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Operator: Ladies and gentlemen, welcome to the Addiko Bank Results Q3 2025 Conference Call. My name is Youssef, the Chorus Call operator. [Operator Instructions] This conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Herbert Juranek, CEO. Please go ahead. Herbert Juranek: Good afternoon, ladies and gentlemen. I would like to welcome you to the presentation of the results of the third quarter 2025 of Addiko Bank AG on behalf of my colleagues, Sara, Ganesh, Edgar and Tadej. Let me show you today's agenda. In the beginning, I will present to you the key highlights of our results. Ganesh will continue with our achievements on the business side. After that, Edgar will give you more details on our financial performance. And Tadej will inform you about the developments in the risk area. Finally, I will do a quick wrap-up before we go on to Q&A. So let's start with a quite positive note. I'm happy to inform you that in Q3, we achieved a record operating performance with an operating result of EUR 31.2 million quarter-to-date due to a strong business performance of our team and due to good cost management. This represents the highest quarterly operating results so far, achieved entirely under the new business model. On a year-to-date basis, the operating result ended up at EUR 82.9 million despite the significantly lower interest rate environment and based on our measures to manage the inflation-driven updrift of our administrative costs. The strong business performance is based on a 17% growth rate in new consumer lending business and on a 9% growth rate in new SME lending business. However, the positive effects from new business were, to a certain extent, neutralized by lower income from variable back book and national bank deposits as well as by repayments of loans driven by aggressive competitor attacks. Nevertheless, we were able to grow our net commission income by 7.8% year-on-year or even at 12.5% if you compare the third quarter with the third quarter last year. Moreover, we managed to expand our active customer base by 5% year-on-year. Altogether, we could keep our net banking income stable, compensating the mentioned negative effects. Let's briefly comment on our risk performance. We were quite successful in reducing our NPE volume further to EUR 140 million at the end of Q3 compared with EUR 145 million at the end of 2024. Our NPE ratio is kept stable at 2.9%, while our coverage ratio continued to improve to 82.2% from 80.8% at the end of June. Our cost of risk on net loans ended up at 0.7% or EUR 25.5 million compared to EUR 25 million last year. Tadej will give you more details on the risk development later. So in summary, we achieved a net profit of EUR 11.3 million in Q3, which results in a year-to-date profit of EUR 35.3 million at the end of the third quarter 2025. Consequently, the return on average tangible equity stands at 5.6% and the earnings per share at EUR 1.83. The funding situation remained quite solid with EUR 5.2 billion deposits and a loan-to-deposit ratio of 69%. Our liquidity coverage ratio is currently very comfortable, above 380% at group level. And finally, our capital position continues to be very strong with a 21.3% total capital ratio, all in CET1, based on Basel IV regulations. Now what else is worthwhile to mention? As presented in our last earnings call, we have laid the operational foundation for our market expansion into Romania in the first half of 2025 and started our fully automated consumer lending business based on a very diligent and prudent risk approach. On that basis, we have started at the end of August with a 360-degree marketing campaign to raise awareness, to build the brand, to position our product and to start generating business. The campaign included TV and out-of-home advertising as well as digital integrated marketing campaigns and was able to create noise and positive reactions in the market. Despite significant parallel marketing efforts by incumbent banks, we view this initiative as a strong starting point for building our brand in a new market and is a solid foundation for continued marketing activities to drive sustained traction. Ganesh will provide further details in his section of the presentation. Now let's come to a different topic. In 2024, Addiko decided to get a listing on the Frankfurt Xetra platform to improve the trading liquidity and to increase the attractivity to a wider range of potential investors. Now after 1.5 years, based on the very limited trading volume in Frankfurt and due to the given changes in the shareholding structure, we concluded to discontinue the Xetra listing in Frankfurt as of 1st of January 2026, as the defined targets were not met. Concerning our ESG program, I would like to inform you that all initiatives are on track and progressing as planned. You will find more information in the appendix of the presentation. Next page, please. Unfortunately, I have to inform you about several unpleasant changes driven by local governments and local regulators with significant impacts to our business revenues. I will explain them country by country. In Croatia, we are confronted with a series of measures with severe impact on our earning capacity. As of 1st of July this year, the Croatian National Bank introduced preventive macro potential measures restricting consumer lending criteria. Amongst other regulations, a debt-to-income ratio of 40% for nonhousing loans was introduced. The effect of this new rule was already visible with an approximately 30% reduction of our new consumer -- Croatian consumer business generation in the third quarter vis-a-vis last year. Now the experience with our respective vintages does not provide the evidence that such a measure was needed. Moreover, we anticipate detrimental consequences for the concerned customers as those affected may be excluded with their loan demand from the banking system and cover it with unregulated providers. Tadej will give you more background later on. Furthermore, the Finance Ministry of Croatia supported a new regulation to restrict and cut banking fees as of 1st of January 2026. This means that we have to offer free account packages, which shall include opening, maintaining and closing the account, Internet and mobile banking, depositing money, issuing and using debit cards, incoming euro transactions and executing payments with debit cards. Additionally, we have to provide a fee-free channel for cash withdrawals for all customers, while for pensioners and vulnerable client groups, both ATM and branch must be free of charge. On top of that, from the 1st of January 2027, 2 cash withdrawals on ATMs of other banks must be offered for free. All of that eats directly into our core business revenues. And one can ask the question, why do banks have to provide such core services for free? In Serbia, starting with the 15th of September, the National Bank of Serbia asked all banks to reduce the interest rate by 300 basis points to maximum 7.5% for citizens with an income of up to RSD 100,000 per month. This reflects almost the average salary in Serbia. In addition, no loan processing or account maintenance fees shall be charged. Unfortunately, this will affect the vast majority of our customers. In the Republika Srpska, the banking agency decided to restrict specific banking fees. As of 9th June 2025, fees for credit party account maintenance, ATM account balance checks and for sending warning letters of delayed payments are not allowed anymore. And finally, in Montenegro, effective 1st of November 2025, a new regulation will introduce a debt-to-income cap of 50%. This will be accompanied by a restriction on maximum interest rates, limiting them to no more than 100% above the average consumer rate in the market, including non-payroll loans and credit cards. Now to summarize. Altogether, the measures depicted on this page would lead to an unmitigated potential impact of just above EUR 10 million on our revenue base. Nevertheless, we are actively working on solutions to mitigate these effects and to create new offers to our customers to enable new growth opportunities. Now with that, I would like to hand over to Ganesh to give you more insights on how we are reacting in this respect and first of all, to inform you on our business development. GaneshKumar Krishnamoorthi: Thank you, Herbert. Good afternoon, everyone. Moving to Page 6, I'm pleased to report strong third quarter performance in our Consumer segment, delivering 17% year-over-year growth in new business with a premium yield of 7.2%. This was achieved despite a persistently low interest rate environment and supported 9% year-over-year growth in the loan book. On the SME side, the new business origination grew 9% year-over-year with a solid yield of 5.1%. However, we continue to face a challenging market with competitors sharply lowering prices to stimulate demand. This has prompted many existing clients to repay loans early, particularly those with higher fixed rates originated last year. As a result, the SME loan book declined 2% year-over-year, mainly due to reductions in large tickets, medium segment loans. I will share more updates on SME turnaround plan on the next page. Overall, our focused loan book grew 5% year-over-year, and this focused book now accounts for 91% of our total loan portfolio, underscoring our strategy to prioritize high return and scalable lending. Please turn to Page 7 for a detailed outlook. Let's take a closer look at our Consumer segment. Year-to-date, we have delivered double-digit growth while maintaining premium pricing, driven by several key factors: number one, strong market demand across our core geographies. Number two, the launch of fully digital end-to-end lending with zero human interventions in 4 of our core markets clearly differentiates us from the competitors. Number three, our point-of-sale lending proposition continues to perform well, achieving 17% year-over-year growth. Number four, we have identified a sweet spot between growth and pricing, enabling us proactively to retain customers and the loan book through disciplined repricing actions. Number five, additionally, we are redesigning our mobile app, introducing new card features with Google Pay and Apple Pay integrations, which has contributed to an 8.5% year-over-year increase in net commission income. As Herbert mentioned, our business model has been affected by new regulatory restrictions. We are already implementing mitigation measures, including downselling, introducing core debt structures and focusing on high-quality customer segments with larger ticket size. Furthermore, we are developing a new specialist program that focuses on non-blending products, aiming at fee-based income growth, and we will share more details once the program is launched. We are confident that these initiatives will not only offset regulatory headwinds, but also strengthen the foundation for sustainable quality growth going forward. Over to SMEs. Our core business model remains unchanged, to be the fastest provider for unsecured low-ticket loans to underserved micro and small enterprises through our digital agents platform. As mentioned earlier, we are facing market challenges due to aggressive pricing, which has led to some loan book contraction. However, we are now seeing a recovery in the market demand. And to reignite growth, we have taken several strategic actions. Number one, our turnaround plan in Serbia, supported by new leadership team, is delivering 20% year-over-year growth in new business. In fact, all countries are recording double-digit growth, except for Slovenia. Number two, we are placing strong emphasis on retaining quality clients and the loan book through better pricing, loan prolongations and superior service delivery. Number three, we also have broadened our product range while maintaining our focus on unsecured loans, we are also expanding to secured investment loans with slightly higher ticket sizes, targeting both existing and new customers. And this has resulted in a 69% year-over-year increase in investment loan volumes. Finally, we have launched a new digital SME tool to process high-ticket loans with a greater speed and simplicity, providing a clear competitive advantage. Overall, we believe these initiatives positions us well to return to a sustainable growth in the SME segment going forward. Lastly, let me touch on our progress with AI adoptions. We are investing in AI technologies to enhance efficiency and customer experience across the organization. Two AI-driven applications are already live, one supporting employees with HR-related inquiries and the other assisting our call center by analyzing customer inquiries, feedback and creating responses. Additionally, we are exploring AI use cases in IT, risk and marketing, further strengthening our operational excellence and data-driven decision-making. To summarize, 2025 is a transitional year, focusing on refining our SME business model and launching new USPs that enhances speed, convenience and value across consumer and SME segments. These investments are essential, not only to drive future growth, but also to strengthen our specialization, stay ahead of the competition, compensate regulatory restrictions and justify high-margin premiums in a low interest rate environment. We are building the foundation for stronger, faster and more profitable growth in the years ahead. Please let me hand over to Edgar. Edgar Flaggl: Thank you, Ganesh, and good afternoon, everybody. Let's turn to Page 9 for an overview of our performance in the first 9 months of 2025. Despite a challenging interest rate environment and cost pressures, we delivered stable results, supported by resilient consumer lending, strong fee income and a robust capital position. Now let's take this one by one. Our net interest income came in at EUR 177.8 million, a slight year-on-year decrease of 2.2%. This marks a modest recovery compared to the 2.4% year-over-year decline, as reported in the first half this year. The decline was mainly due to the lower interest rate environment, which impacted income from our variable back book, so roughly 14% of our book, [ 1-4 ], and on National Bank deposits. As a reminder, the ECB implemented 8 rate cuts since June 2024, totaling a reduction of 2 percentage points, a faster pace than we initially anticipated. This also caused pressure on interest rates we can charge on new loans. Importantly, our Consumer segment performed quite strong with interest income up 7.3%, driven by 9% growth in the consumer portfolio. Overall, the focus portfolio grew 5% year-on-year, slightly ahead of the previous quarter. On the fee side, we delivered solid growth. Net fee and commission income rose 7.8% to EUR 57.8 million, driven by bancassurance, accounts and packages as well as card business, which altogether grew 11.6% year-on-year, with bancassurance as a key contributor. Now looking ahead, new regulations, respectively, law in Croatia, limiting fees on banking products will have an impact on fee generation going forward. Coming back to the end of the third quarter, as a result, net banking income remained stable at EUR 235.6 million despite the challenging environment. Our general administrative expenses in short OpEx increased slightly to EUR 144.5 million, up just 1% year-on-year, and that's mainly due to wage adjustments and operational updates as well as increases. When excluding the 3 million in extraordinary advisory costs related to takeover of [ what we had ] last year, operational costs were only up 3.2% year-over-year. Our cost-income ratio came in at 61.4%, which is a tad higher than last year. The operating result landed at EUR 82.9 million year-to-date, down only 0.8% year-on-year, supported by an exceptionally strong operational third quarter, as Herbert pointed out already. The other result, which includes costs for legal claims as well as for operational banking risks, remained manageable. We have allocated some additional provisions for new legal claims in Slovenia and made a small top-up in Croatia, also to reflect further increased lawyer costs. The main point in Slovenia remains what the higher courts will rule upon regarding the applicable status of limitation and if that will be in line with the dominant legal opinions. As usual, during the fourth quarter, a further deep dive will be conducted in the context of the year-end audit. So there is a possibility for some additions here. When it comes to risk costs, our expected credit loss expenses were EUR 25.5 million, which translates to cost of risk of 0.7% on net loans year-to-date. Tadej will provide more insights in just about a moment. All in all, we delivered a net profit after tax of EUR 35.3 million for the first 9 months. As of today, we do expect the fourth quarter contribution to be less pronounced. So while operating in a challenging rate environment and managing high cost pressures, our focus business remain resilient. And we are seeing solid momentum in our