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Operator: Welcome to the Claros Mortgage Trust Third Quarter 2025 Earnings Conference Call. My name is Elisa, and I will be your conference facilitator today. I would now like to hand the call over to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed. Anh Huynh: Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust; and Mike McGillis, President, Chief Financial Officer and Director of Claros Mortgage Trust. We also have Priyanka Garg, Executive Vice President, who leads Credit Strategies for Mack Real Estate Group. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions, please contact me. I'd like to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will also be referring to certain non-GAAP financial measures on today's call, such as distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliation of non-GAAP measures to their nearest GAAP equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard. Richard Mack: Thank you, Anh, and thank you all for joining us this morning for CMTG's third quarter earnings call. As we approach the end of the year, we are encouraged by the continued signs of stabilization and recovery across the broader real estate market. Liquidity has slowly but steadily returned to the commercial real estate industry, supporting increased transaction volumes and tighter lending spreads. Recent and perhaps expected rate cuts by the Fed have improved the outlook even as investors consider the uncertainty surrounding the slowing economy. Collectively, these market dynamics have created a more constructive backdrop, enabling CMTG to continue executing on its strategic priorities for the year, in particular, resolving watch list loans, enhancing liquidity and delevering the portfolio. At the beginning of the year, we stated that we expected approximately $2 billion in total resolutions. I'm pleased to share that we have already exceeded this target with $2.3 billion in total resolutions, which includes partial repayments. As of November 4, we have significantly improved liquidity by $283 million to $385 million, further delevered the portfolio and resolved a total of 9 watch list loans. As previously reported, we have foreclosed on select cash flowing multifamily assets and have identified additional multifamily assets that are foreclosure candidates. We remain positive on the multifamily sector given the favorable long-term supply-demand dynamics and persistent housing affordability constraints. As we look ahead, we believe that the sharp decline expected in multifamily deliveries over the next few years, coupled with declining base rates should help offset any impact of an economic slowdown. Given our sponsors' experience as an owner, operator and developer and the progress we have made in our REO portfolio to-date, we believe we are well positioned to think creatively about value enhancement and exit strategies. For many of these multifamily assets, in particular, we have identified opportunities to implement operational and capital improvements, some of which can be executed more quickly than others. Since foreclosing, we have received strong unsolicited interest from prospective buyers on certain properties, which we believe is a positive reflection of the underlying demand for these assets. Taking into account our business plans, the strong interest we are seeing in the market and the current capital markets environment, we are actively evaluating opportunities to monetize select multifamily REO assets in the coming quarters. Overall, we feel positive about the progress we've made so far this year. In addition to reporting more than $2 billion of resolutions, we have achieved the following: we resolved 9 watch list loans representing $1.1 billion of UPB, bolstered liquidity by $283 million to $385 million today, reduced total borrowings by $1.4 billion and increased our unencumbered asset pool to $548 million from $456 million. We believe this progress positions us well to achieve our near-term priority of addressing the August 2026 Term Loan B maturity, and we will continue to evaluate our options with respect to this maturity. Before turning the call over to Mike to discuss CMTG's financial results and the portfolio, I want to note that we will not be addressing the New York Mayoral elections in our prepared remarks. That said, we are happy to take questions in the Q&A portion of this call. Now I'd like to turn the call over to Mike. Michael McGillis: Thank you, Richard. For the third quarter of 2025, CMTG reported a GAAP net loss of $0.07 per share and a distributable loss of $0.15 per share. Distributable earnings prior to realized gains and losses were $0.04 per share. Earnings from REO investments contributed $0.01 per share to distributable earnings net of financing costs. CMTG's held-for-investment loan portfolio decreased to $4.3 billion at September 30 compared to $5 billion at June 30. The quarter-over-quarter decrease was primarily the result of 4 loan resolutions that occurred during the quarter and the reclassification of loan to held for sale. One resolution was a regular way repayment of a $168 million construction loan collateralized by a mixed-use property in Northern Virginia. Upon construction completion, the asset has experienced strong leasing momentum across its various components. Construction loans have been a valuable component of CMTG's portfolio and a point of differentiation for our firm, given our sponsors' development and asset management expertise. While our construction exposure has historically performed well, it has also become a smaller component of our portfolio as sponsors have pursued their business plans to refinance such assets upon completion. The other 3 resolutions, all watch list loans were addressed on last quarter's earnings call and consist of the discounted payoff on a $390 million loan collateralized by a New York City multifamily property as well as foreclosures of 2 loans collateralized by multifamily properties in Dallas. Finally, we reclassified a $30 million Boston land loan from held for investment to held for sale as a result of a third-party buyer prevailing at a mortgage foreclosure auction in September. Subsequent to the third quarter, the sale was executed modestly below carrying value and because the loan was unencumbered, generated $28 million of net cash proceeds. This transaction enabled us to enhance liquidity without incurring carry costs or assuming risks associated with taking title to this asset. To recap, we've had $2.3 billion of total resolutions year-to-date, which includes $81 million in partial repayments and 9 watch list loans totaling $1.1 billion of UPB. Turning to portfolio credit. During the third quarter, we did not have any loans migrate to a 4 or 5 risk rating. We had one loan moved to non-accrual, a $170 million 4-rated loan collateralized by a Colorado multifamily property. The underlying asset performance has been tracking below our expectations and has also been impacted by new supply in that market. We are evaluating all available options to pursue our remedies as a lender. Our total CECL reserve on loans at September 30 was $308 million or 6.8% of UPB compared to $333 million or 6.4% of UPB at June 30. Our general CECL reserve increased by $0.6 million to $140 million or 3.9% of UPB of loans subject to our general CECL reserve compared to 3.8% of UPB as of June 30. During the quarter, we determined that a sale of the New York hotel portfolio is no longer optimal amid evolving market conditions impacted by the New York City mayoral election. As a result, we reclassified the hotel portfolio to held for investment as we continue to evaluate the market. The underlying assets continue to perform well and the strong return on equity generated by the portfolio provides an opportunity to optimize value for our shareholders when market conditions become more favorable, particularly in light of the refinancing executed in June. We also made progress during the quarter on further sales from the commercial condominiumization of our mixed-use REO asset. To-date, we've sold 9 of the 12 commercial condo units that were created. As Richard mentioned previously, it's our intention to accelerate the sale of some multifamily REO assets given positive market sentiment. Our focus on loan resolutions has strengthened our balance sheet by significantly reducing leverage and improving liquidity. During the third quarter, outstanding financings decreased by $376 million, which included $52 million of incremental deleveraging, bringing the reduction in financing UPB to $1.2 billion during the first 9 months of 2025 and to $1.4 billion year-to-date through November 4. This activity is reflected in the meaningful decrease in our net debt-to-equity ratio, which was 1.9x at September 30. This compares to 2.2x at June 30 and 2.4x at December 31, 2024. In terms of liquidity, as of November 4, we've increased our liquidity position by $283 million since year-end 2024. To quickly recap, at September 30, CMTG reported $353 million in liquidity, which has subsequently increased to $385 million as of November 4. At September 30, CMTG's total unencumbered assets were $398 million of loan UPB and $104 million of REO carrying value, which has since increased to a combined $548 million as a result of an additional loan becoming unencumbered, partially offset by the aforementioned loan and REO sales. We believe our liquidity position and unencumbered asset pool strengthen our position in addressing the upcoming maturity of CMTG's Term Loan B. We continue to explore various paths to a refinancing or extension, and we anticipate being in a position to provide additional details on a solution in the coming months. Before we open the call to Q&A, I'd like to share some recent news. We entered into an amendment to the terms of our Term Loan B, including the modification and waiver of certain financial covenants through March 31, 2026, including minimum tangible net worth and minimum interest coverage as defined, respectively. Pursuant to the terms of the modification, we're also utilizing a portion of our liquidity to make a principal repayment of $150 million on the Term Loan B. I would now like to open the call up to Q&A. Operator? Operator: [Operator Instructions] The first question comes from Rick Shane with JPMorgan. Richard Shane: Two questions that are related. The first is, what was the impact in the third quarter of reversal of accruals on the loan that was placed on non-accrual so that we can get a sense of what the run rate is. Obviously, there's a recurring impact, but there's also a restatement effectively. Michael McGillis: It was about $4.5 million, the reversal of the accrued interest receivable on that particular loan. Richard Shane: Look, the narrative here has been that NII has been declining. Obviously, with that reversal, with the runoff of the portfolio, with the additional non-accrual, it was down again sequentially fairly sharply. When do you think we will see a trough? Are we there at this point? Or is there still going to be more downward pressure on NII? Michael McGillis: Thanks, Rick. Great question. I think right now, we are really in the process of transitioning the portfolio and trying to aggressively move out of our 4 and 5-rated loans and non-earning and sub-earning assets. Obviously, with the liquidity we have, we can delever financings, which is helpful to earnings, but we really need to continue to make progress on moving out of the 4 and 5-rated loans, get that capital back and get it earning again. It's going to be a little, what I'll call, lumpy over the near term while we work through that. Richard Mack: I would just add one thing, and that is I feel like the market has come through a trough and the environment in which we are operating in is a lot more constructive for everything we're trying to do. Not exactly -- it is not exactly directly answering your question, but I think it's important to state. Richard Shane: No. Look, it's a totally fair observation. I think there are 2 stages to this. One is the identification stage of challenges within the portfolio, and it feels like we have reached that point or are very, very close. Then there is the resolution stage. This is not like a credit card loan where 180 days later, you charge it off. These resolutions can take years as we've seen. I think we're probably in the midst of that right now. Richard Mack: We absolutely are in the midst of it. I will say that we have been in the midst of it for a while, and we are taking aggressive actions to resolve things. We are really not trying to allow problems to faster or we're not allowing problems to faster. Operator: The next question comes from Jade Rahmani with KBW. Jade Rahmani: Can you give an update on the term loan? I know you touched on it, but where would liquidity stand post the $150 million repayment? Over what time frame do you expect to consummate a refinancing? Are you considering any equity-like options in conjunction with this to bolster the company's capital base, give it wherewithal to deal with problems in the portfolio and also improve the corporate financeability. Those things might include preferred equity. Michael McGillis: Thanks, Jade. Boy, that's a big question, but a good question. Let's see, we continue to have very productive discussions on the term loan refinancing. As noted, we had -- before the impact of this recent modification, the balance outstanding is about $712 million. We'll make a paydown of about $150 million in connection with this modification that will bring cash down to the, call it, $230 million, $235 million range. We do expect some additional sort of monetizations of assets over the relatively near term, which will further improve liquidity and what we would envision is a modest incremental paydown in connection with establishing a new facility or extending the existing facility. At this point, we do not anticipate going into the market for preferred equity as part of the solution, but obviously, down -- further down the path that that could be an option, but we think the trajectory of the business in terms of liquidity resolving watch list loans is heading in the right direction at this time. Richard Mack: Jade, I would just like to add that the -- yes, the cost of pref equity is still quite high right now. The opportunities in the market to increase the implicit or explicit leverage depending on how you want to view pref equity in order to originate, I think we just don't see the trade-off right now. We're going to keep our eye on it. If we think that changes, certainly, pref equity is an interesting approach for us to take. Jade Rahmani: Regarding the risk 5 risk 4 loan buckets, which each total about $1 billion, so that's $2 billion in total. Then current REO, can you give some expectations around the risk 5, where does that -- is that going to continue to moderate? Where will that be in 1 to 2 quarters? The risk 4s, do you contemplate any additional adds? Or will those continue to moderate? Will those be improved through modification to risk 3? Then REO, what is the current balance expectation you have, including any monetizations in process and the additional multifamily foreclosures you noted? Priyanka Garg: Yes. Jade, it's Priyanka. Thank you for the question. I'll start with the REO. We are continuing to monetize some of the REO. We have the mixed-use asset that we condominiumized that Mike discussed earlier. There will be some additional realizations out of that. Richard mentioned the realizations on some of our already REO multifamily. In the near term, we do expect the REO portfolio to increase in size. On Page 10 of our earnings up, we show our 5 rated loans, and we show 4 of them being anticipated REO. Those are all in the multifamily asset class. This is a tool in the toolkit, and we always want to try to work with our borrowers. If we can't come to a resolution that we think is in the best interest of our shareholders, we are going to foreclose. We do identify those 4s as anticipated foreclosures and coming on REO. In terms of additional 5s and 4s, we've obviously classified those loans as we see fit today. It's a dynamic environment. don't -- we can't always control borrower decision-making or what happens at the borrower or the market level. Based on what we know today, we think that list is accurate, and we're actively negotiating with borrowers in the 4 category, as you mentioned, to try to come to a reasonable modification, which could result in an upgrade. Also, as we've proven, I think, year-to-date, there's a lot of tools in the toolkit in terms of other ways to monetize the assets to turn over the book, as Mike mentioned earlier. Jade Rahmani: I think the $640 million of risk 5 rated multifamily loans anticipated REO, that would put the REO portfolio to $1.3 billion and reduce the risk 5 from $1 billion to around $335 million. Then the risk 4, I don't believe that there's REO anticipated out of that. Is that correct? Priyanka Garg: Yes. At this moment, that is correct on the 4s. On the 5s, I would just say the REO, it doesn't go on to our balance sheet at the UPB, it's going to go on at the carrying value after the specific CECL reserve. The $640 million is a bit inflated. It's lower than that. Yes, there will be growth in the REO portfolio. Like I said, there are -- there's very clear visibility into our current REO portfolio being partially monetized as well. Jade Rahmani: That would be actually about $1.24 billion, less the $80 million specific reserve? Do you know what the current yield is? Priyanka Garg: On the REO in total? Jade Rahmani: Yes. Is it low single-digit, or? Priyanka Garg: It's a very mixed bag. On the hotels, that is in the low to mid-teens. That is a very good return on equity because of the refinancing that we got done earlier this year as well as just really strong underlying fundamentals. As you can imagine, as we've taken assets REO in the multifamily portfolio, there is a lot of noise in the NOI numbers in terms of just blocking and tackling, like you want to evict the number of non-paying tenants, and that means you're taking a charge-off. We're in this period of transition, so that yield is much lower. Over time, we can -- we see that increasing. I mean it's anywhere between very low single digits to 6% today on an unlevered basis. We'll see if our plan is certainly to improve the yield on some of those. Others, like I said, are ready for monetization now. Operator: The next question comes from John Nickodemus with BTIG. John Nickodemus: Somewhat related to James's last question regarding the anticipated REO multifamily 5-rated loans. Noticed that your largest loan, the California multifamily moved into that bucket of anticipated REO versus where it was in the last quarter. Would just love to hear what changed there and being such a significant size, how that process could play out in terms of taking REO? Priyanka Garg: Thanks, John, for the question. It's Priyanka. Yes, obviously, we're very, very focused on it, given the size, as you said. The reason for the change is really after extensive ongoing discussions with the borrower. It's clear that they are unwilling -- sponsorship is unwilling to support the asset. At this juncture, I think we've proven our ability to evaluate whether we would like to do loan sales, BPOs, short sales, and when we did all of that, we have determined that the best course of action is actually to take ownership of the asset. One, you immediately create value when you go from a loan to a deed if we wanted to flip and sell it, but more importantly, as we have dug in, we've seen a lot of low-hanging fruit here in terms of ability to improve top line, ability to improve expenses. We think this is really a good opportunity for shareholders in terms of creating additional value. In terms of the process, it's in California. It's a non-judicial foreclosure state. It should be a pretty clean process, and we're -- the sponsor is well aware of the plan going forward. John Nickodemus: Then other one for me. I just wanted to ask about repayments, you've had 3 significant repayments in the second half of the year so far. Two of those were on loans that were on the watch list, a couple of 3-rated loans. Just curious if there's any line of sight on any significant repayments before the end of this year or maybe even early next year, whether that's out of the watch list or just out of the rest of the loan book in general? Priyanka Garg: Yes. Thanks, John. Yes, absolutely is the short answer. As both Richard and Mike alluded to, capital markets are healthy. We are seeing borrowers in various stages of refinancing plans, both on 3 and 4-rated loans. We alluded to this last quarter. We don't control those outcomes. I can't even put a number on it, but there is -- that is absolutely a possibility going into the balance of the fourth quarter in addition to the first quarter. Separately, absolutely dual tracking the goal of turning over the book, and we will focus on effectuating transactions even on difficult assets that are less borrower-driven and more lender-driven. That again goes to all the tools in the toolkit. That will be very facts and circumstances based in terms of borrower market asset class, and we have a couple of those in process, and I can see a couple of those getting resolved here in the coming quarters. Operator: There are no additional questions waiting at this time. [Operator Instructions]. There are no additional questions at this time. I'd like to pass the conference back over to Richard Mack for any closing remarks. Richard Mack: Well, I just want to thank everyone for joining and for the questions. I would summarize by saying, we continue to be in a healing capital markets. We're seeing tightening spreads and high demand for assets. This is allowing us to create value in the portfolio by taking over assets when we need to, by accelerating repayments, all to continue to delever the book, reduce our cost of capital and be prepared to refinance our Term Loan B and hopefully get on the other side of that and resume originations and other opportunities. We thank you all again, and we look forward to speaking to many of you soon and to our next quarterly meeting. Thank you all very much. Operator: That will conclude the Claros Mortgage Trust, Inc. Third Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. Mr. Snyder, the floor is now yours. Alan Snyder: Thank you, and good morning. I'd like to welcome everyone to Titan's Third Quarter 2025 Earnings Call. On the call with me today are Paul Reitz, Titan's President and CEO; and David Martin, Titan's Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning. As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC. In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q3 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website. I would now like to turn the call over to Paul. Paul Reitz: Thanks, Alan, and good morning, everyone. Our Q3 2025 results continue to demonstrate the ability of our business and our team to perform well in a challenging time. Our Ag and EMC segments reported solid sales growth of 8% and 7%, respectively, compared with the prior year. While consumer was off just a little year-over-year, the segment sales rebounded nearly 15% sequentially. As a result, we were able to deliver consolidated revenues in line with guidance, along with adjusted EBITDA near the higher end of our range. Free cash flow was also a highlight in the quarter, allowing us to continue investing in the business while also working to reduce our debt. Stepping back from the quarter for a moment, this has been a year filled with many companies talking about unusual business conditions around the globe. Our end markets, especially Ag, fall into that category. However, there are a number of positives that are taking hold. Maybe they're not fully taking root yet, but they are certainly in place to provide a foundation to help drive more positive market conditions. First, Secretary Bessant, he provided some details after the Trump-Xi meeting, highlighting an agreement with China to resume purchasing soybeans at a minimum of 25 million metric tons annually, which puts the floor level of purchases right around the average level seen since 2009. After strong positive moves in corn and soy leading up to the settlement, the immediate reactions to the meeting have been muted, a little bit surprising, to be honest, but this agreement should be seen as a positive that will add improvement in market conditions as we move into '26. Moving on to everybody's favorite topic, tariffs. This is a complex and layered topic for Titan. I will remind you that Titan has significant U.S. manufacturing assets, and we are very proud to be the only domestic manufacturer in many of our product categories. Along with our U.S. manufacturing assets, we have significant offshore capabilities and third-party sourcing partners, which help us to serve our customers across the globe. Regardless of the exact outcomes of tariffs, we are well positioned to win. We do believe there is a short-term impact this year that was driven by other factors, not just the tariffs. The Fed actions regarding rate cuts are another net positive as higher interest rates have been impacting purchasing decisions, especially as buyers waited on these Fed actions. Lastly, dealer inventories in the Ag segment are decreasing. We've talked throughout this year about seeing some drop in orders that have been positive for us as inventories get too low with some products and customers. I've been talking about inventory levels quite a bit in recent calls, so I'm simply going to say it's good to see that they're getting better. So given that backdrop, one aspect of our business that I want to emphasize is our competitive positioning. We are positioned as a one-stop shop across the spectrum of tire and wheel size ranges needed in our end markets, along with an undercarriage portfolio that reaches the largest earthmoving equipment. Products that Titan is known for, such as our LSWs and R14 tires and the wheels they are mounted on are not easily mass produced. Building these tires and wheels require skilled labor and significant investment in manufacturing assets. Our SKU runs consist of far fewer units than the passenger vehicle tires we all see on the roads. And when you take that into account, including our long-standing relationships with leading equipment OEMs and aftermarket dealers, we are confident our business has a good moat around it. We are also cognizant of the need to keep reinforcing that moat by innovating and creating new products to add value to our customers and our end users. On that line, we've been working hard to expand on our Goodyear product portfolio following the expansion of our licensing agreement, which we announced last quarter. One initial focus area has been outdoor power equipment tires, like those you find on commercial turf applications. And we've been pleased with the market response. And when demand for new equipment begins to pick up, we're optimistic that this will be another growth driver for Titan. At the same time, professional buyers such as landscapers continue to run their equipment. That's driving demand for aftermarket replacement tires. And again, that is helping offset some of the softness we see with the OEMs. So switching gears and really looking at our 3 segments at a higher level, our strategic goal of diversifying our business is proving its merit. Year-to-date, Ag has accounted for 41% of our revenues and EMC consumer accounting for 31% and 28%, respectively. Overall, we think our revenue and gross profit split across the 3 segments is healthy and an important reason we continue to drive profitability and cash flow well above our prior cyclical troughs. Looking at the conditions in each of our segments, starting off with consumer, we see that business benefiting from a couple of primary characteristics relative to our other 2 segments. First, it has historically included a larger aftermarket business. Equipment owners tend to regularly use their machinery in this segment, especially those that are businesses. As a result, demand for replacement tires is less cyclical than OEM-driven demand. Our consumer sector also includes a wider range of customers and use cases from hunters using ATVs to boat and trailer owners to landscaping companies. That type of diversity also helps us weather macro environments like we're seeing now. Moving over to Ag, which really has represented who we are as a company since our founding. This year's global crop has been a good one. That has continued to increase supply, which is working to suppress the price of leading crops, corn and soybeans. American farmers have also borne the brunt of tariff-driven trade wars. And as a result, U.S. farmers are looking at a less profitable 2025. And as we all know, farmer income is the primary driver of equipment sales. Conversely, what we have seen, though, and we've been talking about this for about a year now, Brazilian Ag interest have picked up much of that slack. And again, our diversity as a leading Ag tire manufacturer in Brazil, Titan has been able to offset some of this U.S.