next few years as a result of receiving its recent general rate case decision that not only authorizes it to invest $573.1 million in capital infrastructure. But in addition to that, capital investments of certain projects through advice their filings upon completion that will contribute to a further growth in rate base in the second and third year of this cycle. Turning our attention to Bear Valley Electric. As previously noted, in January of this year, the CPUC issued a final decision on the electric general rate case that set rates for 2023 through 2026. Like the water utility rate case, we have discussed the details of the electric rate case in our prior earnings releases and calls. We are working to file our next electric rate case in the first quarter of 2026. This past April, Bear Valley Electric also implemented new base rates to recover the revenue requirement associated with $11.6 million of capital projects approved for recovery through advice layers. In July, Bear Valley Electric and the Public Advocates Office of the CPUC filed a joint motion with the CPUC to adopt the settlement agreement resolving all issues in Bear Valley electric application to construct solar energy generation and battery storage facilities. The solar energy generation project will help Bear Valley Electric meet approximately 18% of its renewables portfolio standard requirement. These facilities will also help enable Bear Valley Electric to better control its energy and energy-related costs through self-supply from a local generation resource and also provide energy shifting capabilities and additional capacity during emergencies and peak load conditions. Among other things, the settlement agreement authorizes the construction of the facilities for a total combined cost of $28 million plus allowance for funds used during construction. Settlement agreement is pending approval by the CPUC to the proposed decision expected by the first quarter of 2026. If approved, the costs associated with the projects would be recoverable in customer rates at the time the projects are completed and in service. Let's continue to ASUS, which contributed earnings of $0.19 per share in the third quarter of 2025 as compared to $0.11 per share for 2024. The increase was a result of higher construction activity due to the timing of when the work was performed. Management fee revenues resulting from the resolution of various economic price adjustments and lower interest expense from lower borrowing levels partially offset by higher overall operating expenses. During the quarter, ASUS made substantial progress on its construction activities with year-to-date earnings of $0.45 per share as compared to $0.44 per share for the same period of 2024. We continue to project ASUS to contribute $0.59 to $0.63 per share this year, representing an increase of 7.3% to 14.5% year-over-year. ASUS was awarded $28.7 million in new capital upgrade construction projects through the year-to-date September of this year to be completed through 2028. As we look ahead to 2026, we project that ASUS will contribute $0.63 to $0.67 per share. In addition, we remain confident that we can effectively compete for new military-based contract awards. I would like to turn our attention to dividends. In the third quarter, we raised our dividend by 8.3% and our quarterly dividend rate has grown at a compound annual growth rate or CAGR of 8.5% over the last 5 years. These increases are consistent with our policy to achieve a compound annual growth rate in the dividend of more than 7% over the long term. Our unrivaled dividend history since 1931 is something that the company is proud of and will continue to be an asset to our shareholders. I'd like to conclude our prepared remarks by thanking you for your interest in American States Water. And we'll now turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Ian Rapp with Bank of America. Ian Rapp: Congrats on the good quarter. I'm just curious on ASUS, obviously, a good quarter and a good contract announcement there. If I look at the incremental contract, I'm just curious if you could provide a little color on the timing and when we might see that further into EPS over the -- I think you said '25 to '28 period. I'm just looking at the ASUS guidance for '26, and it looks like year-over-year a little bit down relative to the last 3 years. So just curious if that's just contracts rolling off or what the earnings power looks like going forward there? Robert Sprowls: Yes. I mean it's a pretty good step up, I think, in the earnings from $0.59 to $0.63 to the $0.63 to $0.67. It's -- but would just talk a little bit about the new capital upgrades. Those have been an important part of our overall performance and getting almost $29 million of new capital upgrades a pretty good year for us. Additionally, last year, we had a fairly significant amount of new capital upgrades relative to our history in the neighborhood of $55 million. So between those 2, we've got a pretty good backlog to do new capital upgrade work in '26 and beyond. We also have the renewal and replacement work that we're doing. So it's, I would say, a pretty good year, recognizing we don't -- we're not adding any new bases in that number. It's -- I think, as you know, Ian, there's a transition period we typically have to go through once we were awarded a contract. And so the expectation is we likely won't have a new contract to deal with in 2026 just because of that transition period and where we think the government might be on privatizations. Ian Rapp: Okay. Got it. Yes, that makes a lot of sense. And then just on the new announcements or, I guess, the new approvals on the new customer connection growth, it looks like some robust activity around the new development projects. I'm just curious like if you look at these numbers, should we think about translating that -- those new customer connections to rate base based on looking at your Golden State rate base relative to your customer base or as a rule of thumb? Or should we think about it more just on the capital that you've applied for? Just any color as to how we should think about the rate base translation would be helpful. Robert Sprowls: Yes. I guess the one difficult thing with those new customers is it is a function of people wanting to buy homes and a developer signing them up to buy homes. And so looking at the potential there. It is under this incremental acquisition approach. So as phases are done, the company will buy the infrastructure. I think the way to think about it maybe is the distribution infrastructure for these houses. And that's a pretty favorable activity for both the company and the developer because typically, the developer would have had to advance those facilities to the company to be then paid back over 4 years. So we will be acquiring new systems there. And I'm not exactly sure what to tell you about how you bake that into your rate base forecast because I do think the figuring out when those customers are going to be added is a challenge. Ian Rapp: Right. Okay. That's helpful color. And with that growth, maybe just one more if I could squeeze it in. Obviously, the big thematic these days is corporate M&A. As you look out at your growth profile, do you feel like gaining scale in California or other places would be beneficial? Or I'm really just curious to hear your thoughts on how you're thinking about M&A as investor attention kind of shifts toward it. Robert Sprowls: Yes. I mean we were a bit surprised by the announcement of the merger between American Water and Essential Utilities, which I think that's what you're sort of asking about. However, we don't really think that merger will impact our company's strategic direction going forward. We are optimistic about the future of our company. The rate bases at both of our regulated utilities continue to grow at strong rates of growth, and our ASUS business also continues to grow at a good pace. We noted in our presentation materials, the 10.4% 4-yea CAGR on our rate base for 2025 -- sorry, 2022 to 2025 at Golden State Water in our presentation and Bear Valley Electric's rate base has been growing at a faster rate than that. And then, of course, we will see additional customer growth, we believe, through the 2 new developments that we've mentioned, San Juan Oaks and Sutter Pointe over time. So I think generally, we're happy with our growth plan. That's not to say if a good deal came along. We wouldn't try to buy some systems that are in places where we believe the regulatory framework is neutral to positive. Does that answer your question? Ian Rapp: Yes, that's super helpful. And that all makes a lot of sense. I appreciate you guys walking me through and congrats again on the quarter and I'll echo your confidence on the growth rate. It looks promising. Operator: Our next question comes from Angie Storozynski with Seaport Agnieszka Storozynski: Okay. So you added your rate base projection for 2025 on Slide 15. It is actually a little bit lower than I would have implied it from just the pace of CapEx less depreciation. I mean, Eva is there any reason why again, just assuming that you're spending about, I don't know, $190 million, right, and around $30 million something of the depreciation that would have implied a slightly higher rate base for '25 versus '24, no? Eva Tang: So Angie, we talk about -- we have tons of advice letter yet to be filed toward end of this year in the rate case decision, we will authorize about $76 million of advice letter that we can file by end of this year to get new rates effective 1/1 next year. So we are preparing the documentation and close the job and to get the final number in Q4. So we anticipate that should be approved for rate effect is 1/1 of next year. So after 2025, those actual advice letter project amount will be added to the rate base. So that's maybe something... Agnieszka Storozynski: And that $573 million, that number, does that include the advise letters? No... Eva Tang: Does not including the advice letter that was started to do prior to the rate case cycle. So there are $58 million I would think advice letter coming from the prior rate case that were allowed to added to rate starting next year. So in total, $573 million, I believe, including $17 million of new advice letter project, but we have another $58 million project that come in from the prior rate case. So both of which can be added to our rate base starting next year. Agnieszka Storozynski: Yes. I mean -- and again, I don't want to nickel and dime you here, but it's just that, that would imply this $573 million number, right, that I'm spending about, again, assuming that it's ratable, $190 million a year, right, if I divide it just by 3 simple math and then subtract $30 million or say $35 million, that would still suggest that, that rate base should have grown by about $150-something million versus the $100 million that is shown of a growth between '24 and '25. So is it deferred taxes, again, just like simplistically. Eva Tang: Our actual spending is about that amount. I was just talking about the adopted rate base. Robert Sprowls: We are spending a little ahead of the rate cycle because we do have an earnings test in California that we have to meet. And you are predisposed to try to spend early because it's a 13-month average. So that may be contributing a little bit. I don't know, Eva, what do you... Eva Tang: Yes, I think that will definitely contribute. And we want to make sure we can finish advice letter project so we can file this year. So we've been spending the $76 million that authorized us to file . Agnieszka Storozynski: And that wouldn't count towards the right base? Because my point is that the rate base is lower than it would have been implied from the approved CapEx minus depreciation. Eva Tang: Yes, it will count as the actual rate base. It's just not -- currently not in the revenue requirement based on the adopted rate base. We'll have a new rate next year to cover what we spent so far. Does that makes sense? Agnieszka Storozynski: Yes. Okay. And even though you have gone through the GRC for the water business, you will not show the projected rate base for '26 and '27? Eva Tang: We will show that next time for sure, because we want to make sure we have the exact number of what we can file by end of this year for those advice letter even though we are also right $76 million, not sure that's exactly the number will be in the adopted rate base. So we're very conservative. We like to have a pretty certain number before announce [indiscernible]. So definitely, we'll announce that next quarter earnings. Agnieszka Storozynski: Okay. Okay. I've been asking. So I'm just repeating the question. Okay. I have... Eva Tang: Yes, I can probably share with you the [indiscernible] number for next year, but I don't have the information right now. But it's public information, so I can shoot you an e-mail, Angie. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks. Robert Sprowls: Thank you, Bailey. Just want to wrap up by thanking you all for your participation today, letting you know that we look forward to speaking with you next quarter and then wishing all of you a happy holiday season. Thank you very much. Operator: The conference has now concluded. You may disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Arq Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I will now turn the conference over to Anthony Nathan. Please go ahead. Anthony Nathan: Thank you, operator. Good morning, everyone, and thank you for joining us today for our third quarter 2025 earnings results call. With me on the call today are Bob Rasmus, Arq's Chief Executive Officer; Jay Voncannon, Arq's Chief Financial Officer; and Stacia Hansen, Arq's Chief Accounting Officer. This conference call is being webcasted live within the Investors Section of our website, and a downloadable version of today's presentation is available there as well. A webcast replay will also be available on our site, and you can contact Arq's Investor Relations team at investors@arq.com. Let me remind you that the presentation and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to, those factors identified on Slide 2 of today's slide presentation, in our Form 10-K for the year ended December 31, 2024, and other filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, the company undertakes no obligation to update these factors or any forward-looking statements to reflect future events, developments or changed circumstances or for any other reason. In addition, it is especially important to review the presentation and today's remarks in conjunction with the GAAP references in the financial statements. With that, I would like to turn the call over to Bob. Robert Rasmus: Thank you, Anthony, and thanks to everyone for joining us this morning. Our PAC business delivered yet another strong quarter. The continued and ongoing turnaround of our PAC operations yielded strong financial results, driven primarily by continued average selling price strength of 7% over the prior year as well as a further 43% reduction in SG&A expenses. We also made progress on the granular activated carbon front, achieving first commercial production, delivering initial product and generating our first GAC revenues. Third quarter financial performance was achieved despite operating GAC at well below capacity, which significantly reduced our financial results. Our third quarter adjusted EBITDA of $5.2 million included the negative impact of several million dollars of inefficiencies caused by nonrecurring items associated with handling and post-commissioning costs for our granular activated carbon ramp as well as impacts due to inefficiencies driven by low early ramp volumes. We previously noted that early GAC production would carry elevated costs due to the high fixed expenses, meaning the first pounds produced would cost more than those made later. That proved true this quarter, but the impact of these dynamics was larger than expected. We expect profitability to improve as volumes ramp and production efficiencies are achieved. Turning back to our PAC business. Third quarter prices increased by approximately 7% versus the prior year period and 6% versus last quarter, reinforcing that our foundational PAC platform is not only sustainably profitable, but also capable of fully funding maintenance capital needs for the broader business. Driven by continued price improvements, higher volumes in 2025, broader end market diversification and disciplined SG&A reductions, the company is generating $16.7 million of adjusted EBITDA on a trailing 12-month basis. This marks a significant achievement both in absolute terms and relative to our starting point at the end of September 2023 when trailing 12-month adjusted EBITDA was a negative $8.7 million at the outset of the turnaround. This is more than a $25 million improvement in trailing 12-month adjusted EBITDA. I'm proud of what the team has accomplished and even more encouraged by the upside that still lies ahead. Turning now to our strategic investment in granular activated carbon. The operational ramp-up has been impacted by previously discussed design issues while processing the Corbin feedstock at scale. As a result, based on recent operational observations, we now expect to reach full GAC capacity sometime around mid-2026. While this timing adjustment is disappointing, we believe that this revised target is achievable. With that said, let me address head on the logical question of what has caused this extension. Our operation team is still working through certain design issues that have required refining and updating the process for handling the new Corbin waste-derived feedstock efficiently at scale. This feedstock differs from the traditional lignite coal that we have historically used to produce our PAC products. Specifically, the Corbin feedstock has some greater-than-anticipated variability, which due to design flaws and constraints has required adaptations to processing methodology. You might be wondering how this differs from the Red River commissioning challenges we faced earlier. To clarify, those earlier delays were about getting the plant up and running for the first time. The current issues are about scaling, reaching full efficient production of tens of millions of pounds. The delay in achieving nameplate GAC capacity is extremely frustrating. As we previously noted, design issues and flaws have impacted our production capacity, which combined with the inherent variability of our Arq Wetcake has required additional process and methodology changes. While we've solved several issues, we're continuing to explore additional options to further enhance performance and reduce operating costs. One potential solution is to blend or replace Corbin feedstock with low moisture coal. This should reduce feedstock variability as well as improve production rates and operating costs. We are working to resolve these challenges and are applying the same rigor and discipline utilized to successfully turn around the PAC business. Importantly, despite the challenges noted, we successfully produced initial on-specification commercial granular activated carbon volumes in Q3 and completed our first sales into a supply-constrained market. As news of our production start-up spread, we received numerous inbound requests for spot purchases. These purchase requests were at pricing levels above our existing contract rates. This is further evidence of the supply constraint and favorable long-term market dynamics. While our strategy remains centered on long-term contracts, these spot inquiries are priced above our initial agreements and could offer attractive diversification opportunities alongside our contracted sales. In addition, we have extended numerous GAC contracts to account for the updated timelines. We're also seeing positive results from ongoing renewable natural gas field testing and remain confident in our ability to capture value in that market once testing concludes. At the same time, the broader GAC water market provides a reliable outlet, and we expect both markets to grow significantly in the years ahead. Our operational focus is now on rapidly increasing volumes to leverage our fixed cost base and achieve consistent granular activated carbon profitability. As we previously discussed, we are also evaluating adjacent revenue opportunities that could further improve overall returns. This includes determining whether our Corbin feedstock can be used in profitable alternative applications creating diversified end use cases for the feedstock to maximize shareholder value. As such, I would like to provide an update on those efforts. We've previously indicated that there are 4 key product avenues of interest, including asphalt, purified coal, rare earth materials and synthetic graphite. Starting with asphalt, we're continuing our testing with a major asphalt company. Early indications show it could make asphalt last longer and perform better in cold weather. Second, purified coal. We have signed a nonbinding MOU to test using our material as a coal substitute for making silicon wafers used in semiconductors, with our partner covering all the initial cost if we elect to proceed. Next, rare earth minerals. With growing demand for U.S.