consumer lending and fee-generating activities this year, while also SME lending has started to pick up again in September. Turning to Page 10 and our capital position, which remains a real strength. Our CET1 ratio remained at a very robust 21.3% at the end of the third quarter. For context, that's only slightly down from the 22% at the end of 2024, which was under Basel III rules, while third quarter is calculated under the new Basel IV or call it CRR3 rules. You will notice that our risk-weighted assets increased, and that's mainly driven by changes in risk weighting under Basel IV as well as the new interpretation of EBA guidelines on structural FX, which we already discussed on the back of the half-year results. Looking ahead, we recently received the final SREP for 2026, which includes a small increase in our Pillar 2 requirement, up by 25 basis points to 3.5%, while the Pillar 2 guidance stays unchanged at 3%. So in line with the draft that we disclosed earlier. In summary, our capital position is very strong, giving us a solid foundation for future growth and the flexibility to navigate regulatory changes with confidence. With that, I'll hand over to Tadej for more on risk management. Tadej Krašovec: Thank you, Edgar, and good afternoon, everyone. Let me walk you through the credit risk section for the first 3 quarters of 2025. I'm glad I can report that in the first 9 months, we achieved excellent collection from defaulted clients, surpassing our goals and positively impacting loan loss provisions. At the same time, we managed risk rules dynamically and decisively to keep portfolio quality and NPE inflow under control on the group level. All that led to the NPE decrease, low NPE ratio and the level of loan loss provisions. I will talk about on this on the next page. As we see on the right-hand side of the slide, NPE portfolio decreased by EUR 2.5 million in the last quarter, which brings it to the EUR 4.9 million decrease on a year-to-date basis. NPE volume decreased to EUR 140 million, which is reflected in a stable [ NPE ] ratio of 2.9%. Short-term NPE initiatives are still ongoing, like, for example, further portfolio sale to dynamically drive further NPE portfolio reductions. At this point, I would like to refer to local limitations that central banks are imposing and were before mentioned by Herbert, specifically DTI limitations. Although these regulations will restrict more indebted and therefore, higher risk clients from obtaining larger loans with banks, which will result in an improved consumer portfolio quality; the excluded clients do not have a risk profile that would not be acceptable for Addiko. For context, clients who are no longer eligible due to new regulation limits have on average a default rate twice as high as those that remain eligible. However, the default rates in both groups remains below 2%. Using nearly 10 years of consumer behavioral data, we know that clients who have become noneligible demonstrate a risk profile well aligned with Addiko's business model and profitability objectives. Before going to the next page, let me revisit the topic from the previous calls. This is consumer portfolio in Slovenia. We see that smart risk restrictions implemented in the previous months have already a positive impact on the portfolio quality, which is getting gradually closer to our expectations. Let's move on to Slide 11. Loan loss provisions amounted to EUR 25.5 million in the first 9 months of 2025, resulting in a cost of risk of negative 0.71% on net loans basis. Segment breakdown is as follows: in Consumer, we recognized minus 0.7% cost of risk; in SME, minus 1.3% cost of risk, while nonfocus contributed to loan loss releases with a positive cost of risk of 1.6%. Development in SME segment was impacted by a black swan event, which represent almost 1/5 of loan loss provisions recognized in 2025. We talked about this case already in the previous earnings call. Loan loss provisions also include additional post-model adjustments recognized in the third quarter in the amount of EUR 3 million. The post-model adjustments will be netted out by model changes that will take effect in fourth quarter this year. This amount is in addition to EUR 1.2 million previously booked post-model adjustment to cover sub-portfolios where insufficient data is available for precise calibration. In conclusion, overall, Addiko's risk position remains stable and resilient, further supported by a strong collection performance and active portfolio management, resulting in a reduction of nonperforming exposure and lower loan loss provisions. Thank you for your attention and go back to Herbert. Herbert Juranek: Thank you, Tadej. Let's move on to the wrap-up. At the top of the slide, we present our current 2025 outlook figures. While our guidance is currently under review, due to the potential impact coming from the regulatory front, we have decided to maintain the stated outlook for 2025. We will update our guidance in line with the revised midterm plan and disclose it together with the year-end results for 2025 on the 5th of March 2026. Now we currently operate in a macroeconomic environment marked by global uncertainties, driven by conflicts such as the war initiated by Russia, shifting tariff conditions and persistent supply chain disruptions. Europe and the European Union are very much affected by these developments. However, if we look at the markets where we are operating in, they are performing better than the EU average and are also expected to sustain this outperformance. On that basis, we will concentrate our efforts to further innovate our product offerings and services to our customers in order to initiate sustainable growth in both business segments, Consumers and SMEs. Therefore, we are working on the preparation of our new midterm specialization program, which shall be launched and presented to you in the first quarter of 2026. This program shall enable further optimization of our cost base, expand digitalization capabilities and contain projects to exploit productive and profitable AI-based solutions. Altogether, we are confident to find the path to compensate the negative effects coming from the regulatory front and to prepare Addiko for future growth. Of course, by doing so, we will keep our prudent risk approach as one of our strategic anchors. Together with our dedicated team, we remain committed to delivering our best as we pursue our ambition to become the leading specialist bank for consumers and SMEs in Southeast Europe. On that basis, we will work with full energy to further improve the bank to create value for our clients and for our shareholders. With that, I would like to conclude the presentation. Our next earnings call to present to you the year-end results of 2025 is scheduled for the 5th of March 2026. I would like to thank you for your attention. We are now ready for your questions. Operator, back to you. Operator: [Operator Instructions] Our first question comes from Ben Maher from KBW. Benjamin Maher: I've got a couple. The first one is just on Romania. I was just interested to get your views on why the market is seen as particularly attractive. Is it seen as an underserved Consumer segment? Or is there other reasons that you're targeting a particular market for growth? I understand you're going to give your targets with full-year results, but it would be helpful just to get a sense of how important Romania will be as kind of a share of the business or a share of the loan book in kind of the terminal kind of state. And my second question is on the competitive pressures you note. Is this concentrated in a specific market? Or is this seen across your footprint? And then the third question is just on capital. As you said, it's very solid. I see the dividend still suspend. So I'm just interested for your thoughts on how you plan to monetize the excess capital next year. And then sorry, just a final clarification. Was it a EUR 10 million unmitigated revenue impact from the regulatory changes? I think you said, but perhaps I misheard. Herbert Juranek: Okay. Thank you for your question. Maybe we start one by one with Romania. I will give a brief feedback and maybe also, Ganesh, if you can then add your view on that. We consider Romania as an attractive market, given the digital capabilities given to us and also the stage of development of the market overall and the size of the market. So if you consider our existing markets, we lack scale there because of the size of the given countries. So we see that as an opportunity with our business model. We differentiate ourselves with a solution, which is very, very efficient straight through online. And we differentiate ourselves also with the USP that customers don't need an account with us when we do business. But I also have to admit that we are currently in a starting phase, we have a good engine, but our brand is not known. So that's what we are currently focusing on building up our brand there and getting traction on our business. Maybe, Ganesh, if you want to add something? GaneshKumar Krishnamoorthi: I think you mentioned well there. But additionally, we would like to expand this not just solely on the B2C level, we are also looking at expanding other channels digitally going forward. So we are exploring that options as well. And we will be also enhancing the product features with more refinancing capabilities. So yes, there's more things we are working on, which would help us to position more stronger than what we are today. But I think Herbert covered it with the USP, there's a distinct proposition we have in Romania. Edgar Flaggl: And maybe just to add or conclude on the Romanian questions, if I remember all of them correctly, so you asked about the impact or kind of the contribution in the results. So this year, we are not expecting any noteworthy contribution. It's rather the opposite due to building up the engine and also having some kind of a marketing push, as we disclosed. There is costs. It will take a bit of time for kind of a positive contribution to materialize. But overall, it's rather negligible in the short -- near and short term. Herbert Juranek: Okay. Let's go on to the second question. Edgar Flaggl: So the second one was, and Ben shout, if I misunderstood you, on the competitive pressure that we're seeing if this is like specific markets or across the board. GaneshKumar Krishnamoorthi: Thanks, Ben, for the question. So yes, on the SME level, we are seeing competition really pricing it quite low. They're looking for low margins and higher volumes in the loan book. We have also -- we faced this pressure already in a couple of quarters. We are also adjusting some price going forward and so focusing on growth. You already saw we have recovered well with the growth around 9%. So yes, I mean, we will continue to go forward. So -- but the competition is pricing across the markets, not just a specific market. We are seeing this quite extensively there. On the Consumer side, obviously, the whole Euribor changes is reflecting a much more lower interest rate environment. We see a big pricing pressure and also in Consumer side. And additionally, if you heard Herbert, he also mentioned we have in Serbia, a special situation where we have to drop our price 3% based on the new regulation. So yes, so a lot of pressure across the markets on the pricing side. Herbert Juranek: And the last question was on the capital and on the dividend. So if I understood you correctly, the question was, how is our view there and how do we want to continue here? From -- so according to the current situation, the shareholder situation did not change. So also, our perspective on the dividend is not changing. So there is no change for the time being. So what do we do with the additional capital? Of course, we will use it for further growth. But on the other hand, if the situation with the shareholders would change, we would also return back to the payout. Our dividend policy did not change. So we still are committed to the 50% payout ratio. And as soon as the topic is solved, we would return to that. Edgar Flaggl: And I think, Ben, you had one more question on the EUR 10 million unmitigated potential top line impact, but I didn't get the full question. Benjamin Maher: No. So just checking out the correct number. I want to make sure I didn't mishear -- it was that EUR 10 million unmitigated revenue impact. Edgar Flaggl: Yes, it's just above EUR 10 million. Operator: Next question comes from Mladen Dodig, Erste Bank. Mladen Dodig: Congratulations on the third quarter. If you allow me, I'm happy to see that in Serbia, you have finally managed to capture the decline -- to arrest the decline in the credit portfolio. So congratulations to that, too. As you explained, the moves with the interest rates, very difficult to grasp with also in Serbia. But again, it's a market battle. I already wrote my questions in the Q&A, so I will try to repeat them. IR sensitivity and breakdown of fixed and variable interest rate arrangements, if I'm not mistaken, there is -- that slide is missing in the presentation or not. Edgar Flaggl: Mladen, good to have you on the call. This is Edgar speaking. So you're absolutely right, it's missing because we only publish it on a half yearly basis. But if you would go back to the half-year results, I think it's Page 34, 35 or something, you would actually have it there. And given the structure of our balance sheet, it hasn't changed much. Mladen Dodig: It hasn't changed. Edgar Flaggl: Not much. So 14%, 1-4, is variable in our total loan book. Mladen Dodig: So the colleague already asked about Romania. You said a couple of things about the specialization program. So looking to extend the digital proposition efficiency and AI-based solutions. Any other details, maybe duration or some -- anything else on this? Herbert Juranek: Yes. I mean we will disclose it next year, but -- and we are currently in the process of finalizing our new midterm plan, and the specialization program will be part of that. So it's still under construction, but we aim -- it will have three different layers, the program, and it will be a midterm program. So it will last at least 2 years, potentially a bit more. So intended to bring the bank to the next level. And we will present it then, as said, together with the year-end result in 2026. Mladen Dodig: You already talked about the dividend and the shareholder structure. Could you tell us anything -- I bet you can't, but I need to ask. So is there any kind of event on the horizon that might trigger either the recall of this recommendation or some other action by the regulator? Herbert Juranek: Well, we are not aware about anything which would release or change our perspective on the dividend for the time being. But we are also prepared -- as I said beforehand, if the shareholder situation would change, we would be also ready to take actions on our side and to adjust accordingly. But if there was something already known today, we would, of course, disclose it. Mladen Dodig: And final question regarding Romania. I was recently in Bucharest and wanted to ask you, could it be possible that I heard commercial on Addiko on the radio... Herbert Juranek: Yes, this could be well because we -- as I said beforehand, we started our marketing campaign in August. And we will continue with this marketing campaign, and it also includes radio and TV. Mladen Dodig: Yes. I was driving there, and I heard something on radio because I don't know one word of Romanian, but I think I recognized the Addiko. Herbert Juranek: Good that you recognized it. Mladen Dodig: Yes. So yes, as you said, you are there, but it needs -- it takes time. Sorry for this mess-up with the call. Obviously, I changed recently with my computer. So obviously... Edgar Flaggl: No worries, Mladen. All good. Herbert Juranek: Any other questions? Operator: Ladies and gentlemen, that was the last question from the phone line. I would now like to turn the conference back over to Sara for questions on the webcast. Sara Zezelic: Thank you, operator. We have not received any further questions on the webcast. I'm handing over to Herbert for closing remarks. Herbert Juranek: So in this case, I would thank you very much for your attention. All the best from our side, and we hear each other then in March next year with our year-end results. Thank you very much for attending. 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.