-based weakness. U.S. government also continues to make it clear. We have seen a number of these actions over the last couple of weeks that farmers will be financially supported. Government aid is by no means growth capital, but if it allows farmers to enter '26 with their finances in reasonable order, that would obviously be good for OEMs in the sector. Additionally, that aid would provide the sort of capital needed to support demand for aftermarket tires farmers need to keep equipment like tractors and combines operating. Moving over to our EMC segment. That did experience some growth due to some drop-in orders I mentioned in our last call, most notably in small construction tires and wheels in the U.S. In Europe, where our EMC segment is our strongest area, demand has remained somewhat stagnant on the OEM side of the business, but we are seeing really good demand on our aftermarket mining, which continues to be a good source of growth for Titan. So wrapping these comments up, I want to just conclude by mentioning again, our team is working hard. We're doing a good job servicing our customers. We occupy a strong competitive position in the markets we serve and are a trusted partner to our customers and end users. Titan continues to execute. And as David will discuss, we are continuing to perform at levels well above the last cyclical bottom, and we remain well positioned to benefit when our end markets return to growth. With that, I'll turn it over to David. David Martin: Thank you, Paul. Good morning, and thanks for joining us today. I'll be quick to the point today. As Paul noted, our results for the third quarter were solid with adjusted EBITDA coming in at the top of our guidance range with strong free cash flow. There are some important financial metrics to highlight this quarter. Sales grew 4% year-over-year, demonstrating that the market may be reaching the bottom. Gross margins expanded 210 bps to 15.2%. Our operating margin expanded in the third quarter as well. and our adjusted EBITDA grew 45% to $30 million. Strong working capital discipline facilitated operating cash flow of $42 million and pragmatic CapEx management furthered the quarter's free cash flow to $30 million. Our ability to drive solid profitability and cash flow despite the challenging macro backdrop is something we continue to be proud of. It stands as a testament to the quality of our team, our operations and our strategy. The Ag segment revenues were up over 7% from the prior year, driven by higher volumes, especially in Latin America, where we continue to see positive impacts from solid grain demand and what is anticipated to be another record crop yield in the region due to favorable weather and expansion of planted acreage. Additionally, pricing related to increased input costs contributed to this increase. EMC revenues were up 6% from the prior year to $145 million. which is primarily driven by some drop-in orders from light construction customers in the U.S. as well as favorable FX impacts related to the strengthening of the euro year-over-year. In consumer, we saw some of the deferred purchasing from Q2 come back to us in the third quarter as we had anticipated. Segment sales were $132 million, which was a decline of just under 3% from the prior year, mainly due to lower OEM activity. However, up 14% from Q2, which is very nice to see. Looking at margins in the segment in the quarter, all 3 showed expansion versus the prior year. Our Ag gross margins were 13.4% compared to only 9.5% last year. EMC gross margins was 10.4% versus 8.5% last year. And then consumer gross margins were 23% compared to 22.3% the year before. With solid cash flow in the quarter, we reduced our net debt to $373 million from $391 million at the end of last quarter and resulting leverage decreased to 3.7x while we continue to invest in our business. Third quarter income tax expense was $1 million, which was below the range we discussed on our second quarter call. This was primarily due to the effect of tax planning related to deductibility of interest. Looking at Q4, we think that benefit will be somewhat less. And for modeling purposes, I would expect tax expense of $2.5 million roughly for -- as a good number to use. Reiterating my comment from prior quarters, as we see a rebound in market conditions, we expect to get back to normalized tax rate levels as we see our profitability increase. Now moving on to our financial guidance for Q4. Our guidance for the quarter is revenues of $385 million to $410 million and adjusted EBITDA of approximately $10 million. I want to ensure that it's clear. The midpoint of our revenue guidance and our adjusted EBITDA guidance imply growth in both metrics when compared to Q4 last year. Our other operating metrics should also be positive for the quarter. Last year, in the fourth quarter, we had $2.6 million of other income, which was an abnormally high amount for a single quarter. This is the key driver as to why Q4 guidance is only slightly -- showing a relatively small incremental improvement from the prior year result. It also bears repeating that our fourth quarter typically marks our seasonal low point and with macro conditions continuing. I'm especially pleased to see our business performing well. Reiterating our prior comments on cash flow, we will continue to manage working capital with discipline. allowing us to continue reducing our debt and investing in our strategic initiatives, including our continued product innovations. Our financial condition is good, and it's improving. And I'm fully confident that we're putting Titan in a position to accelerate our future performance. We are positioned well. Thank you for your time this morning. And I'd like to turn the call back over to Becky, the operator for our Q&A session. Operator: [Operator Instructions] Our first question comes from Mike Shlisky from D.A. Davidson. Michael Shlisky: Yes. Can you start with some Ag-related questions. What drove the year-over-year upside in Ag? Was it farmers were fixing up their old catchers -- or was the OEM asking for wheels and tires? Paul Reitz: You're talking about the Q3 performance in terms of the Ag growth, right? Michael Shlisky: Yes. Paul Reitz: Yes. Okay. Just want to make sure I addressed your question appropriately. Yes, we saw nice improvements in primarily at customers with -- in aftermarket. Aftermarket has held steady. We had some slight improvements, but in OEMs, but not a significant amount. And then obviously, our Latin American activity is up year-over-year as well. So if you recall, last year in the second half, we were seeing a lot of weakness, a lot of destocking going on. And so this year, you saw a much more steady activity. Michael Shlisky: Got it. Got it. And we just turn to the Ag outlook for 2026. Paul, is the current plan to expect an upturn in Ag in 2026? And if so, just talk a little bit about the timing and kind of how that might play out? Or has it already started here for Titan given we just saw in the third quarter? Paul Reitz: Yes. I mean we do see a return to growth, but describing it more specifically to Titan, layering on to what David just said, we've positioned Titan well and diversified us geographically and also strengthened our aftermarket position. And so where we see Titan continuing to grow will be through the innovations we put into the marketplace along with aftermarket performance. Now we clearly have a strong OEM business, and we are watching that closely to see where we see '26 going. I think the best way to characterize that is we're at a bottom. But as far as the timing for the pickup, I think I'm going to point to the positives that have been laid into place with interest rates coming down with what the actions of Secretary Bessant and President Trump, I don't think that's coincidental that Trump is putting tweets out talking about supporting the soybean farmer and then Secretary Bessant is going on the TV networks and talking about his experience as a soybean farmer. It's not mere coincidence. I think the administration is going to stand behind the fact that we need to support the farming communities and what they do for our overall society. And so I think as we look towards the OEM forecast, I think there they're delaying giving us really good solid information as to what they see throughout the entire year and kind of just saying what they see for the -- to start the year, which is, again, kind of a flat start to the year, waiting for some of these initiatives to kick into gear. And I don't see how any of these initiatives are negative for '26. I think they can be viewed as only positive. And if we're at a bottom and you got some positive factors that are now starting to influence things, I do think we see an uptick in OEMs for '26. But primarily, we're going to hold off on making too many direct comments about where we see '26 for OEMs. Again, stay close to the situation, but we do see opportunities for growth with our product innovations, the Goodyear brand where we can launch them in some new places and then again, with our aftermarket positioning. Michael Shlisky: Great. And a similar question on construction, Paul. Some of the major U.S. players that have reported so far and have talked about '26 are already talking about improvement next year, at least a good number of them are. How might that look for Titan in your EMC business? Paul Reitz: Yes. I think we're in a good position. Clearly, seeing the same things that you just mentioned that there's a lot of support coming from the governments that are going to -- they're going to put some bills into place that will help accelerate some spending. It's good for us around the world. I mean our business is pretty well diversified as far as exposure to Europe, exposure to aftermarket mining and then obviously here in the U.S. as well. But I do agree that we're seeing our early looks into '26 for EMC are that there's a good basis for some growth going into next year. And I think that's something that, if anything, that could accelerate throughout the year. I think it's going to start the year in a good position. But again, some of these factors could have, I believe, a more positive impact than what some of the initial looks are. But again, we'll let that play out. But I agree with the assessment that as we look at the EMC segment, there's a good layer of growth that's coming into next year. Operator: Our next question comes from Derek Soderberg from Cantor Fitzgerald. Derek Soderberg: Paul, you mentioned OEM inventory levels improving. Any insights to the degree to which that was the case maybe over the past quarter? I was just wondering if you could quantify that at all for us, how much it improved on a quarter-over-quarter basis? Paul Reitz: Yes. Yes. I mean it does vary by product, by customer. And 2 ways I would look at it. I think as far as some of the large equipment inventories, we've seen them come down roughly like a month, like 30 days of inventory coming off and getting it to a more normalized level. Used is starting to move a little bit better as well with the incentives that are in place, which is going to help obviously get the new moving. But for us, what we are watching and dealing with in a positive way is just the drop in orders where the inventory gets out of balance. I mean, obviously, there's a lot of forecasting and estimates that go into the positioning of inventory. And we've seen customers each quarter throughout this year have dropped in orders in specific areas where we've had to respond quickly and get the product produced. And again, I think that's an indication that the inventory is hitting the right level, if not too low of a level in certain cases. And so the Titan team, our strength, as we mentioned at the beginning of the year, is to be flexible, not just with our manufacturing assets, but with our labor to make sure we can respond. And it's -- our team has done a great job when these orders get placed that we're able to respond and again, further solidifying that relationship with our customers. So again, I think as we get into the forecast for '26, inventory is at least coming in at a position where it's neutral. And one of the things that Titan has been battling throughout '25, as David mentioned, is just the inventory destocking specifically for us and our segments has had a negative impact. So I think for -- at a minimum for '26, we started a good neutral level. Derek Soderberg: Got it. That's helpful. And then any additional color on what's driving aftermarket mining? Is it precious metals? Are you guys seeing any demand from some trends in rare earths mining, some of that onshoring? Can you provide any color on any end market demand trends you're seeing in that space? Paul Reitz: Yes. Clearly, the operating activities of the mine support the business overall. But I think specifically for Titan, it's our position within the market that's allowing us to grab this growth. We do have the ability to produce customized cast products that are made in our foundry in Europe and can really meet the needs of the market in, again, a highly customized way that's very specific to the applications. And so as we see this growth, it's good across the board as far as operating activity, and that's more of our traditional undercarriage parts that we produce in our plants throughout the world. But where we've really been able to outperform and grab additional growth in aftermarket mining is really our ability through our foundry to customize these cast parts and go attack a niche part of the market that others can't quite get to. So there's a little bit of specific growth to Titan that's outside the general trends you may see overall in the mining segment. Operator: Our next question comes from Steve Ferazani from Sidoti. Steve Ferazani: Appreciate the call. Given the strength in 3Q, and we were really surprised how strong Ag was in 3Q, a little surprised at the top line guide for 4Q. Can you talk about the slightly different elements? Because that number, we know how dramatic the OEM shutdowns were in the year ago. So if inventories are getting a little bit better, if you're guiding for pretty similar shutdowns on that side, and I know you guys have a pretty good picture on that, a little surprised there. And also, I'm guessing aftermarket is less of a benefit in 4Q, just in general than it would be in 3Q? Paul Reitz: Yes. I mean we're seeing the kind of drop, maybe not nearly as much as last year, but we are seeing a drop seasonally going from Q3 to Q4. I believe that OEMs are really just getting themselves prepared for next year, but they're not going to be -- they're not going to turn on production in Q4. So we're not going to be seeing uptick. So we're seeing the normal seasonality, very pragmatic decisions being made about it. And our aftermarket is light in Q4 as we're going to be seeing a really nice seasonal uptick in Q1. So -- and that's actually taking place not just here in the U.S., but it's also in Brazil. So that is the same trends that we're seeing there. It's really across the board. So yes, it doesn't obviously imply the seasonal downturn that we typically see… about it, not getting out over our SKUs. I think we are positioned well to take the orders as we need to. But I believe it'd be much more -- they're being very disciplined, and we will too. Steve Ferazani: So I mean, following Paul's commentary that maybe the start of the year on Ag is pretty similar. I mean you ran through the macro issues, which we can all see. And hopefully, a trade agreement pumps that up and we start seeing crop prices working. Having said all that, you're clearly doing very well in the aftermarket. It looks like you're even potentially gaining some share there. When we think about the start of the year, we're now going to be another year along without the replacement cycle. You've got more aging equipment. You're clearly gaining in those markets. Can we see nice uptick on aftermarket first half of the year year-over-year? Paul Reitz: Yes. I mean I think I was just with our VP of Sales Tuesday, and he's optimistic. So I think the answer is yes, to keep it brief. We -- the diversification of our company, I think, is just a key point. And Dave and I spent a lot of time talking about that to geographically be able to take advantage of the positioning of Brazil over the last year as the purchasing interest of China move that direction. And then as a company with what we've done in the consumer segment to continue to drive innovation into the aftermarket. I mean I think Titan has been very well positioned in the aftermarket. We share with investors how we've changed this company from where it was 10 years ago as far as our aftermarket splits to where we are now. And I think we continue to accelerate in that area. And so we are seeing -- again, the feedback I got just on Tuesday is we're seeing a good start to the preordering for next year. And I do think you start the year off on a positive note with aftermarket. Steve Ferazani: And then also just kind of following along your commentary and the answer to one of your questions. Historically or at least recent history, Ag and EMC have directionally moved similarly, maybe not at quite the same levels. It sounds like you're indicating that maybe at least in the near term, those may be going into a couple of different directions, which is not what we've seen in recent history.? Paul Reitz: Yes and no. I mean I think there's different drivers. I think the Ag -- global markets have been hammered the last couple of years. We've dealt with -- in our particular business, we've dealt with the inventory destocking in Ag. But the way we position Titan with EMC and Ag is that we've increased our aftermarket diversification. We were just over in Italy meeting with our leader of a big part of our EMC business. And there's a lot of confidence for continuing to see that diversification provide benefits to Titan as we move into '26. I do think there is a potential for a bigger uptick in Ag, as we all know, when the foundation of those actions start to take root that you don't necessarily have an EMC where there's this more consistent growth as government spending, infrastructure spending, et cetera, continues to drive that in a positive way. I do think there's this hidden uptick in Ag that's lurking out there somewhere. It's just nobody is exactly pinpointing the timing on it. But strategically, there's similarity. Clearly, having the tire business in Ag gives us more diversification to the aftermarket and more levers to pull there in North and South America and the innovations and the positioning and the relationships we have with dealers, whereas with EMC, we don't have that because they're steel-based products, but we've really diversified our business, as I mentioned earlier, with the customized aftermarket mining products that we can produce and then touching into some other parts of the steel-based aftermarket with EMC as well. So again, I think it's -- a lot of this diversification of Titan is, I think, really providing us good strong benefits that we're seeing in the '25 results that positions us well as we move into '26, whichever direction markets go, which I do believe they're at the bottom with some uptick coming, but we're in a position to capture some of that growth wherever the markets may go. Steve Ferazani: That's really helpful. Appreciate it, Paul. Last one for me was just on the royalty expense line. That number being much higher sequentially and year-over-year would seem to indicate you were selling an awful lot of third-party tires. Is that the right way to be thinking about that? Paul Reitz: Well, certainly, we have the new license agreement, and we had a little bit of true-up to the payments made in Q3 a little bit. But certainly, the mix is certainly favorable towards Goodyear. Operator: Our next question comes from Joe Gomes from NOBLE Capital Partners. Hans Baldau: This is Hans Baldau on for Joe. Could you talk about the potential M&A? Do you know what the valuations are looking like or any areas that you all might target? Paul Reitz: I think what we have done as a company historically is look for opportunities when valuations are lower. We operate in an industry that could be considered a niche industry. And there's been opportunities that have presented themselves kind of on a consistent basis, not on an annual basis. And so we are -- we continue to follow that approach. I know David spends a lot of time and effort managing the balance sheet along with our entire team. And so we look at our ability to be able to participate in any lower valuations and grow via M&A is something that Titan needs to be positioned to, along with investing in innovations, which we've done. Do I think these market conditions potentially give us some opportunity? I hope so. I think historically, it's presented some valuations that maybe do that. Is there anything imminent? It's not really how our industry works. I mean it's sort of -- it's more opportunistic than it is pinpointing this is what we're going to go do because that -- if you pinpoint what you're going to go do strategically, usually, that the valuation gets too high for how Titan historically has done acquisitions. So you wait for the opportunity, work towards it and see if it comes together. And that's been our consistent approach for the years. And I think the acquisition we did last year is a really good illustration of that. Hans Baldau: Okay. I appreciate that. And then could you add some color on the military market? How is your targeting of the military market progressing? Paul Reitz: I mean the targeting has been good. The results are just takes time. So the results could be better. I mean, I'll err my personal frustration since I got a microphone, I might well go ahead and do it. I see what European countries are doing. I just read this week about how Germany is going to -- guess what the German government is going to do. They're going to buy military components from German manufacturers. Guess what Europe is doing. Look at Rheinmetall. They're buying products from European manufacturers. I need somebody explains to me why our U.S. government can't buy from U.S. manufacturers. I think it's a pretty simple formula, and I think Titan should be able to participate in that formula as our U.S. government opens their eyes and realizes that we should be supporting our own companies here in the U.S. like every other country is choosing to do. So if you hear my frustration, there is frustration. I think the opportunities are there. They move slower than they should. We are continuing to go after those opportunities, and we will put ourselves in position to grow our military business. But I don't understand why European countries can make decisions and move much quicker than our U.S. government is. Operator: Our next question comes from Kirk Ludtke from Imperial Capital. Kirk Ludtke: Just a couple of follow-ups. On the Goodyear deal, I think the idea is to use the brand on the Goodyear brand on more of your products. Can you maybe comment on the potential of that initiative and the timing? Paul Reitz: Yes. I think it's something that the timing is we'll see more of it in '26 because we do have to develop the products, get them in the market, test them, et cetera, stating the obvious with that response. I was very excited and enthused that we were able to get the additional product categories with Goodyear. As you're negotiating, you never know if that's going to happen. And so could we have started the product development earlier and assume that we were going to get these maybe, but we didn't. And so I'm very happy with how things turned out with Goodyear. I think the partnership only grows stronger by allowing us to participate in those additional categories. But we do have to do some product development, some testing. I think for me, it's great to see our team enthused that -- what this addition of this brand can do. And really, what it does, Kirk, is our specialty division through the Carlstar acquisition has strong brands. But what we have seen at Titan with the Goodyear brand is it allows you to go into a premium segment with your really high-end innovations. So you're capturing not just share, but you're capturing a stronger foothold on margin. And I think that's where the excitement of the team is. So are we using it to go just relabel our existing brands Goodyear? No, because our brands are strong enough positioned in the market that we don't need to do that. So what we're doing with the Goodyear brand is, again, going into a market segment that maybe we couldn't have got to as easily before. And we've seen that play out in Ag in North and South America. And I think we can do the same thing with the new product categories we have with the Goodyear name as well. So probably more of a longer tail on getting there and less of a big splashy number that says look at all these Goodyear sales we have. But we'll get to the right position over time with a premium product that has good margin. It's a win-win for us and Goodyear. And we've proven over the last 2 decades, that's the case. Kirk Ludtke: Got it. Appreciate it. On the net sales, another strong quarter in Latin America. I think you mentioned that's -- why that's happening. But Asia was down over 20% year-over-year. Can you -- is there anything to -- any kind of takeaways from that? Paul Reitz: Yes. I think it's just timing more than anything. That's going to be your typical sales from our ITM business in the EMC segment. And you'll see shifts in manufacturing to various customers. I think we had a stronger Q2. So I think it's just timing more than anything. Kirk Ludtke: Okay. Got it. And then lastly, did your Brazilian JV close? Rodaros? Paul Reitz: Closed. Yes. We issued a press release last week, actually. So we're really happy about that. Hans Baldau: I missed that. Paul Reitz: We're happy to get that concluded, and we're off and running. Operator: This concludes our question-and-answer session. I would now like to turn the conference back to Mr. Reitz for any closing remarks. Paul Reitz: Well, thanks, everybody. Appreciate your participation in our Q3 call, and we'll talk to you again here soon with an update on the fourth quarter and 2025. Thanks, everybody. Operator: Thank you for attending today's presentation. The conference call has now concluded.