-sourced materials, we're working with the DOE to explore potential government funding to help us test this at our Corbin facility with research starting in 2026. And finally, synthetic graphite. This potential product would benefit from the high purity of our Arq Wetcake, and we are currently pursuing government funding opportunities to evaluate its commercial potential. Importantly, these opportunities aren't mutually exclusive, meaning we could theoretically produce Arq Wetcake for asphalt blending while generating byproducts for rare earth markets from the same source material. Success with these alternative products could create a stand-alone business line in new markets by turning these products into revenue contributors and thereby further improving profitability and margins. Looking ahead, fundamentals for granular activated carbon remain very strong. With Phase 2 already essentially permitted, we continue to carefully evaluate future GAC facility expansions. Specifically, FID timing is now anticipated to coincide with reaching GAC Phase 1 nameplate capacity around mid-2026. We believe that the experiences gained from Phase 1, along with the ongoing improvements will provide a strong foundation for any future granular activated carbon expansion projects. With that, I'll now turn it over to Jay for a detailed financial review. Jay Voncannon: Thanks, Bob, and thanks, everyone, for joining us today. Notwithstanding the impact of the granular activated carbon ramp-up, Arq continued to deliver strong financial results during the third quarter. With revenue of $35.1 million, this continues to be driven largely by enhanced contract terms, including a 7% growth in average selling price year-on-year, in part the result of ongoing successful end market diversification. Our gross margin in the quarter was 28.8%, well below our steady-state margin of recent quarters, primarily due to the negative impact of GAC fixed production costs as we ramped up volumes. We continue to incur post-commissioning costs associated with preproduction feedstock used in our granular activated carbon line. Additional negative impact to margin this quarter was related to low volumes versus higher fixed cost. We generated positive adjusted EBITDA of approximately $5.2 million compared to adjusted EBITDA of $9 million in the prior year period. I would note that the -- consistent with many market participants beginning in Q1 2025, we have added back stock-based compensation as a part of our adjusted EBITDA calculation and revised corresponding 2024 adjusted EBITDA calculations for comparability. As Bob noted, this quarter saw a significant anticipated ramp-up costs associated with GAC. As we continue to work to get the GAC line to run rate capacity with only approximately 2 months of commercial production in Q3, margins were materially impacted by the high fixed production costs related to granular activated carbon. While we do not intend to split our business lines in the future for competitive reasons, I think it is important to note today that we achieved an extremely strong quarter in regards to our PAC performance. As noted earlier, our third quarter adjusted EBITDA performance of $5.2 million included several million dollars of nonrecurring expenses associated with handling and post-commissioning costs for our GAC ramp as well as impacts due to inefficiencies driven by low early ramp volumes. Q3 is often a strong quarter for us, but this was an especially solid quarter for our PAC business, demonstrating not only the impact of our enhanced pricing, but also our cost reduction initiatives. We incurred a net loss of approximately $700,000 versus net income of $1.6 million in Q3 of 2024, primarily attributable to the high fixed production cost on initial volumes from our Phase 1 GAC line as we continue to ramp up to nameplate capacity. Selling, general and administrative expenses totaled $4.6 million, reflecting a reduction of approximately 43% versus the prior year period. This reduction was primarily driven by payroll and benefits as well as general and administrative expenses. Research and development costs for the third quarter increased to $2.6 million, up from approximately $800,000 in the prior year quarter. This increase was primarily attributable to the ramp-up of the GAC line we discussed earlier. Overall, our performance in Q3 2025 demonstrates our ability to operate our PAC business efficiently such that it contributes very positively and sustainably to our economic position, while further enabling us to pursue and execute on anticipated high-growth and high-margin opportunities with our expanding GAC business. As always, we remain focused on enhancing the profitability of our PAC business even further, and I believe that is how a business which can, on a medium-term basis, feasibly generate significantly greater than our previous target of simply covering maintenance CapEx. To discuss the impacts of the quarter on our balance sheet, let me turn it over to our Chief Accounting Officer, Stacia Hansen. Stacia Hansen: Thanks, Jay. Turning to the balance sheet. We ended the third quarter with total cash of $15.5 million, of which approximately $7 million is unrestricted. This is compared to total cash of $22.2 million as of year-end 2024. This change was driven primarily by trailing CapEx spend at Red River relating to the GAC line and buildup of Arq Wetcake delivery and critical spare parts. Today, we are also reiterating our full year 2025 CapEx forecast of between $8 million and $12 million. This is particularly relevant given Bob's comments about potential work at Red River, which we do not believe will add materially to our budgeted CapEx for the year as we continue to expect to fund our operating and CapEx needs via our existing cash, cash generation, debt facilities and ongoing cost reduction initiatives. With that, I will turn things back to Bob. Robert Rasmus: Thanks, Jay and Stacia. Before we turn to questions, I'd like to leave you with 4 key takeaways. First, our PAC business continues to perform extremely well. As mentioned earlier, the $5.2 million of adjusted EBITDA we reported this quarter included the negative effect of several million dollars of nonrecurring items associated with activated carbon. This reflects the underlying strength of our foundational PAC business. Our PAC turnaround has exceeded expectations. And while we view PAC's long-term growth potential as more limited than that of granular activated carbon or our potential emerging product lines, it's now clear that this foundational business delivers meaningful and sustained value. I remain confident there is still room to further improve our PAC business. My goal has always been for PAC profitability to fully cover maintenance CapEx across the business, and I now believe that it can do even more than that. As a major shareholder, I see this, combined with our substantial asset base, which has a replacement value well in excess of $500 million, is a strong foundation for the company's long-term valuation. Second, while costs related to granular activated carbon ramp-up weighed on our financial results this quarter, it's important to recognize that we have now produced and sold commercial quantities of granular activated carbon from Red River, a major milestone for our company. My primary focus remains on driving profitability as we scale production. It is also important to highlight that we've overcome business challenges before. As I discussed earlier, we successfully transformed a loss-making PAC business to an attractive business generating attractive profit and cash flow. We are confident our best-in-class team will be able to work through the GAC production challenges. We will get this resolved. Third, granular activated carbon’s underlying market fundamentals remain exceptionally strong, which makes the delays in scaling production even more frustrating. The market opportunity is there for us to capture. And fourth, I believe our ongoing review of potential feedstock alternatives will ensure we are scaling this business as efficiently and profitably as possible. Separately, our assessment of potential alternative product opportunities creates additional diversification and upside for the long term. With that, I'll hand it back to our moderator to open for questions. Operator: [Operator Instructions] And the first question comes from Gerry Sweeney at ROTH Capital. Gerard Sweeney: Bob, I'm just going to -- I don't know if you can answer this or would want to answer this. But what -- how much GAC are you producing at spec? And I think what people want to know or what I would like to know is where you are today versus what nameplate capacity is? Robert Rasmus: We're producing less than we want to. That's for sure. What we're producing is on spec as it relates to that. You're right that for competitive reasons, I'm not going to -- and for other reasons, I'm not going to give you the specific answers. But it's clear that the suboptimal production volumes are impacting our gross margin and our financial results. Gerard Sweeney: Can you produce GAC level that we'll just say, breakeven while you test alternatives? Or is this going to be a drag until we get the problem solved? Robert Rasmus: And so if you look at it, what is breakeven, we have an idea what that is on that. But as we start out -- any time you start out a new production process, there are going to be costs associated with the ramp-up. The costs have clearly been greater than we had anticipated, and we've had some greater difficulty in ramping up the production volume as it relates to that. And progress isn't linear. We believe that the best thing to do long term is to both evaluate blending of a feedstock, drier feedstock to overcome some of these design issues. That will help us get to profitability and commercial production even faster. Gerard Sweeney: Speaking of alternatives, I'm assuming that's a drier feedstock that would be met coal, which is traditionally used as GAC and would that have an impact on margins? Robert Rasmus: First of all, we're going to do what's in the best economic interest for our shareholders. And we're evaluating blending drier coal as really one way to help overcome the design issues that have been affecting our ability to deal with the variable feedstock. And while we're evaluating that because the logical question is, we're also evaluating whether it makes sense to switch to drier coal. Why would we switch to drier coal? Well, if 1 of the 4 ultimate uses for carbon feedstock develop, it would account for all of the Corbin capacity and then some. So, it behooves us to evaluate alternative feedstock to maintain full optionality. And keep in mind, from an economic standpoint as well, as you mentioned in your question, Gerry, that the Corbin feedstock is essentially 50% water. We're paying to ship 50% water that we then take out of the product as it relates to that. So, we believe it's a distinct possibility that blending drier coal with the feedstock could also have positive CapEx implications. Gerard Sweeney: Got it. One more for me. Just want to understand the numbers, $5.2 million in EBITDA in the quarter, that does not include some of the extraneous costs that were incurred with this ramp-up, correct? So, in other words, that $5.2 million in EBITDA would have been higher by a couple of million dollars if these issues didn't arise, all things being equal, right? Robert Rasmus: Yes. So, the $5.2 million includes the negative impact of several million dollars of costs associated with the GAC. Now again, what's several million dollars, it's more than a couple as it relates to that. I'm not going to be specific, but I can try and provide an analogy. If you look at the gross margin of the last 4 quarters prior to this, so third quarter of '24 to second quarter of '25, and you added back those several million dollars in costs, our gross margin would have been several percentage points above the average for those 4 quarters. Gerard Sweeney: No. I mean, listen, 3Q -- ASPs were up year-over-year and coal plants aren't being shut down as fast. So, I mean there's demand for PAC out there. So, I mean, it would have been a very strong for the PAC business. I get it. Operator: The next question comes from George Gianarikas at Canaccord Genuity. George Gianarikas: I'd like to dig in some more on the Corbin feedstock. I'm just curious what -- can you go into a little bit more detail around what you mean about variability? And when did you figure out that this was an issue? And I'm assuming that there had been tests prior to starting production that indicated that this wouldn't. So just a little bit more detail as to exactly what you discovered and when? Robert Rasmus: Sure. This is really a design flaw issue. We always knew as part of our due diligence that there would be variability in the feedstock from Corbin. Regarding the design issues, we worked through many of those design flaws in the original engineering to just be able to complete commissioning and achieve commercial production. But those design flaws and some of those design flaws and constraints still impact our production on the granular Line 1 are essentially that the original engineering firm really failed to account for the moisture content and variability in the feedstock in the design of some of the openings and chutes and some of the -- if you consider what you have extremely sharp angles, which led to inefficiencies and led to plugging and tarring on that. So, we knew there was going to be variability, but that the design did not account for that. George Gianarikas: Right. So, this sort of begs the question if it's a design issue as opposed to necessarily a feedstock issue because the feedstock is something that you knew about going in, wouldn't -- why are you exploring other alternatives to feedstock as opposed to just redesigning the facility? Robert Rasmus: Redesigning the facility would cost more. We know that. And we think that -- one of the issues relates to, as I say, if you think of a 90-degree angle and you're trying to push product that has some moisture content or some sticky content through that 90-degree angle, it's going to catch on that -- the [ curbs ] and on the corners, et cetera. By blending it with drier coal and reducing that moisture content on the input, it makes it easier to make that it's less likely to stick for lack of a more technical term as it relates to going around those corners. So, it would be easier to blend that feedstock and cheaper than it would be to redesign and put in place the additional equipment. George Gianarikas: All right. And maybe just last question. In terms of -- I think it was asked previously as well. How do we think about the long-term margin implications of some of the changes you're making? Robert Rasmus: Yes. No, a couple of things. One, short term, there's clearly a negative impact from their ability or an inability to reach full run rate production on granular activated carbon. Long term, the granular activated carbon margins, we expect to be extremely strong for all the market fundamentals that I discussed in the prepared remarks and pricing continues to be even stronger than it was in terms of even a year ago as it relates to that. And if you look at one benefit of blending some drier coal, as I mentioned in my earlier question, is that we won't be shipping as much water that we're taking out of the system. So that in and of itself should lead to lower operating costs and improved margins. Operator: The next question comes from Aaron Spychalla at Craig-Hallum. Aaron Spychalla: Maybe just one on GAC. I mean, can you just -- maybe at a high level, just what gives you confidence in hitting the mid-2026 targets? I mean, have you started to implement some of these design tweaks? Or are you seeing some benefit from the changes you're making on the feedstock side? It doesn't sound like there's a lot of cost you're expecting, but just again, trying to just understand the confidence in reaching these targets. Robert Rasmus: Yes. Sure. Great question, Aaron. And I'm going to apologize in advance because it's going to be -- either depending on your point of view, long-winded or you ask what time it is, I'm going to tell you how to make a watch. But I think it's important to provide that context. As everybody knows, the design flaws led to the delays in commissioning the granular activated carbon facility earlier this year. And while we successfully addressed those issues to complete commissioning, the same design flaws as we've mentioned, have continued to affect our ongoing granular activated carbon production and the ramp-up to full capacity. And in answer to your question, I think it's important to provide context as to why and how we expect to achieve full run rate production around mid-2026. So going into that detail, and also this is some additional detail for George's question as well. The initial design and construction included a 320-foot off-gas line from the [indiscernible]. The design was not only inefficient but unworkable. And part of the original commissioning delay stemmed from addressing design defects in the system that led to the cooling of the line and subsequent tar and plugging and particulate plugging really. So, in collaboration with a new engineering firm, we determined that installing a thermal oxidizer and shortening that off-gas line from 320 feet to 28 feet was the best solution. Locating a suitable unit, a suitable thermal oxidizer was difficult as really only one with the required specifications existed in the U.S. We have secured that on a rental basis. And once installed, it enabled us to have successful plant commissioning and to start commercial production. And after getting that thermal oxidizer successfully in place and beginning production, we determined that the current rental thermal oxidizer could really only support production of about 15 million pounds of granular activated carbon per year. As a result, in working with that new design firm, we now plan to purchase and install a purpose-built thermal oxidizer, which is designed to support 25 million pounds of granular activated carbon production a year. The lead time for construction and installation of this new purpose-built 25-million-pound capable thermal oxidizer is why we have moved our expectations of full run rate production to around mid-2026. That is when we expect to receive and install that purpose-built thermal oxidizer. And once on site, installation will take about 6 days -- 1 day to cool the existing unit, 1 day for removal and 4 days for replacement and connections. The GAC production will have to pause for roughly 1 week during this process, but operations should quickly get to full run rate capacity once installation is complete because all we're changing then at that point is working through the full capacity of the -- having a thermal oxidizer, which allows us to get to 25 million pounds, and we're confident we'll be able to have solved the input issues prior to that time. Logical question is, what's it going to cost? The new thermal oxidizer will require an estimated total investment of $8 million to $10 million. That includes roughly $3 million for the equipment and the remainder is for installation. The vast majority of the spending will occur at the time of final shipment and installation. This will be funded as 2026 CapEx, and based on our conversations with current and potential lenders, along with our available cash and operating cash flow, we believe that this can be readily funded in a capital-efficient manner. And to minimize disruption, we plan to complete our biannual TAR during that same period, that way we avoid any additional planned downtime in '26 or '27. So, I apologize for being so long-winded, but I think it's important to show that -- the detail behind why we have changed our prognosis. Aaron Spychalla: No, I appreciate that color. That's helpful. And then you kind of talked to -- I mean, on the PAC business, if you back out a few million dollars, obviously, really good margin performance. It seems like the outlook still remains strong there. Can you just kind of talk about that and potential further diversification and kind of ASPs and just with the outlook on the PAC side? Robert Rasmus: Sure. We had, again, another strong quarter of average selling price increase. We were up 7% year-over-year, 6% quarter-to-quarter. That pace has abated somewhat from our previous quarters of 9% or better double-digit -- or excuse me, average selling price increases. And it was natural. We couldn't continue that cadence forever. We still expect to see continued improvement from the PAC business and the PAC-related results from a combination of increased volumes. We are still seeing increased average selling prices and also the additional fixed cost absorption related to additional volumes. As it relates to new markets, our sales force has done an outstanding job of looking to develop and penetrate additional markets. And those additional markets also have higher average selling prices than some of our additional outlets. So, we're optimistic about the future for PAC as our foundational business. Operator: The next question comes from Peter Gastreich at Water Tower Research. Peter Gastreich: Just a few, if I may. The first one is regarding the delay for the GAC, is there any risk or penalties that could be associated with the contracted customers for the delay? Robert Rasmus: Our customers have been great with this. We work closely with all of our contracted customers to provide visibility on production outlet -- output, excuse me, as it relates to their needs. All of our customers have worked with us to amend their orders or ordering cadence and all of our GAC contracts that were 1 year or less have been extended. So, I think that's a testament both to the strength of our relationships and the undersupplied nature of the market. But everything is going as well as it should be. Peter Gastreich: Okay. Great. So, my second question, just following on from the previous question about the PAC prices. Yes, congratulations. It's great to see. Even though the momentum has slowed year-on-year, you're still able to raise, which is really commendable. I just wanted to ask though, is that -- for that 7% increase, are we talking purely about the PAC there? Or are we seeing any kind of a net measurable impact from the GAC spot volumes that you mentioned? Robert Rasmus: So we didn't sell anything on the spot market. We're concentrated on meeting our customer contracted orders on that, which is the right thing to do from a relationship standpoint. So, all of the price increases that we referred to that 7% are coming from the PAC business. Peter Gastreich: Okay. Got it. Okay. And just a final question on the SG&A. So regarding the reduction in SG&A, how much of that can be sustained? And also for that, I understand that was allocated to cost of goods sold, why was that decision made? Jay Voncannon: Peter, this is Jay. Yes, the SG&A reductions are coming from prior year to this current year. And yes, those are definitely sustainable. We actually think that the -- we'll see as a percentage of revenue as the granular line comes up and starts coming up in '26, you'll start seeing SG&A as a percentage of revenue decline because we don't anticipate needing to increase the SG&A cost as we ramp up the GAC line. With regard to, I think, your second question there, which is on the reclassification into R&D, most of that -- we won't have that going forward. We did that reclass also in Q2 as it relates to preproduction volumes as we were commissioning -- bringing the granular activated line to a commissioning point. So, most of that cost that was reclassed in Q3 was the July and really like 1 week of August cost for preproduction volumes. Once we commissioned the facility, all of that cost has been running through the cost of goods sold line. And that's why we're seeing an impact, the negative -- or the margin in Q3 was negatively impacted by those fixed costs being spread across fewer pounds as we are not up to really a breakeven point yet for