Operator: Good morning. My name is Jasmine, and I will be the conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Third Quarter 2025 Conference Call. [Operator Instructions] Please note that many of the comments made today are considered forward-looking statements under federal securities laws. As described in the company's filing with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and the company is not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, the company will discuss certain non-GAAP financial information such as adjusted EBITDA, adjusted net income and net servicing billing. You can find this information together with the reconciliations to the most directly comparable GAAP information in the company's earnings press release filed with the SEC on the company's Investor Relations website at investors.bowman.com. Management will deliver prepared remarks, after which they will take questions from research analysts. Replay for the call will be available on the company's Investor Relations website. Mr. Bowman, you may begin your prepared remarks. Gary Bowman: Thank you, Jasmine. Good morning, everyone. Thank you for joining our third quarter earnings call. Bruce Labovitz, our CFO, is here with me this morning. I'm going to start today's call with a welcome to all new Bowman employees who joined us this quarter. After my introductory remarks, I'll turn the call over to Bruce, who will cover our financial performance. I'll then end the call with closing statements before opening it to Q&A. Turn to Slide 3. The third quarter marked an important milestone in our continued evolution. For the first time, we surpassed a $500 million annualized gross revenue pace. This is a meaningful achievement, and the fact that we are ahead of schedule on this milestone, demonstrates both the strength of our business model and the capabilities of our skilled team of professionals. For the third quarter, we delivered 11% year-over-year growth in both gross and net revenue and a 7.6% growth in adjusted EBITDA while maintaining healthy cash flow generation and a solid balance sheet. Our net revenue for the quarter was $112 million and was supported by strong activity in transportation and power and utilities and energy. Together, these end markets grew over 20% during the quarter and account for more than 40% of our top line. Importantly, our backlog grew nearly 18% year-over-year to $448 million. This sustained growth reflects continued demand across our end markets. Our book-to-bill ratio continues to be above 1, a clear indicator of the momentum we are seeing as we head toward the end of 2025 and into 2026. In fact, bookings in the fourth quarter are once again outpacing the prior quarter. We've worked hard over the past year to regain our footing, and I'm proud to report that today we are a larger, more efficient, and more resilient organization than ever before. Our growing base of recurring public sector work and a solid foundation of private demand positions us well for the years ahead. With that, I'm going to turn the call over to Bruce to review the financials in more detail. Bruce? Bruce Labovitz: Great. Thank you, Gary, and good morning, everyone. While the third quarter marked an important milestone for Bowman in terms of reaching the $500 million annualized gross revenue rate, it also represents our achievement of 2 basic commitments we made to our shareholders this time last year, to prioritize GAAP profitability and to improve our conversion of earnings to cash. This year, we've been hypervigilant about delivering on these 2 basic commitments because unlike political, macroeconomic and labor market uncertainties, these are outcomes we control. We're pleased to have delivered on these commitments. For the third quarter and the 9 months ending September 30, we dramatically increased GAAP net income to $6.6 million and $10.9 million, respectively, compared to net income of $700,000 (sic) [ $800,000 ] and a loss of $2.9 million for the same period last year. Concurrently, we more than doubled our cash flow from operations to $26.5 million from $12.4 million, affirming the capital efficiency of our effort. We achieved this improved performance in part through consistent and sequential growth in billed revenue throughout this year with an 11% year-over-year increase in net revenue in the third quarter with no erosion of our net to gross ratio. Organic net revenue, which excludes revenue from acquisitions closed after September 30, 2024, grew 6.6% for the third quarter and now stands at approximately 11% through 9 months. Also contributing to our improved profitability was our ability to achieve the benefits of scale with revenue growth rates that outpace overhead growth rates. To that end, as revenue grew year-over-year, total overhead, we define as COGS and SG&A, was down 290 basis points as a percentage of net revenue for the quarter at 89.5% and down 500 basis points for the 9 months at 89%. This disciplined approach to overhead growth will be a significant contributor to sustained positive GAAP earnings and an industry-leading margin profile. Turning to some non-GAAP metrics. Adjusted EBITDA in the quarter increased by 8% to $18.3 million, representing a 16.3% margin on net revenue with adjusted EPS of $0.61, doubling Q3 2024. Through 9 months, adjusted EBITDA is up nearly 25% to $53 million and a margin of 16.6% on net revenue, a 150 basis point year-over-year expansion with adjusted EPS of $1.26, again, doubling adjusted EPS in the same period last year. Absolute growth in revenue was broad-based with Transportation up 20%, Power, Utilities and Energy up 17% and Building Infrastructure up 8%. Natural Resources & Imaging, to which we allocated all Surdex related manned aerial and high-resolution mapping revenue last year saw a slight decline as we now allocate that revenue in a more deliberate manner across verticals. On an organic basis, Building Infrastructure grew 6%, Transportation grew 10%, Power and Utilities grew 13% and Natural Resources & Imaging grew around 1%. In previous quarterly calls, we've been asked about the relative gross margins of our primary verticals. We've suggested we believe they are relatively equal apart from Transportation, which has a lower contribution margin based on the nature of its primarily cost-plus contracts. To corroborate this assertion, we calculated the gross margin of each vertical for the third quarter, during which gross margin was 53% and concluded that our representation was accurate. During the quarter, gross margins by vertical were 56% for both Building Infrastructure and Power and Utilities, 57% for Natural Resources & Imaging and 46% for Transportation. With Building Infrastructure, gross margin is benefited by more fixed fee contracting. With Natural Resources & Imaging, gross margin is advantaged from a disproportionate use of labor leveraging technology. With Transportation, we enjoy meaningfully longer and larger government contracts that have lower labor multipliers, but generally generate higher utilizations and overhead leverage along with lower turnover costs. We will include this gross margin analysis in our quarterly presentations going forward. We ended the quarter with a record $448 million backlog, up 18% year-over-year, with 38% of that backlog from Building Infrastructure, 30% for Transportation, 23% from Power and Utilities and 9% from Natural Resources & Imaging. This imbalance relative to revenue should indicate continuing diversification of our revenue mix, but it's likely not as dramatic as the percentages in backlog today reflect. Operating cash flow totaled $10.2 million for the quarter and sits at $26.5 million year-to-date, both more than twice last year's levels. While we are pleased with this significant increase in conversion, we're confident there is room for continuing improvement. Our balance sheet remains a strength and provides a solid foundation for growth. We ended the quarter with $16 million in cash and $57 million drawn on our revolver and net debt of approximately $105 million with a net leverage ratio of 1.5x trailing 12 months adjusted EBITDA. After quarter end, we expanded our revolver to $210 million from $140 million, adding PNC Bank to the existing Bank of America and TD Bank syndicate. As a result, we have roughly $150 million in available liquidity for investment in growth initiatives. Our internal innovation incubator, the BIG Fund, continues to produce high-value ideas and opportunities that present the prospect of tangible returns for us long term. We're actively engaged in advancing concepts that accelerate revenue growth through the deployment of proprietary AI-enabled asset control kits, which extend engagement with clients throughout the asset lifecycle. With concepts that expand the application of the proprietary technology tools we acquired in the recent ORCaS acquisition, which drastically reduced the time it takes to perform repetitive feasibility and planning functions, thereby unlocking additional labor utilization. Also concepts that connect all Bowman operating systems and platforms with AI-enabled capabilities, which empower employees to ask Bowman plain English questions, the timely informed answers to which improved business acquisition efforts and streamline proposal generation, estimation and profitable project execution. Lastly, we're working on ideas that modify, extend and evolve the inherent capabilities and uses of our high-end geospatial assets to expand their applications, improve the quality of capture, extend revenue opportunities, shorten delivery times and increase return on investment. All investments in innovation are measured against defined return thresholds, ensuring innovation spending meets the same rigorous financial discipline as acquisitions. To date, we have expended a little bit over $300,000 on advancing these ideas, the cost of which are not added back to adjusted EBITDA and the benefits of which are not yet contemplated in our current projections. And while not a BIG Fund project, we also completed the upgrade of our accounting and enterprise management platform this quarter, an effort that consumed a meaningful amount of time and energy, but will be a solid foundation for our next phase of growth. These costs will likewise not add back to adjusted EBITDA. It wouldn't be an earnings call if I didn't reference tax, so here it goes. Following enactment of OB3, we filed method change notifications with the IRS that allowed us to unwind our uncertain tax position with retroactive audit protection. The change in law and associated adoption by Bowman of the new standards released approximately $52 million of deferred tax assets and other non-current liabilities on our balance sheet and released $3.5 million in P&I accruals, which had previously run through the tax expense. In addition to committing to GAAP profitability and cash flow conversion, we also committed to the reduction of non-cash stock compensation as a percentage of revenue. For the first 9 months of 2025, stock-based compensation totaled $14.2 million or 4.4% of net service billing, down from 7.3% a year earlier. Excluding about $1 million of pre-IPO related issuances, adjusted stock-based compensation was approximately 4.1% of net revenue. As we've discussed in the past, these pre-IPO grant expenses represent the run out of GAAP costs related to awards issued prior to our IPO in 2021 and are not part of normalized long-term incentive costs. We expect total non-cash stock compensation for 2025 and '26 to be roughly $19 million and $20.5 million, respectively, which is consistent with our pledge to reduce equity compensation as a percentage of revenue while balancing its benefits for recruiting, retention and efficient capital allocation. Thank you for your continued confidence in Bowman. With that, I'll turn the call back over to Gary. Gary Bowman: Okay. Thank you, Bruce. As Bruce mentioned, our improved profitability and working capital management once again drove strong cash flow this quarter, with cash conversion now at about 50% year-to-date. Our margins and cash efficiency place us solidly in line with the best performing firms in the E&C space. Now let me take a few minutes to share a summary of our market performance and outlook as we move into 2026. Transportation remains one of our most stable and resilient end markets, delivering double-digit growth year-to-date. Our expanding client base spans a broader range of state and municipal transportation agencies than ever before. We're deeply engaged across state DOT programs and large local agencies throughout the Pacific Northwest, Midwest and East Coast, where our teams are supporting multiyear bridge, roadway and multimodal infrastructure programs. Our long-standing relationship with DOTs continue to be a key competitive advantage, creating recurring opportunities as agencies seek partners with both specialized technical expertise and the capacity to scale across geographies. We currently have strong bridge and roadway pipelines with backlog visibility through 2026. We continue to benefit from recurring construction management and inspection programs with multiple state agencies, including a major multiyear assignment with Illinois. Our ports and harbors practice, which is part of our Transportation segment, continues to gain momentum with coastal and port authorities, extending our reach into critical intermodal and maritime infrastructure projects in regions, including Houston, Philadelphia and the Pacific Northwest. We have a growing active backlog in ports and harbors with anticipated wins continuing through 2026 in existing and new geographies. Overall, we expect transportation to maintain steady, healthy growth. Less than 25% of IIJA funds have been released so far for permitted transportation projects, which we believe, coupled with state programs, ensures multiyear nationwide demand runway. We expect transportation will continue to provide the backbone of stability and recurring revenue across our portfolio. Our Power, Utilities & Energy division continues to be our fastest-growing market, up 38% year-over-year and driven by national investment in electrification, renewables, grid modernization and data infrastructure. The recent acquisitions of Sierra Overhead Analytics, ORCaS and Lazen Power Engineering significantly enhance our strategic positioning within this high-growth market. Sierra and its affiliate ORCaS, expand our capabilities in technology-enabled engineering, adding automation, precision mapping, hydrology and optimization tools that improve project delivery and efficiency across renewable energy, data center, and utility scale infrastructure design. These digital solutions strengthen our ability to provide faster, smarter and more cost-efficient design workflows to clients in the power and energy transition space. The addition of Lazen establishes our platform in high-voltage overhead transmission line design, immediately positioning us to compete in one of the fastest-growing recurring revenue segments of the power industry. Lazen's expertise enhances our credentials with major utilities and transportation operators, transmission operators, while complementing our advanced geospatial and aerial imaging services for power corridor mapping. Together, these acquisitions broaden our reach across the generation to grid continuum, connecting our existing strengths in site design, renewables and data centers with the infrastructure that delivers power across the U.S. Looking forward, Power, Utilities & Energy represent a long-term growth engine for us. We expect continued revenue and margin expansion in 2026 as integration matures, our national footprint expands and our clients increasingly turn to us for end-to-end power infrastructure solutions. Our well-balanced Building Infrastructure business grew by just over 8% year-over-year in gross revenue, reflecting solid execution in public and mixed-use work that continues to balance softer conditions in the residential space. While some private development remains slightly constrained by interest rates, we see clear rebound potential emerging in mid- to late 2026 as financing conditions improve. Our current Building Infrastructure projects continue to generate long-term revenue visibility through 2027, and we remain well positioned to capture renewed private sector growth as market conditions improve. Our Natural Resources & Imaging segment remains a steady performer and margin stabilizer, representing roughly 11% of our net service revenue. We have robust visibility into 2026 in this market, supported by recurring federal programs and strong municipal demand in water, environmental and geospatial services. Automation and recurring federal mapping programs will continue to underpin growth in this segment, and our geospatial and remote sensing services continue to enhance efficiency across our broader business. Operating margins in this market remain among the highest company-wide, and we expect growth to be driven by technology-enabled delivery and long-term public sector funding. Now I'd like to address the current operating environment, which includes the government shutdown. While the shutdown is causing some delays in project progression, invoicing collections within select federally supported programs and federally adjacent projects, our direct exposure to federal contracts remains limited, and we are not experiencing any unusual cancellation activity. Most of our public sector work is performed for state and local governments, which provide a natural buffer to