Operator: Good morning, and welcome to Nova's 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 Miri Segal, CEO of MS-IR. Please go ahead. Miri Segal-Scharia: Thank you, operator, and good day, everyone. I would like to welcome all of you to Nova's Third Quarter 2025 Financial Results Conference Call. With us on the line today are Gaby Waisman, President and CEO; and Guy Kizner, CFO. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company's website. Gaby will begin the call with a business update, followed by Guy with an overview of the financials. We will then open the call for the question-and-answer session. I will now turn the call over to Gaby Waisman, Nova's President and CEO. Gaby, please go ahead. Gabriel Waisman: Thank you, Miri, and thank you all for joining us. I will start the call today by summarizing our third quarter performance highlights. Following my commentary, Guy will review the quarterly financial results in detail. Nova achieved record quarterly revenue of $224.6 million in the third quarter, marking a robust 25% year-over-year growth. This performance reflects the continued trust of our customers, driven by demand in advanced nodes and advanced packaging. This quarter, we delivered record revenue from memory devices, fueled by strong demand for advanced DRAM and high-bandwidth memory. We also reached record revenue from advanced logic nodes, predominantly driven by gate-all-around processors. Our materials metrology revenue benefited from adoption of our ELIPSON and METRION platforms, and we also achieved record service revenue, underscoring the resilience and value of our portfolio and business model. According to our fourth quarter guidance, 2025 will be a record year for Nova, reflecting growth of approximately 30% year-over-year at the midpoint. Looking ahead, we anticipate further growth in 2026 with advanced logic, advanced packaging and DRAM continuing to fuel the momentum. Recent announcements of large-scale investments in artificial intelligence are creating a positive outlook for sustained industry growth and wafer fab equipment spending. Manufacturing integrated circuit devices for AI applications introduces unique process control challenges such as complex architectures, tighter tolerances, new packaging technologies and the integration of new materials. Our customers are constantly challenged to reduce ramp-up periods and then maximize yields in high-volume production. Nova's solutions are purpose-built to address these challenges, enabling our customers to deliver the performance and reliability required for next-generation AI devices. With this in mind, in 2026, we expect WFE growth in the mid-single digits with potential upside as AI-driven demand trickles down the value chain to increase utilization rates and wafer starts. Now I'd like to review some of the highlights from the past quarter. First, our record sales in memory this quarter was driven by several key achievements. In materials metrology, we saw record Veraflex sales to memory fabs. We also secured new orders for our PRISM platform supporting HBM manufacturing. In chemical metrology, we anticipate receiving orders for multiple tools from a new memory customer following the successful adoption of the Nova AncoScene front-end platform, which replaces a competing tool. These wins underscore Nova's expanding footprint and the important role our solutions play in enabling advanced memory production. Second, Nova achieved record sales in advanced logic, driven primarily by strong demand for our solutions in gate-all-around manufacturing processes. Notably, our ELIPSON materials metrology platform was selected as a tool of record by a leading global foundry, and we have already delivered several systems for use in high-volume production. ELIPSON leverages state-of-the-art Raman spectroscopy to provide precise nondisruptive material characterization. These capabilities are essential for advanced device nodes. In addition, we recognized revenue from the sales of the METRION platform to a gate-all-around manufacturer, further expanding the adoption of this tool. We expect to see orders from additional customers in the coming months. Third, in advanced packaging, the demand for Nova's optical metrology solutions continues to increase, particularly for critical dimension measurements in the most complex manufacturing environments. Our portfolio for advanced packaging includes Prism, WMC, SemDex, integrated metrology and the Ancolyzer. These solutions address multiple stages in the production process such as post-CMP applications as well as measurements of Through-Silicon Via wafer voltage, total thickness variation and electroplating analysis. This quarter, we introduced our latest optical metrology platform, the Nova WMC, a next-generation modular system designed from the ground up to address the evolving requirements of advanced packaging. The WMC has already been adopted by 3 customers for HBM and power device manufacturing with additional customer evaluations and demonstrations underway. The WMC offers exceptional versatility, supporting a wide range of wafer sizes and forms and multiple metrology technologies. This positions WMC as a cornerstone tool for next-generation packaging, including 2.5D, 3D and hybrid bonding applications. The strong demand for the WMC is a testament to its ability to address industry challenges such as high warpage, nonsymmetric shapes and diverse surface conditions, all with high throughput and nanometer level fidelity. Additionally, our PRISM and integrated metrology platform were adopted by a leading global logic manufacturer for advanced packaging processes and our chemical metrology platform, the Ancolyzer, was shipped to a gate-all-around customer for back-end packaging processes. All of these embody Nova's commitment to deliver comprehensive integrated solutions that enable our customers to meet the stringent requirements of advanced packaging and maintain a competitive edge. Finally, we marked a significant milestone in our operational excellence and capacity expansion with the opening of our new state-of-the-art production facility in Mannheim, Germany. This advanced clean room, which extends our existing site, enables us to triple our production capacity for advanced packaging optical metrology solutions while further improving our manufacturing process and quality. To conclude my prepared remarks, this quarter reflects the strength of Nova's strategy and execution across all fronts from technology leadership to operational scale. As our industry continues to evolve, driven by AI and increasingly complex architectures, Nova is well positioned to support our customers with differentiated, scalable and innovative solutions. Looking ahead, we remain confident in our ability to deliver long-term growth and value. For more details on the financials, let me hand over the call to Guy. Guy Kizner: Thanks, Gaby. Good day, everyone, and thank you for joining our 2025 third quarter conference call. I will begin by reviewing our financial achievements for the third quarter of the year and then provide guidance on the fourth quarter. Total revenues in the third quarter of 2025 reached a record level of $224.6 million, marking the sixth consecutive quarter of record-breaking results. This performance reflects a growth of 2% quarter-over-quarter and 25% year-over-year. Product revenue distribution was approximately 70% from logic and foundry and 30% from memory. Product revenues included 4 customers and 3 territories, which contributed each 10% or more to product revenues. In the third quarter, blended gross margins aligned with our guidance, achieving 57% on a GAAP basis and 59% on a non-GAAP basis, well within our target model range of 57% to 60%. Operating expenses increased to $63.5 million on a GAAP basis and $58.6 million on a non-GAAP basis as we use top line growth to invest in R&D for long-term opportunities and in ongoing strategic evaluations. Operating margin in the third quarter reached 28% on a GAAP basis and 32% on a non-GAAP basis, demonstrating the scalability of our model and the strong value proposition of our process control portfolio. The effective tax rate in the third quarter was approximately 16%. Earnings per share in the third quarter on a GAAP basis were $1.90 per diluted share, and earnings per share on a non-GAAP basis were $2.16 per diluted share. Turning to the balance sheet. During the third quarter, the company generated approximately $67 million in free cash flow, bringing the total positive free cash flow for the first 3 quarters of 2025 to approximately $170 million. In September 2025, the company successfully completed a 0% convertible notes offering of $750 million with a 35% conversion premium and a capped call structure that raised the effective premium to 75%. As a result, total cash, cash equivalents, bank deposits and marketable securities increased to $1.6 billion at the end of the quarter. This strong financial position enable us to continue to invest in R&D and strategic growth initiatives while maintaining the flexibility to pursue M&A opportunities and capitalize on market trends that support our long-term objectives. Next, I'd like to outline our guidance for the fourth quarter of 2025. We currently expect revenue for the quarter to be between $215 million and $225 million. GAAP earnings per diluted share to range from $1.77 to $1.95. Non-GAAP earnings per diluted share to range from $2.02 to $2.20. At the midpoint of our fourth quarter 2025 guidance, we anticipate the following: gross margins of approximately 57% on a GAAP basis and approximately 58% on a non-GAAP basis. Operating expenses on a GAAP basis to increase to approximately $65 million. Operating expenses on a non-GAAP basis to increase to approximately $59 million. Financial income on a non-GAAP basis is expected to increase to approximately $16.8 million in the fourth quarter, reflecting the higher cash balance on hand. Diluted share count for the fourth quarter is expected to be approximately 34 million, incorporating the full quarter effect of the recently issued convertible notes. The increase in share count and higher financial income are expected to largely offset each other, resulting in a minimal impact on the non-GAAP earnings per share. Effective tax rate is expected to be approximately 16%. Before I conclude my remarks, I would like to highlight that based on the midpoint of our fourth quarter guidance, we expect to close 2025 with record high revenues, reflecting exceptional annual growth of approximately 30%. Our non-GAAP profitability outlook for 2025 remain robust with blended gross margins around 59% and operating margins near 33%, positioning us at the high end of our target model and highlighting the strength and scalability of our business. With that, we will be pleased to take your questions. Operator? Operator: [Operator Instructions] The first question comes from Atif Malik with Citi. Atif Malik: Strong execution throughout the year. Gaby, with respect to your mid-single-digit wafer fab equipment outlook for next year, if I recall, this was the same outlook that you were giving in early September and a lot of things have changed in the memory land since then. So can you walk us through the upside case to this WFE? And is Nova still going to outperform the WFE? And we have been hearing that the memory makers are somewhat constrained in their shell capacity. Is that the driver that is limiting the growth to mid-single digit? If you can just walk us through the puts and takes. Gabriel Waisman: Definitely. Thank you for your question. So first of all, I believe that there's been some improvement since the September discussions. But in general, I think that for the Nova side, we do believe that we have the right growth engines and ability to outperform this growth. And we estimate that 2026 will continue the trend and that in general, we believe it will be more of a second half weighted year. Atif Malik: Great. And then, Guy, on the gross margins, a little bit light on the reported quarter and guiding to 58%. Can you walk us through the puts and takes on the gross margin? And are you seeing any impact from the incremental China restrictions to your gross margins? Guy Kizner: So this quarter, we reported gross margin of 59%, and it's aligned with our forecast. Looking ahead for the next quarter, we are guiding 58%, plus/minus 1% point. That range reflects continued discipline in pricing and cost structure and importantly, our ability to deliver strong value to customers. The main fluctuation when they occur in the gross margins is mainly product mix during the quarter. And the right way to look on our performance is on an annual basis, where in 2025, we expect to see 59%, and it's well aligned within our target model of 57% to 60% gross margin. Atif Malik: And the impact from the China restrictions, any incremental impact? Guy Kizner: No. Currently, we don't see a significant impact from China. Operator: The next question comes from Blayne Curtis with Jefferies. Ezra Weener: It's Ezra Weener on for Blayne. Just to start, in the quarter, foundry and logic was down like 6%, memory up a little over 20%. Can you talk about the moving pieces there, especially considering you said leading-edge foundry hit a record? And then how do you see that going into next quarter? Gabriel Waisman: Sure. So first of all, we mentioned that, as you said, that this quarter has seen an increase in the memory sales, and we've reached a record revenue level. This quarter, memory was about 30% of our sales, where DRAM generated the majority of that business. And we see DRAM is recovering nicely, and we have a good exposure in this market. We do expect this trend to continue next year and that memory will be one of the growth drivers for WFE in 2026. Saying that, our long-term model suggests a ratio of 40% memory and 60% logic due to the higher metrology intensity in logic. Specifically to your question about the ingredients of that growth, we see adoption of our portfolio across the product divisions by leading memory customers. We mentioned record VF XPS sales to memory. We have multiple orders for the latest and greatest PRISM stand-alone OCD tool. We have a new win for the WMC for HBM, and we have a new memory customer in chemical metrology. So we do see the fundamentals of the growth in the memory, and we do expect a continued growth next year in that sector. Ezra Weener: Got it. Then in terms of what you're seeing from China, given clearly trailing edge foundry logic is down. Gabriel Waisman: Excuse me, you were cut at the end. Ezra Weener: Yes. So foundry and logic is down in September, but leading edge was up. So that does seem to likely be related to China. Can you talk a little bit about what you're seeing in China? Gabriel Waisman: Sure. So first of all, we expect the nominal volume of our business in China this year to be slightly higher year-over-year compared to last year. We mentioned that the revenue is skewed towards the first half of the year. And on an annual basis, we expect our revenue from China to be nominally higher all in all. But of course, that the share of the overall business from China should be lower than last year. Last year, we had 39% and this year will be lower, probably the range of, let's say, the 30-ish-plus percent mark. We do believe that China has already normalized in terms of the business levels in the second half of this year, and we expect this trend to continue in the first half of 2026. Operator: The next question comes from [ Liam Farr ] with Bank of America. Unknown Analyst: On for Michael. I was just wondering in terms of gate-all-around, what kind of trajectory are you seeing in 4Q and through '26 as well? Gabriel Waisman: So gate-all-around has been driving our business and the third quarter has peaked in that respect. We are exposed to all of the 4 gate-all-around players. And we mentioned before that the aggregated business that we expect for '24 to '26 from that gate-all-around business is about $500 million, and this is well in track. Our business from gate-all-around in 2025 significantly increased, and we expect this to continue next year. And as I mentioned before, we are on track with our original plan both in terms of scope and in terms of time lines. We are very fortunate and we're encouraged to see all the 4 players advancing towards manufacturing. And we believe that this will continue where demand is certainly growing. Unknown Analyst: Just a follow-up. In terms of -- you've mentioned M&A adds upside to your long-term model. Where would you like to expand or do a tuck-in deal, if you could? And what kind of capabilities would you be looking to acquire? Gabriel Waisman: So after the convert that we successfully concluded early in September, we definitely have the right war chest to pursue inorganic growth opportunities. We are looking predominantly on the semiconductor area, process control, but we are definitely open to some additional segments as long as there is a strong semi business in that part. We have a dedicated team in the company that pursues such opportunities, and we are definitely looking forward in making sure that we can execute on our strategic plan in that respect. Operator: The next question comes from Vedvati Shrotre with Evercore ISI. Vedvati Shrotre: My first question was on the WFE outlook that you shared. So you mentioned it's second half weighted for 2026. Can you provide some color whether -- how this splits like foundry logic versus memory? And is that comment of second half weighted for both the end markets? Guy Kizner: Thank you for the question. First of all, I'd like to reiterate the fact that we have the right growth engines and the ability to outperform the growth of WFE next year. We see some upside as well. And in terms of the specifics, I believe that the advanced nodes, in particular, gate-all-around will accelerate further in the second half of next year, driving that weighted assumption. But of course, we are not giving any color beyond that other than saying that we believe that we have both memory and advanced logic driving the business in next year in general and accelerating towards the second half in particular. Vedvati Shrotre: Understand. And my second question was more on the advanced packaging piece. So you have the portfolio sort of increasing with your WFE product lines. And at the same time, you're kind of winning multiple applications across HBM and advanced foundry logic. What's your view on advanced packaging contribution for '25? And like how much of your revenues would be coming from advanced packaging applications this year? And where does that go next year? Gabriel Waisman: Sure. So the current 2025 numbers show a high double-digit revenue growth for the company. We expect to see a higher share of revenue for advanced packaging compared to last year. Last year was about 15%. This year, it will be approximately 20%. The majority of the revenue from advanced packaging is coming from logic devices, whereas the main contributors, by the way, for that business are the dimensional and chemical metrology portfolios, which I alluded to in the script. And we expect 2026 to grow -- to further grow in that business, definitely given the latest AI announcements that we heard of. Vedvati Shrotre: Understood. And if I may squeeze one last one in. On -- like I understand your positioning on DRAM side. And I think foundry logic, your positioning is very clear. Could you give us a sense of what it -- like your positioning in NAND cycle? What would you have to see for like maybe the NAND revenues to start exacting? Gabriel Waisman: So NAND is a bit muted still. I definitely hope that it will be growing probably towards the second half of next year. And we are well positioned in NAND as well. So our business, which is basically capacity driven, requires more investments on the capacity side that, as I mentioned, I hope would start at the second half of next year. Operator: The next question comes from Charles Shi with Needham. Yu Shi: Congrats on the good results. Maybe I'll start with the commentary on next year, mid-single-digit WFE, you outperformed that number second half weighted. But can you provide a little bit color on relative to second half '25, what's your best view on first half '26 in terms of your top line run rate, et cetera, and maybe some of the puts and takes between, let's say, foundry, logic and memory or China, non-China as much as you can at this point? Gabriel Waisman: Sure. Thank you, Charles. So first of all, we don't, as you know, provide guidance beyond the next quarter. So it would be difficult to drive into details. But I would mention that 2026 is driven by both memory growth and investments in advanced logic and advanced packaging. Our position across these segments is strong, and that would drive our growth relatively -- related to that. And we also invest a lot in market share gains in order to accelerate and fuel that momentum. In terms of China, I believe that the business that we see in the second half of the year or the second business that we already have in China is already normalized in terms of business levels. And we expect this trend to continue in the first half of next year. Beyond that, at this moment in China, our visibility is limited and the market is very dynamic, so we need to see how things evolve. Yu Shi: Got it. Maybe I quickly follow up on China. It sounds like first half '25 was pretty strong for you. Second half, it's normalized. China sounds like it's a little bit first half weighted for '25. And if I extrapolate what you said that normalization trend continues into first half '26, it sounds like China is probably a down year next year. Is that the right read? And if that's the case, what do you -- yes, sorry. Gabriel Waisman: Sorry for interrupting you, Charles. Not necessarily. So I mentioned that we have lower visibility for the second half as it's a very dynamic market. But we do hope that nominally, the business in China will remain solid. So it doesn't allude to any changes in the overall levels in China next year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Gaby Waisman, Nova's President and CEO, for any closing remarks. Gabriel Waisman: Thank you, operator, and thank you all for joining our call today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Vivid Seats Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Following management's prepared remarks, we will open the call for Q&A. I would now like to turn the call over to Kate Africk. Kate Africk: Good morning, and welcome to Vivid Seats' Third Quarter 2025 Earnings Conference Call. I am Kate Africk, Head of Investor Relations at Vivid Seats. This morning, we issued our third quarter financial results. The press release as well as supplemental earnings slides are available on the Investor Relations page of our website at investors.vividseats.com. During the course of today's call, we may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks and uncertainties described in our earnings press release, our most recent annual report on Form 10-K, our subsequent quarterly reports on Form 10-Q and our other filings with the SEC. On today's call, we will refer to adjusted EBITDA, which is a non-GAAP financial measure that provides useful information for investors. A reconciliation of this non-GAAP financial measure to its corresponding GAAP measure can be found in our earnings press release and supplemental earnings slides. This morning, we also announced a leadership transition that is effective today. Lawrence Fey, who has served as Chief Financial Officer since 2020, will succeed Stan Chia as Chief Executive Officer. Additionally, Ted Pickus, who has served as Chief Accounting Officer since 2022, has been appointed as Interim Chief Financial Officer until a successor is identified. Accordingly, Larry and Ted are joining me today on the call. With Larry's extensive history with Vivid Seats dating back to 2017, the Vivid Seats Board believes he is uniquely qualified to navigate the evolving industry environment and steer the company back to growth. Larry will share more detail on his vision for Vivid Seats next chapter today. And now I would like to turn the call over to Larry. Lawrence Fey: Good morning, everyone, and thank you for joining us today. First, I would like to discuss the leadership transition and express my gratitude to Stan for his leadership and service over the last 7 years. His accomplishments include successfully leading Vivid Seats through a global pandemic, bringing Vivid Seats to the public markets and launching key innovations such as the Vivid Seats Reward program, which provides a foundation on which we will continue to build as we deliver a unique and leading value proposition to our customers. I recognize the responsibility of this role and we'll look to take decisive action to reverse recent trends and build a resilient business well positioned for long-term success. The core pillars of our strategy start with the foundational advantages that have been in place at Vivid Seats for years and build from there. There is much work to be done, but the foundation to return to profitable growth is in place, and our path forward is clear. Vivid Seats has long been known for its leading tech capabilities, unique data and focus on efficiency. In recent years, as paid search has become more competitive and customer acquisition economics have become strained, Vivid Seats has increasingly invested in its app with a focus on building a loyal and recurring customer base. We are now increasing our focus and investment in delivering a leading value proposition to our customers. Alongside our loyalty program with rewards redeemable in the app, late in the third quarter, we launched our lowest price guarantee also in the app. We believe the combination of our lowest price guarantee and our loyalty program represents the most compelling value proposition in the industry, and we are already seeing positive responses from our customers. With our enhanced value proposition, we expect to see a growing number of app users and resulting transactions. Our app users return more often, convert at a higher rate and touch performance marketing channels less. Over time, as our volume increasingly moves into the app, our performance will be increasingly insulated from the heightened competitiveness we have seen in performance marketing channels in recent years. Further, we believe that information transparency will only increase as AI proliferates and impacts the way consumers interact with brands across the Internet. It will take time to build comprehensive awareness of our enhanced app value proposition, but we are confident we will disproportionately benefit as AI reshapes consumer discovery and decision-making as we match consumer demand with the most compelling value in the industry. One of our initial efforts to build awareness of our app value proposition is our recently renewed partnership with ESPN. With ESPN, we have launched a national marketing campaign on Disney streaming, which is reaching more than 127 million global subscribers across over 700 live sports events monthly. We are excited to see how fans respond to our new offering as awareness continues to build. We believe our investments in delivering a leading value proposition will drive order volume but reduce our take rates. Funding these investments in a sustainable manner will require a commitment to operating the most efficient platform in ticketing. We will focus on operating as a lean and agile organization enabled by powerful technology and unique data. We announced the cost reduction program last quarter, and we are now more than doubling our fixed cost reduction target from $25 million to $60 million. We have made substantial progress towards our updated target with savings spanning fixed marketing, G&A and stock-based compensation. Both these savings and our considerable reinvestment in our app value proposition are reflected in our initial 2026 guidance. Continuing with our theme of driving efficiency through clear focus, we executed our corporate simplification agreement, which included the termination of our tax receivable agreement and the collapse of our dual class share structure early in the fourth quarter. The corporate simplification will yield substantial immediate and ongoing savings. As part of the termination, we issued approximately 400,000 Class A shares to the former TRA parties. In return, we will avoid $6 million of cash TRA payments otherwise due in Q1 2026, while capturing up to $180 million of lifetime tax savings, subject to generating sufficient profitability. In addition, by simplifying our structure, we expect to save approximately $1 million per year from reduced financial reporting and compliance costs while also removing tax inefficiencies in our structure. At current levels of profitability, we anticipate our annual cash income taxes to be approximately $3 million. The savings between our cost reduction program and corporate simplification will create a more focused and agile organization, one that can invest strategically for growth while maintaining discipline and profitability. Next, I'll address trends in our third quarter results, which we believe validate our path forward and underpin our initial 2026 outlook, which Ted will provide. While private label remains under pressure, we are encouraged to see stabilization and early signs of momentum across our owned properties. Against the flat sequential industry backdrop, Vivid Seats and Vegas.com delivered sequential GOV growth, while the Vivid Seats app delivered double-digit sequential growth and returned to year-over-year GOV growth. This is a direct result of our ongoing investment in product development and our enhanced value proposition. As we look to the fourth quarter and into 2026, there are no quick fixes, but our priorities are clear. We are committed to improving our financial performance by leveraging Vivid Seats foundational advantages, including leading technology, unique data, best-in-class efficiency and continued investment into a unique and differentiated value proposition. Now I'll turn it to Ted to discuss the quarter and financial outlook in more detail. As we mentioned earlier, Ted, our Chief Accounting Officer, will take on the role of Interim Chief Financial Officer. Ted has been at Vivid Seats leading our accounting function for more than a decade. I have full confidence in Ted, and I'm glad to have him step into the interim CFO role as we manage our leadership transition. Ted Pickus: Thank you, Larry, and hello, everyone. I am honored to be with you today and to assume this role during a transformational time for the business. Turning to our results. In the third quarter, we delivered $618 million of marketplace GOV, $136 million of revenues and $5 million of adjusted EBITDA. These results reflect an intense competitive environment that impacted our private label business, which was also impacted by the loss of a large partner. We generated $618 million of marketplace GOV in Q3, which was down 29% year-over-year. Total marketplace orders were also down 29% with average order size flat. Looking at sequential trends compared to Q2 of this year, overall marketplace GOV was down 10% due to private label headwinds, while owned property GOV increased in a flat sequential industry environment. We generated $136 million of revenues in Q3, down 27% year-over-year. Our Q3 marketplace take rate was 17.0%, down from 17.5% in Q3 2024. We expect near-term take rates in the 16% range. Our third quarter adjusted EBITDA was $5 million, down substantially from the prior year due to lower volume, lower take rates and negative operating leverage. We expect improved operating performance as we enter 2026 with the full benefit of our recent cost reductions. Next, I'll address our 2026 initial outlook. With stabilizing owned property volumes, we expect 2026 marketplace GOV in the range of $2.2 billion to $2.6 billion. At the midpoint, this assumes Marketplace GOV roughly in line with our third quarter run rate. We intend to reinvest cost savings into our enhanced customer value proposition and as such, currently anticipate $30 million to $40 million of 2026 adjusted EBITDA. Our 2026 initial outlook assumes industry volumes are flat year-over-year as the core concert on sales season, which provides supply visibility for the coming year has yet to occur. We ended Q3 with $391 million of debt, $145 million of cash and net debt of $246 million. Against a flat industry environment, we saw working capital continue to consume cash, but at a substantially lower level than seen the first half of the year. I'll now hand it back to Larry for concluding remarks. Lawrence Fey: Thanks, Ted. Despite challenging year-over-year trends, the third quarter offered signs of stabilization, including sequential growth in owned property GOV, year-over-year growth in app GOV and substantial cost reduction progress. From here, diligent execution is crucial, but we believe our investment into our app value proposition provides a clear path to return to growth. With that, operator, let's open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Ted, welcome to the call. I guess the first question is really just -- I'd like to hear a little bit more about what gives you confidence in issuing '26 guidance this early given the pressures that have existed in the business recently. I heard you on the stabilization front, but just a little bit more on what gives you kind of that increased visibility relative to the past, I think, would be helpful. And then if you could just kind of try and help contextualize what's reflected in the high and low end of the guide for next year with regard to competitive environment and expectations and any other gating factors around what would determine whether you shake out on the high or low end? Lawrence Fey: Yes. Cameron, yes, I think the you've heard us say in the past that we prefer to give guidance on our Q4 call once the Q4 on sale calendar has run its