granular. Operator: The next question comes from Tim Moore at Clear Street. Tim Moore: I just want to follow up on an important thread. I mean it's great the GAC is going under way. That's a really important milestone. And you've got a lot of things to optimize before you add additional lines over the coming years. But I just want to really dig into one other thing. I get the SG&A reconciliation and Jay just went through that. But how should we think about really gross margin in the next 2 quarters until you get enough utilization underway on GAC? I was kind of under the impression that the really big drag was the June quarter and it won't be as bad in September, but you can expect a big step up? I mean, there should be a step-up in the December quarter for gross margin, right? Jay Voncannon: I mean what I would say is as we're producing volumes at this suboptimal point level, there's a lot of fixed cost at the plant that's getting -- as I said, getting spread across fewer volumes, which are dragging the gross margin. I would -- what I would say is that it's not the fixed cost is going to go up. So, the fixed cost is pretty stable. So, what we'll continue to see is probably in Q4 and in Q1 of next year, margins similar to what we produced in Q3. And it's until we're able to get the volume up and actually have more pounds to sell and spreading those costs across that greater pounds, then we'll see the margin improve. So, I would expect probably for the next 2 quarters and probably even some even into Q3 when we -- once we get the new oxidizer installed -- I mean Q2 of next year, get the new oxidizer installed that we'll probably see a fairly consistent gross margin. Now we're also expecting -- hopefully, we'll see a continued improvement in PAC as we have demonstrated over the last 12 months. And so that may offset some of that as we continue to grow and improve PAC performance going into next year as well. Tim Moore: That's really helpful color on the cadence of -- and the other question I had was -- I understand right now with GAC revenue not that much, it will be pretty sizable by the June quarter. And for competitive reasons, you might not want to disclose it. [ Cal Carbon ] is owned by another firm. It's a small sliver of their conglomerate. Do you think though at some point, I mean, given that it's 25 million pounds, we had another more lines that you think you would break out maybe a year or 2 from now or GAC revenue, just to have the difference and especially when maybe it starts cannibalizing PAC a little bit on the feedstock later on? Robert Rasmus: A couple of things on that. I think that, one, given the long-term favorable market dynamics, I think it's highly probable that we will build a line 2 and further increase capacity. You mentioned competitive reasons. I'll refer to it more as competitive tension. There's always competitive tension between the IR side of things and the sales side of things as to what we break out. As you know, I'm a big believer in providing detail, an informed investor is a good investor and is a long-term investor. The flip side of that is that we are the only public company. So, we're handing competitive information to our competitors on a platinum platter on that. And so, the long-winded answer is maybe. Jay Voncannon: What I would say also add to Bob's comments is once we get to the 25 million nameplate and then we add another line 2, and we're then at $50 million of capacity. I mean, we're probably -- we're at about 100 million pounds capacity on the PAC. There, you'll be able to -- again to see, you can do correlations and kind of -- it wouldn't take -- wouldn't be very difficult to back into what the ultimate margin is between the 2. So that will -- and as we continue to grow and we start seeing PAC get cannibalized, as you mentioned, yes, there probably will become a point where we'll be -- the bulk of our discussion in the MD&A and the Q will be around the granular business and the PAC will be just kind of a base level that we know and talk. Tim Moore: No, that's fine because I'll be off the back into the GAC revenue pretty closely when you lap a full year, just if you keep announcing average price increase when you start year-over-year on the GAC. Operator: We have no further questions. I will turn the call back over to Bob Rasmus for closing comments. Robert Rasmus: Thank you very much. Both short term and long term, the outlook for the powdered activated carbon business is strong. We also continue to expect even better performance from the PAC side, and this is a dramatic improvement from 2 years ago when the PAC business was a significant money loser. Short term there clearly remains some challenges to getting the granular activated carbon business up to full run rate. We're applying the same rigor, discipline, focus and resolve we successfully applied to the PAC business to solving these challenges. The long-term market dynamics for granular activated carbon remain extremely strong. And as a reminder, I'm fully aligned with shareholders with my minimum salary and my large stock ownership. I want this fixed as badly, if not more so than you all do, and we will get this resolved. So, thank you all for your interest, and we look forward to continued communication. 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: Good morning, ladies and gentlemen, and welcome to BlackSky Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference call is being recorded. I would now like to turn the call over to Aly Bonilla, BlackSky's Vice President of Investor Relations. Please go ahead, Aly. Aly Bonilla: Good morning, and thank you for joining us. Today, I'm joined by our Chief Executive Officer, Brian O'Toole; and our Chief Financial Officer, Henry Dubois. On today's call, Brian will provide some highlights on the quarter and give a strategic update on the business. Henry will then review the company's financial results and outlook for 2025. Following our prepared remarks, we will open the line for your questions. A replay of this conference call will be available from approximately 12:30 p.m. Eastern time today through November 13th. Information to access the replay can be found in today's press release. Additionally, a webcast of this earnings call will be available in the investor relations section of our website at www.blacksky.com. In conjunction with today's call, we have posted a quarterly earnings presentation on the Investor Relations website that you may use to follow along with our prepared remarks. Before we begin, let me remind you that certain statements made during today's conference call regarding our future plans, objectives, and expected performance, including our financial guidance for 2025, are forward-looking statements. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. We encourage you to review our press release, Form 10-K, and other recent SEC filings for a full discussion of the risks and uncertainties that pertain to these statements and that may affect future results or the market price of our stock. BlackSky assumes no obligation to update forward-looking statements except as may be required by applicable law. In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash operating expenses. The reconciliation of these non-GAAP financial measures to their most comparable GAAP measures are included in today's accompanying presentation, which can be viewed and downloaded from our Investor Relations website. At this point, I'll turn the call over to Brian O'Toole. Brian? Brian O’Toole: Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Beginning with Slide 3, I'm pleased with the strong momentum in the business as the success of Gen-3 is delivering best-in-class imagery and analytics and driving significant demand toward unlocking our next phase of growth. We are gaining customer traction, growing our pipeline, and building backlog for both our imagery and analytics services and for Gen-3 powered sovereign solutions. Customers around the world are recognizing Gen-3's superior performance, especially at a time when they are seeking to accelerate their sovereign space based intelligence capabilities. BlackSky is well positioned to capitalize on this market opportunity by leveraging a full technology stack that includes real-time software, advanced AI, Gen-3 satellites, and vertically integrated satellite production capabilities. While the quarter reflected anticipated impacts related to U.S. government budget uncertainty, we closed significant new contract awards and expect to remain on track to hit our full-year financial objectives. Strong international demand is outpacing the near-term U.S. government business, and as such, we are anticipating a strong Q4 and expect to take that momentum into 2026. Now let me share some recent highlights as shown on Slide 4. First, we were awarded more than $60 million in new contracts, primarily with international customers, as we continue to diversify our customer base and revenue mix. In addition, these contract wins are predominantly for the delivery of Gen-3 services, demonstrating the traction we are seeing for this capability around the world. We expect this momentum to continue as we move forward on the deployment of the Gen-3 constellation over the coming months. Second, we are pleased to have been awarded a contract valued at over $30 million to integrate Gen-3 high-cadence tactical ISR services into a strategic international defense customer secure environment. This contract demonstrates how BlackSky is accelerating sovereign space-based intelligence capabilities by leveraging proven commercial space technology to address their mission-critical requirements. Third, traction for our Gen-3 imagery continues to build as we expand the number of customers participating in our early access program, including a new seven-figure contract to commence delivery of Gen-3 imagery services to the U.S. government. We are starting to see contributions from Gen-3 imagery revenues and expect this trend to continue as we bring more Gen-3 capacity online. Fourth, we're seeing our AI and analytics solutions continue to gain traction across our customer base, including with NGA Luno, the global data marketplace, and with major international government programs. Fifth, our Gen-3 constellation continues to expand. Our latest satellite is at the launch site, and we're excited to get the satellite launched as we move forward in our plans to have a baseline Gen-3 commercial constellation fully operational next year. And finally, our cash balance increased more than 50% from last year following the successful raise we completed in July, bringing our total liquidity to over $200 million. Our stronger balance sheet and cash position puts us on a clear path toward free cash flow operations. These highlights underscore how our space, software, and AI capabilities are well positioned to provide customers with mission-critical intelligence that they rely on every day for their national security needs. I would now like to share some more details on the operational highlights from the quarter. Turning to Slide 5, as I highlighted a moment ago, we're seeing international demand for sovereign solutions continue to accelerate and, in the near term, is outpacing our U.S. government business. In fact, revenues from international customers now represent about half of our total revenues, driven by new contracts and expanded service agreements with a number of ministries of defense and organizations around the world. And we expect this trend to continue. We should also note that over 90% of our backlog is related to international contracts for Gen-3 capabilities. Countries around the world are accelerating their investments in space-based intelligence solutions in support of national security and economic development imperatives. This is driving a major shift and expansion of the market, which is being reflected in growing space-based defense budgets and sovereign investment funds. BlackSky is well positioned to capitalize on these market dynamics, as our vertically integrated technology enables us to accelerate an organization's space-based intelligence capabilities, leveraging proven and mature software, AI and satellite technologies. We are winning new contracts and building an expanded sales pipeline, as demand for our Gen-3 powered sovereign solutions continues to gain traction worldwide. Moving to Slide 6, we recently won a multi-year contract valued at over $30 million with a strategic international defense customer to integrate our Gen-3 high-cadence tactical ISR services into their secure operational environment. This expanded solution will enable BlackSky tasking and AI-enabled analytics services to operate seamlessly within the customer's workflows, delivering a new level of fully secure and autonomous operations. The tactical ISR services being delivered under this program feature high-frequency Gen-3 tasking combined with real-time AI enabled detection, identification and classification of tactical objects delivered through a low-latency architecture. This win marks a step forward in the operational deployment of our Gen-3 capabilities in support of delivering secure, real-time tactical ISR solutions for 24/7 time-dominant missions. Turning to Slide 7, we continue to win contracts and task orders on programs such as the Global Data Marketplace and NGA Luno program. In Q3, we received a seven-figure delivery order under the NGA Luno program, bringing our total orders won this year under this contract to about $30 million. This follow-on award leverages our proprietary computer vision algorithms and AI capability to automatically detect and identify areas of change caused by human activity. Our proven AI software is very effective in identifying anomalies, detecting infrastructure changes, and delivering alerts within minutes, giving defense analysts a crucial first to know advantage. Moving to Slide 8. We're seeing significant demand and growing traction for our Gen-3 imaging services as additional customers have signed up for early access agreements in Q3, including a new 7 figure contract with the U.S. government. The positive customer feedback we've received from early adopters confirms that Gen-3's very high-resolution imagery, combined with our AI-driven analytics, is delivering high-value intelligence at compelling performance for the class of this satellite. And we expect this momentum to continue as we build out the constellation. Turning to Slide 9. We're pleased that our next Gen-3 satellite has arrived at the launch site, and we anticipate its deployment in the coming weeks. Gen-3 satellites continue to move through our production line, and we will continue a cadence of launches to build out our constellation in 2026. The Gen-3 satellites on orbit are performing well and generating revenue. Moving to Slide 10. We believe the long-term opportunities with the U.S. government remain strong as many agencies are seeking to leverage mature commercial space technologies to advance national capabilities, especially missions that require proven technology to support proliferated low-Earth satellite constellations. We continue to make important progress across our U.S. government portfolio, including advanced R&D for capabilities like the integration of optical intersatellite crosslinks into our current and next-generation capabilities. Although we are experiencing near-term impacts of the fiscal year 2026 budget on the EOCL program, we are seeing congressional support to restore funding to the program. We expect to have better visibility once the final budget is approved. As the U.S. government expands its investments in space, we see opportunities for companies like BlackSky, who have proven agile space capabilities and tech stacks that can rapidly deploy technology to support cost-effective government programs. In particular, there are programs such as Golden Dome, where aggressive deployment schedules and non-traditional acquisition models favor proven commercial space capabilities. We have a strong track record of supporting these types of customers and feel we are well-positioned as these future opportunities unfold. Turning to Slide 11, we continue to make progress on our AROS initiative. Recall that AROS is a new satellite designed to provide wide area mapping, monitoring, and change detection to address an anticipated gap in these capabilities in the 2028 time frame. We continue to work through the design phase and engage potential customers and partners on the development of this constellation. We will have more to report as we progress on this program through 2026. With that, I will now turn it over to Henry to go through the financial results. Henry? Henry Dubois: Thank you, Brian, and good morning, everyone. Starting with Slide 13, total revenue for the first nine months of 2025 was $71.4 million, consistent with the prior year period. While we were expecting imagery and analytics revenue growth in the third quarter of 2025, our revenue was negatively impacted in August and September by approximately $4 million due to reductions made in the EOCL contract. Our professional and engineering services revenue for the first 9 months of 2025 grew to $20.8 million, a 9% increase over the same period in the prior year. Let's now turn to Slide 14 and talk about cash operating expenses, which excludes stock-based compensation, depreciation, and amortization expenses. For the first 9 months of 2025, cash operating expenses were $56.6 million compared to $48 million in the prior year period. The year-over-year increase in cash operating expenses was driven by about $9 million of overhead expenses in 2025 from the integration of LeoStella. These costs would have been previously capitalized into our satellite assets and not included as operating expenses. Therefore, excluding the LeoStella overhead expenses, year-to-date 2025 cash operating expenses would have been in line with the prior year period, demonstrating the discipline we have in managing our costs while still making investments in our business. Moving to Slide 15. Our adjusted EBITDA for the first 9 months of 2025 was a loss of $7.9 million compared to an adjusted EBITDA of $4.3 million in the prior year period. The year-over-year decrease was primarily attributable to EOCL and LeoStella, as I've mentioned earlier. Excluding these two impacts, we would have reported a positive adjusted EBITDA of approximately $5 million for the first nine months of 2025. We remain committed to achieving adjusted EBITDA growth and margin expansion. Let's move on to our cash and liquidity position, as shown on Slide 16. We ended the third quarter of 2025 with $147.6 million of cash, restricted cash, and short-term investments, which is more than double our cash balance from a year ago. This amount includes $65.9 million in net cash proceeds from a convertible node offering and $10.8 million from the exercise of warrants, both completed in July. In addition to the cash, we also have $43.4 million in unbilled contract assets, of which $36 million is anticipated to be billed and received over the next 12 months. Together with a $13.5 million of available launch financing, this brings our total liquidity position to over $200 million. This position reflects an increase of $85 million or a 71% growth over the position we had in the third quarter of 2024 and provides BlackSky with sufficient cash to deploy our Gen-3 constellation, invest in strengthening our in-house AI capabilities, continue the design and development of our AROS program, and put this on a path to positive free cash flow. Turning to Slide 17, we are maintaining our guidance for full-year 2025 revenue, adjusted EBITDA and capital expenditures. We are maintaining the current range as we are actively working to close on a number of large sales opportunities that we expect will impact the fourth quarter. In summary, we are pleased with the momentum in our business, a growing sales pipeline, our strong cash and liquidity position. We look forward to a strong fourth quarter, high visibility growth in 2026 and continuing our path to free cash flow. With that, I will now turn it back over to Brian for some closing remarks. Brian? Brian O’Toole: Thanks, Henry. In closing, we are pleased with the strong momentum in our business, and the growing demand for our space-based intelligence solutions. As we look ahead, we expect a strong finish to 2025, and significant high visibility growth in 2026. This visibility is anchored by a strong backlog of international contracts and a growing pipeline for our imagery and analytics services and sovereign solutions. Customers around the world are recognizing Gen-3's superior performance, especially at a time when they are seeking to accelerate their sovereign space-based intelligence capabilities. The opportunities ahead are significant and we remain confident in our ability to capitalize on the growing global market for our space-based intelligence solutions. This concludes our remarks for the call, and we'll now take your questions. Operator: [Operator Instructions] And your first question comes from the line of Edison Yu of Deutsche Bank. Xin Yu: First, I wanted to check on the Gen-3 deployment cadence. Is that still progressing on the same kind of deployment number as you were previously looking for? Brian O’Toole: Yes. As we mentioned, the next satellite is at the launch site, and we expect that to be deployed here in the coming weeks. We did find a faulty component in that satellite during final testing, so we experienced some delays, but it was non-systemic to the rest of the constellation, and so we fixed that, and we're moving forward. Obviously, there's some delays, but we're continuing on the plan that we outlined earlier. Xin Yu: Understood. And I know you mentioned in the deck that next year will be fully operational. Can you just remind us, what does that mean? Exactly how many satellites does it have to be fully operational? Brian O’Toole: As I mentioned before, our goal is to have at least 12 up by the end of next year. Xin Yu: Understood. And then just, if I could sneak one in on the financials, the range for 4Q is quite wide. So, if we want to kind of take that as a jumping-off point, what are sort of the main factors in getting to the low end or the high end? Is the government shutdown hurting that? Just trying to get an understanding of what kind of the delta is text? Brian O’Toole: Yes. I think, Edison, I think maybe first off, as you've seen in the past couple years, we've had -- tend to have really strong Q4 performance, and that's the case again this year. We are expecting a step up from contracts that we have in place and others that we expect to