extended interruptions such as the current government shutdown. We continue to monitor this particular situation closely, noting that the longer the shutdown continues, the more likely it is to extend near-term revenue somewhat further into the future. Looking ahead, our focus remains clear. We'll continue to convert backlog into revenue while improving utilization and project delivery efficiency. We will aggressively leverage technology and innovation to enhance margins and scalability, and we'll deploy capital strategically through disciplined M&A and organic growth derived from continued investment in people and systems. We're reaffirming our full year 2025 guidance. We're also initiating 2026 guidance of net revenue between $465 million and $480 million and an adjusted EBITDA margin between 17% and 17.5%. With that, I'll now turn the call back to Jasmine for questions. Operator: [Operator Instructions] Our first question comes from Laura Maher with B. Riley Securities. Laura Maher: So some of the larger specialty contractors have mentioned total solutions packages. Do you see this creating competitive pressure in your data center business? Bruce Labovitz: No, I don't think that that's going to impede on any of the work that we do. I think it's similar to any trends in design build or that don't necessarily compete with other industries. I think it's a big market. And even when firms offer complete solutions, they end up subcontracting a good portion of that to specialized contractors like us anyway. So I don't think that's a real threat. Gary Bowman: I agree with that. Laura Maher: And then one more. On M&A, are there specific service lines or regions where you still see gaps relative to your growth objectives? Gary Bowman: Yes. We're really focused on some of these markets that we've been focused on expanding into for years now, especially transportation, certainly power and energy and data centers and also water-related opportunities as they come along. No specific regions we're focused on. We find the, I'd say, usual suspects appealing Texas, California, the Southeast, but we're not particularly focused on any particular region in the U.S. Bruce Labovitz: It's more service line and skill set focused than it is geographically focused. Operator: Our next question comes from Andy Wittmann with Baird. Andrew J. Wittmann: I guess I'll start with some top line questions here. It looks like the fourth quarter guidance here for '25 is implying a bit of a revenue acceleration to something in the double digits. So I think that's right. Bruce, I was just wondering if you could comment on which end markets you think will pick up the growth rate here as you move into fourth quarter and what gives you confidence in that? Bruce Labovitz: Yes. The pick up is a couple of days' worth of work. It's not -- I don't know that I would necessarily say it's anything extraordinary. We think that across the board, we've got a healthy backlog of work that's making its way through. Sales are strong and a lot of the sales have been strong in what we consider to be shorter-term turn contracts, areas we can earn revenue relatively quickly. So we have a good sense that with what would be a couple of days' worth of improvement in the fourth quarter, we can grow revenue. Andrew J. Wittmann: A couple -- sorry, Bruce, the idea of a couple, you're saying there's more work days in the fourth quarter of [ '20 ]? Bruce Labovitz: No, I'm just saying that we have -- it's -- the amount of revenue that is to be accelerated is the equivalent of just a couple of days' worth of work. So a couple of improved utilization weeks here and there. Andrew J. Wittmann: Got it. That makes sense. Bruce Labovitz: Yes. We don't do the days of the quarter game. Like we -- quarters do have extra days and more holidays, but we really just think of them as quarters. Andrew J. Wittmann: Yes. That's what I thought. That's why when you were talking about days' worth of work, I was trying to make sure that -- basically you're saying get a little bit more utilization out of the people. And what's really great about that, that accrues to the margins even better. So got it. So that makes sense. And then I guess just kind of related to that, in the performance in the third quarter, I thought I'd ask a little bit about margins there, too. And your business mix is changing a lot as you've been diversifying. So I just was wondering -- and maybe I missed a little bit of the comments at the early part of the conference call, but did you comment on the margins? I guess they were down slightly year-over-year. Was that like investments in growth? Was that utilization rates? Was that mix? Every quarter is kind of its own thing, but I wanted to try to understand that a little bit better as it compared to the prior year. Bruce Labovitz: Yes. I think, Andy, every year, as you said, every quarter is a little bit different. We talk about how we time labor sometimes can impact margins. You have to prepare for what's coming next. And so sometimes we'll get a little bit heavy on labor in a quarter in anticipation of stronger growth in the next quarter. We are not downsizing labor at the moment, contrary to employment reports that have come out. We're in the hiring game. And so when labor becomes available, we take it. The margin change, there is a couple of hundred thousand dollars' worth of revenue on this fixed set of labor. So we talk about our bands today is a 16% to 18% margin. We'll fall in there between periods. And so I don't think there's anything to read into a 40 basis point change between last year and this year in margin. Andrew J. Wittmann: And then I guess there's a similar question that just happened since you gave us initial guidance for '26. Your margins are either up a little or up a little bit more to the 17% to 17.5% range. Obviously, this is, I think, a good year to be able to get the margins up there. And I was just wondering kind of what the knobs are to get you there next year. You talked about the overhead leverage. I have to imagine that's a big part of it. But what other things? Is mix in your favor? Maybe, Bruce, why don't you just kind of fill us into what do you think is going to drive the year-over-year margin expansion in '26? Bruce Labovitz: Yes. In large part, I think it is improved overhead leverage, right? We continue to be very focused on growing revenue faster than we grow overhead. And so there's additional margin expansion to be had from that. There's also improved utilization of our labor. As we look at next year and we look at the mix of work, we think we can do it at a slightly higher revenue factor, which is our internal measurement of the efficiency of our labor. And so we gain a little bit of margin, which is somewhat embedded in that total overhead when you think about it, because we kind of combine those -- that together. But it's really a combination of the way we are utilizing geospatial technologies and technologies that exist today to advance the efficiency of the workforce and grow revenue quicker than we're growing overhead. Operator: Our next question comes from Alex Rygiel with Texas Capital. Alexander Rygiel: Very nice quarter there. As it relates to data centers, can you talk a bit about bidding opportunities and how you see that progressing sort of in 2026 versus maybe 2025 and 2024? Are you seeing the sort of bidding opportunities or new project opportunities to be greater than the prior year? Or is the average project or contract size kind of greater than they have been in the past year? Just a little bit of color on that. Gary Bowman: Yes. Alex, it's certainly tailwinds in that market. So there are continuing greater number of opportunities. The facilities are getting larger. Really as the data centers, we've spoken to this is, with AI as opposed to before the lack of being critical to be located proximate to fiber just provides a lot more opportunities for data centers spread out across the country. We're seeing lots of drivers to locate data centers near natural gas to power them. And our acquisition of e3i, as an example, just has expanded our network. So that in itself expands our opportunities. Bruce Labovitz: I think Alex, the other thing that's -- that data centers have become the hot ticket item for landowners. And so to some extent, there's a little bit of a phantom amount of data center work that occurs within our Building Infrastructure portfolio. Because when landowners come to us and say, what are the options -- we want our project to be a data center, right? Because everybody wants their project now to be a data center. There's feasibility work we do within that Building Infrastructure segment related to data centers. But until it becomes a data center, it doesn't really become part of the kind of what we call the data center portfolio of revenue. So there's a little bit of -- because there's an increased availability of opportunity for lands to be data center, there's more activity in it. Alexander Rygiel: And to take that another step, clearly, landowners in the past have seen sort of solar as being a big opportunity. How do you see your solar business right now and sort of as we think about the next 1 to 2 years? Gary Bowman: For the next year, we're seeing it very strong. It's really being driven by the, I guess, a moment in the tax credits next year that's driving a lot of demand to accelerate planning of projects to get a critical mass of the project done before the middle of next year. So we see it very strong in 2026, certainly likely to taper off in 2027, but we're well positioned in that market and the development of solar projects is not going to go away. So we see a very strong 2026, cautious outlook after that. Alexander Rygiel: And then lastly, your M&A activity this year has been, I don't know, a little bit slower than the last few years. Any comment on that and how we can think about M&A activity in 2026? Gary Bowman: We're still committed to M&A. We got a strong pipeline of opportunities. I think we've shifted maybe more focus of our M&A to really focus on strategic opportunities. And certainly, with the new revolver in place and that dry powder really positions us for some strong M&A activity towards the end of this year and certainly into 2027. So we're still fully committed to inorganic growth to supplement our organic growth. Operator: Our next question comes from Aaron Spychalla with Craig-Hallum. Aaron Spychalla: Maybe first on Building Infrastructure. Can you kind of talk about how you're thinking about growth in that segment in 2026? It sounds like there's some crosscurrents between some of the subareas. And just maybe talk about your ability to kind of move labor kind of as projects kind of ebb and flow in that segment. Bruce Labovitz: Well, the -- nice thing about our business is the skill set that we apply to Building Infrastructure is transferable to many of our other markets. So we do move that labor around readily. We're seeing with the interest rate decline, we're seeing projects come off the shelf earlier in the year and was a little more localized geographically. As we come into the end of the year here, we're seeing it more broadly across the geographies that we're located in. So we're probably looking at in 2026, maybe as we allocate labor, I would bet the directionality would be some labor allocated toward the Building Infrastructure as opposed to away from it. Aaron Spychalla: All right. And then maybe on OpEx, just -- there was an earlier question, but kind of a pickup in SG&A this quarter. Is there some kind of allocation of projects and timing there? Is that kind of in advance of growth moving forward or just opportunistic? Maybe just a little bit of color on that. Bruce Labovitz: Yes. One of the reasons we talk -- we try to talk about total overhead as opposed to the SG&A relative to COGS is that our labor and operations, depending on utilization will be allocated a little bit more towards COGS or a little bit more towards SG&A in any given period depending on the proportion of direct and indirect labor. I wouldn't say there's anything consequential that's really driven SG&A higher. It's going to grow as we grow. The question is can we meter it at a lower pace than revenues growing. So I really look at it as the overall all-in is down as a percentage of revenue, and that's really what we're focused on. Aaron Spychalla: And then just maybe one last one. I mean, on labor, how are you feeling about availability there as you grow the business moving forward? Bruce Labovitz: We have a very aggressive talent acquisition group. So it's a labor challenged market. I mean, in a good way, there's a challenge to find staff, but they're out there. And we have a good machine to recruit, onboard them. So it's -- we're well positioned to bring all the labor that we need. Gary Bowman: And actually it's why we are so focused on developing labor leveraging innovation within the organization, not to shrink the labor pool, but to not have to grow it as dramatically as otherwise. Operator: Our next question comes from Jeff Martin with ROTH Capital Partners. Jeff Martin: I wanted to dive into a specific segment of the backlog. If you look at power and utilities, it looks like it's on a trajectory to double from where it was in the middle of 2024. Where are you seeing the strongest backlog growth there? And is this the segment that you're most focused on for M&A? Gary Bowman: We're seeing it certainly in the linear projects, the transmission corridors -- we've included data centers in there now. So our data center activity certainly is growing that. Is it -- I wouldn't say it is the primary focus of M&A, but it is one of a couple of primary power and utilities, energy, certainly transportation if I pick areas that we're really focused on and the opportunities that really -- we find exciting. Jeff Martin: And then just how would you characterize the environment in terms of the timeliness of projects? And by timeliness, I mean, starting on time, no delays, no weather delays, no other factors driving. because I know Transportation is a bit of a wildcard. I mean the large projects that can come on, they can get pushed out a month or 2, they can get pushed out a little longer. If you could just give an update of kind of how that's progressed this year. I know going back several quarters, Transportation kind of caused some disruption for you. So any insight there would be really helpful. Gary Bowman: We did have some projects that got delayed in the starts. They didn't go away, so this business is lumpy. That's why we guide to a year, not a quarter. So there's -- we have seen some delays in starts here recently. But just that's only attributed to project-specific issues, nothing in the macro economy or in the funding of transportation driving that. Jeff Martin: And then how would you characterize the M&A environment from a valuation standpoint? I know when you allude to strategic acquisitions, I assume those being larger than you've done historically. So just curious how you're seeing the competitiveness of those more strategic level acquisitions out in the market today? Gary Bowman: It's competitive. I'll say no more competitive than it has been over the last year or so. But these strategic kind of opportunities, they drive a lot of attention. So it's -- we have to sharpen our pencil. We have to sell ourselves, but it's -- we're winning out on our share of nice strategic opportunities. Operator: Our next question comes from Jean Veliz with D.A. Davidson. Jean Paul Ramirez: Just a quick question on some of the comments you made about hiring. So you guys are -- said you're in hiring mode. And then I just wanted to sort of understand with some project delays and this growth that you're experiencing, how would you characterize sort of the growth cadence in 2026 versus previous year? Should we expect some -- maybe a higher pickup in the first half of next year versus this year, I guess? And how should we think about EBITDA margins given that there could be some increase in SG&A? Or I guess, should I think about differently as you progress through the year, do those efficiencies start to kick in? And when would they kick in? Gary Bowman: I think one thing we're hoping for, for next year, the first half of this year was a relatively chaotic time with a lot of disruption associated with uncertainty around tariffs and other economic issues. And so I think that, that stifled the first half a little bit. So hopefully, ex that factor, we'll see a little bit more balanced growth first quarter, second quarter of next year into third and kind of through the end of the year. So I think our cycles are relatively the same. Hopefully, there'll be maybe a little bit more calm with rates lower and some of the transition issues behind us. Are you there? Jean Paul Ramirez: In terms of the EBITDA margins, yes -- thank you so much for all the comments and color. But I just sort of wanted to understand a little more with the pickup in projects or expected work, I guess, going into the fourth quarter, should we see it kind of come down to second quarter levels in terms of SG&A? Or it should be more in line with what you experienced this quarter? Gary Bowman: I think it will be in between. Jean Paul Ramirez: Makes sense. And just, I guess, into 2026, going back to my first question, should we expect more efficiencies that you talked about have a greater impact in SG&A sort of from the start of 2026? Or will that develop more as you head into the second half of 2026. Any color or comment around that helps. Gary Bowman: Yes. I would expect it to be more beneficial on a relative basis in the second half of the year, but still be beneficial in the first half of the year. Operator: There are currently no questions registered. [Operator Instructions] There are no questions waiting at this time, so I'll pass the conference back over to the team for any closing remarks. Gary Bowman: Thank you, Jasmine, and thank you, everyone, for joining us on this call this morning. We're really looking forward to finishing out the year on a high note and certainly looking forward to a banner 2026. So thanks for all the employees who are listening for all you're doing and for all the investors for the faith you put into us and for the analysts for staying in touch with us. With that, I'm going to wrap it up. Good morning, everyone. Operator: Ladies and gentlemen, that will conclude today's conference call. Thank you for joining.