course as you'll have more industry visibility. And so the important caveat in the guidance we put forward is it presumes a flat year-over-year industry outlook. And I think to your question on what would govern the low end versus the high end, I would start with if the industry under-indexes to flat, that would push you towards the low end. If it over-indexes or grows, that would push you towards the higher end. We certainly saw the Live Nation commentary, which if you interpolate what they said, it feels like they're pointing towards another positive growth year in North America. So hopefully, there is some conservatism built in. We'll learn more over the coming months on exactly where the industry settles out, but try to put a baseline that we think is reasonably skewed to the cautious side of the spectrum on the industry performance. Why do we put guidance out, why do we have confidence? I'd point to a few elements. I think one, we obviously pulled 2025 guidance. So it's been a while since there's been a flag or a stake in the ground for folks to look at. You can see a number of changes playing out in Q3, where we talked about our cost reduction initiatives. We talked about some of our reinvestment in our value proposition and lots of puts and takes. And rather than having there be a vacuum where people are waiting in suspense for 4 months on what the net of all of those are, we wanted to distill it down to a target probably goes without saying if competition or competitive intensity reaches new highs, that will pressure. And if they abate, that will be a release valve relative to the range we put forward. But we've assumed essentially a broad continuation of the competitive intensity we've seen in the second half of 2025. Operator: Next question comes from the line of Dan Kurnos with Benchmark Company. Daniel Kurnos: Larry, I guess, maybe just to double-click on the leadership transition. Obviously, Stan had a lot of digital experience from his history. So I guess maybe why now make this move? If you could just give us some color on the thought process. And obviously, to be clear here, I think you're eminently qualified to lead the company, Larry. I just would be helpful to get sort of some of the thought process on the timing. And then in an agentic world, you talked about discovery with OpenAI. If you're going to push app, which is fine, everyone else is putting their app into OpenAI for discoverability. So I don't know what your thoughts are about that, given some of the puts and takes on demand gen and OpenAI potentially becoming the source of demand gen, but -- just help us think about your willingness to increase visibility via that channel and other ways that you might increase the visibility of the value prop? Lawrence Fey: Yes. Thanks, Dan. I'd start with the thanks to Stan, of course, we're sincere 7 years was a great run. I think it was just reaching a time for a shift and preparing the business for the efficiency push that we're embarking on in the near term. To the second question, I think you touched on a theme that is spot on. Yes, we're pushing on app. And I almost think of the customer universe as 2 buckets, right? There's the new customer acquisition and there's a competitive dynamic around that. And then there's the folks who have already done their research and made informed decisions around which marketplaces they buy from or which marketplaces they consider, and that generally occurs in the app. Where I think there could be a really interesting blurring of those lines or fusion of the 2 as we move forward. If one of the fundamental tenets of AI is increasing information synthesis, increasing information transparency as we increasingly place the best value proposition out into the ether. We then, of course, have an obligation to make sure that value proposition is digestible by these new AI platforms that are looking for all of the best information to synthesize and distill for customers. But you better have something that's compelling, right? If they do their job and put forward the best value proposition, you better be front of the line. And so that's where we're going with the app. I think in the near term, while we wait for the commerce portion of the AI disruption to fully arrive, we're going to continue focusing on retaining our customers in the app ecosystem. And then we think there's opportunity coming on that customer acquisition as the technology format evolves. Operator: Next question comes from the line of Maria Ripps with Canaccord Genuity. Maria Ripps: Larry and Ted, congrats on the transition. Can you maybe share a little bit more color on the competitive backdrop right now? Are you seeing any early signs that maybe some of the competitors in the space are starting to focus more on profitability? Lawrence Fey: Yes. Thanks, Maria. We've talked in the past a bit about ebbs and flows, and it can be a little dangerous to extrapolate short-term behavior and assume it continues indefinitely. But I would say, broadly aligning with, call it, changes in corporate status, we have seen a shift in competitive posture. It was a fairly methodical increase in share that we saw from StubHub over the last couple of years. It come in waves, but it kind of went one direction. And we've actually seen that reverse and roll over in September and October, where they're now down year-over-year on share. And I think that is directly tied to what we perceive as a shift in marketing aggressiveness. The magnitude, obviously, it was enough to reverse that trend, but it wasn't like a reversion to 2022 or 2023 levels. And we, of course, know that they reserve the right to change their mind and posture as we embark into 2026, but a notable change over the last, call it, 6 weeks to 8 weeks. Maria Ripps: Got it. That's very helpful. And then any early thoughts you can share sort of on quality of concert lineup in 2026? Lawrence Fey: Yes. We -- I'd say, continue to be looking to Live Nation for the prospective views on what's coming. I heard pretty positive commentary when I read the release, I think they touched on what clearly looks like positive North American growth, a skew towards larger venues. Thus far in the year, you get into these year-over-year comparisons where timing just varies slightly year-over-year. But we're in the midst of this year, Morgan Wallen just announced that I think will be one of the top tours of the year. We've seen several others. So at this point, I would say, other than week-to-week variance, it looks like the Live Nation commentary is flowing through in what we're seeing. Operator: Next question comes from the line of Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: In response to the FTC lawsuit, Ticketmaster shutting down TradeDesk for concerts. They're also limiting Ticketmaster accounts even further as it appears as they take more action on pricing. Curious your perspective on this. Does this present an opportunity for Vivid to take share on the POS side. But at the same time, I guess the negative would be how much contraction and negative do you see from a supply standpoint in the secondary ticketing? Lawrence Fey: Yes. Thanks, Ryan. I think you framed it properly in that any disruption to TradeDesk, I think, can only be a tailwind, and we think SkyBox will be waiting with open as with its best-in-class capabilities to support any customers who no longer have the full suite that they need to run their business and can only help our position. And then as you said, counterbalance, if there is additional pressure, I'd start from our fundamental view is that the vast majority of what drives this industry is fundamental financial well-functioning financial market, right, where you have artists and teams who are looking to diversify risk. You have artists and teams who are looking to offload risk well in advance of shows and that there is a healthy, vibrant financial instrument via the secondary market that facilitates and benefits all parties. To the extent folks are violating the rules of the game, we have always said this, we continue to say it, we can, should, will support anything and everything that needs to be done to ensure folks do play by the proper rules as defined by the artists and the primary ticketing platforms. To the extent there are folks that are -- I'm sure there are right, there's got to be a bad actor out there. To the extent those folks' behaviors are forced to modify, I think what will be unknown, right? And we'll find out, as you all find out, does that contract the secondary market? Or does it just change the form where you now have increased fragmentation where new smaller sellers fill in the gap and the overall market opportunity remains the same. So we'll keep a close eye on it. But I do think -- yes, there's a positive tailwind on TradeDesk, a potential headwind, but maybe not on the change to Ticketmaster policies. Ryan Sigdahl: Then just the other hot topic kind of from an industry standpoint, direct issuance. Vivid has a smaller DI type offering with college basketball crown. But curious what you think about the ambitions of some of your peers in the space on this model specifically? And then kind of to your point on rules of the game, I guess, contractually, et cetera, I guess, just your thoughts on direct issuance and the viability of doing that in an accelerated way going forward? And what that potentially means from a secondary marketplace standpoint if that further limits the supply of brokers play? Lawrence Fey: Yes. I think obviously, strategies are subject to change. And so just reacting to the way we have seen the direct issuance opportunity defined to date, maybe they change us. But to date, it's been primarily focused as we understand it, on unsold inventory. And so you can imagine regular season baseball games, less popular theater shows where you have well past the event going on sale substantial available inventory available from the primary. And if that gets piped directly into a secondary marketplace, that would represent incremental supply. I think the threshold question for the robustness of that opportunity would start with, is this a supply or demand-constrained industry? And does the fact that you took an event that already had a decent amount of supply and made more available, will that stimulate incremental demand? Or will it cannibalize the eyeballs that you were already getting on the site and to sell more, you still need to get additional eyeballs and spend the marketing dollars to bring them in. I think our viewpoint has been that generally, this is a demand-constrained exercise, not supply constrained in all but the most rarefied air, right? Like you could see Taylor Swift tickets really selling out, but most events, including World Series, Super Bowl, right? There are tickets available all the way up until the event starts even for the highest profile events. So I'd say we're a bit more muted on our belief of the impact that could have. But we certainly have heard that the ambitions are big, and so we'll keep a close eye. Operator: Next question comes from the line of Ralph Schackart with William Blair. Ralph Schackart: Larry, I just kind of want to circle back on sort of driving more awareness to the app and sort of the efforts there. I know you talked about having ESPN as a partner to do that, which is obviously a great partner to have there. But maybe you could just sort of provide a little bit more color how you drive more direct traffic here and build more awareness? And would you be contemplating potentially like a marketing campaign or other efforts to grow more awareness to go direct to the app? Lawrence Fey: Yes. Ralph, I think we're doing what I would call our brand marketing surge via ESPN. That is going to be concentrated in the near term kind of throughout Q4, which is peak sports season. I think this is an industry where there's been many attempts to do broad-based brand marketing, and it is challenging to prove compelling ROI from that. So I don't think we're going to reverse course and jump head first back into broad brand marketing. I think we're going to continue to focus on thoughtful different slices of, call it, more targeted performance-based metrics. One of the advantages we have foundational strengths we have is we've been one of the leading marketplaces for a long time. And as a result, we sold a lot of tickets to a lot of people, and we have a really robust existing user base, really robust CRM database. And so a lot of our effort has been increasing our personalization, improving the nature of our messaging. And now when we're delivering a message with a fundamentally improved value proposition, I think that leads to more engagement across that existing user base. And then continuing as people -- we acquire them on the web, making them immediately aware of what awaits -- if they trusted us enough to buy on the web, that's wonderful. And I think we have perks that would compel them to come back to the app and making sure that, that hyper addressable audience gets made fully aware of the proposition. Those are the 2 major buckets I think we'll be focusing on in the near term. Operator: Next question comes from the line of Steven McDermott with Bank of America. Steven McDermott: Just 2 quick ones. Firstly, for 2026, what World Cup assumptions are kind of built into that outlook? Lawrence Fey: Yes. We essentially have not assumed a meaningful impact from World Cup. I think that is primarily due to 2 things. One, there's not a lot of precedent that we can rely on, right? The U.S. World Cup in an era with online secondary ticketing has 0 precedent data points. When we look at the last 2 World Cups, they are in markets that we basically don't operate in, in Russia and Qatar. And so trying to strike a cautious tone given a lack of conviction beyond that. The second observation, I think it's fairly well documented, but we've seen FIFA be, let's say, quite aggressive in seeking to monetize, optimize their monetization of the event. I think it's safe to assume there will be incremental volume. We will benefit from it. But between those 2 factors, we've opted to essentially disregard it as we've contemplated our outlook for next year, and it would purely represent upside. Steven McDermott: Got it. Appreciate that color. And then my second question, just -- it sounds like you said StubHub pulled back on marketing spend a bit. Is it fair to say that the Q3 exit rate improved on a year-over-year basis? Lawrence Fey: Yes. I think it would be fair to say that over the course of Q3, we saw a shift in their behavior and a corresponding shift in volumes across marketplaces. Yes, that happened closer to the end of Q3 than the beginning. Operator: Next question comes from the line of Brad Erickson with RBC Capital Markets. Bradley Erickson: I just follow up on that last one, actually, Larry. When you say -- or when you look at kind of what's instructing the stabilization commentary on the owned property business, so you mentioned competitive intensity easing several times. Is that kind of the main driver? Any other drivers you'd call out there, either things in your control or other market forces? Lawrence Fey: Yes. I think the biggest one is -- so yes, the competitive landscape, of course, matters. But I'd say similar, if not equal, if not slightly more important in terms of what we've seen in the immediate term has been this value proposition push. And inherent in what we're trying to achieve, as we get more volume in our app, I think that is a more protected ecosystem, right? You can bid whatever you want for a Google Link. But if someone already has our app, already trust us is already looking at us. they will likely look at us. And if we have a structurally better offer, it doesn't matter who else is buying the top Google Link. And so there's -- you control your own destiny more on app. That's why we're pushing, right, reduce the surface area and exposure to competitive response. That's a long game play, right? You don't make that change and immediately have profound shift of volume from one channel to the other. But we have seen market increases in the volume that's moving into the app. And I think this is one of those like layer cake dynamics where every month that goes where you bring in a new cohort of customers who have done their research, seen the value prop, they're going to be fundamentally stickier. And over time, that will compound and build into something pretty exciting. Bradley Erickson: Got it. And then I appreciate the '26 guide and all you gave the EBITDA numbers. Any color you can give maybe on cash conversion relative to that EBITDA guide? Lawrence Fey: Yes. So I appreciate that question. Yes, I think if we look at our cash obligations moving forward, you have roughly $20 million of net interest expense. We'll have a bit less than $20 million of ex cap software. And then we mentioned in this release that pro forma for the TRA transaction, we'll have about $3 million of cash taxes, primarily from international operations. So you sum those up before you consider working capital, you have a roughly $40 million set of cash obligations. As we've kind of talked about quite a bit the last few quarters, when we're growing, working capital is a source when we're shrinking, it's a use of cash. And so I think at the epicenter of will cash balance grow next year is do you believe that we can sequentially grow GOV. I think it's reasonable to assume that take Q1 as we lap the private label losses that we saw in Q3, continue to lap those. The overall year-over-year GOV numbers will continue to be down. But if the sequential help because the balance sheet kind of remark to market every quarter is stable and growing, you can see working capital reverse course. And so the base case plan is at the midpoint or better of our guidance, we would expect to be cash generative next year. Operator: Next question comes from the line of Ben Black with Deutsche Bank. Unknown Analyst: This is [ Kunal ] for Ben. Quick one on the outlook, and you just talked about the cash flow consequences that we could see. One thing with regard to the assumption that underlie that. So are you assuming that the competitive intensity remains at the September, October levels in 2026? Or are you assuming that maybe things go back to what we had seen earlier in this year, and that is what determines the market share that you expect in '26? And then the second one would be with regard to the traffic that you are getting and the traffic that you have on your app. What is different from other providers that makes your value proposition so unique that people will not go anywhere else to shop? Lawrence Fey: Yes. So let me start with the app value prop because I think that's a really compelling one. I think we've talked about our loyalty program for a number of years. We continue to be on a journey to build awareness of that loyalty program. But those who find and use that program, I think, structurally buy more at a multiple of the typical user. And it -- even before the more recent changes to our value proposition, I think, resulted in kind of a clear best-in-class value prop. And then recently, what we've really pushed is base lower everyday pricing. And then we're continually innovating on what kind of inducements and incentives we can provide as customers move through their journey -- their lifetime journey with us. So we think if you create an experience where someone comes in and realizes that your pricing without paying consideration to any incentives, without paying consideration to loyalty are the best in the industry relative to our largest competitors, you have a good experience, right? You get great customer service, you enjoy the way out of the site. And then subsequent to that, you get thoughtful recommendations, you get incentives and inducements, you sign up for loyalty and that price advantage becomes even more significant. That's a really compelling lifetime experience. Now is that to say that others can't offer various elements of that. I don't think there's anything philosophically that would prevent folks from doing it. I think it's an economic question, right? If you're spending significant amounts bidding for the top keywords on search, can you do that and offer these lower price points? If you have very large partnership obligations, can you do those and offer these inducements and incentives. So we'll see, right? I think our belief is that we can operate the leanest platform, and that uniquely enables us to sustainably deliver a best-in-class value prop and others will need to respond as they see fit. As it relates to the first question on the competitive environment contemplated, it's difficult to be precise on this. we certainly have seen that it's been kind of an up into the right level of intensity over the last 2 years, and we are -- we want to make sure we don't just forget that. We also want to reflect that we have seen a change. And so I would characterize the midpoint as, call it, something in between what we've seen in September and October and what we saw at the worst of it kind of late Q1, early Q2. And so a little bit of reversion from the run rate, but not all the way back to the most extreme point that we saw. Operator: Next question comes from the line of Thomas Forte with Maxim Group. Thomas Forte: So first off, congratulations, Larry and Ted, on the new opportunities and best wishes to Stan for his future endeavors. One question, one follow-up. So Larry, are you seeing any changes in consumer behavior when it comes to the secondary ticket market? For example, when you have a game 7 and a playoff series, are they still willing to pay premium prices for the experience as they have in the past? Lawrence Fey: Yes. Tom, I would say, as a broad aggregate statement, continues to feel like live events are a central piece of what consumers want to spend their money on. We had a tough World Series comp, right? You can't really get better than the Yankees and Dodgers. And so I think World Series volumes and average order size were down relative to that. But when we look at the World Series relative to every year post-COVID other than the Yankees and Dodgers, this was the second best year. And so I think healthy, robust demand, we're seeing that across a lot of high-profile events. I think we alluded to this last quarter. To the extent we have seen softness, it's more been on the lower end of the market. And I think we actually see that manifest in Vegas more than in our core business. The call it, weekday lower AOS shows have been feeling, I think, some of this much talked about consumer softness. Thomas Forte: Excellent. And then I might be a little early in this one. But can you talk about your capital allocation priorities, including reinvesting in the business, international expansion, strategic M&A and buybacks? Lawrence Fey: Yes. I think for now, it's reasonable to assume that we won't be looking to complete acquisitive M&A that would be, call it, adjacencies. I think we've long believed that there could be a compelling consolidation in the space. And so we would be eager participants in that. But TAM expansion, I think we've got to batten the hatches and focus on the core business. Given the performance on both EBITDA and cash flow this year, I think we'll display a lot of prudence on any cash leaving the system, including share repurchases in the near term. I think we think that there's a very compelling value at these prices, but step one is batten the hatches and assure that we have all of the capital we need to continue investing in all the initiatives that we see really compelling ROIs against such as international. And so we'll keep doing the defend the core. And then once we have a little more of a proven track record of stabilization, return to growth, return to cash, we can open up the aperture a bit. Operator: Next question comes from the line of Andrew Marok with Raymond James. Andrew Marok: Maybe on the international part there, I guess, what signals are you seeing in kind of that what you call the core international business that give you the impetus to continue investing there as opposed to maybe rationalizing some incremental cost savings out of that business? Lawrence Fey: Yes. Andrew, I'd start with -- we've been pleasantly surprised at the quickness with which we've been able to bring the international business to be contribution margin positive. So we are there today already. I think we've had -- just to refresh on the context, Viagogo has a very substantial market position in Europe. And as a result, when we have shown up in pockets where we have fully competitive supply, and I would say that has initially been areas where it's either NFL comes to Europe, U.S. artists go on global tours or other events where U.S. sellers have meaningful positions. We immediately have fully competitive supply. When we have competed for traffic and eyeballs on those areas with competitive supply and competitive pricing, we have seen abundant success. The task ahead then is to continue to add pockets across various countries, especially with a focus on local events where we can have that fully competitive supply and pricing. And from what we've seen, the ability to market profitably will follow quickly once you have that supply in place. That's some hand-to-hand knife fighting to get to that point. And so that's the journey we're on from here. Operator: There are no further questions at this time. That concludes today's call. Thank you all for joining. You may now disconnect.