close shortly. The wide range really is just accounting for the timing of these deals. So, we're seeing a lot of momentum. We've got, as Henry outlined, a number of large deals that are in play right now, and the range reflects really just where we are in the timing of those. Operator: Your next question is from the line of Jeff Van Rhee of Craig-Hallum. Daniel Hibshman: This is Daniel Hibshman on for Jeff. Just maybe if you could talk through us a little bit on the early access agreements, just kind of where those are at, how those are progressing, those early access agreements for Gen-3, and then a little bit more about the steps you see need to take place to get those to a more significant revenue line, just if that's all about the size of the fleet you're deploying or about the customer's internal processes or about them getting budget in place, just how those will progress and the steps to get there. Brian O’Toole: Yes, the early access program is progressing really well. The way that is playing out is we have customers that are coming online with six-figure type early access agreements to basically test and evaluate Gen-3 performance in their operations. What we're seeing is a couple things. One is we're adding more of those types of agreements as we are still early in the deployment of Gen-3, but we're also seeing an acceleration of some of those transitioning to longer-term, much larger contracts. And then finally, just as a reminder, as I indicated in our backlog, there's already pretty significant Gen-3 services in our backlog as we continue to deploy the constellation. So, all in all, we're very pleased at the momentum we have with bringing on new customers, their evaluation and our visibility into transitioning those customers into long-term subscription revenue. Daniel Hibshman: And then to be clear on the $4 million of impact from EOCL for August and September, is that significant enough that, just to be clear, is that a total pause on the program right now, or is that just a significant reduction? Brian O’Toole: It's not a pause, and I'm not sure I would deem it a significant reduction at this point. The government made some adjustments to our contract to reflect the potential baseline budget that was submitted by the administration for fiscal year '26. But keep in mind the budget is not final and we have seen marks from multiple committees to restore funding to the EOCL line in the budget. But we won't really know until the budget is finalized. These reductions that we're experiencing, were set to carry into Q2 of next year, which would align with timing of a CR and a final fiscal year '26 budget. Daniel Hibshman: Okay. That's helpful. And then maybe just on satellite sales slash dedicated capacity, however you think about it, but those deals that you got with Indonesia and India in terms of dedicated Gen-3 capacity, if you could talk to us a little, I mean, those are large kinds of opportunities. Talk to us a little bit about the pipeline for those kinds of opportunities and how go to market is progressing or evolving in that area? Brian O’Toole: Yes, I would say, as I mentioned in my remarks, the demand for those types of solutions is growing very rapidly. We have a significantly growing pipeline for those types of arrangements. I think what we're also seeing is building on the success of Gen-3. The interest is increasing as we're demonstrating significant performance for this class of satellite, both in terms of image quality and economics. So we see as we continue to deploy Gen-3 and also demonstrate Gen-3's performance with our AI capabilities that these types of opportunities will continue to expand and will begin to continue to capture more contracts that were similar to what we announced in India and Indonesia. Operator: Your next question comes from the line of Timothy Horan of Oppenheimer. Timothy Horan: Can you just give us the number, how many satellites did you actually have in operation at the end of the quarter? And what are you expecting here by the end of the year? And if you can give us a rough guess on the first quarter, it would be helpful. Brian O’Toole: Right now, we have 2 Gen-3s and 11 Gen-2s. So we've got 13 satellites on orbit. As I mentioned, we have another satellite at the launch pad and another one coming out of production later this year. So the Gen-2s that we have up on orbit are continuing to perform well. They'll carry well into next year, not longer. And the early Gen-3s that we have are performing well as well. So we'll just continue a regular cadence of Gen-3 launches going into '26. Timothy Horan: So you think about two per quarter is still a relatively good guide? Brian O’Toole: That's a reasonable assumption. Keep in mind we have to deal with timing of launches and those types of things, which are normal course. Timothy Horan: And the Gen-2s, how much longer, what's the cadence of them coming down? Brian O’Toole: As I mentioned, those were deployed in sequence. And so we expect at least half of the satellites up there will still be in service by the end of next year. Timothy Horan: Okay. Got it. And then professional engineering services were very strong in the fourth quarter last year. So, should we assume a kind of a similar rebound this year? And I guess somewhat related to that, too, like Indonesia and India contracts, when do they start kicking in and where does that revenue kind of show up in the line item space? Brian O’Toole: You can expect a similar type of trend that you saw last year in Q4 with respect to Indonesia and the India contracts. We're recognizing revenue as those programs progress. So that's kind of a smooth ramping of revenue from those programs. Timothy Horan: Got it. Very helpful. And so what do you assume for the government budget? Fourth quarter guide and going into next year and your guide for the fourth quarter? Brian O’Toole: Yes, as I mentioned or responded in the prior question, we -- the EOCL program in particular has been set at the levels that it are at now through Q2 of next year and that's what we expect in our planning for Q4 and into the early half of next year. Timothy Horan: Very helpful. And just last, I know you kind of mentioned on it. And so on that point on EOCL, so there could be upside if the budget is approved to the trends, I mean, would you expect if the budget is approved, there could be a step up there? Brian O’Toole: There could be. As I mentioned, we're seeing positive uh activity out of Congress in the marks to this budget to restore the funding. We think that could be a positive upside next year, but we'll have to wait and see what actually comes out in the budget. Timothy Horan: And I think you said international is half the revenues. Can you say what that was a year ago? Brian O’Toole: I think a year ago it was 60% to 75% -- U.S. government was 60% to 75%. Timothy Horan: So 60-40? Brian O’Toole: 60-40, yes. Timothy Horan: Got it. Got it. And then lastly, I know you kind of touched on it also. how is the pipeline looking now? I guess, qualitatively, maybe just not quantitatively. Are you talking to a large increase of new customers? And are these customers willing to spend much -- well, can you charge them much more per image than you had kind of historically? Brian O’Toole: Yes. The quality of the pipeline is excellent, types of customers that we're engaged with and then the scope of services that range from long-term Gen 3 subscription services to these types of sovereign programs that we're successfully executing on in places like India and Indonesia. So I'll say both quantitatively and qualitatively, we're very pleased with where the pipeline is and how it's growing. Operator: The next question is from the line of Austin Moeller of Canaccord Genuity. Austin Moeller: Just my first question here. Does the shutdown affect the timing of government customers being able to use the early access program for Gen-3? Brian O’Toole: Not affected at all as we mentioned, we closed a 7 figure contract recently for the government to begin accessing Gen-3. So that's moving ahead. Austin Moeller: Okay. And you've already done this with some customers, but how do you think about the TAM opportunity for building and operating exclusive remote sensing satellites for them as a service versus building the satellites for your own fleet and then providing customers with access to a Spectra subscription? Brian O’Toole: I think we're seeing pretty strong demand for both. There's really a couple different models. One is where customers want to the satellites, but we fly them for them using our Spectra platform and ground network. And that is a form of a sovereign capability. And then there's another variant where it's fully owned and operated and run within a customer's environment. And then you have a hybrid approach where customers are buying satellites from us through one of those first 2 models, but also bundling and subscription access to our Gen-3 commercial constellation. So we're finding that what customers are finding attractive is they get the benefit of a sovereign capability very quickly, that we can pull satellites and deploy software that already exists. And then they get the benefit of our commercial constellation, which is providing very high-frequency monitoring capability. Our -- we see the bundling of this as being a pretty exciting opportunity for us. Operator: And your next question is from the line of Greg Burns of Sidoti. Gregory Burns: Can you just talk about maybe some of the non-government opportunities? I know you announced an expansion of a contract for non-earth imaging. How much of an opportunity are incremental services like that for you, and how should we think about maybe some of the commercial opportunities for the business to find growth outside of the government marketplace? Brian O’Toole: Yes, I think we're continuing to see traction on our non-Earth imaging capability. We just renewed a 7 figure contract, subscription contract for that. I think relative to commercial, we'll look to see that starting to expand later next year as we get our baseline constellation deployed and are able to service those types of customers with a high frequency Gen-3 capability. But for now, we're staying highly focused on this opportunity in the U.S. and international government sector. Gregory Burns: Okay. And then just, in terms of the guidance, I know you maintain the ranges, but should we be thinking about you coming in towards the low end of those ranges? I mean are the top end still feasible? Or is it -- how should we think about that just because it implies a pretty significant step-up in the fourth quarter? Brian O’Toole: It does. And as I said this is pretty consistent in the way that we. performed in the fourth quarter over the past couple years. We are expecting a major step up in contracts that we already have in place. You've seen some of the announcements and then we are working a number of fairly large contracts right now that we expect to close shortly. The wide range really is accounting for the timing of these deals. So that's why we're maintaining that range at this point. Gregory Burns: Okay. And are the step-ups tied to the Gen-3 satellites? You need to launch, like, is that -- the trigger like the Gen-3 up in orbit? Brian O’Toole: No, I don't believe any of the deals that we have in play right now are relying on us to launch satellites in the coming months. Operator: [Operator Instructions] And your next question is from the line of Dave Storms of Stonegate. David Storms: Just want to start by asking if you could give us a little more detail on the sales that you're expecting in the 4Q that will get to the guidance. Is that expected to continue to be primarily international? Is there any Gen-3 versus Gen-2 components? Any more detail on that would be great. Brian O’Toole: Yes, I think primarily, these are international deals. We are seeing -- we have a number of opportunities in the U.S. government that are in -- that are active right now, but that's been slowed due to the shutdown. But the range that we're talking about is primarily tied to international contracts. David Storms: Perfect. And just thinking about those international contracts, should we expect -- if your backlog right now is about 90-10 international versus domestic, historically, revenues have been 40-60 international versus domestic. Where do you think that normalizes out on a revenue level? Do you think it shakes out to more 50-50 in the near future? Or do you think international continues to grow proportionately? Brian O’Toole: Well, now we're about 50-50 coming out of the third quarter. From what we can see in our backlog and the pipeline, we're expecting the international to continue its growth in that trend, and '26 will likely outpace the contribution from the U.S. government. David Storms: Understood. Appreciate that. And then just one more, if I could. Thinking about the software side of Gen 3, what are you seeing in terms of attracting and retaining AI talent as you continue to put these satellites up in the air? Brian O’Toole: Yes. We've been very successful in attracting AI talent. Dave, as you know, we've been investing in our AI capabilities, infrastructure, training and model development and deployment in real-time environments now for 10 years. And we built a proprietary capability that's a competitive advantage. And you can see that playing out as we're winning -- we're successfully winning contracts based on that capability at a point when we see others just outsourcing their AI to third-party platforms. So we feel that when you combine this proprietary AI, which is very high performance in real time with the satellite constellation, it's a really significant differentiator in the market, and we're bundling those things together, and we're getting very positive response from customers for that capability. Operator: And your next question is from the line of Caleb Henry of Quilty Space. Caleb Henry: First one is, can you talk about how the average contract value for Gen-3 compares to Gen-2? And are you seeing -- I assume because of the international mix, new customers? Or are we talking about existing customers upgrading more so? Brian O’Toole: Yes, I think what we're experiencing is we're seeing open the contracts for winning and the deals that are in our pipeline is a pretty market step up in the overall contract values, both in terms of the size of the contracts and the duration. They're all turning to be much larger and multi-year type arrangement. So -- and we're -- I think, again, Gen 2 was an exceptional capability to demonstrate the performance of a high-frequency constellation. Now when you bring in very high resolution with the type of AI with a satellite of this performance and economics, the attractiveness of that is being reflected in the pipeline and the structure of these deals. Caleb Henry: Can you talk about how revenue recognition compares for international customers versus U.S. government? Is that something that's roughly at the same speed? Or is that faster or slower with different compliance requirements? Brian O’Toole: I don't think there's a difference between U.S. and international. It's just dependent on the structure of the contract. Imagery tends to be very stable as a subscription. And then we've always had these other projects under our professional engineering and services line that tend to be milestone driven. But I don't know, Henry, do you want to comment on that? Henry Dubois: Yes. I mean whether it's an international contract or U.S. government, it's imagery and analytics revenues tend to be subscription-based so kind of smooth and easy to predict. The professional engineering services, as Brian said, they tend to be more milestone and lumpier. And those tend to be more internationally focused. Caleb Henry: And then how are you thinking about leverage? And what do you have in terms of a midterm target there? Henry Dubois: Tyler, I mean, we just raised the convertible notes, and we're quite comfortable with the liquidity that we have on the books at the moment. So I think we're in a pretty good position at the moment. Operator: And at this time, there are no further questions. This does conclude BlackSky's third quarter 2025 earnings conference call. Thank you for joining the call today.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Sylogist Limited Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. I would like now to turn the conference over to Jennifer Smith with LodeRock Advisors. Please go ahead. Jennifer Smith: Thank you, Alan, and good morning. Joining me to discuss Sylogist Third Quarter 2025 Results are Bill Wood, Sylogist President and Chief Executive Officer; along with Sujeet Kini, the company's Chief Financial Officer. This call is being recorded live at 8:30 a.m. Eastern Time, on November 6, 2025. I'd like to remind everyone that our Q3 2025 press release, MD&A, financial statements and accompanying notes have been issued and are available for download on SEDAR+. Please note that some of the statements made on the call today may be forward-looking. Actual events or results may differ materially from those expressed or implied, and Sylogist disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A complete safe harbor statement is available in both our MD&A and press release, as well as on sylogist.com. We encourage all of our investors to read it in its entirety. Additionally, we are reporting our financial results in accordance with IFRS accounting standards, or IFRS. Today, we may also refer to and discuss non-IFRS performance measures, which should be viewed as supplemental. We have included in our MD&A the definitions of certain non-IFRS performance measures used by the company. Furthermore, all the dollar figures expressed on this call are in Canadian dollars, unless otherwise stated. Now I will be turning the call over to Bill, for his opening remarks. Following that, Sujeet will provide an overview of our Q3 financial performance with Bill returning to conclude with closing comments, after which we will open the line for Q&A. With that, I'll hand the call over to Bill. William Wood: Thank you, Jen. Good morning, everyone, and thank you for joining us. Sylogist's transformation to a mission-critical SaaS solutions provider continued in our third quarter. I'm pleased to report that SaaS revenue pushed even higher to reach 73% of recurring revenue compared to 68% of recurring revenue during the same period last year. Additionally, our SaaS ARR increased 15% year-over-year. Our partner-led sales and delivery strategy gained ground in Q3 with 48% of ARR bookings being partner-driven. I also want to mention that we are putting contractual changes into place with our partners that will allow us to significantly reduce the time between a booking and the associated SaaS revenue recognition. We are also seeing longer contract terms with new customers. In 2024, new subscription agreements across all segments averaged 4.1 years in length. Year-to-date 2025, new agreements are averaging 5 years. This is a testament to our mission-critical SaaS platforms, strong customer satisfaction and increasing predictability of future revenue. To that end, we believe our sales success in expanding recurring revenue as a percentage of total revenue confirm the efficacy of our product development and partner enablement investments. With our SylogistGov municipal government platform now 100% partner delivered, we are expanding the partner model in our SylogistMission sector over the coming quarters. And we have already attracted new partners that have successful practices in the not-for-profit sector. The total contract value, or TCV of our bookings in the quarter was $5.9 million, reflecting the inherent quarter-to-quarter lumpiness of the public sector and Q3 summer seasonality in particular. The amounted ARR derived from the $5.9 million in Q3 bookings TCV was approximately $1 million. As a heads up, we are planning to sunset the reporting of bookings total contract value and replace it with bookings contracted ARR, which better reflects our SaaS-centric strategy and is a metric that stakeholders have been asking for. In Q3, Sylogist advanced its long-standing partnership with Microsoft, transitioning from a managed reseller to become a managed software development company, or managed STC. This elevated designation granted to roughly the top 8% to 10% of Microsoft partners worldwide recognizes Sylogist growing success as a partner with 100% SaaS solutions that reside in Microsoft's highly secure and scalable Azure cloud environment. Looking ahead, our sales pipeline is expanding and becoming increasingly more balanced across our 3 strategic markets, which bodes well for growth and value creation going forward. With that, I'll turn it over to Sujeet to walk you through the detailed financials for the quarter. Sujeet? Sujeet Kini: Thank you, Bill, and good morning to everybody. We believe our Q3 results reinforce our continuing transition to a SaaS-driven enterprise with a clear focus on growing ARR. From a financial highlights perspective, revenue for Q3 came in at $13.9 million for the current quarter. In terms of its component parts, SaaS subscription revenue grew 12% year-over-year, supported primarily by growth in SylogistGov and in Sylogist Solutions. Maintenance and support revenue was down 10% over the prior year, largely due to diligence CapEx that we mentioned last quarter. Project services revenue was $4.2 million this quarter compared to $5.2 million in the same period last year. This decline is consistent with our intentional shift towards a partner-led implementation strategy. Whilst this transition reduces near-term revenue, it supports greater scalability and higher overall margins over time. As Bill mentioned earlier, SaaS recurring revenue now makes up 73% of our total recurring revenue, up from 68% at the same time last year. This continued mix shift underscores the growing strength and consistency of our SaaS business. At quarter end, total ARR was $45.8 million with SaaS ARR increasing to $33.6 million, up 15% year-over-year. This increase comes from a combination of new bookings, continuing customer expansions and annual pricing escalators. SaaS NRR remained stable at 106%, reflecting both the stickiness of our customer relationships and the ongoing expansion within our client base. On the gross margin front, Q3 gross margin was 60%, consistent with the same period last year. While we have seen compression within our project services line, our recurring revenue margins have shown improvement primarily related to lower third-party costs. On the expenses front, G&A was relatively stable at 17% of revenue