Operator: Welcome to the Third Quarter 2025 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Guy Baber, Vice President, Investor Relations. Sir, you may begin. Guy Baber: Thank you, Liz, and welcome, everyone, to our third quarter 2025 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, including Ryan Lance, Chairman and CEO; Andy O'Brien, Chief Financial Officer and Executive Vice President of Strategy and Commercial; Nick Olds, Executive Vice President of Lower 48 and Global HSE; and Kirk Johnson, Executive Vice President of Global Operations and Technical Functions. Ryan and Andy will kick off the call with opening remarks today, after which the team will be available for your questions. For Q&A, we will be taking one question per caller. A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will make forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings. We'll make reference to some non-GAAP financial measures today, Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website. With that, I'll turn the call over to Ryan. Ryan Lance: Thanks, Guy, and thank you to everyone for joining our third quarter 2025 earnings conference call. We have a lot to cover today, including our third quarter results, improved 2025 outlook, strategic updates and our preliminary 2026 guidance. Now starting with our third quarter results. This was another very strong execution quarter. We again exceeded the top end of our production guidance, demonstrating the power of our diversified portfolio with both capital spending and operating costs declining quarter-on-quarter. On the back of this strong performance, we raised our full year production guidance, and we have reduced our adjusted operating cost guidance for the second time this year. In fact, we have improved all our major guidance drivers since the beginning of 2025. CapEx, operating cost and production, further demonstrating the strength of our team's execution. On return of capital, we raised our base dividend by 8%, consistent with our goal to deliver top quartile dividend growth relative to the S&P 500. This type of dividend growth is sustainable given the strength of our outlook and expectation for our free cash flow breakeven to decline into the low 30s WTI by the end of the decade. Year-to-date, we've returned about 45% of our CFO to shareholders, in line with our full year guidance and our longer-term track record. Turning to our strategic updates. At the Willow project in Alaska, after completing our largest winter construction season and conducting a comprehensive project review, we've increased our project capital estimate to $8.5 billion to $9 billion. This change is primarily attributable to higher-than-expected general inflation and localized North Slope cost escalation. Despite cost pressures, we have maintained the project schedule and made excellent progress on scope execution, narrowing first oil to early 2029. We also continue to advance our global LNG projects, another key driver of our expected free cash flow inflection. We have reduced total LNG project capital by $600 million. Our three equity projects, NFE and NFS in Qatar and Phase 1 at Port Arthur LNG are on track and have been substantially derisked. Capital spending is now about 80% complete with our first startup expected next year at NFE. Looking ahead to 2026, recognizing it's early, the macro remains volatile, and that our portfolio is highly flexible. Our preliminary guidance for both CapEx and OpEx is to be improved significantly, down about $1 billion on a combined basis from this year. And in fact, relative to our pro forma 2024, they are down about $3 billion. Underlying production should be flat to up next year, a reasonable starting point given the current macro environment. Looking beyond just the near term, ConocoPhillips continues to offer a compelling value proposition to the market, one that is differentiated relative to our sector and to the broader S&P 500. We believe we have the highest quality asset base in our peer space. Our global portfolio is deep, durable and diverse with the most advantaged U.S. inventory position in the sector. We are uniquely investing in our portfolio and driving significant efficiencies throughout the organization to deliver improving returns on and off capital and a leading multiyear free cash flow growth profile. Consistent with our guidance last quarter, we continue to expect the four major projects we are progressing along with our recently announced cost reduction and margin enhancement efforts to drive a $7 billion free cash flow inflection by 2029, potentially doubling the consensus expectation for free cash flow this year. That free cash flow inflection is now underway. We expect to realize about $1 billion annually through 2026 through 2028 before an additional $4 billion in 2029 once Willow comes online. That's a growth trajectory that's unmatched in our sector. So bottom line, we're performing well. We are delivering on our plan, and we're well positioned for 2026 and beyond. Now with that, let me turn the call over to Andy to cover our third quarter performance, major project updates and 2026 guidance in more detail. Andrew O'Brien: Thanks, Ryan. Starting with our third quarter performance. As Ryan mentioned, we had another quarter of strong execution across the portfolio. We produced 2,399,000 barrels of oil equivalent per day, once again exceeding the high end of our production guidance. Regarding third quarter financials, we generated $1.61 per share in adjusted earnings and $5.4 billion of CFO. Capital expenditures were $2.9 billion, down quarter-on-quarter as we passed the peak of our major project capital investment cycle. We returned over $2.2 billion to our shareholders including $1.3 billion in buybacks and $1 billion in ordinary dividends. Through the third quarter, we've now returned $7 billion to our shareholders or about 45% of our CFO, consistent with our full year guidance and our long-term track record. We ended the quarter with cash and short-term investments of $6.6 billion plus $1.1 billion in long-term liquid investments. Turning to our outlook for 2025. We've raised our full year production guidance to 2,375,000 barrels of oil equivalent per day, up 15,000 from our prior guidance midpoint. This is even after considering Anadarko's sale of approximately 40,000 barrels a day of oil equivalent, which closed on October 1. We're reducing our operating cost guidance to $10.6 billion down from the prior guidance midpoint of $10.8 billion and our initial guidance at the beginning of the year of $11 billion. We're also making great progress on our asset sales program. with another $0.5 billion on top of what we announced last quarter. That takes us up to over $3 billion of asset sales out of our $5 billion target. Of this amount, $1.6 billion was closed and the cash was received through the third quarter, and we have another $1.5 billion that will have closed in the fourth quarter. That includes the remainder of the Anadarko disposition proceeds as well as additional noncore Lower 48 assets. Turning now to our strategic updates. At Willow, we have updated our total project capital estimate to $8.5 billion to $9 billion. After successfully completing peak winter season, we undertook a detailed bottom-up reforecast of the project and as a result, have increased our cost estimate. The increase is primarily due to higher general labor and equipment inflation and increased inflation on North Slope construction. Scope execution has remained strong. We're nearing 50% project completion. This has allowed us to narrow our estimate of initial production to early 2029. Importantly, we can now level load the pace of our future work. More specifically, 2025 Willow project capital is forecast to be just north of $2 billion. We plan to reduce capital to around $1.7 billion a year from 2026 through 2028. After achieving first oil, ongoing development capital will decline to about $0.5 billion a year for several years. We continue to expect Willow to deliver $4 billion of free cash flow inflection in 2029 consistent with our prior commentary. Turning to our three LNG projects, NFE and NFS in Qatar and Port Arthur LNG Phase 1, we are reducing our total project capital estimate from $4 billion to $3.4 billion. This reduction is due to a $600 million credit from Port Arthur Phase 2. The credit is for shared infrastructure costs previously incurred by Phase 1 equity holders. As a reminder, we only have equity in Phase 1, not Phase 2. With this credit, we're approximately 80% complete with our total project capital for these three LNG projects. Approximately $800 million of project capital remains averaging just north of $250 million of spend annually with a declining trend from 2026 to 2028. All projects remain on track. We continue to expect first LNG from NFE in '26, Port Arthur in '27 and NFS after that. We're also making considerable progress in advancing our commercial LNG strategy which will further strengthen our long-term free cash flow generation capacity. As a reminder, our strategy is to connect low-cost supply North American natural gas to higher value international markets. We are leveraging our decades of LNG experience and our global scale to advance our strategy, which nicely complements our more than 2 Bcf a day or 15 MTPA equivalent of Henry Hub-linked U.S. natural gas production. We have fully placed the first 5 MTPA from Port Arthur Phase 1 with combined regas and sales agreements into Europe and Asia. In terms of offtake, we've recently agreed to take 4 MTPA from Port Arthur Phase 2 and 1 MTPA from Rio Grande LNG, bringing our total offtake portfolio to about 10 MTPA, the lower end of our stated 10 to 15 MTPA ambition. Now turning to our outlook for 2026. We are providing a high-level framework, assuming about a $60 a barrel WTI price environment. First, we continue to expect a significant reduction to our capital spend next year, about $0.5 billion lower than the midpoint of our 2025 guidance. So in round numbers, that's about $12 billion for 2026. The year-on-year decline is driven by a reduction in our major project spend, including Willow and the steady-state activity we achieved on the Lower 48 Marathon Oil assets earlier this year. In addition to lowering our capital spend in 2026, we also expect to lower our operating costs. This is largely due to the $1 billion of cost reduction and margin enhancement efforts we disclosed last quarter. We expect our cost in 2026 to be approximately $10.2 billion, down $400 million from our current year guidance and down $1 billion from our pro forma 2024 operating costs, including Marathon Oil. Turning to our production. We expect to deliver flat to 2% underlying growth in 2026, a reasonable planning assumption considering the ongoing macro volatility. Additional guidance can be found in our earnings material including our oil mix and our equity of full year distributions. Now addressing our multiyear outlook, there are a few important points I'd like to make. First, the free cash flow inflection guidance we previously provided remains unchanged. We expect our four in-progress major projects and our $1 billion cost reduction and margin enhancement efforts to deliver $7 billion of free cash flow inflection by 2029. In terms of the timing of that $7 billion, we expect to realize about $1 billion of improvement each year from 2026 through 2028, amounting to $3 billion of free cash flow improvement by 2028. The remaining $4 billion will come in 2029 once Willow starts up. Bottom line, using 2025 consensus as a baseline, this translates to a double-digit free cash flow growth CAGR through 2028 before another material step-up in 2029, which will approximately double our 2025 free cash flow. So to wrap up, we continue to execute well, operationally, financially and across our strategic initiatives. We are well positioned for a strong finish to the year and a good start to 2026 and we continue to find ways to enhance our differentiated long-term investment thesis. That concludes our prepared remarks. I'll now turn it over to the operator to start the Q&A. Operator: [Operator Instructions] Our first question comes from Neil Mehta from Goldman Sachs. Neil Mehta: I appreciate the time here, and I want to unpack Willow a bit because while there was a lot of good stuff in the -- in terms of execution in the quarter, the Willow update, obviously, was a little disappointing. So I wanted your perspective on the bridging from the $7 billion to $7.5 billion to $8.5 billion to $9billion. Do you feel, Ryan, that we've got a good handle around the project at this point because the history of major capital projects sometimes is there are multiple legs of announcements around overruns. And on the bright side, it seems like while there's cost overrun here, the timing is really intact. So just unpacking Slide 4 would be great. Ryan Lance: Yes. Thank you, Neil. Appreciate the question. And certainly, I appreciate key project for the company. And I know giving some clarity on where we've been, where we're at today and what that future looks like is important to provide that insight and to clarity. So I've asked Kirk to unpack this a little bit using your words, Neil, and spend a little bit of time to make sure you all understand sort of where we're at today and where we're going in the future. So let me ask Kirk to do that and provide a lot more clarity to that. Kirk Johnson: Certainly, as you heard in our prepared remarks here this morning from Ryan and from Andy, we are increasing our guide on total project capital for the Willow project to a range of $8.5 billion to $9 billion. And I'll start by recognizing the strong execution that we've been achieving through our project team. Certainly, as you've heard from me before, we're hitting the key milestones that we premised in our project plan that, of course, we laid out at FID back in 2023. And so in this past quarter, we chose to perform a pretty rigorous bottoms-up comprehensive project review, and we were looking at scope, schedule and, of course, total project costs. And we were doing that in recognition that we knew we were coming in on about 50% completion, expect to see that as we move into this next winter season. And it's common practice for us to take on a pretty rigorous again, bottoms up at this place and projects of this nature and of this size. And coming out of that exercise, we were able to provide two new guides on the project, not just capital but also on schedule. So starting with the first, the new guide on capital is a confirmation really largely of one driver. And that's what we've realized higher inflation post FID in 2023. So addressing that maybe a little bit more detail here. Total inflation is roughly 80% of the increase on our new capital guide. And I'll start with general inflation, which has been modestly higher across a few key categories that we've seen on the projects, general labor materials and then engineering equipment as well. And all of that makes up over half and in fact, about 60% of our total project spend. So seeing that higher inflation is really culminating largely in what you're seeing in this new capital guide. As you can imagine, just a few percent higher. We originally expected just a couple of percent of routine standard inflation across the period of the project, but just a couple of percent higher in inflation rates across the 5-year duration on our project is driving this 15% increase against what was our original expectations at FID expecting lower