Unknown Executive: [Interpreted] Good morning, everyone, and welcome to Iochpe-Maxion Third Quarter 2025 Earnings Release Video Conference. I'm Rodrigo Caraca, Senior Investor Relations Manager, and I'll be conducting today's video conference. Present in the video conference today and available for the Q&A session are Mr. Pieter Klinkers, CEO; and Mr. Renato Salum, CFO. We inform you that this video conference is being recorded and will be made available in the company's Investor Relations site along with the respective presentation. We highlight that Mr. Pieter will conduct the presentation in English. [Operator Instructions] Before moving on, we would like to clarify that statements made during this video conference related to the business perspectives for the company, projections and operating goals and financial goals constitute beliefs and assumptions from Iochpe-Maxion's management based on information currently available to the company. Future considerations are not performance guarantees because they involve risks, uncertainties and assumptions regarding events in the future that may or may not occur. I will now give the floor to Mr. Pieter Klinkers, CEO. Please proceed, sir. Pieter Klinkers: Hello, everybody. Thank you for listening in to our third quarter 2025 earnings call. Before we start to share some slides and talk about some numbers as we do usually, I want to come back to something I said earlier this year during our Investor Day in Sao Paulo when I referred to a quote from Ayrton Senna, I think all of us know him, who said -- you may remember, I said this. Who said when it's sunny weather, you cannot overtake 15 cars. But when it rains, you can. And so why am I referring to that quote again is because I think when you look at our third quarter results, it is reflecting some rainy weather in some regions, particularly in North America. And so we cannot change the weather, of course, but we can try to adapt as fast as possible, maybe faster than others. And we can try to mitigate that rainy weather in one particular area with some more sunny weather, and some more performance in other regions. And I think that's what you will see back when you look at our numbers and when we talk through the slides. So let's keep that in mind. That we can go have a look at some of those numbers. If you look at the next slide, you see we used to look at global production ex China. And so you see a little bit of contraction in LV, light vehicle, 0.3% this year and next year, some more light contraction, maybe stability, but it's not great. There's not great growth at this moment. If we look on the truck side, on the right side, I think here, it doesn't look too bad. it's plus 2%, including China, minus 5%, excluding China. But if you look -- and we will talk about it more during this call, if we look particularly at North America, which is a very important market for us, especially when we talk about components, not so much when we talk about wheels. But for components, it's very important that segment and especially the heavy truck segment is very important. You got Class 4, 5, 6, 7, 8, and most of our business when we talk components in North America is actually in Class 7 and by far, the most is in Class 8. And so the higher up the classes, the more contraction we've been seeing already in quarter 2, but quarter 3 was particularly down in that area -- in that segment. And we will talk about it a little bit more during the call. If we look on what that does to our net revenue, this market situation, you can see our revenue in the third quarter amounted up to BRL 3.8 billion, which is slightly down, 4.5% down to the same period in last year 2024. And so there is another slide where I will talk a little bit more in detail about it. But I can guarantee you that if we would have had only half the drop of what we have seen in North America truck, that number would have been up instead of down. And so this has been impacting our overall net revenue meaningfully. Our gross profit, I would say, given that situation in North America truck, very healthy, remained at about 12% -- 12.1% in the third quarter of '25, and we're actually pretty happy with that number. Our EBITDA amounted to BRL 390 million in the third quarter, and that represents a margin of 10.3%, excluding restructuring costs, which amount to approximately BRL 32 million. Our net income was BRL 35 million. And with all of that, our leverage ended up at 2.55x, a little bit higher than we wanted, but still a little bit lower than in the same period 1 year ago. We will also talk a little bit more about growth, particularly in South America. There is a dedicated slide about that in the remainder of the presentation. If we look in more detail on our revenue, you can see that in the third quarter 2025, we were pretty much equal to the last year same period. And if you look at the 9 months 2025, we actually show some growth. But if you exclude FX, these numbers are a little bit down compared to last year same period. And so as I said before, this North American truck market situation has impacted both the 9 months, but more so the third quarter of 2025. I can also tell you that our -- when our impact was the highest in the third quarter of 2025, also our mitigation was the highest in the third quarter '25. That's one of the reasons why the numbers are pretty equal between the 2 quarters last year and this year. And so that means the more impact we have been having, the more we have been able to offset that in other segments, other products, other regions in the world, which is, I think, a good thing to have happening in the company. If we look on our revenue by product, as we already saw happening in the second quarter, you can see, of course, with that North America truck situation impacting components -- our components business very meaningfully. You can see that the percentage of wheels in the company has been growing. And so again, that's because of components going down, but it's also because wheels going up overall in the world. And so right now, it's about an 80%-20% split between wheels and components. If you go to the next slide, you see that also in our revenue by customer. Clearly, see TRATON. TRATON is a global customer for us for wheels and for components, but we have a big business in components with TRATON. That's their international brand in the U.S. And you see that revenue going down year-over-year same quarter. Same for Daimler. Of course, again, this is a global business, and we do a lot of wheels with them around the world. We do business with them for components in South America, but just the impact of North America truck makes that bar go down in 2025 meaningfully versus 2024. The good thing is, again, that some of the other bars are going up. And so if you look at customers like Ford or you look at Toyota, you look at Volkswagen, we are actually gaining quarter-over-quarter. And so that means in total, the impact of the North American truck market is there, but it's not as big as we -- it would be if we would not have been winning in other segments with other customers in other regions. If we look more in detail in other regions, I think South America, clearly, I would say we are continuing. You've been seeing that already in the first and the second quarter, and we're doing it again in the third quarter. We are outperforming the market. And the market quarter-over-quarter was pretty flat from a light vehicle point of view, and it was pretty down, even though it's only 4,000 trucks, but pretty much down on the commercial vehicle side quarter-over-quarter, year-over-year. And contrary to that, I think Maxion clearly up in light vehicles in a flat market and not as much down at all in the commercial vehicle sector. So overall, our revenue is up in the first 9 months of the year, meaningfully 6%, 7%. And even in that third quarter, it's still up by 2.6% versus the same quarter last year. On the other hand, if we look at North America, we see this is where the big drop is and not so much in light vehicles, but specifically in commercial vehicles. And you look at some of the market numbers and they say it's minus 5% or maybe when you look at North America, it's minus 25%. But in the segment where we operate, Class 7, mostly Class 8, we've recently seen some public announcements from big customers. I talked about TRATON. They were announcing the sales were down in the third quarter at about 64%. Daimler Truck said their sales were down close to 40%. We think the production may be a little bit more down than what the sales were down because already in the second quarter, they were down, so they've been slowing down production even more than their sales has been slowing down in order to build down some inventory. So overall, our numbers reflect very much what is happening in the market of heavy trucks in North America. And so here is where we see the big drop in our revenue quarter-over-quarter and with that third quarter also for the 9 months in 2025. If we look -- if we go to EMEA, this used to be Europe, now we call it EMEA. The only difference is the South African plant, which is, I believe, our smallest light vehicle aluminum plant, but of course, the comparison between the 2 quarters and the 9 months compared to last year, that's apples-to-apples. It's the same perimeter. But I would say I'm happy to say that we have a strong performance, stronger than the market performance, and that's true for both light vehicles and in commercial vehicles. And it's true not only for revenue, but I can tell you it's also true when you look at units. And so that does support our overall global results. Now the units is clear. We're gaining share because the market in light vehicles is pretty flat. Our numbers are up. Our units are up in light vehicles. And in commercial vehicles, okay, again, it's only 10,000 trucks more, but the market has been coming back a little bit in the third quarter of '25. Let's hope that continues into the fourth quarter and into next year. But at the same time that the market came back, also our market share keeps on growing. And so besides the units being up, we can also say that the recovery of higher raw material costs and other inflationary costs and a positive mix. And with that, I mean, we're supplying, for instance, on the light vehicle aluminum segment, we are supplying more and more the premium segment. That all contributes to a positive story, I would say, in Europe, EMEA. We go to the next slide. Asia, our revenue a little bit down in the third quarter 2025, but I can assure you that we will be growing in the Asian market, which, as you know, for us is mainly not only, but it's mainly the Indian market. We're very focused on India with our operations and with our sales. And so I wholeheartedly believe that we will be growing in this growing market, and you'll see that back in 2026. With that, what does that all do to our profit and our profit margin? As I said before, a 12.1% gross profit, actually, we think that's a very appropriate number given the circumstances that we talked about -- when we talked about the market. And so BRL 460 million in the third quarter or BRL 1.44 billion in the 9 months from a gross profit point of view, we think those are very -- those are actually very strong numbers. We go to the next slide. We see our EBITDA and our EBITDA margin. And here is where we see a little bit of the contraction where we cannot fully mitigate all of that heavy rain when we talk about Ayrton Senna and his rain, the heavy rain in North America from a truck market point of view. And so our margin, excluding nonrecurring effects, primarily restructuring costs in North America ended up at 10.3% in the third quarter and now amounts to 10.2% year-to-date. We go to the next, the net income, BRL 35 million in the third quarter. I would say this, again, North America truck production situation impacted our results meaningfully also from a net income point of view. On top of that, we had the restructuring costs. And on top of that, of course, as we all know, financial expenses are higher simply because of the CDI, the SELIC costs. So that's what we see back here on this slide as well. When we look at investments, we talk -- we always talk about disciplined CapEx management. And I think you see that back in -- on this slide. Our investments are actually down year-over-year. And of course, we do that because of some of the market slump that we see primarily in North America. So we try to manage our investments down there where appropriate, there were possible. And we think at the end of the year, we will come in with the number that we have been talking about in the prior calls, maybe a little bit lower because of the adaptations that we're doing because of the market situation. We go to the next one. Our leverage, our leverage is a little bit higher than we were targeting. But given the market situation, we're still happy to say even with that, we are slightly below where we were 1 year ago, even though we are slightly up from the prior quarter's presentation. So 2.55x was the number for our leverage at the end of quarter 3. Go to the next. Our gross debt, not so much change on this slide. We think it's a healthy composition of currencies when it comes to our debt. When you look at the term, 93% is long-term debt. So that's very healthy. And if you look on the top right, also our liquidity, our cash situation seems to be very healthy with BRL 1.6 billion cash in hand. And on top of that, BRL 760 million of undrawn credit lines. If you look at the cost on the bottom, I don't think these costs are uncompetitive. It's actually -- these are pretty good numbers. I think the plus 1.2% is competitive, the 3.5% in euro is competitive and the 5.4% in dollars is competitive. It's the CDI that is not competitive, but we all know about that situation. We go to the next one. Going away a little bit from the financials, talking about the business. We present here our third quarter 2025 SOPs. But I think it's more important to mention to you guys that when we talk about market share gains and outperforming in some important regions for us in the world, when we look at wheels, I can tell you that our new business wins, so the amount of new orders, of new -- of wins we have is significantly higher year-to-date 2025. And then I don't talk 5%, 7%, I talk tens of percentages, significantly higher than the same period last year. And already last year was better than the prior year. And so it's another proof for me when I look at the numbers that we are having some very good traction with the company globally on winning new business at appropriate margins. We go to the next slide. If you win share, especially when you win share in a growing market, and a good example of that is the South American light vehicle aluminum wheel market, our wheels are wanted and cars are wanted as well. And so you want to service your customers correctly, you need to do something. And I think you could have seen in the press release that we have been working hard on being able to service our customers like we want and to profit, of course, from this market growth. And so besides supporting our customers temporarily from global operations, which is very important to be doing, and we can do that as a global company. Also, we are redeploying assets from entities around the world, Europe, Asia back to Brazil to our plants in Limeira and in Santo Andre. And on top of that, I believe you may have all read about our recent acquisition of a majority share in Polimetal, which is an aluminum wheel factory in Argentina. And of course, the Argentinian market is doing well, and we believe we will be doing well going forward also. But the main strategic target here is to expand this factory, and it will be much more efficient for us to expand the factory here. In fact, we have equipment standing ready to be installed on adjacent land in San Luis. And so doing that in Argentina creates for us a situation where we will be able to produce wheels that we produce today in Brazil for Argentina to produce those wheels in Argentina, which again frees up capacity in Brazil for Brazil. And so this is just an example of how we try to service a growing market where we gain share in a very efficient way, meaning without spending a huge amount of money by building a new plant, we try to figure out a way to serve the market correctly and profit from that market growth that we are having in that market. With that, let's go to the next slide. We talk a lot about steel components and steel wheels and aluminum wheels, but we don't talk so much about the 2 materials being merged. And I cannot tell you yet that it is happening. But I can tell you that we have been trying for some time. And I can tell you that we're making a lot of progress. And we're now at a stage where we are involved with 2 OEMs, one in Asia and India, one in Europe for making a wheel that is made out of steel and out of aluminum. And as you guys know, wheel is a very important styling element, but the styling you only need there where you look at it, not there where you put a tire on it. And so we would make the rim out of steel and we will make the disc out of aluminum. And with that, we save costs on the steel part, and we guarantee the styling on the aluminum part, not easy. But I think if anybody will be able in the world to make it happen to pull it off, it will be Maxion because we are kind of the only one that is producing both steel wheels and aluminum wheels. And in many instances, by the way, we produce it at the same location or in the same region. And so this would be a true strategic advantage for our company if we will be able to make that happen. Again, I can't guarantee it yet. We're working at it with our customers, but I hope we will be able to talk about it a little bit more in one of the following earnings calls. With that, I think let's go to the last slide, wrap it up. I think it's not what we wanted, the market that we see in North America, and it's impacting us. But we believe that is a temporary situation, and we believe we will be very strong when that market comes back. I'm not saying if that market comes back, I say when it comes back. And I think in the meantime, we're doing a good job on managing through that situation locally and mitigating that situation with our results in the rest of the world. And so that makes us, I believe, a resilient company. We continue to deliver appropriate productivity. We continue to be disciplined in our costs, and we continue to be disciplined in our pricing management. I can guarantee you that. From a growth point of view, I have given some examples on how we try to grow and what we're doing with new business wins. It's really a good story. And I think overall, very important as well, our customers remain to see us as a very reliable, stable and high-performing partner. And I come back to Ayrton Senna, maybe we go a little bit slower because of some heavy rain locally, but I believe we will be able to overtake. And with that, I pass it on for Q&A. Rodrigo Caraca: [Interpreted] [Operator Instructions] And our first question is from Gabriel Tinem from Santander. Gabriel Tinem: [Interpreted] I'd like to know if the capacity has been adjusted already, if there's anything else to help. And in terms of capital allocation, if you could explain the rationale for the [ participation ] of Polimetal and the opportunities you see in these markets? And also still in that topic, if you could talk about the North American market and talk a little bit about how you saw cash management and how you see the leverage for 2025 and 2026 [ a little ]. Pieter Klinkers: Okay. Thank you very much. I believe that were 3 questions. So, I will try to give 3 answers. I believe the first question was around our management of capacity in North America. And of course, we have been adapting our capacity in the sense that we adapt headcount. And so a very significant number of people have been leaving the facility. We hope to see them back in the future. I'm sure we will see a good part of those people back in our plant. But in that way, the capacity has been adapted. We are also convinced that when this market comes back and the longer the downturn would last, the steeper that comeback would be, we believe. When it comes back, we are very well prepared with our existing operations in Mexico from a components point of view as well as with the new plant that somewhere in 2026 will be ready to operate. And it might just be that is exactly the same time when this market comes back. So I hope that answers the question from a capacity point of view. The other question -- the second question was, I think, around the rationale on Polimetal in Argentina. And as I said, the light vehicle market in Mercosur, particularly in Brazil, is doing well, and we are doing well in that market. And so, if you're gaining market share in a growing market, you also need to make sure that you have the capacity. And so, instead of building yet another new plant, we've come up with some other solutions that require some investment, but a lot less investment than just building a new plant. And so, the redeployment of assets, getting equipment from around the world there where we need less than in Brazil is 1 pillar. And the other pillar is expanding capacity in Argentina at a much lower CapEx number than when we would build a new plant, for instance, in Brazil. And so, those actions together, we believe, will make sure that we can supply our customers, which is really what we want to do because this is a very good market for us and for our customers. The third question, I think, was around the market in North America. And so I think it's impossible to say what will happen to this market on the short term. I think most industry analysts would agree with me when we say this market will come back. But if you ask me what day, what months? Exactly that's going to be very hard to predict. But we believe that somewhere, and this would be our assumption that somewhere during the course of 2026, which is not too far away anymore, by the way, we're having the November earnings call, somewhere during the course of 2026, this market will turn and then we should be ready to supply this market with a steep increase, which is our assumption. I hope this answers the questions you asked. Gabriel Tinem: [Interpreted] Yes, it did. Unknown Executive: [Interpreted] Next question comes from Gabriel Rezende from Itau BBA. Gabriel Rezende: [Interpreted] I would just like to follow up regarding North America. I understand Pieter's comment that you should expect some return in summer 2026. But I'd like to confirm how you have been feeling the body language of the OEMs in terms of orders for the next 2 or 3 months. I understand that short time before we had a deterioration of the market. I would like to understand that if this is continuing to happen or they have stabilized now in the third quarter, mainly if the volumes have started to stabilize. And also, would like to confirm the matter of the restructuring now for the third quarter. Should we expect anything in other markets considering 2026 where volumes-- were the performance not as good as 2025, especially for commercial vehicles? Is that the expectations of the company? Do you expect any impact on other geographies also? Pieter Klinkers: Gabriel, thank you for the good questions. And so, North American market, I think the visibility from our customers is very low. That's unfortunately something that we need. But that being said, volumes are not only stabilizing, we see an increase of volumes, but we only see it for November and December. So, we like it, and we will make it happen. And it's a good thing to happen. But we're not sure if this is the start of a structural recovery or it's just a temporary impact in the end of 2025. And so, I hope it's more structural and it's the beginning of a strong recovery. But right now, we see that happening in the last 2 months of the year, but we don't have that visibility yet for the first quarter of 2026. So, some good news, but let's see if that's structural or just temporary, but we'll take it. When you talk about us seeing any potential other restructuring, particularly in CV in 2026, I would say Europe not, we -- the market should come back to some extent. And we are gaining market share. So, I think 2026 will be a good year for us when it comes to Europe. The same in Asia. I think we'll have a good year in Asia next year with growing volumes in both India and China for us from a commercial vehicle point of view. And North America, my take would be that what we lost in 2025, particularly in the second half, hopefully, we will gain it back over the year 2026, maybe a little bit more towards the second half of the year than the first half of the year. But let's see how this situation in November, December that we see right now develops into 2026. When you talk about South America, interest rates are too high. And so, I would say, we don't expect a major downturn, but we also don't expect a major upside in South America. So, I would say we're not particularly worried about that market. We're also not particularly excited about that market. But it's an adequate level for us. We don't believe we need to do a lot of restructuring, if any, as we see it right now. Does that answer your question? Gabriel Rezende: [Interpreted] Yes, Pieter. Unknown Executive: [Interpreted] Our next questions comes from Fernanda Urbano from XP. Fernanda Urbano: [Interpreted] We have 2 questions. The first regards Europe. What got our attention was the good performance, especially for light vehicles in the region. And you have commented -- mentioned the possibility of gaining share in that area. If you could give us a current view of the competitive scenario in that area? And if you expect any growth in the region higher than the consolidated one for the company? And the other regards supply chain. We have heard many news in the media regarding semiconductors. Some OEMs have mentioned possible stopping production, but it seems that in Brazil, it is under control with the guarantees from Chinese suppliers. And I'd like to know if that has impacted you and if you see any risks in the supply chain talking about automotive production globally for 2026? Pieter Klinkers: Thank you, Fernanda. So, let's start with the European market. I think from a market point of view, I believe next year, there will not be a lot of growth. I don't know if it's going to be 1% or 2% contraction or 1% or 2% growth, but I think it's pretty flat, which is not a disaster, but I think we need to do something more if we want to grow. And our plan is to continue to grow in Europe, both from an LV point of view as well as from a CV point of view. I think the CV, actually, the market is designed to grow back a little bit next year. So that will be a combination of market growth and market share growth, which is -- we would be looking forward to that. And it's our target. It's our assumption that this is going to happen next year. When we talk about market share growth, in our business, if you win something or also if you lose something, you don't lose it. If you won it, you don't lose it the next year or if you lost it, it will take you a little time to regain it. So, once you're on this trend of gaining market share, I'm not saying it's there forever, but it's there for longer than just the current year. And so what we see happening this year in Europe, to some extent, maybe even a little bit more, maybe a little bit less, but I think the trend should be continuing into 2026. And so, even though the market is kind of flattish on LV, I think we will be able to grow. And in CV, I am very, very convinced that we will grow and actually grow more than the market next year. Talking about supply chain and Nexperia coming from Holland, it's all over the news, as you can imagine. I think people were very worried and rightfully so until recently when there was some relaxation, as you mentioned already. So, we are not out of the woods, I would say, but it seems that it's going in the right direction. I can tell you that to-date, we've had no or negligible effect in our customer releases because of this situation. So, let's hope it stays like that. And as you say, it looks like there is some relaxation compared to just 1 or 2 weeks ago. Unknown Executive: [Interpreted] Our next question comes from Andressa Varotto from UBS. Andressa Varotto: [Interpreted] There are some items I'd like to mention. First, regarding margins, thinking about the trajectory of margin and thinking of the recovery of the North American market. The third trimester's recovery, could you consider a normalized level until the volume recovers? Or can the company expand the margin considering the explanation you have given, although there is a consensus that the market will take a while to recover? Another item also regarding North America, regarding Structural Components that if [ this is ] [0:37:32] even more for commercial vehicle. And I'd like to understand what is the exposition of these 2 segments in commercial vehicles and understand the difference. Pieter Klinkers: Thank you. I've noted 3 questions for myself here. So, first of all, talking about margin and maybe normalized margin. So, let me put it like this. If the North American truck markets would have been similar this third quarter than what it was in the third quarter of 2024, I think our margin would have been a solid 11%, okay? So, when that market comes back, that would be my minimum expectation to be reached. And as you know, every year, all other things equal, we will be targeting some volume increase, so some top line increase and also some bottom-line increase. And so that was our target, and that will remain our target. And I feel confident we can make that happen next year based on how I see things today. I hope that answers the question on margin. On the truck market, there is -- within the truck market in North America, there is large differences. The smaller trucks that we, for instance, supply with wheels, there is not such impact as what we see on the heavy trucks. And the heavier the truck gets, the more impact we see. And so, as said TRATON and Daimler on their heavy trucks, the Class 8 trucks, the biggest trucks, they really see big drops, 40%, 60%. And that is what we are seeing as well for the products that we supply to that segment. But not for the smaller trucks, the Class 4, 5, 6, actually is pretty stable. And you see that back in the Wheels numbers in our company because that's the segment that we supply from a Wheels point of view. And those numbers are actually slightly up in our company. So it's a big difference within the North American truck segment between smaller trucks, medium trucks on the one hand and heavy trucks on the other hand. Does that answer your question? Andressa Varotto: [Interpreted] Yes, yes. Unknown Executive: [Interpreted] Our next questions comes from Luiza Mussi from Safra. Luiza Mussi Tanus e Bastos: [Interpreted] Could you give us a little bit more details about the difference we saw from light vehicles in North America with steel wheels growing up and the aluminum wheels going down. And we would like to understand what led to the difference in performance in that sector. Pieter Klinkers: Thank you for the question. I'm going to answer this one as well. So, North American steel wheels is a -- it is a good start for us, and I think you will see that actually expanding that situation into 2026. We've won very significant business that has just started up in the second half of this year with a big North American EV manufacturer. And believe it or not, those are steel wheels and not aluminum wheels. And so that is a big win. That was a big win for several of our factories around the world. But the first one to start up is our plant in Mexico, and that's what you see happening on steel wheels in this case, in San Luis Potosi in Mexico. So that's explaining the steel wheels story. On the aluminum side, we are changing programs between customers. And I'm very convinced next year, we will see a very meaningful growth beyond the market. in our plant in Mexico from a wheel's point of view in Chihuahua. And so even though we have a little bit of a decline right now, we're gearing up the plant for SOPs starting now in the fourth quarter of 2025 as soon as we can. And as soon as we're ready with the tools and we can supply and that will continue throughout 2026 and going into '27, '28. So, it will be a good story also from an aluminum point of view in North America. I hope that answers. Unknown Executive: [Interpreted] Our next question is from Andre Mazini from Citi. André Mazini: I wanted to ask about the Ford aluminum factory fire in New York State that happened in September 16, so kind of recent. It seems to have impacted the F-150 production. So of course, Ford is the second biggest client of Iochpe, if we should expect any impact from that on the fourth quarter? This is question number one. Question number two would be, any comments you could have on the Section 232 tariffs, which are, of course, on steel and aluminum. You guys have production of wheels both in the U.S. and Mexico. So maybe those 2 production hubs could be affected by the tariffs. So any comments on that? Pieter Klinkers: Thank you, Andre. So the Novelis fire, of course, we've all notified that. And even though we see a little bit of impact, so it's not that we don't have impact. We see some impact, but it's more than compensated by the good news that I just talked about in the prior question from Luiza. So, I think we see some impact, but we have more good news than bad news. And so bottom line, it's still a growth story for us. When you talk about tariffs, it's still the same mantra as what we have been saying in the last couple of calls. And so yes, there is indirect impacts that we see. For instance, North America truck is related to tariffs, we believe. But we don't foresee major direct impacts for our production in in Mexico for our wheel or components production and sales in Mexico or from Mexico to the U.S. Still the same -- sorry, very little direct impact, but of course, we see some