compared to 16% last year. On the sales and marketing front, expenses were slightly lower this quarter at $1.8 million compared to $2 million in the same period last year. As a percentage of revenue, that's about 11%, down modestly from 12% last year. This slight decrease mainly reflects lower programmatic marketing spend this quarter, following the elevated investments in sales and marketing that we made earlier in this year. On the R&D front, gross R&D spend, that is total R&D spend, including capitalized development was $2.6 million in the quarter, representing 16% of revenue compared to 14% in the same period last year. This year-over-year increase primarily reflects the impact of higher third-party costs. Net R&D expenses decreased by $0.8 million year-over-year, driven primarily by the lower levels of capitalized development in the quarter. We expect this lower capitalization rate to continue as we move through the rest of the year and into FY '26. From an adjusted EBITDA perspective, our Q3 adjusted EBITDA was $3.1 million, representing a 19.3% adjusted EBITDA margin compared to 25% in the same period last year. This year-over-year change was driven primarily by the impact of lower project services revenue, lower levels of capitalized development and offset by stronger recurring revenue in the current quarter. For the full year ended December 31, 2025, we are anticipating a SaaS ARR year-over-year growth percentage in the low teens range, a gross margin of approximately 60% and adjusted EBITDA margin percentage in the high teens. And finally, we ended Q3 with $14.1 million in cash and additionally, added approximately $10 million of free cash flow this quarter, both of which are in line with our expectations for this time of the year. With that, I'll hand it back to you, Bill. Bill? William Wood: Thanks, Sujeet. With our 3 leading mission-critical SaaS platforms gaining awareness and market share, an increasingly dynamic and productive partner ecosystem, strong customer advocacy, ongoing success in targeted competitor displacement and strong execution, we believe we are well positioned to continue to deliver scalable, durable growth. When I'm asked by stakeholders, what's the most underestimated about Sylogist? I point out that it's the extent of the metamorphosis that we had to drive the company through. We have strategically and purposely transformed Sylogist from a legacy software consolidator with little to no organic growth and an increasingly precarious competitive posture to a fully SaaS growing customer-focused company, and that's required time, investment and an incredible effort from our team. This transformation is not linear and without challenges, but much of the heavy lift is behind us in every day, every week, every month and every quarter. Sylogist is becoming a stronger and more dynamic SaaS company. We're excited about our future and the ability to create value for our customers, partners, and shareholders. With that, let's open it up for questions. Operator: [Operator Instructions] Our first question today comes from Amr Ezzat from Ventum Capital. Amr Ezzat: The first one, I guess, is on the Texas VSS contract. I'm not sure if you could give us a sense of how much revenues were recognized during the quarter for that contract? And if you could confirm whether these revenues were all on project services as implementation work. I was a bit surprised to see project services flat sequentially. I would have expected some uplift from that contract given that it's being implemented internally. So maybe if you could walk us through the dynamics there. William Wood: Sujeet, would you like to take that? Sujeet Kini: Yes. We do not specifically get into the details around the Texas OAG contract in that level of detail. That being said, we continue to recognize the SaaS revenue for the contract, and that is roughly in the region of about -- it's an annual value of about $800 million. So effectively, we are recognizing approximately $200, 000 came back on that contract. In terms of the specifics of the project services portion, that is driven by a combination of the percentage of completion on that contract and that is still ongoing. So we're not really getting into the specifics in terms of the contract, but the revenue recognized is a combination of the SaaS portion plus the project services portion. William Wood: Yes, I'll just add there. There was a misspeak. First of all, it's an $800 million. I think you all know what that contract amount is. So I just want to clean that up a little bit. And also -- yes, I think that the offset, we did see good velocity. I just want to let everyone know that the delivery schedule on it was -- on that agreement was very tight, and we have met the expectations of the customer relative to where we are with the lighting up of the complex GL system across the state. So we did have that project service delivery on schedule. There's nothing there that you -- I would want you to pick up there. It's really offset by the continued handoff of project services at a faster rate and a greater rate where we expected co-delivery or maybe direct delivery as partners were lighting up, and that spoke to the efficacy of partners now being nearly 100% delivering in the gov sector. That was really the offset of those 2 components. Amr Ezzat: Then maybe switching gears to the revenues in Mission, like that step down in Q3 to a bigger extent than I would have expected. My understanding was a lot of the DOGE related cuts that you guys spoke to like a couple of quarters ago were reflected last quarter. So I was sort of surprised to see that step down in Mission. Can you speak to the dynamics of what's happening there? William Wood: I'll say generally, we have -- as we continue to move through to our SaaS platform and all that it offers in SylogistMission as well as CRM, I think you all are aware that there is seasonality of churn. Most of our cycles of renewals for budgets and so on do come up in that period. So we had some increased churn that occurred through that. That was kind of -- we knew it was coming. We had many conversations. Some of it was, I'll call it, strategic churn where we talk to customers, trying to align was the platform appropriate for them. And so that's really the contribution of that compounded in that Q3 time frame. Amr Ezzat: Fantastic. And is that a new baseline, if you will, like going forward? William Wood: I think that's a fair thing to say. I think the churn of the ARR related to DOGE, we now see the impact of that as people had paid off and they were paid through that July time frame, but also the reality of just some of that down sell or churn that we have been participating in with that customer set. So yes, I think the new baseline, that's a fair thing to say. Amr Ezzat: Fantastic. Maybe one last one for me on bookings. I know in your prepared remarks, you spoke to Q3 -- well, bookings being lumpy in Q3 is often softer. But can you maybe give us a sense of how active the sales pipeline is? You said it was very active, but how is it today relative to, say, like 2 or 3 quarters ago? Are you guys bidding on a lot more opportunities or just the same cadence, or is that going to be slowed a bit? William Wood: No, I would say, if anything, the velocity of that is picking up, and that's being complemented by partners. As I mentioned, the partner-driven deal percentage of ARR is on track for exactly what we were looking for, and we see that flywheel kicking into effect as their sales and marketing motions start to become more self-sufficient, complemented by ours. So the overall velocity of our pipeline is very good. The market appetite is very good. The awareness of our platforms is growing. So we feel very good about the strengthening of the pipe and the balance across the segments, I think, is also important to highlight, as I did in the prepared comments, it's increasing, which is a very good sign for us, particularly as we look at the Mission sector in the quarters ahead and certainly through '26 as we see partners with really known practices and well-regarded practices anxious to represent the SylogistMission product set out in the not-for-profit space. Operator: Our next question comes from Daniel Rosenberg of Paradigm. Daniel Rosenberg: My first question was around the partnership program with Microsoft. I was just wondering any benefits that come with the new status or any changes in how you operate with you and Microsoft? William Wood: It's an important step because it really deepens our visibility from and to them in terms of where they're going, what they're doing relative to their technology strategy, where we fit and can better predict where their platform is going to provide capabilities that we can leverage. I will say, for an example, they just had a summit in Europe, where we were invited to. We were one of 20 partners that was in an AI work group with them relative to the Business Central platform and where they're going. So it really just expands our visibility from a marketing, from a sales, from a technology, from a future planning standpoint; just increases our visibility into and within Microsoft considerably. It's a really nice step for us for the reasons that we are continuing to be seen as a premier partner with them in the public sector. Daniel Rosenberg: Shifting gears just to the partner ecosystem. I know you kind of mentioned the focus on the education. I was just curious -- I should say, Mission. I was just curious any learnings that you've had from standing up partner channels to date that you're kind of thinking about as you continue to grow that across the business. William Wood: Yes. It's a really important kind of look back to look forward lessons learned. Enablement, empowerment and self-sufficiency is really the path that we have to be very deliberate on. I think our ability to use learnings and automate them through AI knowledge base, so it's self-serve lessens the cycles time and time again. I think measuring twice or 3 times relative to the certification process, the training, making sure that instead of, listen, we got this, we do this, we really step through in a very clear way so that they understand what our motions look like, what our methodologies look like, not to say that they're perfect, but they have worked well and how can we better expose those. So I believe that we go into the expansion of our partner with 1.5 years of experience of our partner community. And we have those learnings, and we're certainly applying them. And some of them are just the mechanics and a lot of it is about the communication. Are we staying connected as a partner -- as a 3-way partnership between the customer, between the partner, and ourselves, that ongoing dialogue and what we put into place to ensure that's going well and smoothly and getting the clarity that we all need. I feel very good about the learnings and how we've improved our processes around that. Daniel Rosenberg: Last one for me. Nice to see the cash position bounce back. I was just wondering if you could help us understanding that there's some seasonality in the working capital. Just any puts or takes that we should think about going into Q4 or Q1 on payables or receivables? And then just priorities of cash now that it seems to be growing at a decent clip. William Wood: Sujeet, you want to take the first part? Sujeet Kini: Yes, I'll take the first part. Daniel. Yes, from a cash perspective, essentially, this is -- H2 is typically the high point from a cash perspective for our business, driven in large part by a lot of the customer renewals on the side of the business in Oklahoma coming up for renewal. So essentially, what one does see from a working capital perspective, increase in cash, increase in accounts receivable. And I'll also point out for the benefit of everybody from a working capital perspective also on the deferred revenue side. So you see that spike now. We do see a little bit of this benefit going into Q4. And then as we get into H1 of the year, then cash starts dipping down and one sees the opposite effect. In terms of priorities from a cash allocation perspective, we potentially might look at paying down some portion of our debt as a high priority, and obviously look at the other capital allocation options, obviously, making sure that we fund our internal operations and so on. But paydown of debt is one aspect that we would be looking at. William Wood: Thank you for that, Suji. I would say the one additional component, as I talked about previously, is the prudent consideration of the exercising of our NCIB, for value creation for our shareholders. We certainly -- that's at the Board level, but that is a component that we are placing an increasingly high priority on. Operator: The next question comes from Suthan Sukumar of Stifel. Unknown Analyst: This is [ Esai ] speaking on behalf of Susan. First question, I just want to touch on the SaaS growth outlook and just very briefly what your assumptions are for bookings growth for the remainder of the year and how you look at ARR as you exit the year? Sujeet Kini: I can take the front part. Yes. So from an ARR perspective, as we said at the top of the call in our prepared remarks, we are expecting to exit the year from an ARR perspective in essentially kind of the low or upper teens kind of range is how we're thinking about it. We do see from a bookings perspective just essentially a continuation, if you will, of Q3 into Q4 from a bookings perspective. And like I said, from an overall ARR perspective, looking to exit in that low teens range. Unknown Analyst: Perfect. And secondly, I just want to talk about -- ask about the competitive landscape and whether or not you've seen any major changes in the competitive landscape in terms of the intensity and just across the 3 verticals of what you're seeing in terms of competition? William Wood: We have seen little change, which bodes very well for our continuing momentum. We -- I mentioned we use the term strategic competitor displacement. We're hyper focused, as I said, over the last several quarters on where we know there are opportunities and significant opportunities headed our way or we're already eating through at the early stage of where we know on the Mission side. We know there are a couple of competitors with very large customer bases that are -- have a customer community that is not happy with where they are in terms of what they're being charged, as well as what the products offer on the Gov side, we see that very large Great Plains community and the stake in the ground relative to Microsoft that is pushing our partners who have very good sight lines to that particular community. That is -- if they want to stay in that Microsoft kind of ecosystem, those customers -- that is, which we believe and our partners believe, a large percentage of them do -- we are very well suited for that as well, as some of the private equity consolidators really haven't done a lot to push their products forward, push their prices up, but not their products forward, and that bodes well for us to continue to push hard there. The VSS side of the equation, we never assume that the incumbent is largely going to stay flatfooted, but we do see good sightlines and continuing traction as customers are very pleased, thrilled with the delivery that we've provided, the partnership we're providing and what the platform offers. So that bodes well. And on the education side, again, we're hyper focused on North Carolina. The posture of some of those targets are necessarily have -- I said in the last quarter, have been a bit in a wait and see as the Department of Education kind of dust settled a little bit and the changes going on there, as well as our ability to have stronger customer upgrades and voices and advocacy on them to say the water is fine, come on in, in terms of displacing particular competitors in that state. So we see the landscape still extraordinarily tilted in our favor as we think about where our platforms are, where our customer wellness and advocacy is and ultimately, the increasing motions of our partners, we think, are all very additive as we think about the future. Unknown Analyst: Awesome. And just lastly, just to piggyback on the capital allocation question. I was wondering to see how you're thinking about -- how you're looking the potential for M&A and priorities so. William Wood: Yes, I don't want to leave that off the table. I say it's -- we continue to have an appetite if it's strategic. I don't want to say opportunistic because I think that, that in and of itself can lead to more of a knee-jerk perspective. We have a number of lines in the water behind the boat in terms of conversations that are ongoing. And we believe that there is opportunities. And I don't want to say it's increasing. I still think it's relatively pressured. But for the most part, we do believe additive customer density opportunities where we can take a legacy provider and then introduce our platform and/or the idea of complementary IP that plugs into our platform to provide low CAC and good wallet expansion opportunities for IP that we know our customers are already using. Operator: [Operator Instructions] Our next question comes from Gavin Fairweather from Cormark. Gavin Fairweather: Congrats on the results. And I have been bouncing around between calls, so apologies if some of these questions have been asked. But maybe just to start on Mission, you did see some churn in the first half of the year. And I think you thought that you had your hands around it exiting Q2. Just to confirm, was there anything else on that front this quarter? Or is that largely settled down? William Wood: As I mentioned, we did see -- just because of the cycle of contracts that ultimately come up, we did see some churn that we saw that's not those related. We did see largely the dose component play out. However, that did pull through into Q3 when those contracts really then terminated in terms of those cuts. So we saw that winding down. But we did see, as I mentioned, a little bit increased churn, and we called it and I referred to it as strategic churn. It's mostly fit where we're going out and looking at upgrades where we decide with the customer, we're not the right fit for them going forward. Sujeet Kini: Bill and Gavin, if I could add a little bit of color on Mission, supplementing what Bill said. Bill is absolutely right. We're seeing kind of the impact of those going through just from a numbers perspective, and you guys will see this in the MD&A, the decline in Mission of around $2.6 million is almost entirely year-over-year at that top level, the decline in the revenue is project services related. So essentially, it's less impactful from a SaaS subscriptions perspective. So it's primarily that $2.5 million is a combination in the main of project services impact, and then an additional smaller impact on account of maintenance support contracts tying back to what Bill said around those. So I just wanted to give that context that it's not as impactful from a SaaS subscription perspective. It's essentially that impact has sort of played its way through. Gavin Fairweather: Then maybe just switching gears to add. I think I saw on LinkedIn that you announced kind of end of life for Sunpac in North Carolina. So how do you expect that to impact kind of the deal cadence in North Carolina? Do you see some upsell opportunities as people upgrade to SaaS? And what's the time line around that? William Wood: Yes. We have been working with our customer community there. I guess we are going from a discussions over the last year to now more of a vet hammer with the idea of why the sunset of the platforms all the way around is good for them is good for us in terms of that nudge to say, let's move and let's upgrade. So I believe it will be the push, and we've talked about it internally. It will be the push as we look into '26. That should be the reason that the last cohort of that Sunpac on-prem community will be upgrading to our platform. Gavin Fairweather: Then maybe just on deal velocity. Curious to get your sense of what you're seeing on sales cycles, partner productivity, implementation cycles. Have you seen any change on that. William Wood: It's increasing. I mentioned the partner efficacy now really being nearly 100% getting closer to 100% self-sufficient on the Gov side on the partners that we have kind of been working with over the last year plus. That's a very good signal. And ultimately, the contractual changes that we're making as well with those partners to allow us to get a much tighter time frame between what was -- what had become an elongated period between a booking to when ultimately we were able to light up SaaS ARR more tied to delivery downstream, which was in the hands of the partner, not us. I can call that out a little bit more. We're pulling that back to now be when we provision the software to the partners. So that's a very material change for us in terms of our ability to allow our partners to continue to go forth and multiply in terms of new logos and new bookings. But we were seeing over the last year, as we had shared in calls that we were having a delay to when we were ultimately getting to the SaaS ARR light up of that. We put a contractual change. It's when we provision the change to them in place. We're putting that in place, and we believe that will have an impact. But a very positive impact in terms of a tighter time frame. The motions are working. The handoff of our playbook is working. The fact that we're now going to more purposely and confidently start engaging partners, and they're well-known partners in the Mission space, is a very exciting development for us as we think about the back half of '26 and beyond. Gavin Fairweather: That segues well into my next question, which is just around Mission and the partner channel. I'm curious when you look at the profile of partners that you're adding, what kind of amplifier effect do you see from these partners in terms of how much of your Mission bookings could be partner attached? And then maybe I'll sneak in one more. Just on the professional services side, now that the efficacy of the gov partners is picking up, should we be seeing the gross margins in PS picking up? Or are you going to turn some of those resources over to enablement on Mission partners? William Wood: Yes. On the Mission partners, we feel very good about the -- we have some very large partners that are very interested and we've gone through their technical review, their product review and a very diligent process they put us through to evaluate and we're evaluating them. We feel that should start to really contribute as we look into '26. But we're also seeing other partners that serve that middle part of the market, middle upper part of the market where particular strategic customers -- competitors, excuse me, strategic competitors have customer density, they're anxious to start carrying our bag for us and working with us on the implementation. So we feel very good about what the partner strategy can do for us in terms of furthering us on the Mission side. On the Gov side, it is -- it's never done relative to the enablement. We have new partners dropping in. So it's not as if the team members just go dark, they don't -- they have partners have new team members that come on that go through the process. A lot of it we have automated through our knowledge base and training, but there's still people related to that. But yes, there's -- the beauty of our strategy is our solutions are largely built around the ERP component. So as we swing them over into the Mission side, that enablement team, we see them being more versed in what partners need, are more skillful and more efficient. But I wouldn't expect a decrease. And I would want to caution you to think that there's going to be decrease on that on that professional service team in anything over the next few quarters. We need to turn them now into the Mission side to that team up. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Bill Wood for any closing remarks. William Wood: Sylogist is strengthening its long-term value creation trajectory, and we're not cutting corners. I want to thank our team members who impress me every day with their accomplishments, dedication and determination. I want to thank our customers for their trust and advocacy. And I want to thank you all and all of our stakeholders for your continuing support. I appreciate it. Bye for now. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the 2025 Third Quarter Results for Russel Metals. Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals Inc. [Operator Instructions] I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky. Thank you. Martin Juravsky: Great. Thank you, operator. Good morning, everyone. I'll be providing an overview of the Q3 2025 results. And if you want to follow along, I'll be using the slides that are on our website. Just go to the Investor Relations section, and it's located in the conference call submenu. If you go to Page 3, you can read our cautionary statement on forward-looking information. So let me start with a little perspective on the quarter that's outlined on Page 5. If we look at the first 9 months of this year or trailing 12-month periods, we have delivered an improvement in trend line results. I'll talk more about this on another slide. But in summary, for the first 9 months of 2025 as compared to the first 9 months of 2024, we generated a 10% increase in revenues, a 100 basis point pickup in gross margins and a 13% pickup in EBITDA. This is a reflection of the impacts from our recent capital deployment initiatives, including 2 acquisitions last year as well as our ongoing capital investment initiatives. On the middle row of that diagram, Q3 CapEx was $15 million. This number is a bit below our expected multiyear run rate as some projects have been recently completed, and we are still scoping out some potential new opportunities. In particular, we expect to be moving forward on a series of interesting initiatives in Western Canada related to business improvement opportunities across the former Samuel and Russel operations as well as investment opportunities will emerge from the Kloeckner transaction that we recently announced. Capital deployment remained a little over $1.7 billion. Our capital grew from $1.3 billion at the end of 2023 to $1.6 billion at the end of 2024 to just over $1.7 billion on September 30. When the Kloeckner deal closes, we will be around $1.9 billion on a pro forma basis. At the same time that we are deploying incremental capital for the Kloeckner acquisition, we are also repatriating some capital in Western Canada. In September, we announced the closure of a branch in Delta, BC and the sale of the related real estate. This will release over $40 million of capital that was not generating an adequate return and was part of the broader initiatives in Western Canada that emerged as part of the Samuel's acquisition. When that real estate sale closes in the new year, we will have released over $100 million of capital in Western Canada and thereby substantially reduce the cost of the Samuel acquisition from the original $225 million purchase price to something closer to $100 million to $125 million. Generate strong return on invested capital. Our annualized return on invested capital was 16% for 2025 year-to-date. This level is greater than our stated target of over 15% over the cycle, notwithstanding some challenging market conditions and was greater than our 3 U.S. peers who have already reported their Q3 results. The annualized 2025 year-to-date return on invested capital for the 3 U.S. peers averaged less than half of the 16% that we generated. We grew in strategic ways. Our U.S. platform is 44% of year-to-date revenues compared to 30% in 2019. Once we take into account the Kloeckner acquisition, our U.S. platform will be over 50% of total revenues. We also have 11% of our revenues as specialty metals such as stainless and aluminum. On the last row a diagram, returning capital to shareholders. We have a balanced approach. In Q3, we returned $14 million via share buybacks and $24 million via dividend for a total of $38 million of capital return to shareholders. Maintaining a strong and flexible capital structure is critical as we operate in a cyclical industry. As a result, our liquidity is strong. We have flexible bank covenants, no financial covenants in our term debt and our maturities are 2029 for the bank debt and 2030 for our term debt. We are also pleased that S&P has recently upgraded our credit rating to BBB-. So we are now rated as investment grade by both S&P and DBRS, and this gives us financial flexibility as well as continued access to low-cost term debt if and when required. Let's turn to market conditions on Page 6. We saw sheet and plate prices exhibit a strong upward swing in the early part of 2025 because of the tariff dynamic. Prices have since come down and have stabilized over the past couple of months. The ongoing price dynamic will be driven in part by the evolving tariff situation. As a reminder, we are primarily a cost pass-through business with a lot of operational adaptivity to how and where we procure materials. So the key thing from a Russel perspective is to have tariff clarity and consistency for our suppliers and the market. Our shipment levels have remained solid in spite of the volatile price environment. We've experienced a slight seasonal slowdown in Q3 as is normal due to holiday-related schedules in July and August. Going forward, we expect the typical seasonal volume decline will come into play for Q4. On the bottom chart, we've shown aluminum and stainless prices as those are now a more meaningful part of our product mix. As shown on the chart, those products don't exhibit as much volatility as carbon as they have different supply and demand dynamics. On the right side chart, supply chain inventories in both Canada and the U.S. as measured by months on hand that you can see in the yellow line remains within the normal range. On Page 7, there's a snapshot of our historical results. And if we look across the various charts, starting with the top left, revenues were consistent around $1.2 billion for each of the past 3 quarters. EBITDA in the middle chart of $75 million was down from Q2 2025, but higher than Q3 of 2024. EBITDA margins at 6.4% for the quarter and 7.6% year-to-date were up over the comparable periods in 2024. Earnings per share was $0.63 per share and $2.45 for year-to-date 2025, which again were both up versus the comparable periods in 2024. I mentioned return on invested capital earlier. Our Q3 return on invested capital was down from Q2, but year-to-date 2025 came in at 16%. And as mentioned earlier, the bottom right chart, capital structure, we're in pretty good shape with net debt to invested capital at only 5%. On Page 8, going into our financial details a little bit more, top part of the chart from an income statement perspective, I covered several of the high-level items on the previous page, but a few other items to note. Revenues were down 3% from Q2, and I'll talk more about volumes later, but it was generally a pretty good shipping quarter in spite of the seasonal dynamic. Our Q3 results were, however, impacted by a few items. One, there was a $4 million onetime charge for the closure of our Delta, BC facility. On the plus side, we'll have a gain on that sale plus a gain on the sale of our Saskatoon property when they closed in 2026. Second, there was a $2 million tariff cost that was applied to materials in transit when the Canadian government changed the tariffs, and it was applied to in-transit goods from an overseas supplier. The Canadian government's rules have since changed, and we have filed an appeal for a refund on that tariff. The mark-to-market on stock-based comp was a $2 million recovery in Q3 versus a $3 million expense in Q2. From a cash flow perspective, in Q3, we generated $5 million of cash from working capital. There was a $46 million reduction in inventory, so the cash generated from working capital would have been higher if not for the timing of AR and AP right around quarter end. Share buybacks, as I mentioned earlier, $14 million for the quarter and the cumulative share buybacks since August 2022 are greater than 13% of our shares outstanding at the time for a little over $300 million or an average of $37.77 per share. Our quarterly dividend of $0.43 per share was paid in September, and we've just declared a $0.43 per share dividend that will be payable in December. Our CapEx of $15 million was down a bit from Q2, but we still have a pipeline of projects, and we should average that $90 million to $100 million per year for the next few years. From a balance sheet perspective, we remain in a strong position with net debt coming down, and it was only $87 million at the end of September. And lastly, our book value per share remains above $29 per share, and it grew by $1.27 over the past year in spite of the share buybacks. Page 9, we show our EBITDA variance analysis between Q2 and Q3. First, looking at the service centers on the left part of the page. The volumes were down a small amount compared to Q2, and this was the typical season factor that I already mentioned. The margin impact of $22 million was due to the market in general and the lag effect of steel price changes to inventories and cost of goods sold that I mentioned earlier. The $7 million variance in operating costs is driven by the $4 million delta charge that I spoke of and some other costs related to our Western Canada business as there are near-term operational impacts from removing and relocating a fairly significant amount of equipment across our network. Some of the equipment relocations are continuing, but it sets the stage really well once these moving pieces settle down in early 2026. Energy field stores down $2 million from Q2. Steel distributors had a solid quarter, and it was only down $1 million from Q2 in spite of the market dynamics and the $2 million tariff charge that I mentioned earlier. In the other bucket, there was a positive impact from the mark-to-market on stock-based comp that was offset by a decline at our Thunder Bay terminal operation from what was a pretty strong Q2 for the Thunder Bay terminal. On Page 10, this is a new chart. And I want to show the trend of our results from a slightly different angle. So let me start with a little bit of a description of what this chart is showing. One, it is a continuity that takes out the quarter-to-quarter noise as it's sometimes hard to see trends when looking at an individual quarter in isolation. So all the data on this chart shows trailing 12-month periods at the various points in time. Two, I want to show 2 time periods being pre-COVID and post-COVID. Pre-COVID is obviously the period of 3 years between 2017 and 2019, then excluded the COVID period of 2020 to 2022. And those years were quite unusual, as we all know, a really down year in 2020 and phenomenally strong 2021 and 2022. So those COVID years not that meaningful when looking at medium-term trends. The right chart reflects the most recent almost 3-year period of 2023 to 2025. So the takeaway, the pre-COVID period shows an average EBITDA of $270 million versus the post-COVID chart where the average EBITDA was $361 million, which is a 35% increase. Also, the chart on the right doesn't fully reflect the impact of the acquisitions that were completed in 2024 or the Kloeckner deal that has not yet closed. The point being that our average cycle EBITDA is now substantially higher than in the past. Also, if we look at the circled areas on this chart, it shows that the peak to trough range in the last cycle had a variance of $167 million in the 2017 to 2019 period versus a much lower variance of $127 million on the right chart for the most recent 3-year periods. The point being that we have raised the cycle average EBITDA and also reduced the cycle volatility. Lastly, if we look at the chart on the right, it shows a sequentially improving trend in trailing 12-month results. On Page 11, we have our segmented P&L information for Service centers. I'll go through this in more detail on the next page, but it was a down quarter versus Q2 due to the seasonal impacts of volume and the margin compression that I mentioned earlier. Energy field stores, we are continuing to see solid performance after a slow start to the year with EBITDA down slightly from Q2. Distributors revenue and EBITDA were comparable in Q3 versus Q2. So on Page 12, this is a deeper dive on the metrics for the service center business. The top right graph is tons shipped. Q3 was down a little bit from Q2 due to seasonality, but up over Q3 2024 on not just an absolute basis, but also on a same-store basis. I expect Q4 to exhibit similar seasonal patterns to typical Q4s with volumes being down in the quarter versus Q3. On the bottom left graph, we have revenue and cost of goods sold per ton. Realizations on price per ton were flat, while we had an increase in cost of goods sold per ton, which led to a decline in gross margins to $430 per ton in Q3 versus $487 per ton in Q2. Looking into Q4 a little bit, we saw that in August and September, the margins have stabilized, but were below the Q3 average. And I expect that we'll see margins in and around that August, September level for Q4. Page 13. We've illustrated our inventory turns. This chart shows the inventory turns by quarter for each segment, energy in red, service centers in green, steel distributors in yellow, and the black line is the average for the entire company. Overall, our inventory turns improved slightly to 3.8. And again, our guys do a really fantastic job in managing inventory through the cycle. Page 14, we have the impact of inventory turns on dollars. Total inventory was down about $40 million compared to June due to both lower tonnage and lower prices per ton. On Page 15, a quick update on our capital structure. Our liquidity is strong, which gives us significant flexibility. And as I said earlier, we recently obtained a credit rating upgrade from S&P. So we are now investment-grade by both S&P and DBRS. Since last quarter, our net debt was reduced from $104 million to $87 million, and our liquidity increased from $566 million to $600 million. The far right column of the table shows the impact of the Kloeckner acquisition, and we'll continue to have significant liquidity on a pro forma basis. Lastly, our equity base per share continues to grow in spite of the share buybacks and dividends, and we've grown our book value per share, and it's up $1.27 from this time last year. Page 16, just a summary of our capital allocation priorities. And again, very similar priorities of how we've talked about it in the past, and I'm going to go into a little bit more detail in a second. But overall, when we look at the capital allocation priorities on the left-hand side of the page, it is really focusing on all those initiatives and the most recent example being the acquisition of Kloeckner that has not yet closed, but we expect to close either the end of this year or the early part of next year and then the returning capital to shareholders, again, fairly balanced approach. Over the last couple of years, the average NCIB activity was $106 million, and the current run rate on our dividend is $96 million per year. Page 17, a little bit of context for our reinvestment program. Over the past 12 months, we've invested $81 million in CapEx. Q1 and Q2, we were down a little bit as some projects were completed, and we're still scoping out some potential new projects across the platform. Page 18, a bit of a deeper dive on the returning capital to shareholders. Left chart, longer-term growth profile on dividends with the most recent dividend of $0.43 per share per quarter, and we'll continue to regularly revisit the appropriate dividend level to take into account our capital structure and earnings profile as was done when we listed the dividend in May of 2023, May of 2024 and most recently in May of 2025. On the bottom left chart, we show our quarterly NCIB activity since it was put in place in August of 2022. I've said it before, I'll say it again, we don't have a fixed approach to the program as we view it as an opportunistic way to buy back shares, and we have been more aggressive at certain price points than others. In addition, you'll see that our activity in Q3 of this year was lower than the past few quarters as we were in a longer-than-normal blackout period when we were getting to the finish line on the Kloeckner agreement. On the bottom right chart, the impact of the NCIB has been a gradual reduction of our share count and resulted in a greater than 13% reduction in our shares outstanding. On the top right chart, the aggregation of dividends versus NCIB over the past 2 years shows a fairly balanced approach between the 2 tools. In closing, on behalf of John and other members of the management team, I'd just like to express our thanks to everyone on the Russel team for their contributions. In particular, I'd like to especially acknowledge those within Russel who are actively involved in the due diligence, structuring and transition planning for the Kloeckner acquisition. It's an exciting new project, but it was and continues to be a lot of work, and our team's efforts are very much appreciated. Operator, that concludes my intro remarks. Could you now open the line for questions. Operator: [Operator Instructions] Your first question comes from Davis Baynton of BMO. Davis Baynton: This is Davis on for Devin Dodge. Yes. Just wondering if you can give any incremental commentary to the operating costs and service centers. Russel has a strong track record of that flexible cost structure, but ticked up a bit higher in the quarter. I know some of that's due to the restructuring provisions, but just wondering on how we should think about that going forward heading into Q4. Martin Juravsky: Yes. That's a fair observation. And my apologies for my droopy throat here. It was up a bit, and the primary reason why it was up a bit was because of the onetime charge that we took related to the Delta closure. But there was also some higher operating costs that are incurred primarily in Western Canada related to all the moving pieces. So it is a -- I characterize it as there's a one-off, and there's a little bit more of a one-off that will likely filter into Q4, but not as significant. So think about it as the higher levels included the $4 million. It included a few other things as we're moving a fairly significant amount of equipment, and that can be disruptive to operations in the near term. But that means that Q3 had higher operating costs. Q4 will probably come down a little bit, but not as down as they were in Q2. And then Q1 will probably be more back to normal. Davis Baynton: Okay. That's good color. And then just shifting gears here. So the recognition from S&P as the investment credit rating, obviously, that's good. We're just wondering how far you can take up leverage while maintaining that rating as you still have some solid balance sheet capacity here? Martin Juravsky: Yes. It's a really good question. And there's a couple of quantitative answers, but it's also a little bit more qualitative. The qualitative part is being committed to an investment-grade approach because that is -- it's a good capital structure strategy because it gives us the flexibility, gives us a low-cost approach. So I can point to an individual metric, but those individual metrics are more of guideposts. It really is a broader philosophy around doing a collective variety of things that maintain that investment-grade rating. Directionally, though, if you look at some of the commentary out of S&P or others, they'll talk about net debt to EBITDA being below 2x. We're well below 1x today. So we've got a lot of headroom to continue to deploy capital, but also maintain that investment-grade status that we've achieved. Operator: [Operator Instructions] Your next question comes from Maxim Sytchev of National Bank. Maxim Sytchev: Marty, I was wondering if you don't mind guiding a little bit when it comes to cost of goods sold in relation to the recent HRC pickup and how we should be thinking about it for Q4? Martin Juravsky: Yes. My comment earlier was related to gross margins and what we saw in gross margins in August and September. And so in August and September, they were down, the gross margins were down from the Q3 average. But that was a case where effectively, at that point, we saw some leveling out of net realizable prices and also cost of goods sold. So the gross margins were sort of flattish in August and September. We're going to expect that to continue. So if we look at the Q3 average versus the exit level from the quarter, it was probably about a $25 difference between those 2 levels. So if you look at the Q3 average of $430 per ton of gross margin, a little bit below that was the exit level. And so when you're asking your question about cost of goods sold, effectively cost of goods sold and price realizations kind of held flat for the last couple of months to get to that level that I was just referring to. Does that answer your question, Max? Maxim Sytchev: Yes, it does, yes. And then because obviously, you just announced the Kloeckner acquisition. I was wondering if you don't mind