inflation. And then a bit more unique to this project. We've also incurred some localized escalation, particularly in our Alaska North Slope specific markets. And that's really been driven by the fact that we've incurred more overlap of the peak construction seasons between our project and other projects ongoing in Alaska than we had originally expected. And that's resulting in roughly a 2x increase in the regional activity there in the state. That stressed the local markets, think labor, logistics, such as trucking, marine and then even the availability of camps for our construction work there on the slope. We're often asked about tariffs. We have seen some impacts on tariffs, but albeit it's really been low single-digit percentages as a total of the increase we're seeing on that project. And then the last component on the upward cost pressure is related to a few decisions that we've made to ensure that we're mitigating total project risk and especially schedule risk, just to ensure that we're hitting the milestones that we need especially on the front end of this project. And you've heard from me that we're hitting those. And so those have really paid well for us. We pre-staged equipment on winter seasons to ensure that we can knock out all the scope that we had originally premised. And again, that's giving us the ability and the confidence to be able to guide you a bit more even on schedule. So to summarize, we've moved from about 50% of our contracts being locked up at FID back a couple of years ago to now being well over 90% of our facility contracts being secured. And a bulk of those are tied to market indices that gives us transparency as the market moves and creates a lot of accountability with us and our business partners as we move through a project of this size. And so this summer, again, was the time for us to reconcile the actual inflation that we've been seeing over the last couple of years against the forward-looking expectation. And you're hearing from me, we're, in essence, taking forward the type of inflation that we've been realizing forward into the next couple of years just to ensure that we're being conservative through this process. So looking ahead, again, back to execution. We've wrapped up detailed engineering that compels us to keep moving forward on the process module fabrication. That's a longer duration activity. It moves from this year into early 2027 in which we'll see lift those modules to the slope, spend 2028, getting those into the Willow development area and hooking up and commissioning those first oil in 2029. So again, I'll wrap this up with an acknowledgment that we're just seeing really strong execution across the project, and that's foundational. It's paramount for us in a project of this kind and we're on track with all of our major scopes of work. And again, all of this is culminating and not just to guide on capital, but then our ability to provide an accelerated guide on first oil to the early part of '29. Ryan Lance: I would just wrap it up, Neil, by saying that we're certainly disappointed that the costs are higher, but certainly, we've taken measures across our portfolio to mitigate the increase. And I think you see that in our first -- that's why we thought it was important to give some guide to 2026. But the teams are executing well and the projects really hitting all the milestones as Kirk described. We think it's -- continues to be a world-class project. It will be a huge driver of our free cash flow inflection that's coming over the next 3 to 4 years and towards -- and really complete us towards the end of the decade. And then -- the last thing I'd say is we're going out probably with a bigger exploration program we've had in Alaska in a number of years. And it's that opportunity again to take advantage of this infrastructure that we're building for the long-term growth and development of the company. And if we're right about our macro call and where we think the macro is going, we're going to need this conventional oil to satisfy some of that growing demand around the world that we see. So it fits all of our -- ticks all of our strategic buckets as well. So I know a long kind of explanation to the initial question out of that, but we thought it was important to provide some of that clarity and context around it to give you comfort. We know where we've been, we know where we're at, and we know where we're going. Operator: Our next question comes from Arun Jayaram with JPMorgan. Arun Jayaram: Ryan, I was wondering if you could just -- maybe a quick follow-up on Willow, the F&D on the project goes up by $200 to $250 per BOE based on your updated outlook. I was just wondering if you could comment on how this impacts your project returns and just overall breakevens assuming, call it, mid-$60 Brent type of price. Ryan Lance: Well, yes, thanks, Arun. Certainly, the estimate increase does impact the cost supply of this individual project going forward. It still fits well within our portfolio. It's still very competitive within the portfolio. And again, we think longer term, we think about the future opportunities that are going to come from this infrastructure, which is our history sitting on the North Slope. We've always -- the satellite discoveries that we get benefit from the infrastructure that we built and we fully expect that to be the case going forward with Willow. And then I'd remind you on the back end of this, the margins are still quite attractive because Alaska is 100% oil, sells at a premium to Brent typically on the West Coast of the United States. So that's why even with maybe a little slightly higher F&D as you pointed out, we still feel very comfortable with the margin and it's competitive in the portfolio, and it's going to deliver a project for the company that will add to its future growth and development. Operator: Our next question comes from Betty Jiang from Barclays. Wei Jiang: I want to maybe shift focus to the Lower 48. Just -- we talk a lot about the free cash flow from the major capital projects, but noticing that the Lower 48 CapEx is also trending lower in the second half of '25 versus first half? And if you're staying here, CapEx will be lower year-on-year in '26, while still perhaps growing in that asset. So can you speak to the CapEx trajectory there? And how do you see the free cash flow progressing from the Lower 48? Nicholas Olds: Yes. Because -- Betty, you're exactly right. Maybe I'll take you back a little bit on the capital projection and a little bit of the efficiencies that we're seeing within the Lower 48 portfolio. If you recall back in 2Q, we achieved our level-loaded steady state program within the development strategy with integrating the Marathon assets. And so if you recall, we went from 34 rigs down to 24 rigs, so a pretty significant reduction. And we're still delivering kind of low single-digit growth in that. So obviously, we're taking in stock that lower capital from going first half to second half, and you're going to see that in the capital projections going forward. Another key component of that, Betty, is a lot around the efficiency improvements that we've seen getting into that level-loaded steady-state program, which I can talk more about, but we're seeing a significant improvement on drilling performance as well as our completions, that will continue into 2026. So if you kind of look at where we're currently at, we're probably going to be on a run rate basis for 2026, something similar to 3Q for capital in 2026, and we will continue to have that level-loaded steady-state program, roughly at 24 rigs in 8 frac crews going forward. As far as free cash flow, I'll probably let Andy talk about the total company, but we continue to see expansion with, again, all the efficiency improvements that we're seeing with the productivity that you saw in 3Q, a really good strong quarter. Andrew O'Brien: Yes, Betty, it's Andy. I'll just jump in and sort of add on to what Nick was saying there. So we feel it's important sort of on the free cash flow inflection to talk specifically to the three LNG projects of Willow. But of course, there's a lot more than that going on in our company, and Nick just described what we've got with Lower 48. And the flexibility we have within the Lower 48, without inventory if we wanted to ramp up that cash flow growth. But even beyond that, there's other things that we don't factor into that free cash flow inflection. Commercial, for example, when we talked about the commercial sort of strategy, we've got put off of Phase 2. We've got Rio Grande that we just mentioned today that will come on after Willow. That's going to be sort of the 2030 time frame. So there's a lot more going on in a company than just those four projects. We've got other things going on sort of in Canada, in Alaska and around some other international assets, but we just wanted to keep line of sight on this specific free cash flow inflection and then we obviously have ability to add to that. Operator: Our next question comes from Stephen Richardson from Evercore ISI. Stephen Richardson: Andy, it's a good segue from what you just mentioned about some of the other assets. I was wondering if you could -- it sounds like you've got some good visibility on some of the organic and capital-efficient opportunities in the portfolio. In Alaska, I was wondering if you could talk about some of the regulatory and permit changes and how you're thinking about incremental opportunities either in legacy ops or extending the resource at Willow. And then if I could, if you could maybe talk a little bit about Surmont. You've talked about incremental steam potential, but I understand that there's some other things that you could be doing now that you've got your arms around that asset and to improve it with minimal capital. Ryan Lance: Yes. Thanks, Steve. I'll take that. I think it's -- yes, Andy's answer to the last one, it's -- this update is a lot about Willow and some of the major projects to give the market some clarity as to what we have going on there and some clarity into our free cash flow growth. And it doesn't really address and assume some of the things we have that we're studying inside the portfolio as well, and you mentioned a few of those because I think we do have a strategic question longer term, if I recall on the macro is right, where is the conventional oil going to come from to satisfy the growing demand. And we see that demand growing clearly 1 million barrels a day or so per year for the foreseeable future. And when we look inside the portfolio, it's not only what we're doing in Willow and what we believe are going to be the added sort of pads that we can develop there. And to your point, we're working with the administration to identify some ways to streamline the permitting. I think you saw an early read of that with the new rules that are coming out for development in NPRA, that's just sort of the start. There's more things coming that will give us -- what we think is going to be a lot more clarity to faster permitting approvals coming in Alaska going forward. So watch that space as we move on and hopefully not only make it more profitable and easier and faster but also more durable with changing administrations. And then to your other point, yes, when we look -- that's just Alaska, and I commend the team also managing the base. There's a lot of activity going on, on the base side in Alaska as well. We have flexibility at the Montney asset to ramp up, should the call on crude be required to go do that. You mentioned Surmont. We're right now debottlenecking that plant as we speak. Now that we own 100% of that plant, we were able to make some investments in there that our previous partner were not approving. So we're taking the gross productive capacity of the plant up today. And then looking at future, can we add a few steam generation capacity to accelerate some of the development that we have with the huge resource that we have around Surmont. That's very competitive in a -- all at sub-$40 cost of supply. So when we look at the whole portfolio and you look at the deep inventory, we have in the Lower 48, combined with the other conventional opportunities we have around the world, we're really set up for decades of growth in this business. I like where we're at, and I like the portfolio and what we're doing today and the optionality that it creates for the company over the short, medium and long term. Operator: Our next question comes from Lloyd Byrne with Jefferies. Francis Lloyd Byrne: Ryan or Andy, I was just hoping you could spend a little bit more time on the OpEx. I mean, $400 million improvement and in light of it kind of being the second cut this year, it's just -- what's changing? Maybe remind us of the big factors that have improved and whether you can improve it further? Andrew O'Brien: Yes. Thanks, Lloyd. I can take that one. I think at the highest level, the first thing I would say is that we're executing really well in -- with our cost and capturing the savings. And as you said, that's why we've been able to reduce the guidance for the second time this year. But going into a few specifics, I would remind people that we've already achieved now 75% of the Marathon synergies that we were talking about over the prior quarters, that's in our cost, and we'll have that basically completely into our cost by the time we get sort of to the end of this year on a run rate basis. So we're exceptionally pleased with how smoothly that's gone in delivering on those cost reductions that we've previously talked about. And then as we look to 2026, stepping the cost down again, as you said, that's basically getting the full year benefit of some Marathon synergies that we've -- I just described. But then we expect to capture a meaningful amount of the cost improvements that we announced on our last quarter call. And we're -- that's basically going to drive some pretty meaningful reductions in our costs as we go through next year. It's -- they are the kind of the key things. And when we think about sort of how we reduce costs, we have sort of a mindset that this is continuous improvement. So we absolutely sort of challenge ourselves to sort of look at how we can basically continue to reduce those costs over time. But I think we're very pleased with sort of how we're doing that and sort of how that's showing up in our bottom line. Ryan Lance: And I would add, Lloyd, you know us well. These reductions aren't conflated with capital kinds of things. They're not due to dispositions in the portfolio. We don't have 30 lines of reconciliation because the net doesn't ever show up, and they're not cumulative. These are costs that will show up on our bottom line. And as I've said before, just watch us every quarter, and you'll see them materialize. They'll be real and they'll head straight to the bottom line and to our free cash flow inflection that we've been talking about for the next number of years. Operator: Our next question comes from Scott Hanold from RBC Capital Markets. Scott Hanold: I know it's always challenging to provide forward guidance with some uncertainty on commodity prices. So I appreciate the details on '26. Looking at total production and capital, it does appear similar to consensus numbers, but there does appear to be a variance to oil -- your oil guide relative to consensus. And I was hoping you could help us walk through where we might have sort of missed that? And we do understand there's a lot of complexity given the diversity of assets and other things like Surmont post payout. But I was wondering if you could walk us through some of that. Andrew O'Brien: Scott, this is Andy. I'll get us started with a couple of points here, and then maybe Nick can provide a bit more detail on the Lower 48 for us. So just a couple of things I'd say is that if you look at our third quarter, at the total company, we're at a mix of about 53% oil. And this is the first quarter now where we have the full impact of Surmont that you just referenced. So we now have a higher royalty into Surmont. So the third quarter is a pretty good mark basically as we think about 2026. And we've provided guidance and hopefully you found that helpful, where we've now provided guidance basically for an oil split. And we're basically forecasting '26 to be about that 53% for the total company. That does include sort of the bitumen impact of higher royalties at Surmont. And then specifically to Lower 48, we're guiding about 50% for the Lower 48. And then just one final point I would make before Nick can maybe comment on the Lower 48 is when we provided our '26 guidance of 0% to 2% range, for BOEs, that's also a good range for how we're thinking about oil as well sort of -- so I think we've tried to sort of guide a bit more on this time, we would say, we recognize as you provided for us upfront that there's a lot of moving parts here, but -- across the portfolio. But that 53% for the total company, we think, is a good mark for next year. And maybe Nick can just add a few