indirect impacts. Hopefully, that answers your question. André Mazini: It does. Unknown Executive: [Interpreted] With that, we are closing the question-and-answer session, and I would like to give the floor to Mr. Pieter Klinkers for his final considerations. Pieter Klinkers: Thank you, Rodrigo. So, all in all, I would say a third quarter that is a little bit weaker than what we would have wanted and then what we would have expected. But if we look at the macroeconomic environment, if you look at the North American truck market, I can say, bottom line, the teams have been doing a good job on both mitigating regionally there where the issue is -- was and is as well as mitigating the impact from a global point of view. And I believe going forward, I've mentioned it a few times, we cannot change the market, but we will try to continue to do better than the market there where possible, there where appropriate. And you can count on us to give it our all to make that happen. And so I believe on the midterm -- short term, midterm, the market in North America will come back. We will be very well positioned to serve that market then appropriately. And then the rest of the market, we're doing good anyway, and our plan is to continue to do that also in the fourth quarter and in 2026. Thank you very much. Bye-bye. Unknown Executive: [Interpreted] The earnings meeting video conference is closed. Iochpe-Maxion's Investor Relations department is available to answer any other questions. Thank you very much, and have a good day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Third Quarter 2025 Conference Call. [Operator Instructions] This call may contain forward-looking statements, which are subject to the disclosure statement contained in Savaria's most recent press release issued on November 5, 2025, with respect to its third quarter 2025 results. Thank you, and I will turn the call back to Sebastien Bourassa. You may begin your conference. Sébastien Bourassa: Thanks, Carmen, and good morning, everyone. Today, I will start with a small recap of our Q3 results, then Steve will update us on financials, and JP will provide an update on Savaria One, followed by a Q&A session. First, I need to thank all the employees at Savaria for their contribution over the last 2 years. Without you, we never had the success that we had in the Savara One program. Once again, I'm very proud of our Q3 results as for the first time ever, we reached 21.2% of EBITDA. Some of the key highlights of the third quarter, best gross margins ever at 39.2%, which is a direct result of operational improvement, procurement and pricing initiative, which JP will go a bit later more in details. Fantastic performance of the Accessibility segment with 23.5% of EBITDA margins, which saw a good contribution from North America and also from Europe. And I think it has been a big transformation in Europe in the last 2 years. So congratulations team. Patient Care was lower at 18.3%, but better than the previous year. The backlog remained high, and we are getting ready for a busy Q4. We won 2 AEs in North America, one for Matot and one for Savaria and also one in Europe for Handicare for the best accessibility supplier. So congratulations to the team. Growth has been decent in the third quarter for North America accessibility, but overall, as a company, growth is below what we target. So what are we doing to address that? First, Maya product line and the Lumar Tuder floor will continue to see a very high interest from our dealer, and we will definitely see some organic growth in 2026 around those products. Many of our dealers are putting Bluemont into their showroom because they believe in this and the opportunity. The team in North America has spent a lot of time this year to do some training with and into line products to architect. It's always an investment which this will pay off in the future. Our Savare Phase 2 planification is almost over and we will be ready definitely ready in April 2026 to unveil this new 5-year strategy, which will be very focused on the growth. In the last 2 years, we have been very disciplined and improve a lot the bottom line. And we believe with the same discipline, we'll be able to improve the trajectory of the growth as we operate in a very nice industry with the aging of the population and also the density in the cities, it bring more tunnel development where elevator is definitely a nice investment. Also in the last year, we have increased a lot our R&D team. So we went from 50% to 62% so that we can continue to improve existing product, develop some new products that will remain the #1 choice for our dealers. Also, our R&D process is better than ever. Early next year, we'll be changing our brand name in Europe to be Savaria as we start to have more products similar to North America, and we become closer to the one-stop shop. We had a small management change in third quarter in Europe. After 20 years, Claire decided to leave the company. So thank you for your last 20 years and JP has applied for the position since November and is now President of Europe, and we continue to assume the role of CTO, which is now more on the strategy for the future. We are excited about this change as JP is a fantastic team player and a leader that will continue to bring cyber culture in Europe. With 1 quarter to go, we kept our guidance unchanged for the revenue as we always give annual guidance and not quarterly, and we believe that we have a chance to finish close to it. And we update our EBITDA to stay slightly above 20%. As for now for the first 9 months of the year, we are at 20.1%. Our net debt-to-EBITDA ratio continued to improve, is now sitting at 1.19 with $290 million available funds for investments in the future or acquisition M&A. So we'll be ready for the future. Also at the end of the year, it is the end of the Savaria One program. So right away in 2026, it's an improvement of $0.17 per share for the full year. Last, again, I want to thank all the employees for their efforts over the last 2 years on the Savaria One program. Steve? Stephen Reitknecht: Thank you, Sebastien, and good morning to everyone on the call. I am really pleased to share with you today some remarks regarding our Q3 2025 consolidated financial metrics. So key highlights for the quarter include, first and foremost, achieving and surpassing our 20% adjusted EBITDA margin target for yet a second quarter in a row. Our Q3 margin of 21.2% is another high watermark for us, and our 2025 year-to-date margin is now at 20.1%. Secondly, gross margin increased year-over-year by 220 basis points to 39.2% in Q3, mainly through Savaria One. And lastly, strong free cash flow with operating cash flows up 16% this quarter compared to last year, contributing to our Q3 ending leverage ratio of 1.19. So now looking at consolidated revenues for the quarter. We generated revenue of $224.8 million, an increase of 5.2% versus last year. This is driven by organic growth of 1.8% as well as a positive foreign exchange impact of 2.5%. Our Q2 acquisition of Western Elevator, a dealer in the lower mainland of British Columbia, provided revenue growth of 0.9%. Our Accessibility segment saw growth of 6.1%, including growth of 7.7% coming from North America, combined with a growth of 3.6% coming from Europe. Patient Care had revenue growth of 1.9%, driven mainly by increased sales within the United States. As previously noted, our consolidated gross margin for the quarter was 39.2%. This performance represents a marked improvement of 220 basis points over prior year, driven largely by continued operational efficiencies realized under Savaria One as well as some operating leverage. Both segments contributed to this gross margin improvement, underscoring the effectiveness of our ongoing initiatives to streamline operations, enhance margin quality and drive sustainable growth. Now adjusted EBITDA was $47.6 million for the quarter, representing our strongest performance to date as well as the sixth consecutive quarter above the $40 million threshold. Adjusted EBITDA margin finished at 21.2% for the quarter and more specifically, 23.5% for Accessibility and 18.3% for Patient Care. Accessibility margins improved 220 basis points and Patient Care margins improved 90 basis points. This performance enhancement is primarily driven from the improvements in gross margin, which have been powered by Savaria One. We incurred $4.7 million in strategic initiative expenses for the quarter, which was in line with our expectations. These fees are mainly consulting costs and will repeat in Q4, but will be finished thereafter. Removal of these costs will add a significant boost to our cash flow starting in Q1 2026. Finance costs were $2.2 million for the quarter compared to $6.9 million last year. Interest on long-term debt decreased by $1.7 million when compared to last year, impacted by reduced variable interest rates on our debt as well as a lower overall debt balance. Included in finance costs, we also recorded an unrealized FX gain in the quarter of $1.1 million. This all results in net earnings of $19.5 million for the quarter compared to $11.2 million last year and driving an EPS of $0.27 per share for the quarter, an $0.11 improvement or 69% improvement over last year. I'm now going to look at the balance sheet and cash flow. Cash flow for-- excuse me, cash flow from operating activities in Q3 was $41.5 million, which is an increase of $5.7 million versus last year, coming from higher net earnings generated combined with lower net income taxes paid. Working capital decreased by $3.6 million in the quarter, mainly coming from decreased accounts receivables and slightly offset by higher trade payables -- sorry, excuse me, lower trade payables. For the year, we're achieving our working capital targets. CapEx for the quarter finished at $5.7 million, which is 2.5% of sales. And on a year-to-date basis, we have spent $15.2 million on CapEx, which represents 2.3% of sales and was -- and is within our annual range of 2% to 2.5% of sales. This includes a mixture of maintenance and new expansionary CapEx, including new equipment for our Greenville site. Free cash flow after debt-related costs and dividends in Q3 was $20.6 million for the quarter, which is a significant improvement of $7 million or 51.5% when compared to last year. This strong free cash flow contributed to a repayment of debt of $11.5 million in the quarter and reduced our leverage ratio to 1.19 as at September 30 compared to 1.63 at year-end 2024. This puts us in a very healthy position as we eye future growth plans and other opportunities that lie ahead for us. With regards to guidance, as Sebastien mentioned, following current quarter results, we have left our revenue forecast unchanged at approximately $925 million of revenue for the year, and we have adjusted our-- adjusted EBITDA margin guidance to be slightly above 20% for the year. This adjusted EBITDA margin target was achieved in Q2 and Q3, and we expect it will be achieved for the last quarter of 2025 based on the continued value of Savaria One that we have in front of us. And with that, this completes my prepared remarks. I'm now going to turn the call over to JP to provide further details on how we're progressing with Savaria One. JP? Jean-Philippe Montigny: Yes. Thank you, Steve, and good morning, everyone. We continue to deliver very strong business results in Q3 and not only expanded our profitability versus last year, but also grew our business. We feel great about our momentum as our improvement initiatives across Savaria are not only showing in our margins, but also now on the top line. As you saw, our EBITDA grew by $5.8 million or 14% versus last year, which is almost 3x faster than our sales grew in the same period. We're now at 21.2% EBITDA in Q3, which is above our 20% aspiration, yet we continue to implement various initiatives across the business to expect more growth, but also possibly more profitability improvements ahead as we, for example, implemented more than 60 initiatives worth millions of dollars in savings just this past quarter. I believe we're largely internalized the new way of operating the business now that we are several quarters into our transformation. We not only continue to deliver more improvements to the business each month, but our teams are also generating new ideas and new initiatives at a faster rate than we complete the old ones, which shows to me that we are more autonomous than ever. As a reminder, we had very little support from external consultants in Q3. So what are some of the highlights from Savaria One this quarter? One is in North America and in Australia, where our direct stores are doing great. They're showing steady growth, and delivering record levels of profitability. And we think that is thanks to the great efforts of our leadership team managing those stores, but also the teams in each store, including our sales team and our installation and service teams. What happened is we've put together a strong organization in place with competent managers overseeing the network. And also, we've been managing each of those stores and sharing best practices across them. Also, all the acquisitions that Savaria made historically of direct stores have been a commercial success over time. And yet, we think there's still so much more to do with our direct stores, notably in developing the markets in which they operate and increasing the adoption of our products and in particular, for home elevators. So there's more room for growth ahead of us. Also, we continue to generate savings in our operations in our European accessibility business to reduce lead times for our installations by working with our logistics providers so we can get our products to our customers faster, but also at a lower cost to the company overall. We also developed new processes that reduce the waste in our production system, in particular in regards to electronics, which reduces our overall product costs. We also continued to move some work packages between our factories to generate economies of scale and leverage best country sourcing and finally reduce our labor cost overall for SMB. We're also now experiencing pockets of growth in Europe. If you recall in the past quarters, we've been focused on improving profitability in Europe, sometimes at the expense of top line, but we can now say we're building on very strong foundations with an efficient business, and we're reengaging with growth. Sales continue to be slower in some markets, but we see good momentum overall. In Q3, we also worked on developing our next strategic plan, which we will unveil next year. It was a great opportunity for us to take stock on our performance over the past years, especially since we started Savaria One, also look at the position we occupy in each market. And for what it's worth, it shows we have a very solid foundation on which to build, but we still have lots of room for growth and value creation ahead of us. Yet, I will wait until our next Investor Day for more details. Before wrapping up, I just wanted to say a few words on my new role. Starting November, I took responsibility for our European operations, and I will be relocating to Europe starting January 2026. I will continue to orchestrate the execution of Savaria One and the execution of our next strategic plan that we will present shortly, but we'll focus and shift the bulk of my time and attention to accelerate the transformation and the growth of our business in Europe. I want to thank Sebastien and the whole team here for this opportunity, but also thank and congratulate my new team who I believe are already doing a great job. I hope and I'm confident that my addition to the team will accelerate the positive trajectory that we started in Europe. Thank you... Sébastien Bourassa: Thank you, JP. So just one thing that I want to add also is that we did not talk about UMSC compliance. So we continue to be UMSC compliant, and we continue with our Greenville expansion. As of right now, we manufacture 40% of our home elevator Eclipse in Greenville, South Carolina. So thanks for the team over there for your great work. And we are on track for our expansion in Greenville to be ready in the second half of 2026. So on that, Carmen, I believe we are ready for some questions with our analysts that are doing a fantastic job to cover Savaria. Operator: [Operator Instructions] Our first question is from Kyle McPhee with Cormark Securities. Kyle McPhee: Great performance. I just wanted to talk a bit about the margin path. So you delivered another lift for margins in Q3. You passed your Savaria 20% goal. It seems like you're attributing the success all to permanent types of dynamics. So correct me if I'm wrong, but is it fair to say this is a new normal type of profile for Savaria. There was nothing temporary about it in Q3, no one-off benefits. So you can hold on to these types of gains and likely even be building on them as you get OpEx leverage with the growth on the comp. Is that all fair? Sébastien Bourassa: Thanks, Kyle, for your great work. Yes, definitely, I think the 20% mark for me, I will be very disappointed to go backwards. I think that has been very steady in the last few quarters, always a marginal improvement. And it is really -- the success is really linked to improvement, procurement and pricing. And I don't think it is a one-off. I will be very disappointed. So what is next? I think right now, we have committed to the 20% for this year. And hopefully, in our Investor Day next April, we can discuss a lot more color over the next 5 years where we could go. Kyle McPhee: Just maybe as a quick preview of what you will be discussing when you do that, is the forward margin expansion still on offer largely just OpEx leverage from all the growth themes you'll be talking about? Or are there still meaningful cost and efficiency stuff on offer? Sébastien Bourassa: Great question again. So definitely, in the last 2 years, we have developed a good mechanism that the employees never stop, to contribute to bring some new ideas to the table. So I don't think it will be the end. But one thing we need not to forget is when you do growth, sometimes you need to make some investment. You example, open a new showroom in one location, you add some sales force. So -- and when you do acquisitions, very often, they are not at 20%. So we've got to be careful on that. But definitely, the legacy business, okay, why it could not continue. I'm hopeful for that. But grow grow grow. This is why when we call any of our employee in the last 2 years, I think they will have answered you the target was $1 billion, 20%. When we call any of our employees after next April, I want to make sure that they can answer you where they see the growth, what they will do to achieve the growth. So we'll make sure that the message is well aligned across the organization. Operator: And our next question is from Michael Glen with Raymond James. Michael Glen: So first, can you just talk a little bit in a bit more detail about North America, the organic growth there in the quarter. Is this primarily related to residential elevators? Can you speak about some of the other product categories, stairlifts, platform lifts as well? Sébastien Bourassa: Yes. So definitely, North America, again, in the last 2 years, it has been quite solid, okay? And I would say that really the one-stop shop with the mix from home elevator to vertical platform to low-rise commercial to stairlift and to the new product model this has really contributed okay? So now it's a mix factor. Unfortunately, North America, we have been quite good with home elevators across the Savaria brand and the Garaventa brands. And I think this is something with townhouse development, the density in the cities, all the work we do with architect, contractor, builder is definitely paying off. Stairlift, we have not been always perfect in Stairlift in the last few years, but now our manufacturing lead time is state-of-the-art. We are maybe making some effort, and this is something that hopefully in the next few years, we can have also a very good growth around Stairlift. So no, I think it's not the end on the North America. It will continue. Michael Glen: Okay. And -- but would you -- like for the quarter, the bulk of the growth was in residential elevators, you would say? Sébastien Bourassa: Unfortunately, we are borrowing. We don't disclose per product. Otherwise, it start to be picky next quarter will be the same question, but home elevator, if it can help has been good for sure. Michael Glen: Okay. And Sebastien, just on what you see, can you frame for us what you see out there in terms of the M&A market for dealers. Maybe first provide an update just on the Western Elevator acquisition and then some framing about what the market size for dealer M&A might look like? Sébastien Bourassa: For sure, it's always a tricky question a bit. But if we look at the past, in the past, we have often did 1, 2, 3 acquisitions during the year. And I would say a mix of dealers that, again, a dealer wants to exit the business. We are one of the suppliers. It's very natural for us, we're a natural buyer for that. So definitely, this is something that could continue in the future and will continue. and also product, okay? We have liked to buy some small manufacturer in the past like May [indiscernible] that has been a fantastic integration, and we're pushing it to the next level. The Visilif acquisition, which is now the VueLift has been fantastic also for them to promote our home elevator. So definitely, product and dealers is very natural. And Western, yes, since May are in a family, I would say right now, it's pretty much fully digested. We are operational. They are contributing to the equation. And now they are buying all their products with Savaria, which before was more like 80%. So definitely, it has been a great acquisition so far. Michael Glen: And are you able to just give some thoughts on to what you've been able to achieve with revenue growth and margins at Western since you acquired it? Anything qualitative you can provide? Sébastien Bourassa: I will say, again, we don't disclose all our different things, but I would say we're probably in the -- it's very early, but in the mid-teens is probably where we are. Operator: Our next question comes from Frederic Tremblay with Desjardins Capital Markets. Frederic Tremblay: JP, congrats on your appointment. I know it's maybe a bit early for that, but can you give us a bit of an idea of what your priorities for 2026 will be in Europe? Jean-Philippe Montigny: Yes. But I guess it will be aligned with what we disclosed next April, but the priority now is mostly to grow the business, simple as that. And we have many ideas to do so. Yes. we have any further questions. Frederic Tremblay: No, no, that's fine. We'll get more detail on Investor Day, I guess. But that's good. Just wanted to ask maybe on the backlog for home elevators on the direct store front. Sebastien, can you maybe characterize that backlog a little bit and give some context as to sort of where it stands relative to past quarters? Sébastien Bourassa: I would say it's very similar. So the backlog is quite good. For sure, in our direct store, we tend to have a 6 to 12 months backlog because, again, typically, we -- if you do a good project, you should sign a contract with your dealer before you start to build your house. Otherwise, then we can do project management to make sure your renovation, your will be correct. So I think that's definitely happening. And in the factory, again, typically, we have good lead time, which is more around 1 month. So -- but definitely, the backlog is there is good. So that's why we're confident about the Q4. Frederic Tremblay: Perfect. Maybe last one for me, more on the, I guess, the macro context or the impact of macro uncertainties on customer behaviors. Are you seeing any sort of trade down at all from customers like maybe people choosing less custom options on certain elevator products or moving down from a price perspective in terms of the accessibility products? Or is the demand and the price elasticity is still pretty good overall? Sébastien Bourassa: No. I think, again, we see some pretty good options. We are much better than we were. Today, when you see us, you don't just have a home elevator plain Mine. We have touchscreen CP, all kind of door flus door, swing door, sliding door glass. So we have high-end Cabo. So really definitely, again, if you're going to put an elevator into a home, you need to look at it in an investment. You will have a home elevator for the next 15, 20 years. So the extra 10,000, 15,000 can make a huge difference to have a wow instead of just, oh, you have an elevator. So definitely, there's no big change. And I think all the work with architect, contractor, is continue to be high. And even 10 years ago, people were not thinking about putting home elevator, Fred. And today, even if you have a townhouse of 4 floor, the price of townhouse, example, in Toronto is very often over $1 million. So if you can put a home elevator that might be cheaper than your kitchen, that help you to resell your lev house at a better price. If you bring your parents to your house, but you can have them for a weekend, you want to bring your luggage up and down. So there's so many advantage to have a home elevator into a home that, again, the penetration is still too low. So that's why even if there was less construction one day, doesn't mean the home elevator could not go up because, again, the penetration of home elevator, I think, is just going up every year. And after that, Fred, example, the LUMA is an aftermarket product. It's a truer floor, very easy to install. So I think this, again, will help us also for the future growth. Operator: Our next question is from Razi Hasan with Paradigm Capital. Razi Hasan: Just on Europe, nice to see growth year-over-year. Can you just talk about how the market is receiving your improved pricing and how cross-selling is going in the region? Sébastien Bourassa: Your new President in Europe, you want to answer? Jean-Philippe Montigny: Yes. So you talked about cross-selling. What's the other question, sorry? Razi Hasan: And just the improved pricing you have in the region and how it's being received by buyers there. Jean-Philippe Montigny: Yes. So let's start with this one. So we improved the pricing in 2 segments in the direct business and in the dealer business. In the direct business, honestly, it's been sticking quite well, right? So that's one thing we did well in Europe is we improved the profitability of our direct businesses by making price adjustments, and there was no impact on sales or on conversion. So we essentially captured all of this. In some of the dealer business, what happened maybe more retrospectively in the last 1.5 years is we did increase prices in some place where it was, let's say, less attractive for us, and this had an impact on some parts of the top line, right? So that's what you've seen in our results. But from this year, for example, we had more adjustments to pricing that really -- than really big changes, okay? So this year, we don't see pricing as having an impact on our top line. And it's also -- I mean, that's a factor that is now contributing to the fact that our top line has stabilized for everything that is with dealers, and we are seeing positive momentum now. So I would say the answer to the pricing question is it's been -- this year, it's been actually positive or it's good reaction. In terms of cross-selling, so we have some successes in cross-selling. So some of the, for example, initiatives we had was to cross-sell the VueLift, which is the one home elevator we can sell in Europe and as well as sell some of our products like the multi-lift. So now the LUMA is also another product we're cross-selling. So I would say it's early days for LUMA, for example, we're just starting to sell some units. And for Multilift, same thing. We have a new product that has been launched this year. So we're seeing some cross-selling success there. So we are having success, but obviously, it's still very small in proportion to the business. So we have more room for growth there. Razi Hasan: Okay. Great. And then just thoughts on capital deployment with low leverage and good liquidity. Can you just maybe highlight what your priorities are for capital? Sébastien Bourassa: Sure, Rai. So looking at what we're doing with the capital, we're going to continue to pay down debt. I mean our leverage ratio is fairly low at 1.19. And we're going to continue to pay that down and also basically get ready for acquisitions. So our plan is to grow organically, but also through acquisition, which we're going to talk a lot about at our Investor Day. But -- we're not going to be doing anything different with dividends or buybacks. We're just going to continue to lower our leverage until we use those funds for acquisitions and then we'll be levering up for those. So not going to be a large change. Most of our acquisitions are more or less going to be tuck-ins and some other maybe sizable ones, but nothing sort of sizable like Handicare that we're looking at right now. Razi Hasan: Okay. And maybe just last one for me. Just in terms of EBITDA margins for Q4, anything that could potentially impact the level from Q2 and Q3 that you've seen heading into Q4 or it's just more of the same? Sébastien Bourassa: Sometimes the product mix can be slightly different. But again, I think I would be very happy to repeat what we have done in Q3. So let's see. Operator: Our next question is from Max Shiovsky with Stifel Canada. Justin Keywood: This is Max on for Justin Keywood, Stifel. Could you guys give any further detail on the makeup of sales channels in patient care? And if there's any seasonality to institutional buying patterns just generally in Q3? And I know despite accessibility sort of