providing a bit of, I guess, the milestones that you're going to be looking to achieve from whether it's cost synergy or revenue perspective, how we should be tracking those things? Martin Juravsky: John, do you want to tackle it or you want me to? John Reid: Yes. Thanks, Max. I think -- and Martin, I'll probably just both tag team this. Obviously, the first milestone is getting to closure. And then we will move in quickly with our health and safety initiatives that we put in place day 1. And Kloeckner is a public company, has a good safety record, good safety program. We just want to make sure hires are in place and our training. There's some operational efficiencies. There's also some CapEx efficiencies we identifying through due diligence where we have the opportunity to improve the existing facilities in the first 180 days and then move into the value-added equipment opportunities that are out there. Ultimately, we'll move off their finance system by the end of the first year. And by the end of the second year, have to be off their ERP system and a shared services agreement we have with Kloeckner. So those will be milestones that need to be met as well. Maxim Sytchev: Okay. And then maybe just the last question because, obviously, John, you're based in down south. In terms of what are you hearing when it comes to the client sentiment overall? Like on the one hand, we see a lot of data center sort of benefits and kind of positive commentary. On the other hand, when it comes to the government shutdown, obviously, I mean that's trickling down, hitting potential permits, et cetera. So what are you sort of seeing on the ground right now as you speak to your client base? John Reid: So on the U.S. side, we've actually got a fairly bullish feel starting to bubble up for Q1 on the demand side. As you mentioned, data centers are really going wide open and driving the nonresidential construction industry. But that has a trickle-down effect, Max, into solar and solar work that's going on. So that's starting to grow as well due to the energy requirements for data centers that cannot be met by the traditional energy sources that are out there through oil and gas. Obviously, there's some nuclear opportunities, either restarting old idle facilities or building new ones. Those are a little bit longer-range projects. So there'll be new ones are 10-plus years. The restarts could be 2 to 5 years. But again, all those are positive trends in the construction industry that's out there. OEMs are pretty solid with the exception of ag. Ag is a laggard right now, and it continues to struggle due to crop prices. There is an interesting dynamic unfolding there that we're watching that we think there will be a whipsaw effect sometime potentially in 2026. Inventories are exceptionally low at dealers in the U.S. and with the new tax incentive to be able to write off the depreciation very quickly being put in place, we think there could be a whipsaw effect on that industry. Maxim Sytchev: Okay. That's interesting. And I guess maybe while I have you, any comments on the newly released Canadian budget because, again, like the accelerated depreciation is part of that thought process as well and some nation building projects. How do you, I guess, see the environment potentially improving, especially in Western Canada? John Reid: Yes. The biggest challenge right now is getting moving. We still have to do something and make decisions in Canada on what we're going to do on imports as it relates to steel and steel pricing, how that's going to relate to the Canadian mill segment. That would obviously help our industry if the pricing stabilizes there. We think there's some projects that are in this new budget. The time lines are a little murky as these things come out. But anything related to energy or anything related to infrastructure, obviously, really any of the natural resources of Canada so rich, any of those development projects are going to be a big benefit for steel. It's just when they take place and how long we have to wait on that. The economy in Canada is definitely a little more stagnant than we're seeing in the U.S. right now. But overall, we're pretty pleased with our demand and what we've seen. Operator: Your next question comes from Michael Tupholme of TD Cowen. Michael Tupholme: A couple of questions. So regarding capital investment opportunities, there's some language in your release just about the opportunity for additional facility modernization and value-added processing projects. At the same time, it sounds like a lot of the facility modernization opportunities that you were looking at have now been completed and you're sort of exploring future opportunities. So wondering if you can talk a little bit about both of those and what the upcoming year or a couple of years may look like as far as additional opportunities on those 2 fronts. Martin Juravsky: Sure, Mike. So why don't I just give a little bit of context to history projects, and John could talk a little bit about going forward. So for all intents and purposes, we talked about both value-added projects and facility modernizations, and we had 5 very specific ones in both Canada and the U.S. that we had been focused on. Those projects are done other than some fine tweaking. So those effectively are done. So we're at the stage right now where we're always continuing to scope out new opportunities, but we're just sort of in that middle zone between just coincidentally, those 5 projects that were put on the plate about 18 months ago or so, they're effectively finished. And none of them were huge in of themselves. Those projects range from $7 million to $8 million to $12 million individually. And so they are all good projects, but they've now come to fruition. They're up and running in various forms. It does take a while to scope out new projects and some projects come in, some projects get evaluated, they get put on the back burner, some new projects come in, and the Kloeckner acquisition is a good example of it. So I think it's -- without being too specific, it's fair to say there will be more of those type of projects coming up. They're just -- we haven't green lit them yet. So John, do you want to put some color on that? John Reid: Sure. Yes. No, thanks, Mike, for the question. And again, a really astute observation there. It's a timing issue. And then when you layer on Kloeckner, where the geography is with our existing service centers in the states where the majority of these projects would be coming from, that has some continuity to it to say do we need to make some changes. So it's just caused us to go back and evaluate some priorities and maybe created just a little bit of a lag effect here, but there's plenty of projects that are still out there that we plan to move forward with. We just want to make sure we have the right priorities in order. Michael Tupholme: Okay. That makes sense. Shifting over to the energy field stores segment. Obviously, since you made changes to that segment several years ago, it's been a much better performing segment, much more predictable and steady performance. In your outlook commentary, it sounds like you expect that segment to continue to perform well and consistently. I guess the question is just if we look at the Q3 revenues, they were down a fair bit sequentially as well as year-over-year. So just not sure if there's anything unusual going on there and how we should think about that sort of over coming quarters is sort of what's the right way to think about the run rate revenues for that business? Martin Juravsky: Yes. What's interesting, Mike, you're right, revenues are down, but margins are up. And part of that was because there's one part of our business that tends to do a little bit more of some lumpier stuff and sometimes that lumpier business comes at lower margins. So top line could be oftentimes misleading. And so when you look quarter-over-quarter, the bottom line was within spitting distance of each other, notwithstanding the change in the top line because, yes, top line was down, but the margins were healthier in Q3 than they were in Q2 because some of that lumpier -- and again, not hugely lumpy, but at the margin, a little bit lumpier business that was there in Q2 didn't come with as great margins. Michael Tupholme: Okay. That makes sense. And then lastly, I'm not sure if this was covered earlier or not, but I apologize if it was. But any impacts you're seeing as it relates to the U.S. government shutdown in terms of how your customers are conducting their affairs, whether that's any actual challenges that they're facing in terms of getting projects moving forward and how that might affect demand for your products or alternatively, just from a sentiment perspective, any impact that's having on them? Just kind of trying to think about the fourth quarter and whether or not we need to be mindful of this for the fourth quarter results. John Reid: Thanks, Mike. And again, speaking selfishly from my own perspective, the biggest impact is airlines are a disaster. I can't get any connections on time right now. So that's been my biggest personal impact. From a customer base side, we're not seeing a lot of impact as of yet. There will be some government work that could be affected. But right now, everything is on track. I think there's an anticipation it will get settled in the near future, but time will tell. But as of right now, keeping in mind, we have that small average order size and it's out there at $3,400 per average order in our service centers is not affecting our energy spill store segment. So we're not seeing a lot from that at all right now. If it lingers on, I would anticipate there would be some effect. Martin Juravsky: And the only thing I'd add is just reiterating again, Q4, notwithstanding anything else going on, there is an operating day decline in Q4 versus Q3, Canadian Thanksgiving, U.S. Thanksgiving that's coming up, the Christmas holiday. So we just -- we have down volumes in Q3 -- excuse me, in Q4 all the time just because of those normal seasonal factors. Operator: Your next question comes from Sean Jack of Raymond James. Sean Jack: Just a quick one for me. Thinking about how Samuel and Tampa Bay acquisitions have been in the business for a bit of time now, do you mind giving just a quick recap on what value-add improvements have been put in place for each and also just addressing what's left to do in the short to medium term here? Martin Juravsky: Sorry, Sean, can you see that -- I didn't quite catch the first part of what you said. Sean Jack: So just in relation to the Samuel and Tampa Bay acquisitions, do you mind just providing a recap of what value-add improvements have been done thus far? John Reid: So at Tampa Bay, when we bought them, Sean, they were heavy into value-add. So they were already 25-plus percent of their business was value add. They've grown that since then. So we haven't had to add a whole lot of equipment there on a value-add or do any expansions. They've got full facility operating at close to capacity. So not much has changed there. It was really a plug and play. It's a very well-run business. And when we look at Samuel's, it's been more of -- again, we ended up with duplicate real estate in the lower mainline of BC. So we're actually exiting some of the real estate that we have consolidating there. So it's a repatriation of capital in BC. We are moving a line where we had duplicate stretcher leveler lines in Winnipeg. We're moving one of those lines into the states. And so there hasn't been a huge add due to those acquisitions as far as CapEx. In the Samuel case, it was more realignment thing, making sure the equipment was in the right places and making sure we had the right roof lines for the markets that we were in. As Marty mentioned earlier, we pulled the capital from the $225 million acquisition price down to about $125 million or potentially $100 million at the close of this in April. And so with the working capital coming down as well as part of that. So we think that the alignment there is to make sure the appropriate equipment, the appropriate assets are deployed in each region. So again, some of that's being moved around, but there's not been a lot of CapEx value-add spent there, specifically related to those. There has been other spend in Western Canada, and those are different Russel projects. Operator: Your next question comes from Jonathan Goldman of Scotiabank. Jonathan Goldman: I just wanted to get your thoughts on what appears to be accelerating consolidation in the service center space and how that might influence industry dynamics for you guys? John Reid: And again, it's really a tale of, I guess, 2 countries on that. Canada is relatively stable on the consolidation with us doing the same as transaction. There's been a small transaction out West that we didn't participate in, but anything of scale there. But again, Canada is a much more stable environment when it comes to that, less players in the industry overall, more regional. When you look in the U.S., still a highly, highly fragmented market and probably lots of room to run the M&A. It is very active and has been for the last 2 years. So there are opportunities out there. But when you look at the percentage out there, the largest player in the market is probably 15%, 16% of the whole market. And if you combine all the publics, probably maybe 25% of the market. So there's still a large amount of service centers in that $500 million range and down that are private. And it appears that there could be transactions happening. So it could be a very active M&A market over the next 2 or 3 years. It just remains to be seen. Martin Juravsky: And Jonathan, the one thing I would add is, obviously, it's public about the transaction that was announced between 2 of our U.S.-based competitors in doing a merger announcement a week or so ago. And in some ways, it was interesting because it highlights that service centers as an industry, there's a lot of different ways to operate within the service center industry. And if you look at the operating results of those 2 companies over the last number of years versus our results over the last couple of years, there is a big difference. Our performance has been very, very strong, not just on an absolute basis, but also on a relative basis. And some of that goes to just because people are in the service center business, doesn't mean they have the same operating model. And I think it really goes back to reinforcing our operating model works pretty well in good markets and bad. And the bottom line results have shown that. And that is a highly transactional, highly flexible, highly adaptable business model where we're not tied to certain industries like automotive, for example. Other companies who are more contractual and are more tied to very tough customer counterparties, they have different dynamics and different results. So even though we see some of those transactions that have occurred in that most recent example, it highlights there really are 2 very, very different operating models within the service center business. And those 2 companies have one model, and we have a different business model. Jonathan Goldman: Interesting. That's good color. And my second question is capital allocation. How are you guys viewing the relative attractiveness versus M&A or buybacks currently? And have you seen any change in seller expectations when it comes to the M&A landscape? Martin Juravsky: It's a great question, Jonathan, because we -- there isn't a large swath of transactions that occur where we can say, universally, values are up, values are down, multiples are this, multiples are that. It truly is a series of one-off situations. And even in the M&A deals that we have done, the way we've looked at them is very different. A Kloeckner deal is very different than a Tampa Bay deal, which is very different than a Samuel's deal. So even across those 3 most recent examples, there's different metrics in terms of how we've looked at them. In a couple of them, we looked at them, frankly, as asset-based valuations. And one of them is Tampa Bay as an example, and John was talking about this earlier, is more of a going concern value where they have done awful lot of value add in their business. So we kind of looked at it through a different lens. When we look at the market right now, though, there still are a lot of opportunities. That being said, the very, very near-term focus is really getting Kloeckner over the finish line, getting it integrated, getting it focused, getting business up and running there. So there continues to be consolidation opportunities, but we have been and will continue to be highly selective in what meets our criteria. And then your comment about the NCIB, we don't have to pick one over the other, given our balance sheet right now. We can be selective on M&A, and we can be selective on how we use our NCIB program. And if both make sense like they have for the last little bit, we've used both of them effectively. And that's why when we look back over the last couple of years, there's been a fairly active amount of capital allocated to M&A, and there's been a fairly active amount of capital allocated to NCIB and other things as well. Jonathan Goldman: That's a fair comment on the balance sheet, it's a really good work there. Operator: There are no further questions at this time. I would hand over the call to Martin Juravsky for closing remarks. Please go ahead. Martin Juravsky: Great. Thanks, operator. And thank you very much for joining our call. If you have any questions, please feel free to reach out. Otherwise, we look forward to staying in touch during the balance of the quarter. Thanks, everyone. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the VakifBank Audio Webcast Third Quarter 2025 Bank-only Earnings Results. [Operator Instructions] With that, I will leave the floor now to our host. First of all, Mr. Ali Tahan, the Head of International Banking and Investor Relations at VakifBank, and Ms. Ece Seda Yasan Yilmaz, the Head of Investor Relations, also at VakifBank. Speakers, the floor is yours. Ali Tahan: Thank you, Rob. Good afternoon, everybody, and welcome to VakifBank Third Quarter 2025 Earnings Presentation Call. As usual, I will be starting with the presentation quickly and thereafter, to the extent possible, leave the floor for the Q&A session. Starting with the first page in this quarter, in the third quarter of 2025, as you can see on the right-hand side above chart, we delivered TRY 11.9 billion quarterly net income, which is almost TRY 1 billion higher than the market consensus of TRY 10.9 billion. And this number itself comes with almost 20% increase on a Q-on-Q basis from TRY 10 billion to almost TRY 12 billion. And with this quarterly performance, year-to-date net income of VakifBank increased to TRY 42 billion, which is up by 54% compared to same term of the previous year. And with this 54% net income, we are glad to see that we outperformed the sector net income growth of 45%. And on top of this, we are still keeping TRY 4 billion free provisioning as a buffer in our balance sheet as of third quarter end. And on top of that, most importantly, as we will discuss more in detail, we will be delivering the best quarterly net income of 2025 within Q4 in the upcoming quarters, thanks to sizable potential interest income from our CPI linkers as we are one of the most conservative bank so far in terms of using the very conservative CPI estimation. With TRY 42 billion net income in the first 3 quarters period of the year, we delivered an ROE -- average ROE of 23% and quarterly it is 19%. And this 23% year-to-date average ROE, thanks to the strong Q4 of the year, we believe full year average ROE will be increasing to high 20s. Remember for the full year, we were guiding high 20s average ROE. And with a very strong Q4, we believe it will be easily achievable and doable. And another point I would like to take your attention on this slide is related to core banking revenues and pre-provisioning profit growth. On the core banking revenue side, similar to net income growth, we have another 56% year-over-year growth in our core banking revenues, reaching to almost TRY 140 billion. And in terms of this core banking revenue composition, we have slight increase in the share of net fee and commission income, which was 37% a year ago versus 38% as of today. And the remaining 62% is mainly coming from net interest income. And on the pre-provisioning profit side, the increase is much more visible with 147% increase compared to net income growth or core banking revenue growth, which take us to the conclusion that as a conservative state lender, we set aside provisioning too much for the credit risk and other different risk factors. To continue with the presentation for the sake of the time, I will be jumping to net interest margin page, where you can see the details on Slide 5. Starting with the net interest margin. Reported net interest margin in this quarter, as you can see with the red -- sorry, yellow dot line increased from 2.93% a quarter ago to 3.61% in this quarter, which corresponds to 68 basis points increase in just 1 quarter period of time. And similarly, swap adjusted net interest margin increased from 2.59% to 3.07% area, a very similar trend. And the good thing is those numbers achieved via a very conservative and humble CPI estimate. As you can see on the left-hand side above chart, as of third quarter, we used 26.9% CPI estimation during Q3, which is the lowest level among the peer group banks. But the eye-catching reality is despite such a very conservative CPI estimation, still reported net interest margin-wise as well as swap adjusted net interest margin-wise, VakifBank delivered one of the strongest quarterly performance within third quarter. As you know, in the beginning of November last week, October-to-October inflation announced officially with 32.9% area and all the correction will be reflected in Q4. And as a result of such big correction, we are expecting to receive additional TRY 16.5 billion additional interest income from CPI linkers. As you can see in the presentation, as of third quarter, we enjoyed almost TRY 20 billion interest income from CPI linkers. And on top of that, net-net total interest income from CPI linker portfolio will be reaching to TRY 35 billion, which will be the main driver of very strong quarterly performance within Q4. And another point I would like to take your attention is related to Turkish lira core spreads. Yes, it is true that for Q4, we will have additional sizable contribution from CPI linkers. But on top of that, additional positive news will be coming from the Turkish lira