comments on Lower 48. Nicholas Olds: Thanks, Andy. Yes, if you look at 3Q Lower 48 oil mix, we are around above 50% and you can compare that to 2Q, it was about 50.5%. And that was in line with our expectations and our development plan going forward. As Andy mentioned, we're guiding to oil mix at 50% when you look at 2026 forward. And again, that's simply an output of our plan and an output of our development plans where we're developing in the various basins. Now as a reminder for the group within the Delaware, that is our most significant growth driver within the Lower 48. So it shouldn't be a surprise to this group that oil mix will trend in that direction. It's low cost of supply, higher gas content, but very good strong oil content and good returns. Another key component to think through is we've got two decades plus of drilling inventory at current rig activity levels in the Delaware. It's a peer-leading opportunity set out there. Now one other component that you need to think through is that oil mix can fluctuate depending on the relative contributions from these basins as we drill in different areas. So you might have some higher oil mix and some lower oil mix and variations from quarter-to-quarter. But overall, as Andy mentioned, 50% on Lower 48 oil mix going forward. Operator: Our next question comes from Doug Leggate, from Wolfe Research. Douglas George Blyth Leggate: Guys, I'm going to try very hard to make this one question, but I'm hoping you can maybe help us navigate the moving parts a little bit. My question is on -- it's principally on Willow and the CapEx, what happens after Willow, but it's really about the evolution of your dividend breakeven because I think the Willow news has overshadowed the other big news, which, of course, was your dividend increase. So I guess my -- the way I would try to phrase the question is, how damaging is the increase in Willow's spending to the cash cadence of the cash flow coming back. And I guess my point specifically is you get qualified CapEx deductible and taxes in Alaska is pretty advantaged. So can you walk us through how big a deal this really is and what happens to the dividend breakeven as Willow comes online. Andrew O'Brien: Doug, this is Andy. I can try and step through that. I think you sort of half answered the question for me in terms of sort of how this works on a tax basis. And Ryan touched on this also in the prepared remarks. And the way I would look at it sort of at a total company level, is our breakeven is coming down, and it's coming down pretty substantially. Just right -- if you think about where we are right now, our breakeven this year, so just on CapEx is in the mid-40s, you'd add another $10 million to that for the dividend. Just from what we've described today from what we're doing from '25 to '26, that brings our breakeven down in of itself $2 to $3. So we're on this trajectory of, yes, cash flow inflection is going in one direction, which is great. And then our breakeven is also coming down, which is great. And as Ryan said in his prepared remarks, that's going to continue to happen where we're going to go all the way down to being in the low 30s on a capital breakeven, but the time Willow comes online. So I don't think what we've described today with CapEx in Willow going up. And let's not forget also the LNG CapEx coming down, there's having any really sort of notable impact on our breakevens and our ability to sort of generate cash flow over this time frame and our cash flow inflection remains unchanged. And that's why -- and I think you started the question with the dividend. And hopefully, that isn't getting lost in all of the news that we're describing today. But we have now increased that dividend by 8%, and this is now the fifth year of us having top quartile growth of the dividend and -- versus the S&P 500. And we feel very confident with that breakeven that, that continues. Ryan Lance: Yes. And I would add as well, Doug. Look, it's -- and it's sustainable given the breakeven coming down, as Andy described, the dividend is representing a lower portion of our total cash flow in terms of our distribution back to the shareholders. So how to give the shareholders and stakeholders in the company, a lot of comfort and conviction that we can continue to deliver top quartile S&P 500 dividend growth in the company well into the future given the projects that we're executing, the cost supply of those projects and the free cash flow growth we're going to see coming out of the company. So it's quite sustainable and leaves us room to buy back some of our shares, which we're leaning into quite a bit right now. Operator: Our next question comes from Bob Brackett from Bernstein Research. Bob Brackett: As much as I'd love to ask a few questions on Willow, I'll change the topic a bit, and that is to talk about the 2026 guide at 0% to 2%. And we've seen other large E&Ps and integrators with similar sorts of guides in a backdrop where WTI is sitting below $60. So can you talk about what macro world you envision or which you plan for that we're going to see next year? And how does that inform that capital guide and production guide? Ryan Lance: Yes. Thanks, Bob. I think -- I would like to say we have a lot of flexibility in the company. Production is kind of an output of our plans. We kind of set sort of a constant level loaded scope within the Lower 48. Nick talked a lot about what that means for kind of the production growth we see coming out of that. Our view of the macro is supportive. Again, we kind of set this at a $60 WTI to your point, WTI is trading a little bit below $60 at this moment in time. Our call would be probably seeing some inventory builds. We saw some of this last week. We'll see how it continues onshore in the OECD countries, but we probably see some downside pressure coming through the latter part of the ending part of this year and into maybe the first part of next year. So -- but that's why we have a balance sheet. That's why we have cash on the balance sheet. We want to continue to fund our programs. We came out with a 0% to 2%. We think that sort of makes a lot of sense with the macro that we're seeing today, but it also is informed by the medium and longer term, which we're quite constructive on today. Again, we see about 1 million barrels a day of demand growth not abating itself throughout this decade and well into the next decade. And we think there's going to be a call on crude and even a call on conventional crude depending on what you believe the unconventional supply coming out of the U.S. is going to look like at these kinds of prices or even elevated prices. So we see some modest growth in the unconventionals, continuing maybe flat to slightly -- some slight growth into next year depending on the price. But I think it sets up well to be a bit more reflective as we go into 2026, which is what we've tried to show with our 0% to 2%. But remind everybody, we've got a lot of flexibility in the portfolio, both ways. We can -- we have opportunities to reduce more CapEx. Should we think that's the need, we can use the balance sheet. Should we decide to do that, then obviously, we've got opportunities to ramp up on the other end as well. So we just think we have a lot of flexibility in the company, but I think this is a good place to start based on sort of how we view the near-term macro and where it's been developing. Operator: Our next question comes from Jeoffrey Lambujon from Tudor, Pickering and Holt. Jeoffrey Lambujon: I'll bring it back to Willow, if I could, and I want to say, I appreciate the detail earlier in the call that spoke to the breakdown there on the refreshed expectations. Can you also talk about the confidence level in the updated range? And essentially, what might be locked in from here? It would be great to just get a sense for what flexibility there might be up or down if things change enough over the course of the build-out or if the wider range that you have now capture the most likely scenarios in your view, and it's more a function of where you end up within that range. Kirk Johnson: Again, I would say we're winding back here a little bit. We recognize there was quite a bit of inflation coming out post COVID over the couple of years leading up to our taking FID in late 2023, and we're actually seeing that abate a bit in late 2023, which is why we took a view of just a couple of percent and we felt like, obviously, the monetary actions globally, we're going to knock that back a little bit. And so again, we took that view at the time. And this is just a really good time for us being roughly halfway through the project to reconcile what we've been seeing over the last couple of years. And as you know, it's across labor markets and engineered equipment, we've definitely seen some movement which is much more on the average of 4.5% to 5%. And that's been actual and realized. You can certainly see the data yourself across the last couple of years. Now sitting here today, we're seeing inflation rates abate a bit. We're starting to see inflation again in the 3%, 3.5%. But candidly, we're taking a view that this compounding inflation could -- based on the contracts that we have tied to market indices could continue in that 4% to 5% range. And so we've largely budgeted for that for the next 3-plus years of the project, just to ensure that we're not kind of falling back into prior assumptions in FID. So I would say we've got a lot of confidence in the -- obviously, in the way we're putting this capital guide forward here at this time. And again, able to stand here in this position with that confidence because the team is executing just so well on the project. And we're not seeing schedule slip. We're not seeing other challenges. Certainly, the upward cost pressure. You're not seeing -- we talk about scope discovery. This is really about inflation across the broader market, and we've taken a conservative view for the next couple of years. So -- yes, confidence in how we're pushing this out here today. And again, just pleased with how the project is moving forward here for the next couple of years. Operator: Our next question comes from Paul Cheng from Scotiabank. Paul Cheng: Ryan, I think, as you mentioned earlier that you think that's maybe increasing [indiscernible] on oil, even on the conventional, and when we're looking at over the past 10 years, I think you guys have drastically reduced your dependence on exploration because you have such a great profile in the Lower 48. And as the Shale oil is maturing, how should we look at it? Would you think that you still have such a huge portfolio that you really don't need to increase your exploration effort, and you can just rely on that -- on the Shale oil to continue to replace your resource -- your production? Or that you think the challenge on the longer term is really enough that we need to start maybe increasing the effort given it's a long-cycle business. Ryan Lance: No. Thanks, Paul. I think you bring up -- I guess there's probably an industry-wide macro question around that. Are we investing enough industry-wide on the exploration side and we lost some of that muscle inside the industry for that and large project execution for that matter there. And there's probably a bit to that from the industry side. Speaking specifically to our company, you're right. After kind of the early 2000 time frame when we first got into the Eagle Ford and saw the -- grown our unconventional position inside the company and then really changed the portfolio pretty dramatically over the last number of years to really focus on those low cost of supply opportunities and resources that we now have captured inside the company, it has put a less reliance on exploration. But I remind everybody, we continue to spend $200 million to $300 million a year on exploration to continue to feed some of the legacy assets we have around the company. In years past, that's been in Malaysia, been in Norway. We've moved that around throughout the years, depending on some of the activity level and the opportunity set that we find. And we're doing that again next year because we're focusing most of that exploration probably up in Alaska to support the Willow development and get our -- get the company in a position to be able to feed that infrastructure that we're building out there for decades to come. So it's part of a redirection of exploration. But we've been able to do that within that $200 million to $300 million allocation inside the company. We just spud a well in the Otway Basin of Australia to try to find more gas that we can bring into Australia. So this is not just a one area where we're appraising the discoveries [indiscernible] we had in Norway a year or so ago. So we are spending some of that money. To date, it hasn't captured a higher capital allocation inside the company because we've been able to get everything we wanted to get done for that $200 million to $300 million. But I think you're right, macro-wise, within the industry, you're seeing a lot more of that. We've just been blessed with a -- we're a resource-rich company in a resource-starved world. It looks like going forward. So I think we're uniquely positioned relative to many of our peers in the industry with having to consider significant ramp-ups in that capital allocation. Operator: Our next question comes from Charles Meade from Johnson Rice. Charles Meade: I'd like to ask a big picture question about your global LNG strategy. And you guys make this distinction between resource LNG and commercial LNG. And I'm wondering if you can talk about how those two -- how you think differently about those two pieces of the business, how they complement each other and perhaps how they compete with each other? And maybe wrap into that, one can make the argument that with the amount of resource you guys have in the Lower 48 that make a distinction between resource LNG and commercial LNG is kind of a distinction without a difference. And maybe comment on whether that's a valid argument in your view. Andrew O'Brien: Charles, this is Andy. Yes, it's a great question. And a big question, as you say, in terms of sort of comparing the two and how we think about them. So I'd probably go maybe back all the way to the beginning, we've been in the LNG business really since the 1960s. I think we're involved in basically sort of inventing this business. So we kind of know a thing or two about it. And we traditionally sort of until recent years, had the, what I would call the sort of the resource LNG sort of the [indiscernible] LNG business, where it's been very much about finding a stranded gas asset and -- you find a gas asset, you find people who will buy the LNG, then you build an LNG facility and off you go. That's kind of where this industry was for years. And we are -- we've been a big player in that with our Australia asset and our Qatar assets over the years. And that has served us really well. But as you fast forward sort of to what's happening in the Lower 48. It's a little bit of a different model in the -- and you kind of started to touch on this where you've got so much gas in the Lower 48. But you don't need to treat it like a facility-by-facility approach, where you've got the stranded gas that you're trying to tie to one facility. So it's -- the whole model is different effectively and that you're trying to take this gas in the Lower 48. And our strategy is pretty simple. We're trying to basically take what we think is low-cost supply in North American gas and get ourselves access to international pricing in TTF and JKM and that's exactly what we're positioning ourselves to do. We've made great progress in doing that with -- as I talked about in the prepared remarks, the 5 MTPA of Port Arthur Phase 1 that we've now fully placed. And then we're now moving on to Port Arthur Phase 2 where we took 4 MTPA and another 1 MTPA at Rio Grande. So we're trying to basically get ourselves in a situation where we can basically convert Lower 48 gas into international pricing. And what I would remind everybody is that we're also in a position where this commercial strategy complements our business so well. We produce over 2 Bcf a day in the Lower 48 and 2 Bcf a day in round numbers is about 15 MTPA. So it also works as a natural hedge to our Lower 48 gas exposure. So I don't -- back to your first off, because I don't really see them as the resource LNG competing with what we're doing in the Lower 48. They're kind of different modules, but we've certainly been able to learn from the resource LNG. And that's why we've been able to sort of implement the strategy we are doing basically where we're trying to control the entire value chain. And you only can do that with our global size and scale, and that's how we basically think we capture the economic rent. So -- hopefully, that helps sort of frame up how we think about the difference between the two. But I don't -- it's not like an either/or choice for us. We think that they both serve a really important