being the focus, what can we expect from Savaria in patient care as you repivot to growth? Sébastien Bourassa: Again, I think if we look at last year, we know that last year, we have delivered a very strong Q4 and that brought a decent organic growth for the year. So it's a bit the same expectation for this year. Basically, we have built a certain backlog, and there's a bit of season in the patient care business. And definitely, I think Q4, we should see a strong performance. And again, typically, we're stronger in the long-term care than we're in acute care. So long-term care is bed mattresses and sitting lifts. So definitely, that's going to be our strongest segment. And it's quite balanced between Canada and U.S. really. Justin Keywood: Okay. And yes, hats off to the progress on efficiencies and margin over the last few quarters. But I guess, do you guys feel well equipped with the internal team that you've assembled and the work you've done to launch on the second stage of Savaria 1? And should we expect any incremental strategic costs associated with that like we saw with Savaria 1? Sébastien Bourassa: No, definitely, our strategic costs are coming to an end that will make a big difference next year in our cash flow. And I think the team is better than ever. And what is important in the last 2 years, there has been a lot of training done with all our employees. So right now, we have done several Phase II planning internally, a bit challenged by a consultant. But at the end, definitely, the team is very capable. So I think we are in better shape than ever for the future. And I think in the first 2 years, we have been very disciplined with date with value. And I think this is a spin that we'll be able to continue going forward. Again, to understand that it takes time. We cannot do everything at the same time. So it's important to stage things correctly that we continue to move forward, right? Operator: One moment for our next question. It comes from Zachary Evershed with National Bank Capital Markets. Zachary Evershed: Congrats on the quarter. For accessibility in Europe, can you give us your thoughts on how the broader market is adapting to the absence of some subsidies? Sébastien Bourassa: JP? Jean-Philippe Montigny: Well, I guess, to adapting, I guess it's more reacting would be my answer in the sense that let's take Italy, for example, right? So we did measure the impact of the reduction in subsidies on the market because there are ways to measure it, and we saw a very dramatic reduction of the market in line with what we're experiencing ourselves, okay? So I'd say the market is adapting to it in the sense that they -- everybody has to scale back a little bit. We did scale back our costs in Italy to adapt, right, in our case. So that's been the reaction. I think that's all I can say. Sébastien Bourassa: Yes. And I would say maybe to add something, JP. I think also Zach, as we add new products, example, Through-the-floor, home elevator, VPL, those products are much less subsidized. So I think as we bring diversification that will make us much less dependent on the subsidies going forward. Zachary Evershed: Good color. And then for my second, we were expecting a bit more CapEx this quarter. How are you thinking about the pacing of investment in the Greenville expansion? Sébastien Bourassa: I know Zach, unfortunately, permits takes time in life. So we're expecting to break the ground in January to be ready in the second half of next year. So, so far, we did some CapEx, again, some small CapEx. We have been able to maintain more or less our guidance for the year. But again, a slightly higher CapEx will be for next year, but still we try to be diligent. We are wrapping up our budget for next year, and we try to be diligent that at the end, we cut maybe somewhere to allow some CapEx because of Greenville. So I'm not expecting something extraordinary next year, even though we expand in green. Operator: One moment for our next questions. And it comes from the line of Kyle McPhee with Cormark Securities. Kyle McPhee: Just on that Greenville expansion, can you remind us or give us the updated total CapEx budget for that? And then also just remind us on your manufacturing capacity situation ahead of your spring Investor Day that sounds like it's going to be highlighting a lot of growth themes. Do you have capacity to support the next growth wave without having to incur a CapEx? Sébastien Bourassa: Thank you. So basically, as our previous press release, okay, the investment that we want to do in Greenville is approximately CAD 30 million. So I think as we progress, we'll be able to put more color. For sure, it's not $30 million for the expansion. It's for some equipment as well. So I think we will see. And after that, really a footprint, I think right now, we have approximately 12 factor like a 1.1 million square foot of footprint. And unfortunately, most of our factory just work on 1 shift. So I think we have plenty of capacity for the next 5 years. So I don't see any major change in our footprint in the next 5 years unless there's some M&A. That's it. Operator: Our last question comes from the line of Carl Abudobi with Scotiabank. Unknown Analyst: This is Carol on for Jonathan Goldman from Scotiabank. Really nice performance in accessibility margins, I think an all-time record. I believe Q4 margins are seasonally weaker, but it seems like you still have room on Severia 1. How should we think about the sustainability of margins? Sébastien Bourassa: I think margins has been very sustainable in the last 2 years, and we always see a bit of improvement each quarter. For sure, yes, Q4, yes, there's Christmas time, there's that. So it's a bit too early to comment. But we think that the over 20% for the food group of Sava we'll be able to maintain in the fourth quarter. So I'm not too worried about that. And I think going forward, we have a good plan, as we said a bit earlier, to continue to improve margins each year, but also to have some growth expansion, which is a key focus for the future. Unknown Analyst: Okay. And could you also provide a teaser for the Savaria 2.0 initiatives, if possible? Sébastien Bourassa: I think the teaser will be in April. And I think it will be really around growth, growth. So every decision that we make, does it have an impact on growth. So we decide to do R&D project, is it going to bring growth or not? Does it mean we'll not do an R&D project, it's going to improve some quality or make it for regulation for the code. But definitely, as we do M&A, is this going to add, for the synergies and to bring some growth. So definitely, growth we want this to be in our first line of discussion on most of the decision. Operator: Thank you. Ladies and gentlemen, this concludes our Q&A session. I will pass the call back to Sebastien Bourassa for final comments. Sébastien Bourassa: Thank you, Carmen. And lots of very interesting questions this morning. So thanks for taking the time. And again, one more time, thanks for all the Sav employees and looking forward to see you again in March. Thank you. Operator: And thank you all for participating. You may now disconnect. Everyone, have a great day.
Operator: Good morning. Welcome to the Tronox Holdings plc Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Jennifer Guenther, Chief Sustainability Officer, Head of Investor Relations and External Affairs. Jennifer, please go ahead. Jennifer Guenther: Thank you. Good morning, and welcome to our third quarter 2025 earnings call today. A friendly reminder that comments made on this call and the information provided in our presentation and on our website include certain statements that are forward-looking and subject to various risks and uncertainties, including, but not limited to, the specific factors summarized in our SEC filings. This information represents our best judgment based on what we know today. However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements. During the conference call, we will refer to certain non-U.S. GAAP financial terms that we use in the management of our business and believe are useful to investors in evaluating the company's performance. Reconciliations to their nearest U.S. GAAP terms are provided in our earnings release and in the appendix of the accompanying presentation. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted. On the call today are John Romano, Chief Executive Officer; and John Srivisal, Senior Vice President and Chief Financial Officer. You can find the slides we will be using on our website. It is now my pleasure to turn the call over to John Romano. John? John Romano: Thanks, Jennifer, and good morning, everyone. We'll begin this morning on Slide 4 with some key messages from the quarter. Our third quarter results were shaped by ongoing challenges associated with the weaker demand than forecasted, downstream destocking above what we expected and heightened competitive dynamics in both TiO2 and zircon markets. While our competitors' insolvency proceedings are expected to benefit Tronox's future sales volumes, we saw a temporary headwind in the third quarter with more aggressive liquidation of inventory at below market pricing. We have made headway in securing tariffs against Chinese dumping though late in the quarter, we encountered an unexpected hurdle in India when a state court temporarily stayed antidumping duties. The zircon market also experienced headwinds beyond our expectations, particularly in China, where both pricing and volumes continue to face pressure. In addition, we had a sizable shipment of zircon that rolled from Q3 to Q4 at the end of September. We recognize the importance of safeguarding our cash flow and our cost improvement program is ahead of schedule. We are now on track to deliver in excess of $60 million in annualized savings by the end of 2025 and expect to reach our $125 million to $175 million annualized savings goal by the end of 2026. Separately, we have targeted operational actions to manage near-term cash flow. These include the temporary idling of our Fuzhou pigment plant and adjustments at our Stallingborough pigment plant, where we lowered operating rates and are accelerating planned maintenance to align inventory with current market conditions. At our Namakwa smelter operation, we temporarily idled 1 furnace and will soon initiate a temporary shutdown of our West mine. These actions are intended to reduce inventory and enhance cash flow, supported by our new East OFS mine, which will begin commissioning November 17, supplying higher-grade heavy mineral concentrate into our network. We will continue to assess further measures across mining and pigment sites to ensure production remains closely aligned with prevailing market conditions. Combined, these initiatives are anticipated to generate an estimated cash benefit of approximately $25 million to $30 million in the fourth quarter, positioning us for free cash flow in the fourth quarter and 2026. And on the commercial front, we're driving targeted initiatives to monetize inventory throughout our value chain. Additionally, we strengthened our balance sheet by raising $400 million in senior secured notes, boosting our available liquidity. We are continuing to actively evaluate all available levers to generate cash, reinforce our operational foundation and continue supporting our customers strategic -- as a strategic global supplier. Despite the unforeseen obstacles in the third quarter, there are reasons for optimism. Antidumping measures continue to gradually improve our penetration and growth -- and growth in protected markets. We're pleased that the Brazil finally finalized their duties 2 weeks ago, increasing them significantly for major importers compared to provisional duties. Likewise, Saudi Arabia has now implemented definitive antidumping duties at rates comparable to the European Union, and we expect India's duties to be reinstated in the near future. Additionally, increased focus by the West on diversifying away from China and rare earths presents a unique opportunity for Tronox. Our mining operations in Australia and South Africa contain substantial amounts of monazite, a rare earth mineral containing heavy and light rare earths, which can be processed for downstream use in permanent magnets. We are continuing to action on what we can control and influence, reinforcing the business through our cost reduction and cash improvement actions and creating long-term shareholder value. I'll speak to these actions in more detail a little bit later in the call. But for now, I'll turn the call over to John for a review of our financials in the quarter in more detail. John? John Srivisal: Thank you, John. Turning to Slide 5. We generated revenue of $699 million, a decrease of 13% versus the prior year third quarter, driven by lower sales volumes and unfavorable pricing for both TiO2 and zircon. We also had lower sales of other products as compared to the prior year. Loss from operations was $43 million in the quarter, and we reported a net loss attributable to Tronox of $99 million, including $27 million of restructuring and other charges primarily related to the closure of Botlek. While our loss before tax was $92 million, our tax expense was $8 million in the quarter as we do not realize tax benefits in jurisdictions where we are incurring losses. Adjusted diluted earnings per share was a loss of $0.46. Adjusted EBITDA in the quarter was $74 million, and our adjusted EBITDA margin was 10.6%. Free cash flow was a use of $137 million, including $80 million of capital expenditures. Now let's move to the next slide for a review of our commercial performance. As John covered earlier, in the third quarter, we saw further demand weakness and heightened competition, putting pressure on TiO2 and zircon sales. TiO2 revenues decreased 11% versus the year ago quarter, driven by an 8% decrease in volumes and a 5% decline in average selling prices, partially offset by a 2% favorable exchange rate impact. Sequentially, TiO2 sales declined 6%, driven by a 4% decrease in volumes and a 3% decrease in price, partially offset by a favorable 1% exchange rate impact from the Euro. Europe, Middle East and North America saw sharper seasonal declines amid market weakness, destocking and competitive pressures. Latin America experienced typical seasonal uplift, although weaker than expected, while Asia Pacific growth was muted by competition and a temporary stay on India antidumping duties. Zircon revenues decreased 20% compared to the prior year due to a 16% decrease in price, including mix and a 4% decline in volumes driven by continued demand weakness, primarily in China. Sequentially, zircon revenues decreased 13%, driven by a 7% decrease in volumes and a 6% decrease in price, including mix. Revenue from other products decreased 21% compared to the prior year due to higher sales volumes in the prior year. Sequentially, other revenue increased 18%, reflecting higher sales of pig iron and heavy mineral concentrate tailings in the third quarter. Turning to the next slide, I will now review our operating performance for the quarter. Our adjusted EBITDA of $74 million represented a 48% decline year-on-year as a result of unfavorable commercial impacts, higher freight costs and higher production costs, partially offset by exchange rate tailwinds and SG&A savings. Sequentially, adjusted EBITDA declined 20%. Unfavorable average selling prices, including mix, lower sales volume of TiO2 and zircon, higher production costs and unfavorable exchange rate impacts were partially offset by the sale of heavy mineral concentrate tailings and SG&A savings. Production costs were unfavorable by $4 million compared to the prior year and $7 million unfavorable compared to Q2. Both were a result of unfavorable LCM and [ idle ] facility adjustments due to lower pricing and higher costs from reduced operating rates. These were partially offset by lower cost tons sold in the quarter as a result of the self-help actions that we initiated with our sustainable cost improvement program. Without these proactive actions, the headwinds would have been more significant. Turning to the next slide. As John mentioned earlier, we raised $400 million of secured notes in the third quarter to enhance available liquidity and repay borrowings under our revolving credit facilities. With that, we ended the quarter with total debt of $3.2 billion and net debt of $3.0 billion. Our net leverage ratio at the end of September was 7.5x on a trailing 12-month basis. Our weighted average interest rate was -- in Q3 was approximately 6%, and we maintained interest rate swaps [ such that ] approximately 77% of our interest rates are fixed through 2028. Importantly, our next significant debt maturity is not until 2029. We also do not have any financial covenants on our term loans or bonds. We do have one springing financial covenant on our U.S. revolver that we do not expect to trigger. Liquidity as of September 30 was $664 million, including $185 million in cash and cash equivalents that are well distributed across the globe that we are able to move around with little to no frictional cost. Working capital was a use of approximately $55 million, excluding $30 million of restructuring payments related to the closure of our Botlek site. This was due to the decrease in accounts payable driven by lower purchases and cash improvement actions and increase in accounts receivable. Changes in inventories was a much lower source of cash than expected as a result of lower sales volumes. Our capital expenditures totaled $80 million in the quarter with approximately 59% allocated to maintenance and safety and 41% almost exclusively dedicated to the mining extensions in South Africa to sustain our integrated cost advantage. We returned $20 million to shareholders in the form of dividends paid in the third quarter. The Q4 dividend reflects the updated $0.05 per share level. I want to reaffirm our commitment to improving cash flow and optimizing working capital. We are implementing targeted actions to reduce inventory through lowering production rates across all areas of our operation. And we continue to remain disciplined across -- around capital expenditures as illustrated around our actions with the West Mine. I remain confident in our ability to weather this prolonged downturn. With that, I'll hand it back to John to review these actions in more detail. John? John Romano: Thanks, John. So turning to Slide 9. As outlined at the starting of the call, we have seen positive developments on antidumping this year. This slide summarized the monthly Chinese exports to the 4 key regions that finalized duties in 2025. While India's duties are currently stayed, we have a high level of confidence that they will be reinstated in the near future. As the data shows, the implementation of antidumping duties has had a measurable and meaningful impact on Chinese imports in the EU, Brazil and India, and we would expect to see this trend carry into Saudi Arabia as the governments reinforce their commitment to local investment and sustainability. At the peak, these markets imported a total of approximately 800,000 tons of TiO2 from China. While we do not anticipate this figure to go to 0, we have and expect to continue to see a meaningful reduction in exports to these markets and share growth for Tronox. As a reference, the U.S. has had tariffs in place on TiO2 since 2018 when the Section 301 tariffs were put in place under President Trump's first administration. Chinese exports to the region have remained consistently below 20,000 metric tons per year in a market that consumes approximately 900,000 metric tons. These developments are extremely positive for Tronox, especially as the sole domestic producer in Brazil and Saudi Arabia and a significant participant in the EU and Indian markets as well as the U.S. market. Combining this with the industry's idled mining capacity and over 1.1 million tons of global TiO2 supply that has been taken offline since 2023, the majority of which we believe is permanent, the industry is undergoing a structural shift that supports a supply-demand rebalance. As the most vertically integrated TiO2 producer, Tronox is well positioned to capitalize on this opportunity created by the rebalancing of the market. Turning to Slide 10. We remain actively engaged in advancing our rare earth strategy. With high concentrations of rare earth in our mineral deposits and decades of expertise in mining and mineral processing, we're uniquely positioned to play a significant role across the value chain from mining to upgrading. We are already mining monazite in Australia and South Africa, but our capabilities extend beyond mining. We operate both hydro and pyrometallurgical processes and employ over 400 engineers, geologists and metallurgists among our 6,500 employees. Combined with our global footprint, we are -- we have the flexibility to optimize where we participate along the rare earths value chain. As a part of this strategy, in October, we took a 5% equity interest in Lion Rock Minerals, a mineral exploration company whose Minta and Minta East deposits have the potential to be a major source of high-quality monazite and rutile. This investment represents an attractive opportunity with minimal overburden and has substantial potential for resource development in support of our rare earth strategy. Now turning to Slide 11, I'll review our updated outlook. We are now expecting Q4 2025 revenue and adjusted EBITDA to be relatively flat to Q3 of '25. This is primarily driven by weaker-than-anticipated pricing on TiO2 and zircon as a result of more aggressive competitive activity in the market, partially offset by improving volumes across both TiO2 and zircon. Although our outlook has been revised lower from our previous guidance, we expect fourth quarter TiO2 volumes to increase 3% to 5%, net of a 2% volume headwind from idling our Fuzhou facility and zircon volumes to increase 15% to 20% sequentially in part due to the rolled bulk order from Q3 to Q4. These are strong leading indicators for the fourth quarter, which is normally lower due to seasonality and directionally in line with what we would historically see on the front end of a recovery. On the cost side, we continue to execute on our cost reducing measures as previously outlined. Our sustainable cost improvement program is expected to exceed over $60 million -- $60 million of run rate savings by the end of the year. And as I mentioned earlier, we have temporarily idled our Fuzhou pigment plant and one of our furnaces at our Namakwa site, lowered operating rates at Stallingborough pigment plant and will soon initiate a temporary shutdown of our West mine. We will continue to assess further measures across mining and pigment sites to ensure production remains closely aligned with prevailing market conditions. These actions position us for positive free cash flow in the fourth quarter and 2026. With regards to our cash use items for the year, we expect the following: net cash interest of approximately $150 million, net taxes of less than $5 million and capital expenditures of approximately $330 million. And we expect working capital to be a slight source of cash for the fourth quarter. Turning to the next slide, I'll review our capital allocation strategy before we move the call to Q&A. Our capital allocation priorities remain unchanged and focused on cash generation. We continue investing to maintain our assets, our vertical integration and projects critical to furthering our strategy, including rare earths. We have taken decisive action to reduce our capital expenditures over the course of the year. For 2026, while we have some catch-up capital from delayed projects in 2025, we expect capital to be less than $275 million in the year. We continue to focus on bolstering liquidity. With the actions taken in the third quarter, we have ample liquidity to manage the business and endure market fluctuations. Last quarter, we lowered the dividend by 60% to align with the current macro environment. And as the market recovers, we will resume debt paydown, targeting mid- to long-term net leverage range of less than 3x. We will continue to focus on what we can control and influence and reinforce the business through cost reduction and cash improvement actions. As the most vertically integrated TiO2 producer, Tronox is well positioned to capitalize on the opportunity created by the rebalancing of the market, evidenced by the effect of antidumping duties and supply rationalization in the industry. I remain confident that our -- in our ability to navigate this environment and deliver meaningful value for shareholders. And with that, we'll turn the question back over to the operator for the Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from James Cannon at UBS. James Cannon: I think the first thing I wanted to poke on was just around some of the antidumping measures you're seeing. Just given the movement with India kind of pausing their tariffs for a while, it seems like if I square that against the new measures in Brazil and Saudi Arabia, that would be a net negative in terms of like market size. Can you talk about how those dynamics are playing into your volume guidance? John Romano: Yes. So you're right, the Brazil market and the Saudi Arabia market collectively are, in fact, lower than the demand in India. But I will say that we have a high level of confidence that those duties are going to be reinstated. And we're hoping that's going to happen before the end of the year. We are not obviously not having a facility there actively engaged in those negotiations, but we're very informed in what's going on, and we do believe the DGTR will make a decision prior to year-end. So the duties in India are currently still being collected. And if for whatever reason, those duties get reinstated, nothing is really changing. So when we look at the exports, we are -- there is a bit of a headwind where we were expecting more volume in the fourth quarter. When we think about our prior guidance, we were guiding to a higher number. We're still guiding to 3% to 5% more than what we were in the third quarter, and we're seeing some pickup there, but not as much as we had originally anticipated. With Brazil and Saudi Arabia, we think that, that is a unique opportunity. When you think about the duties that were implemented in Brazil, they were significantly higher than the provisional duties in many instances with the larger importers doubled. So you should think about a number of around $1,200 per ton across all importers. So that's a significant play. We're the sole producer there. Saudi Arabia, what I can tell you is that was a -- we were expecting that to happen, but not as soon as it did. And we are the only producer there, and we also think we're going to have a unique opportunity there. So when we start to think about those volumes and that shift that I referenced on the call in the prepared comments about Q3 numbers versus Q4 numbers, it's not just a projection. We're looking at our -- October is already complete. And when we look at across every month that we've sold so far, if you recall, our first quarter sales were actually pretty strong. March was our strongest month, and then we saw our volumes decline because we had a lot of other destocking going on, all the things that we referenced earlier. But our October sales, which are now complete, were the second largest month this year and equivalent to the March sales. And when we look into November and December, November is trending in the same way. We have very good vision on November and December orders. So I know there's probably some trepidation around what we're saying with regards to confidence level in the numbers, but that 3% to 5% that we're looking at with regards to growth Q3 to Q4 is very much in our line of sight. James Cannon: Got it. And then I just had one follow-up on the rare earths opportunity. You talked about having some capabilities with chemical conversion. But if you could give a little more detail and just unpack for us what you can do in the rare earth space in kind of the refining type downstream piece of that market and whether or not you can do that with your current footprint or that would need additional capital or a partner? John Romano: Okay. Yes. So look, on the rare earth side of the business, obviously, we've been mining forever, and I made reference that mining is not the only capability that we have. So we're already in the concentration business. So that's just producing rare earth mineral concentrate and have historically been selling that. The next step in that value chain would be cracking and leaching. We've already completed a pre-feasibility study and have started a definitive feasibility study on that production. We've located a site where that would be in Australia. Look, moving down into refining and separation, that is work that's going to require for us to do some work with a partner. We're engaged with a lot of different participants across multiple jurisdictions. We have nondisclosure agreements in place, so we aren't at liberty to elaborate on who that is. But we're well positioned with our current capacity as well as some of the things that we referenced. So we made a small investment in a company called Lion Rock. That company has a very interesting deposit. We've looked at it. We've actually sent our people there. We made the investment so that we could now validate the work that they've done. There's still a lot of work to do there, but it's not only our current mining, we're looking longer term at how we can continue to support that growth. There will be capital involved. And as we have more information, we'll articulate that. But at this particular stage, that's about where we'll have to close off the discussion with regards to development there. Operator: Our next question comes from Peter Osterland at Truist