core spread development. As you can see on the below chart right-hand side, during Q3, we have additional expansion of Turkish lira core spreads, and now it reached to 450 basis points, which was 420 a quarter ago. So Q-on-Q-wise, Turkish lira core spreads extended by additional 30 basis points. And with the ongoing cycle, we believe within 2025, Turkish lira core spreads will reach to the peak level within Q4. So therefore, for the very short period net interest margin outlook for Q4, there will be a sizable contribution not only from CPI linker portfolio, but also from additional expansion of Turkish lira core spreads, it's coming, it's on the way. And therefore, we are quite optimistic for both Q4 net interest margin performance as well as overall profitability of the period actually. The next page is related to net fee and commission income. And on top of very eye-catching top line performance on the net interest margin and on the net interest income, another strong performance is visible on the fee and commission income side. Similar to net income growth, we also have outperformance in terms of yearly and quarterly growth on the fee income side. Total fees increased by 61% year-over-year versus 50% for the sector. And in terms of the quarterly evolution, we have another 19% quarterly fee income growth versus sector average of 14%. So therefore, core banking revenues, high-quality revenue generation capacity of the bank remain intact and further developed actually during the Q3. And in terms of the source of fee income, as you can see on the right-hand side, the bulk is coming mainly from the payment systems with more than 50% stake, followed by mainly lending-related fees, both cash lending as well as noncash lending. And in terms of quarterly and annual growth, the most visible growth rates are coming from payment systems and cash loans. And as a result of such strong performance on the fee income side, all fee-related KPIs seems to be in a very good shape like fee over OpEx or fee over income, fee total income. So therefore, on top of a very strong net interest margin performance, we are very happy to see and reflect another good results -- set of results on the fee income side. The next page is related to OpEx. And OpEx growth is more or less in line with the fee income. Both of them are above 60% year-over-year. And in terms of the OpEx rather than HR side, especially non-HR OpEx items like promotion expenses we are paying to payroll clients, this is the main driver of quarterly OpEx growth for Q3 as for the entire 2025. With Page 8, we can move to asset side. On the asset side, as of third quarter, our total balance sheet reached to TRY 5 trillion level, which corresponds to $120 billion equivalent. And out of this asset growth, more than 50% is coming from the lending side as the main activity. And on the lending side, in this quarter, we have a quarterly total lending growth of 9.1%, which is slightly higher than the sector average of 8.6%. So in this manner, on the total lending side, we continue to grow, and we continue to gain market share. And as of September end, our market share in total lending further increased to 12.5% area, which is the first ranking among the listed banks of Turkey. And in terms of the currency breakdown, we have another 9.8% quarterly lending growth, which is specifically the same compared to sector average. And on the hard currency side, we have additional 3.4% quarterly lending growth in dollar terms on the hard currency side. And when we look at the year-to-date numbers, year-to-date Turkish lira lending growth came at almost 29% and hard currency lending growth in dollar terms came at 18%. And these are the numbers actually we were sharing for the full year during the budget process. So on the lending side, as of September end, we are fully in line with the full year budget. In terms of the portfolio breakdown, during this quarter, most of the lending growth came from the SME side. So in this manner, third quarter was slightly different compared to first half of the year. Remember, during the first half of the year, quarterly lending growth was mainly coming from the corporate and commercial segment. But this time, due to commitment for some IFI-related projects, the main driver of lending growth was coming from the SME segment rather than corporate and commercial segment. And as a result of that, we have 16% Q-on-Q growth on the SME portfolio, which is followed by corporate and commercial segment with 7% quarterly growth. And on the retail side, we will continue to be on the conservative side and on the shy side. And therefore, our market share continued to diminish on the retail side, which is relatively lower compared to total market share on the total lending or our market share on the non-retail segment. Retail market share came down to 9.2%. However, on the corporate and commercial segment, we are almost reaching to 14% market share for both SME as well as non-SME side, which is fully in line with the strategy and the priority of the senior management. For the sake of the time, I am moving to Page 10, which is related to asset quality. On the asset quality, there are a couple of points I would like to share with you. Let me first start with the good part. The good part is related to collection performance. For the collection performance during this quarter, quarterly collection amount reached to almost TRY 6 billion, which is almost 2.5x higher than the last year average. So in this manner, collection numbers and collection performance seems to be in a very good shape, thanks to strong collateralization, thanks to our collateralized lending policy. That's the one part of the asset quality. The other part is related to simply ratios. And on the ratio side, we are calling this period as a normalization with the long-term average actually. At this stage, I would like to take your attention to NPL ratios. During this quarter, VakifBank NPL ratio further increased to 2.77%, which was 2.5% a quarter ago and which was almost 1.8% in the beginning of the year. So if we just look at from NPL ratio point of view, NPL ratio increased by almost 100 basis points year-to-date, mainly because of the NPL inflow driven by retail. And indeed, in this quarter, in terms of NPL inflows, we are having around TRY 19 billion NPL inflow. And out of this NPL inflow, almost TRY 11 billion is coming from the retail and credit card business and the remaining TRY 8.2 billion is coming from the corporate and commercial segments. And because of those NPL ratios -- because of those NPL inflows, NPL ratios are increasing. But on the flip side, it is normalizing with the sector average because if you look at the asset quality metrics from a long-term perspective, especially in this manner, as you can see in the middle of the page, we are indicating the NPL ratio of VakifBank during the period of 2008 to 2019. 2008 refers to the period with the global banking financial crisis period and 2019 simply refers to pre-pandemic period. And during that period of time, our NPL ratio in average was hovering around 4.3%. So from this perspective, actually, we are approaching to long-term cycle averages, which is also in line with our budget in terms of the budget and in terms of the expectations. For the full year, we were guiding up to 3% NPL ratio and 150 basis points net cost of risk. And indeed, as of today, we understand that those numbers and those guidance seems to be quite realistic as NPL ratio is hovering around 2.8% and full year cumulative net cost of risk is hovering around 154 basis points. So in this manner, especially related to NPL ratio, it is simply normalizing as the denominator effect to some extent is fading away. And the last point I would like to take your attention is related to slight contraction in the share of Stage 2 loans. As you can see on the right-hand side above chart, the share of Stage 2 loans within total loan portfolio contracted from 9.1% to 8.8%, but this is mainly simply a shift from Stage 2 to NPL. But within Stage 2, the share of restructured further increased from TRY 108 billion to almost TRY 125 billion, and this is simply a reflection of the regulation change, which simply makes easier for any kind of restructuring with the regulation introduced by the regulator as of July. With Page 11, we can move to deposit and liability side, starting with the deposit side. As of this quarter, for the first time, the amount of total onshore customer deposits exceeded TRY 3 trillion level. And year-to-date, our deposits increased by 23%. And in terms of the quarterly evolution, total deposit growth was up by 7.1% for Q3 specific and 23.4% year-to-date, and both numbers are slightly lower than the sector averages. In terms of the currency breakdown, our Turkish lira deposits are up by 5.7% and 18.8%, respectively, for quarterly and year-to-date. And those numbers are also slightly lower than sector trends. Because during 2025, we were mainly focusing in terms of making our deposit portfolio much more granular, much more retail-oriented and much more supported by the demand deposit side. And indeed, that strategy seems to be worked efficiently. In terms of the demand versus term deposit breakdown, the share of demand deposits in total increased to 30% area, which was less than 25% a year ago. And on top of that, the share of retail deposits also increased to 48%. These are the retail deposits and demand deposits. These are the main target areas for us in terms of deposit composition and all the numbers so far simply shows that this strategy worked very well, efficiently. The last -- another page I would like to take your attention is related to Page 13, where you can see the details of wholesale borrowings. As you know, during 2025 for Turkish banks, all wholesale borrowing channels are wide open and all of them are working efficiently. As of September end, total wholesale borrowing of VakifBank increased to $22.5 billion, which makes around 20% of total liabilities. And thanks to additional transactions we achieved during the first -- during October actually, that number further increased to almost $24 billion as of today with the new fresh DPR of $1 billion and with the recently issued additional Tier 1 of $500 million. Especially one important aspect of this very recent AT1 transaction is simply related to the fact that among all Turkish banks, including state banks and private banks, this transaction itself has the lowest yield with 8.2% and has the lowest reset spread margin. So therefore, we are extremely happy with the outcome and with the strategy. And our focus on the wholesale funding is still quite alive, especially with the further focus on long-dated IFI transactions and long-dated projects, and there will be much more transactions going forward. The last page I would like to take your attention is related to solvency ratios. As of September end, total reported CAR ratio materialized at 14.7%. Tier 1 ratio materialized at 12.34% and CET1 ratio materialized at 10.01% area. And as you can see on the right-hand side, we are also transparently showing the solvency ratios without BRSA forbearance measures, both bank-only basis and consolidated basis, including pre-provisioning. Given especially SIFI buffer, systematically important financial institution buffer, taken into consideration on a consolidated level rather than the bank-only level, we believe BRSA -- without BRSA forbearance numbers makes a lot of sense when we look at on a consolidated basis rather than bank-only basis, which take us to 9.56% as of September, which is quite a comfortable level compared to minimum requirements imposed by regulators as well as compared to our internal risk buffer. The last point I would like to share with you is related to the impact of very recent AT1 with the amount of $500 million. This transaction itself has a potential positive impact of 75 basis points in our Tier 1 ratio and Tier 2 ratio as of today. And that's the last point I would like to present to your attention. Thank you very much for your time, and thank you very much for listening to us. For the time being, we would like to conclude the presentation and leave the floor to Rob actually again. Thank you. Operator: Thank you, Mr. Ali Tahan. Thank you very much indeed. And yes, indeed folks, we're now going to start our question-and-answer session. [Operator Instructions] All right. Mr. Tahan, I see we have a written question. No audio questions so far, if you'd like to maybe have a look at that. [Operator Instructions] And I see we have written questions, Tahan, I hope you can hear me. Perhaps we can do that while we wait for an audio question. Ali Tahan: Sorry, Rob, I was muted actually. I couldn't reach out to you. Now I guess you are hearing to us. And we have one written question from Valentina from Barclays. She is asking different questions. Let me go over those questions. The first one is related to key guidance metrics and how VakifBank performed compared to guidance. She is also asking about 2026 guidance. As of today, unfortunately, given the budget process not finalized, we don't have the official guidance for 2026. But at least for 2025, we can try to summarize. In terms of the guidance on the lending side, for the Turkish lira lending growth, we were guiding high 20s. And as of now, we are already at 29%. So Q4 -- with Q4, I think we will be overshooting our Turkish lira loan growth. As of today, it is clear that Turkish lira lending growth will be above the 30%. And compared with the inflation, we understand full year Turkish lira lending growth will be in line with the inflation side. Given the year-end inflation is 32%, we believe Turkish lira lending growth for the full year will be also in line with the inflation growth on the Turkish lira lending side. On the hard currency lending side, we were guiding high teens in dollar terms for the full year. And as of September, it is already 18%, and it is already achieved actually. So for Q4, we don't expect too much room for hard currency lending. So more or less, it will be also the number for the full year. In terms of net cost of risk, it is also quite realistic. We were guiding 150 basis points net cost of risk. And as of September, on a cumulative basis, we are there actually. The specific number we are having is 154 basis points. On the swap adjusted net interest margin, we were guiding compared to previous year, 200 basis improvement. It will be also overshooting. I mean, probably the expansion on the swap adjusted net interest margin will be lower than what we were guiding. And I think in this manner, all the banks are in the same category compared to what we were expecting in the beginning of the year. We understand as of today, net interest margin expectations in the beginning of the year was quite optimistic and the numbers we are all delivering will be slightly lower than the guidance. So net-net, maybe rather than 200 basis points swap adjusted net interest margin improvement, we will end up with around 100 and 125 basis points net interest margin expansion. On the net income and OpEx growth, all of them were referring to above the inflation, and they are in line with each other. As you can see from September numbers, both on the fee income side as well as on the OpEx side, we have more than 60% growth on an annual basis for each, and this is also in line with the guidance. And all those numbers will take us to high 20s average ROE for the full year. That was our guidance. As of September, we are at 23% area, slightly lower than what we were guiding. But because of very strong net interest margin outlook and profitability outlook for Q4 because of the both core spread expansion as well as because of the sizable additional interest income from CPI linkers, we believe for the full year, high 20s average ROE is quite doable and realistic. So that was the brief summary of our guidance and what we achieved so far. For the second question, is related to asset quality. Do you see asset quality pressure in the SME or commercial segment? For the micro SMEs, partially, yes. However, for the midsized SME and for the commercial and corporate sector, we don't see a general weakness or we don't see a general trend actually. As you can see from the presentation so far, since the beginning of the year in the first 3 quarters of 2025, vast majority of NPL inflow was coming from the retail side. We believe going forward because of the restructuring easing, NPL inflow from the retail segment will be much more slower starting from Q4 onwards. And restructuring easing, which introduced from BRSA in July, it was an important game changer, and it will work efficiently. However, for the specific part of your question for the asset quality pressure in the SME, for micro SMEs, partially, we can say yes. But for the midsized SME and corporate and commercial segment, we don't see such general trend yet actually. The third question is related to hard currency liquidity as of third quarter. Maybe as of today and as of September, in terms of hard currency liquidity, all the banks are enjoying the most ample liquidity conditions in the hard currency. As of September end for us, it is hovering around $9 billion actually. And this number is one of the highest compared to the beginning of the year or compared to previous years. The next question is related to consolidated CET1 ratio. Does it include the free provisioning? Yes, that number assumes in case we are also releasing TRY 4 billion to the P&L actually. Without that number, it would be around 9.45%, 10 bps lower than what we are suggesting. I think that these are the questions. The last question is related to RWA without forbearance on consolidated and unconsolidated basis. We will come back on this via written e-mail to you, Valentina, after the call. I don't have the specific numbers with me for the time being. Another question is coming from the Goldman Sachs, Mikhail Butkov. Mikhail is asking simply would like to double check on CPI linker income contribution in Q4. Would it be TRY 16.4 billion incremental increase on top of normal income contribution? Yes, your understanding is correct, Mikhail. As of Q3, we are having around almost TRY 20 billion interest income from CPI portfolio. So with the actual numbers, given it is announced, we will make the full year correction and rather than TRY 20 billion, we will be enjoying around almost TRY 36 billion total interest income in Q4. I think that's the answer for your question. And the last question, actually a couple of questions. We have another question from Furkan Vefa Tirit. You were talking about TRY 35 billion income from CPI linkers. Is this the total CPI linker income in Q4? Yes, the total income in Q4 from CPI linkers will be TRY 35 billion. Where do you see the exit net interest margin for this year? And lastly, how do you see the net interest margin trajectory next year? I mean for the net interest margin side, of course, Q4 by far will be the strongest quarter of the year because of the peak level within 2025 of Turkish lira core spread evolution as well as because of the additional sizable interest income from CPI portfolio. So in terms of 2026, as we discussed, we will be discussing more in detail once the official budget is ready and approved by the Board, which is not the case. But in a [ bulk ] explanation, what we can tell to you, of course, we will be entering to the 2026 with a very good level of Turkish lira core spread level. And there will be more room for additional Turkish lira core spreads in the first half of the year as Central Bank of Turkey in our base case scenario, continue to cut rates. Of course, the level of cuts may not be as strong as 2025. Just to remind you, during 2025, Central Bank of Turkey start cutting rates by 350 basis points. And thereafter, [ they increased ] it to 250. And in the last MPC meeting, they cut by an additional 100 basis points. So in line with some of the research suggest in our base case scenario, we expect 100 bps rate cut at every MPC for next year. But as of today, of course, Central Bank of Turkey didn't announce yet the calendar and the number of MPC meetings for 2026. But as long as inflation is standing at the current trend, there will be more room for Central Bank of Turkey to cut rates. So therefore, it will be much more beneficial from Turkish lira core spread and expansion point of view. However, of course, at least in the first quarter compared to Q4, CPI linker contribution will be quite weak in the first quarter of 2026 compared to Q4 2025. But to some extent, it will be compensated by additional expansion of Turkish lira core spreads. These are the general trends for a very short period of time. But as of today, unfortunately, we are not in a position to quantify those trends in numbers. But of course, we will be happy to share our expectations once the budget is approved by our Board of Directors. Another question is coming from Mustafa Kemal Karaköse. Mustafa is asking, does ROE guidance include any provision reversal in the next quarter? What is breakeven NPL ratio in terms of required capital ratios? I mean we don't have any sensitivity for the second question. But for the first part, we -- in our base case scenario, we don't touch to remaining TRY 4 billion free provisioning, and we are still keeping it in our balance sheet. For your information, among the listed banks, top Tier 1 banks of Turkey, we are the only bank who still have free provisioning in the balance sheet. And in our base case scenario, when we are talking to high 20s full year average ROE, we don't take into consideration any free provisioning reversal. Rob, actually, these are the written questions I am seeing on the screens. As far as I understand, there is no audio questions. If there is any -- if I'm mistaken, please correct me. Otherwise, we will take 1 more minute for closing. Operator: Thank you, Mr. Tahan. Yes, indeed, no audio questions are coming through. And you're right, there don't seem to be any other written questions. So unless there are any other questions, I think, yes, we can -- you can move to the conclusion. Thank you, Mr. Tahan. Ali Tahan: Thank you. Thank you, Rob. Thank you very much for everybody for joining the call. Together with Ece and all IR colleagues in case of need, we are at your disposal and happy to answer any kind of follow-up questions. Thank you very much for your time and patience again and looking forward to talking in the first possible occasion. Operator: Thank you, Mr. Tahan. Thank you much for your presentation. And that, ladies and gentlemen, concludes today's conference call. We thank you for your participation. You may now disconnect.