Securities. Jennifer Guenther: Sorry, Peter, we're getting a little bit of a tough connection from you. Can you start at the beginning of your question again, please? Peter Osterland: Sure. Can you hear me now? Jennifer Guenther: Better. Peter Osterland: I just wanted to ask [Technical Issue] operating rates [Technical Issue]. Do you have a specific time frame in mind at this point for how long [Technical Issue] to continue industry [Technical Issue] could these actions come from. John Romano: Peter, I'll try to answer your question. It was a bit broken up. It was regarding, I think, the idling of the Fuzhou plant and our actions that we took in Stallingborough. So the Fuzhou plant, we idled that plant to preserve cash. The market, as we've talked about, all of these issues with antidumping are creating a lot of competitive activity inside of China. That is one of our lowest cost plants, but it's obviously operating in one of the lowest priced markets. So we've idled that facility. Our plan would be to probably have that offline. We'll make decisions on what we're going to do with that asset as the market unfolds. With regards to Stallingborough, we brought forward some maintenance and have slowed the facility down just to be in line with what the market is doing. So I would expect in the fourth quarter, we'll probably bring that plant back up to full rate. When you start thinking about all the things that we referenced around these structural changes, we want to make sure that we're positioned to be able to support that inside of Europe. We have a significant position in Europe. The market in Europe has been a bit weaker in the third quarter. When we start thinking about all of the activity that's going on around the supply-demand dynamics right now with the pickup in Q4, I do believe, and I've said this before, but I do believe we're on the front end of a recovery. And front end of the recovery, you start to see demand patterns that are a bit different than what you would historically see. Q4 volumes being up 3% to 4% when they're seasonally normally down is a good sign for us. And the next step beyond that, if we see this continuing to transition in a positive direction, we'll start looking at pricing initiatives. So I'm very encouraged by what we're seeing in the market. Stallingborough, to be specific, is a short-term action where we brought forward some maintenance, slowed the plant down to manage inventory, but we'll be ready to action that plant at full rates to meet the demand as it returns. Peter Osterland: Very helpful color. And just as a follow-up, thinking about 2026 earnings potential, targeting the $125 million to $175 million of cost savings by the end of 2026. Do you have an estimate of what the year-over-year EBITDA impact will be in '26 versus '25? And what are the swing factors that would drive the low versus the high end of cost savings within that range? John Srivisal: Yes. So as we've mentioned previously, we have taken action this year, but on the sustainable cost improvement program, but it will take some time for us to flow through our balance sheet and to see it in our results. So in 2025, there's been tons of activity across all of our sites, all of our functions, all of operations. But in 2025, it's primarily been the lower-hanging fruit that we see in our numbers. So about $10 million we've seen primarily in SG&A, although as we move into 2026, as John mentioned, we're already on a run rate to end the year at over $60 million. So we should see at least that amount in 2026. It will be more operational focused at that level, and we see it coming through in fixed costs. John Romano: So maybe just adding on to that a little bit because we've had a lot of questions about this sustainable cost improvement program. And this is a bottoms-up process across our entire organization. And at this point, we've identified and acted on almost 2,000 ideas across our network. And out of those, we've got more than 1,100 that have been planned, executed and fully realized, and we currently have 413 of those ideas that are already delivering value. And when you think about how those savings kind of break out, a significant portion of those savings are coming from fixed cost reductions, and we're making good progress on the variable side as well. And we've made some great progress on ore yield improvements at our pigment plants, thanks to some of the investments in our digital infrastructure like TOIS, which is Tronox's operational information system, APC and other actionable metrics, all working together now, and we're lifting and shifting those progress -- those projects across our network. Now I just add a few more bullets because I think it's important. In addition, some of our other capital investments are now starting to pay off. For example, some of the work that we did in Bunbury to upgrade our cooling and waste infrastructure are now translating into our capability to use lower head grade more efficiently. And we're also realizing benefits from our energy efficiencies and investments in KZN and Namakwa with larger electrodes at our furnaces, making differences in our costs and EMV optimization across all of our mining -- all of the mining side of our business. Our contractor usage has been optimized, and we've significantly reduced our outside services, helping us become more efficient. And we've improved our logistics and optimizations of our MSPs to produce higher-value product mixes that match current market demand and have found new opportunities to improve yield in several areas. And one of the things that we're utilizing now is an app called Power BI. So every one of our people that are engaged in this process across the organization, including myself, have the ability to track these projects on a daily basis. So this isn't something that we're just talking about. It's something that's become ingrained in what we do every day, and we're making great progress on that front. Operator: Our next question comes from Vincent Andrews at Morgan Stanley. Justin Pellegrino: This is Justin Pellegrino on for Vincent. I just wanted to see if you could help us bridge to the positive free cash flow that you stated for 2026 and what assumptions are included within that, specifically if there's any expectation for earnings growth and changes in working capital amongst the other cash items that have been discussed on today's call. John Romano: Yes. Thanks, Justin, and I'll try to handle that. And obviously, we aren't giving a guide on 2026 as of yet other than being free cash flow positive. But some of the biggest drivers of improvement 2025 to 2026 include, as we've mentioned, the sustainable cost improvement program, growing from $10 million to well over $60 million year-over-year. We are also moving from a building of inventory in 2025 to reducing inventory. Some of that relates to the targeted operational actions that we have mentioned before, which is a $25 million to $30 million savings in Q4. And that should grow to almost $50 million to $80 million, just depending on how long we keep our facilities down for. Additionally, we did mention that CapEx will be reduced, $330 million guided this year to under $275 million for next year. And then finally, as you know, we did shut down our bottling facility and the cash restructuring charges we do hit through free cash flow, which was -- should be well behind us -- mostly behind us in 2026. We have roughly $80 million of cash charges in 2025 and a much lower low teens or so expected in 2026. But obviously, it will depend a lot on the commercial market. Justin Pellegrino: Great. And then just one more. I was hoping you could kind of talk about the higher-than-expected destocking that you saw downstream. Can you frame that just relative to historical averages? And then what are you hearing throughout the supply chain regarding expectations for rebuilding any sort of inventory in the channel? John Romano: Yes. So look, that -- I think the destocking, in my opinion, took a little bit -- it happened a little bit sooner than we would normally in the year. So we weren't anticipating a lot of that destocking to happen in the third quarter. Quite frankly, a significant amount of it happened in September, so right at the end of the quarter. So it was a bit unexpected. That being said, we think that a lot of that destocking has already taken place. And so when we start to look at our order pattern in the fourth quarter, A lot of it is just, I think, our customers going back to normal buying patterns. Again, when we start to think about a recovery, it's going to be different this time. And it's large -- at the front end of it, it's going to be based on a lot of this restructuring that's happened that's been fueled by all these antidumping initiatives. And then when you think about the duty affected areas, including the U.S., which I noted on the call, was actually started under the First Trump administration with the Section 301 tariffs, you've got markets that consume 2.7 million tons of TiO2 that now have duty impacts. And that's starting to play favorably because a lot of those markets are markets that we participate in. And I know we've been talking about it for a long time, but it's starting to actually show up in the numbers. That paired with some of the competitive activity that was generated by one of our competitors that went through an insolvency, it's our opinion that, that inventory will be liquidated soon. And we're starting to see buying patterns in the European market, which would reflect that. India, still a big market for us. The duties have been stayed. We have high level of confidence that they're going to come back, hopefully, before the end of the year. And at this particular stage, although muted from our prior expectations, we're still seeing growth in that region. So again, I think there's a lot of reasons to be optimistic about where we are in the cycle. We're 3.5 years into a downturn, and I can say with 100% certainty that it will turn. And it's my assumption that we're on the front end of that at this stage. Operator: [Operator Instructions] Our next question comes from John McNulty at BMO Capital Markets. Unknown Analyst: This is John Roberts. I heard you call John McNulty, but I'm just checking whether you can hear me. Will LB be able to use their new position in the U.K. to bring Chinese ore in and serve the rest of the European market without a tariff? John Romano: John, look there's a lot left to be done with the announcement that LB is going to be acquiring that asset in the U.K. There's a lot of regulatory work to go through. So I would say by no means is that a slam dunk. I can't speak to what they may do. That asset is down. The longer that asset is down, the harder it's going to be to be brought back up. And having done a lot of work trying to buy assets in Europe historically, I would just say there's a lot of wood to chop there. Unknown Analyst: Okay. And do you have any rare earth activity going on in South Africa as well? John Romano: We mine in South Africa and Australia and monazite is present in both deposits. What we're doing right now is actioning the majority of what we have in Australia. But yes, we have monazite in South Africa and some of the things that we've done historically, although this last sale of mineral concentrate didn't have much rare earth in it. Historically, we have and continued to mine. And as long as we're mining in both those regions, we're getting monazite, which has both light and heavy rare earths in it. And we're developing a process forward to monetize that in a way which we can move down the value chain. Furthest we're going to move down that chain would probably be the refining side. The [ metalization ] and magnet production is not something that we feel we're uniquely positioned to do. But being a mining company that's regularly involved in mineral upgrading, it's a natural fit for us to look at concentration, acid leaching and cracking and refining and separation. Operator: Our next question comes from Roger Spitz at Bank of America Securities. Roger Spitz: I just want to understand the updated guidance for either 2025 working capital outflow and 2025 free cash flow or discuss the Q4 numbers because you've got -- you said working capital is only a slight inflow even though you're idling all these assets. So can you update us on either Q4 or full year 2025, both working capital as well as free cash flow? John Romano: So I'll start and then I'll let John add on to it. But to be clear with the idling of the assets. So obviously, it will be a working capital gain for us on the Fuzhou facility, slowing down Stallingborough and bringing forward maintenance will be a benefit. But -- and also on the furnace because that furnace actually was idled on September 15. We're just reporting that now. But the West mine, which is a significant process. Again, we made reference that, that's going to happen as we bring on East OFS. East OFS is starting commissioning on November 17. And as we finish that commissioning, we'll then bring that West mine down. The West mine, if you think about that particular asset, we had an East and a West mine. East OFS is replacing the East mine. And the West mine will continue to run and operate, but to preserve cash, we're idling that as soon as we bring on East OFS and East OFS is going to have that higher grade mineral -- heavy mineral concentrate that will become into the network as we referenced on the call. So John, do you want to add more? John Srivisal: Yes. I think just to answer your question, I'll give you a little more details. But through year-to-date Q3, obviously, it was a significant use on working capital and free cash flow, roughly $190 million use on working capital and about over $300 million use in free cash flow. And we mentioned that we were going to be positive both on free cash flow and working capital for Q4. So obviously, maintaining that and slight improvement over both. I do think you need to look at what happened in Q3 and to understand what the drivers are in Q4. So as John mentioned, we did have a lot of commercial impacts negatively with the antidumping delays in India, with the Europe competitors insolvency and then competitive dynamic in China and rolling of shipment on zircon from Q3 to Q4. And obviously, that zircon shipment will help us in Q4. And then we did have a tailings sale in Q3. But obviously, that went to -- as that happened late in the quarter, we will collect on cash on that in the -- in Q4. So it should be an improvement quarter-over-quarter. But all of that drove the fact that inventory was less of a reduction than we had expected. And so not a significant source of cash. We will see that recovery. Obviously, the volumes are much higher in Q4 on both TiO2 and zircon, much more muted than what we expected, as John mentioned, but still an increase. So we will see some benefit from reduction in inventory. And then just from an AP perspective, it was a pretty decent use in AP as well as we did have restructuring charges of about $30 million in Q3 that will be lower in Q4. So while driving lower purchases and lower CapEx drove higher AP, we will see that revert in Q4. So all that being said is we do expect Q4 free cash flow and working capital to be more significant than Q3, but roughly flat. Roger Spitz: And my follow-up is you said you don't expect to breach your revolver maintenance covenant in Q4. Would you be able to provide either the EBITDA and/or debt headroom at the end of Q3 under that covenant? John Srivisal: Yes. So obviously, we -- as we mentioned, we do not expect a spring covenant on the U.S. revolver. We are sitting with ample liquidity of $667 million. And so obviously, the test is you have to draw up 35% of our revolver, which is $350 million. So right now, we are undrawn on that revolver. And so we have significant cushion to get to that point, several hundred millions of dollars. John Romano: And when we think about all the actions that we're taking to preserve cash and you couple that with some of the positive things we're talking about on the market, again, I made reference that the market will recover. We think we're on the front end of that, but we're taking actions that we feel are prudent at this particular stage to make sure that we have cash and that all those things that John just referenced around a covenant is not triggered ever. So this is a process that we're in place. It's been a tough downturn, but we're taking actions that we need to take to manage the business through the long term. Operator: Our next question comes from Frank Mitsch at Fermium Research. Frank Mitsch: All right. Great. I was close to saying something I shouldn't. Okay. So I want to come back to the unanticipated headwinds on price for the fourth quarter on both TiO2 and zircon. So for TiO2, it sounds like the competitive actions that you're seeing from liquidation Venator's inventory is a large part of that. And I was just curious as to -- and then also you would anticipate at some point in the future getting these duties put back on. I'm just curious from your perspective, assuming a normal coating season, when might we see instead of unanticipated headwinds on price, unanticipated tailwinds on price on TiO2. And then you also referenced on zircon, more aggressive competitive dynamics. Can you please flush that out a little bit for us? John Srivisal: Yes. Thanks, Frank. So on the TiO2 side of it, I'll be specific to the competitor that was liquidating inventory. We weren't responding to all of those liquidation events, right? By definition, they were selling at prices that weren't super attractive. All that being said, it created a lot of competitive environment, right? Others in the market were being -- competitive activity was going on in second quarter and the third quarter. We made reference in the third quarter that we were going to regain some of our share, and we were working towards that. But the liquidation of the inventory is just a catalyst for more competitive activity. I do believe that a lot of that inventory is going to work its way through the system before the end of the year. We're already starting to have discussions with customers about what '26 looks like because they want to be aligned with customers or with suppliers that are going to live beyond '26. So with the demand patterns that we're seeing right now, and again, in '24 and in '25 in Q1 we saw these bump-ups and then kind of fizzled out in Q2 and Q3. Q4 is a bit different. We haven't seen a swing up like this with all the things that are going on that I referenced around kind of the restructuring of the industry and the duties. We do think this is going to be a bit of a different recovery. And with demand patterns like this, if they continue, as I mentioned, our October sales are the largest sales month in the year equivalent to where we were in March, and we have a very good visibility into November and December, which would also indicate that a lot of the destocking has already happened, and we're getting back to normal demand patterns from our customers. So the next natural thing would be pricing going in the other direction. And we're looking at that. It wouldn't be before the first quarter, but that's something that we're looking at. As far as zircon goes, there was a lot of competitive activity. There's been a fair amount of heavy mineral concentrate being mined from China and other parts of Africa. Indonesia has now started to back off. So prices have gotten to the point where the Indonesian market, which is not huge, it's 60,000 to 70,000 tonnes of zircon per year, but we're starting to see them back off on that. There's other mining projects that have been backed off on, as I referenced earlier. So the zircon swing in Q3 to Q4, part of that had to do with the world shipment, but we're also seeing demand start to pick up. The last call, I made some reference around the rest of the world had kind of picked up, but China had not done much. We're starting to see, I would say, the front end of a pickup in China as well. So maybe a little bit too early to call what we might be seeing on pricing, but the demand pattern in fourth quarter is encouraging on zircon. Operator: Our next question comes from Edward Brucker at Barclays. Edward Brucker: I think you sort of mentioned it as you're going through the cash flow implications of the idling of the facilities. But are you able to provide the actual cash cost of the idling of the facilities and furnaces and then the closure of the mine that you expect? John Romano: Well, first off, we're not closing a mine. We're idling the West mine. So we're just bringing it down as we brought one furnace down at Namakwa, that furnace supplies a lot of the slag that we consume. So as we're not producing as much TiO2, we've idled the furnace. We're idling the mine. We'll bring that mine back up when the market recovers. And our cash generation, our benefit from that idling in 2026 will largely depend on how long we bring that down, but there will be a cash positive input to that. In 2025 fourth quarter, the collective impact from an EBITDA perspective on bringing those assets down is $11 million. I think that's really important. So when you think about take Fuzhou off the table right now, we're running just north of 80% capacity utilization. And if you recall, when we were in the last downturn running our assets at low rates, these fixed cost absorption numbers were costing us $25 million to $30 million a quarter, and that did not include idling a mine. So this -- I want to kind of translate that back to -- we talk about this cost improvement program all the time. It's hard to see in the numbers. But when you think about that LCM or that fixed cost absorption hit we're taking in the quarter at only being $11 million has a lot to do with what we're seeing in the cost improvement program because we're running at similar rates. We brought a mine down, but our costs have not gone down or have not been impacted as much. So John, do you want to? John Srivisal: Yes. No, I think just to be clear, though, it's $11 million impact, as John mentioned, in Q4, but that will be offset from a cash perspective by a positive $25 million to $30 million, as we mentioned. So net Q4 will be a positive from a free cash flow basis. And it was important to note that, obviously, we do spend a lot of time. We've said before, we have a 30-year mine plan, but equally as important is really the handoff we have between mines. And so the reason why we ran the West mine for longer -- a little bit longer and didn't execute on that earlier in the year, it's really facilitated by the fact that our new East OFS mine is coming online. And so that's why you kind of see that bridge be much more cost effective than you would have had you just had a sharp cutoff of that mine. Edward Brucker: Got it. And just my next question, can you dive a little further into why you feel so confident that India will reinstate those duties? And then if they don't, are there any contingency plans for the region? John Romano: Well, I'll start off with the last question. India is the second largest country that we sell into. We have currently a 10% duty advantage because we're supplying India out of Australia and there's a free trade agreement between Australia and India. So it's still upside for us. Even with India supplying -- or the Chinese -- at the peak they were buying, that's a 450,000 ton per year market. 300,000 tons per year were being supplied by China. We were still growing in that market. It's still our second largest market. So the contingency would be it's going to be slower growth, but we will continue to grow. We have -- again, we're not a producer in that region, but we've been actively engaged in discussions with the government. So we have a good window into what's going on at the DGTR. We do believe those -- we believe there'll be an answer sometime towards the end of the year, and it's our belief at this particular stage that that's going to be a positive one. I can't provide any more color other than that, but we're pretty confident in it. And in the absence of it, we still have a growth model. Operator: Our final question comes from Hassan Ahmed at Alembic Global. Hassan Ahmed: A question around -- in the press release, you guys mentioned 1.1 million tons of TiO2 capacity being shuttered since 2023. So a specific question around anti-involution and China in particular. I mean, if my understanding is correct, China has probably around 50 TiO2 facilities. My understanding is 20 of those are quite subscale, 50,000 tonnes or less and quite uneconomic. So if I were to sort of bundle all of those 20 subscale facilities up, I'd say that's roughly around 700,000 tonnes of capacity. So how are you thinking about that capacity? Is that vulnerable? Are you guys hearing something about closures around that? And sort of generally, what are you guys hearing about anti-involution? John Romano: Yes. Thanks, Hassan. It's a great question. And just to be clear, that 11 -- 1.1 million tons of capacity is from 2023 to the current date. And again, our belief that the majority of that is off-line. There were some Chinese plants included in that. We're not including our -- idling of our plant. But we have heard that there are other plants that are looking at being idled. And the real question is, do they go off permanently or do they bring them down for short periods of time. But I would expect that there's going to be some kind of consolidation in that capacity. Look, we're going to have to continue to compete with the likes of [indiscernible] on the long term. That's why these duties, albeit not -- maybe they're not permanent. Duties typically last 5 years with a 5-year sunset that typically follows that. So that's why all of our focus has to be on how we become more cost efficient and the traction that we're getting around costs so that we have a long-term sustainable plan to be competitive no matter where we're selling the product. But I do believe -- look, our China plant is -- it's our lowest cost plant in our entire system. But the market in China is the lowest price market, and it's more competitive today because that 800,000 tons that historically was exported outside into other regions of the market, you've got fewer markets for that material to move into. All the other areas that are nonduty affected are largely saturated with Chinese material anyway. So I would agree with you. It will be a matter of time, and it's one of those things where you would have thought it would have happened earlier. I think a lot of those are state-owned or SOEs where they're getting subsidies. We don't get subsidies in our Chinese facility. So again, we've idled that for the right reasons, and we'll determine how long that's down based on the current market condition. But I would agree with you that, that's not -- what you just described is not fully baked into the 1,100 tons that's already been brought offline. And in a down cycle that's lasted now 3.5 years, you've never seen -- I've never seen in my almost 40 years, anything like that amount of capacity reduction. Maybe 25% of that historically is what you'd see in a downturn. And normally, what happens as the market goes down and right before people start closing plants, there's a recovery. And this one has been longer than any other one, and every competitor has idled or closed a plant. Hassan Ahmed: Very helpful, John. And as a follow-up, I wanted to revisit the India antidumping side of things. I know things are still sort of transient and the like. But my understanding is that the sort of overturning by the courts of the antidumping duties actually didn't have much to do with the cause agents of why those antidumping duties were sort of levied in the first place, but it was far more procedural. I mean, again, my understanding is that the Indian Paints Association came out and said, "Hey, look, certain details were not shared with us, and they were shared with other parties. So those need to be -- so it was far more procedural than really why they were imposed in the first place. Is that what actually gives you confidence that they may be levied again? John Romano: That's exactly right. I couldn't restate it any more clearly than you just did. It was a procedural error. We believe that the data that they didn't get has been submitted. The procedural correction will be done and the duties will go back into place. So I can't state what you stated any more clearly, the right answer. Operator: Thank you. So there are no further questions today. So I'll now hand the call back over to John Romano for closing remarks. Thank you, John. John Romano: Thank you very much, and we appreciate you joining the call. Look, I do believe that we are -- clearly, it's been a challenging 3.5 years, but we're pretty optimistic on the things that we're doing around self-help -- the duties -- a lot of that work was hard work that we initiated. A lot of the work that we're doing on the cost improvement program. I gave you a lot of details on that. It's not just things we're talking about. It's things that our operational teams are weaving into the work that we do every single day, just like safety is a priority, cost improvement and maintaining those cost improvements and being competitive long term is something that we will continue to do for the long term. And our team has done an outstanding job of implementing those programs and lifting and shifting them from one site to the other. So I'm feeling really good, and that's largely on the back of all the work that our team has done to get us to where we are today. So we look forward to updating you again throughout the quarter and next quarter. So thank you very much. Operator: This concludes today's call. Thank you for joining, and have a great day.
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.