role and we're happy to be playing in both as you can see with NFE and NFS on the resource side and what we're doing on the commercial side with Port Arthur and the other announcements we've made today. Operator: Our next question comes from James West from Melius Research. James West: I wanted to follow up on the LNG question. Obviously, the strategy is pretty clearly defined here. You had a lot of commercial movement. During the quarter, you're at 10 MTPA now, I think you've said in the past, 10 to 15 is kind of a range. Are we at a point where maybe you pause and digest? Or do you lean in and go up to that 15? Andrew O'Brien: Yes. I'd say very briefly, our strategy remains unchanged. We're executing exactly what we said. We -- the 10 to 15 MTPA is a size that we feel very comfortable about. It gives us the size that we want to be able to optimize our portfolio, be able to divert cargoes as I mentioned in the prior question, be able to control really the value chain. And I don't think anything's really changed there, that the 10 to 15 is kind of what we're looking to fill out right now. Ryan Lance: And I think, James, it's also a function of not getting too much commitments on the front and make sure you can place it on the back end. So we're being deliberate about that. And if we get more opportunity for low liquefaction costs opportunities, we'll add more to the 10 million MTA, but we got to back it up with regas on the other end and have a plan for it. So we're being deliberate now that we've reached that 10 million-ton mark. Operator: Our last question comes from Kevin MacCurdy from Pickering Energy Partners. Kevin MacCurdy: I want to come back to Slide 7 for a moment on the incremental free cash flow. And I know that you've shown this before with the $4 billion of free cash flow from Willow but I think that's quite an eye-catching number. And I was wondering if you could provide anything kind of high level on how you get there in terms of margins, productions, maintenance, CapEx in that first year? And if that -- and also to ask if that's a fairly good number to use heading forward for Willow post-2029? Kirk Johnson: Kevin, this is Kirk. Certainly, as you saw in the waterfall in the details in the supplementals on Willow, you can really take it directly from that. So as we compare against what was a historical and expected spend here this year of just over $2 billion, as mentioned by Andy, in the prepared remarks, we're expecting that here on the Willow Capital spend here this year, and then that moves down, plateaus for the next couple of years. And then on sustaining capital, post first oil, we're expecting to spend roughly $0.5 billion and just continue development drilling for the Willow Project. Obviously, we're starting predrill. We've got some predrill planned in 2027. And then that will extend and that predrill is all baked within our total Willow project spend. But then post first oil, that $0.5 billion. So in essence, what you're seeing is this inflection downward of capital from roughly $2 billion to an average of $0.5 billion first oil and then first oil, you're getting the CFO associated with, again, why we like Alaska. It's 100% oil sales, it's Brent premium. And again, that is the balance then of the $4 billion free cash flow improvement against a reduction of roughly $1.5 billion on CapEx. Ryan Lance: And I'd just remind, Kevin, that you see all the prices that, that's assumed at $70 prices, and we've given a sensitivity to that as well in the materials. Well, let me thank everybody for participating today. Just a few summary comments. We continue to execute well. We're improving our plan, and we're well positioned for a strong 2026 as evidenced by the new guidance we provided today. And I'd say the team continued to find a lot of ways to enhance value in what we think is a differentiated investment thesis. We have an unmatched portfolio quality. We've got a leading Lower 48 inventory depth, combined with attractive longer-cycle investments in the LNG in Alaska that we've described today in quite a bit of detail. And we continue to have a strong track record of returns on and of our capital, and that's all leading to a sector-leading free cash flow growth profile that takes us all the way to the end of this decade. So thank you all for your interest in ConocoPhillips, and we appreciate the questions. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Greif Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Bill D'Onofrio, Vice President of Investor Relations and Corporate Development. Please go ahead. Bill D’Onofrio: Good morning, everyone, and thank you for joining Greif's Fiscal Fourth Quarter 2025 Earnings Conference Call. Today, our CEO, Ole Rosgaard, will provide a strategy and market update, followed by our CFO, Larry Hilsheimer, with a review of our financial results and 2026 guidance. Please turn to Slide 2. In accordance with Regulation Fair Disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis. During today's call, we will make forward-looking statements involving plans, expectations and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and the reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. Two important reporting clarifications for this quarter. First, our containerboard business was sold on August 31. As such, that business is presented as discontinued operations for its 1-month contribution to the quarter. Unless otherwise noted, all financial results and commentary discussed today will relate to continuing operations only. Second, due to our fiscal year-end change, Q4 reflects a 2-month reporting period, August and September. For consistency, all prior year comparatives in today's presentation are also shown on a 2-month basis for August and September. I'll now hand the call over to Ole on Slide 3. Ole Rosgaard: Thanks, Bill, and thank you all for listening in today and for your interest in Greif. With the short 2025 fiscal year due to our fiscal year change, the 2 months fourth quarter, the sale of our containerboard business this quarter and the ongoing cost optimization program, we know there's a significant amount of change and noise for this quarter. This shows up in our tax results, which Larry will be discussing in a moment. Thank you for bearing with us. We are excited for the long-term earnings growth and value creation our strategy is unlocking. We closed fiscal '25 as a more focused, more agile and more strategically aligned company than at any time in our history. Our transformation is accelerating and the results are beginning to show. On October 1, we finalized the sale of our land management business, generating $462 million in proceeds. Those funds were used immediately to reduce debt, and our pro forma leverage ratio is now under 1x. We have entered fiscal 2026 with a meaningfully stronger balance sheet with enhanced capital efficiency built for resilience. Together with the divestiture of our containerboard business in the fourth quarter, we have reshaped Greif's portfolio to concentrate our efforts where we have the greatest opportunity to grow EBITDA, expand margins, generate cash, reduce cyclability and deliver durable returns for our shareholders. We are pleased to report our latest Net Promoter Score survey result of 72, an improvement of 3 points from last year and further extending our world-class customer service performance. That improvement is a direct reflection of the trust our customers place in us and our ability to deliver for them. The best companies build stronger relationships when things are difficult and our NPS reflects our conviction that we will capture significant value when demand returns. As Larry will touch on in a moment, our full year '26 guidance despite being low end, reflects continued earnings growth and a free cash flow conversion rate of 50%, demonstrating our progress towards the long-term objectives laid out at Investor Day in December. We are proud of how we ended fiscal 2025 but even more energized by what lies ahead. Our Build to Last Strategy is firmly embedded in our organization. We are shaping and sharpening our portfolio, strengthening our balance sheet and investing for sustainable growth. Please turn to Slide 4. Our commitment to value creation shows in how we manage cost. In fiscal '25, we achieved $50 million in run rate savings from our cost optimization program, more than double our stated full year '25 commitments. To date, we have achieved approximately $15 million in savings related to network design and operating efficiency. This is not limited to strategic footprint actions. It also includes deploying AI solutions to reduce scrap and improve OEE, strategic planning actions to minimize freight and maximize on-time deliveries and structural improvements to our global procurement strategy. The remaining run rate savings are related to SG&A. Our updated business model has enabled much more efficient decision-making. It has also led to difficult but necessary decisions to eliminate areas of redundant cost in the updated model. As of quarter end, we have eliminated approximately 8% of professional roles within the company or 190 positions. These changes have been carefully considered over this past year and were acted on in Q4 in a manner which allowed us to communicate to impacted colleagues our heartfelt appreciation for their contributions to Greif. These actions drove the significant acceleration beyond our previous full year '25 commitments. Due to our progress to date, we are raising our anticipated fiscal '26 cumulative cost saving run rate commitment from $50 million to $60 million to $80 million to $90 million. We will also expand our anticipated full year '27 cumulative run rate commitment from $100 million to $120 million. Our cost optimization program has continued to evolve since the start of the year. What began as a top-down initiative is now being fueled from the ground up. Across the organization, our colleagues are embracing the challenge, identifying new opportunities, driving local action and creating meaningful change. This work is making Greif a more focused and agile organization, better positioned to capture value as demand returns. Importantly, this isn't just about taking cost out. It's about building an agile next-generation Greif. The Greif Business System enables repeatable excellence across more than 250 sites in 40 countries, allowing us to do more with fewer resources. We are removing unnecessary layers to empower local leaders and speed up decision-making and we are embedding a mindset of efficiency, responsiveness and value creation across every function and facility. This isn't a onetime initiative. It's a structural shift in how we operate, compete and grow. Please turn to Slide 5. Significant finding from our cost optimization program, which is now realizable as the divestment of containerboard are the clear and meaningful synergies in operating adhesives and recycled fiber as part of Sustainable Fiber solutions. Therefore, beginning in fiscal '26, those products will be reported within our Fiber segment results. These changes are designed to enhance our go-to-market approach while also benefiting our cost optimization program. This leaves the Integrated Solutions segment as primarily closures. Effective October 1, we are renaming that segment to Innovative Closure Solutions, which is a highly profitable and critical growth focus for us. Please turn to Slide 6. Our Q4 results reinforce our strategic focus on 4 target end markets. In Customized Polymer Solutions, volumes were flat year-over-year. However, small containers continued positive volume momentum driven by the agrochemicals end markets. This is an area where we have been investing to grow both organically and through M&A. Mid-single digit declines in both IBC and large polymer drums, driven by softness in industrial markets in EMEA during the quarter offset the positive growth in small containers. In Durable Metals, volumes declined 6.6%, reflecting softness across industrial end markets. Our team remains focused on managing the business for cash flow and optimizing costs while maintaining a strong position that will capitalize on growth as demand returns. Sustainable Fiber volumes declined 7.7%, reflecting approximately 1.7 million tons of URB economic downtime during September. Converting was also negatively impacted by continued soft fiber demand -- sorry, soft fiber drum demand. Integrated Solutions continues to see volume improvement driven by closures. These products generating 30% plus gross margin continue to win new business through innovation and cross-selling, including on our Greif+ digital platform. In wrapping up my section, I'll close by pointing to a few items, which clearly demonstrate through the noisiness of full year '25, the value creation occurring under our strategy. Our polymers and closure business are growing. Our cost optimization is well ahead of plan and it has expanded to 120 million of anticipated total commitments. Our free cash conversion was nearly 50% in 2025 and expect it to be at 50% in 2026. Our pro forma leverage is below 1x. Greif is a strong, durable company and we are accelerating our value creation. I'll now turn it over to Larry for the financials on Slide 7. Speaker 3. Lawrence Hilsheimer: Thank you, everyone -- thank you, Ole. Hello, everyone. As a reminder, our results are presented excluding the containerboard divestment, except for free cash flow, which compares total operations to the prior year. Additionally, due to our fiscal year change, Q4 reflects a 2-month reporting period, August and September. For consistency, all prior year comparatives in today's presentation are also shown on a 2-month basis. Adjusted EBITDA for the quarter was $99 million, which was 7.4% above the prior year. EBITDA margins also expanded year-over-year by 140 basis points due to better price cost across all segments and the building momentum of our cost optimization. Adjusted free cash flow also improved year-over-year by over 24.3% due to the increase in EBITDA and our team's strong working capital management to close the year. As noted in our presentation, SG&A includes $28 million of operating costs specifically related to the containerboard divestment, which are excluded from EBITDA. Excluding these costs, SG&A was slightly above the prior year quarter due primarily to the 2-month quarter, including certain annual or quarterly costs, which were incurred over a shorter year. Adjusted EPS for the quarter was $0.01 relative to $0.59 in the prior year quarter. Our Q4 tax expense was impacted by nonrecurring items affecting pretax income and the residual nature of continuing operations after removing discontinued operations. Tax expense also includes various taxes either not based on income or not directly correlated to current period income, the impact of which is magnified due to the lower income reported in this 2-month period. Finally, the tax expense was also influenced by the mix of earnings across the jurisdictions in which we do business. Please turn to Slide 8. In Polymers, growth was led by small containers, consistent with our long-term strategic focus on less cyclical, margin-accretive end markets. Sales and gross profit were both up year-over-year with margin tailwinds from mix, pricing and operational discipline. In metals, results reflected volume softness in industrial end markets. Sales and volume declined but we continue to generate healthy cash flow and remain focused on cost reduction and enhancing agility to react as demand recover. In fiber, the decline in sales was tied to volume with URB mill downtime late in the quarter. Despite that, gross profit dollars and margin improved year-over-year due to continued benefits from price cost and tight cost management. Integrated Solutions sales and gross profit dollars declined year-over-year primarily due to lower published OCC prices in our recycled fiber group. Volumes in recycled fiber and closures were both solid and the product mix impact of closures led to higher gross margins year-over-year. Please turn to Slide 9. Given the continued demand environment we are operating in, we believe it is prudent to present low-end guidance to begin fiscal '26. Our low-end scenario assumes flat to low single-digit volume declines in metals and fiber. It also assumes low single-digit volume improvement in polymers and closures from growth in our target end markets. The net impact of these volumes assumption is flat volume-related EBITDA performance to prior year. Transportation and manufacturing costs were also assumed flat, representing cost savings on our cost optimization, offsetting normal inflationary cost increases. The 2 major positive drivers in our bridge are SG&A and price cost, both of which reflect the accelerated progress on our cost optimization program. SG&A of $45 million reflects $39 million of incremental cost optimization, of which $17 million is within the fiscal year '25 run rate and $19 million is within the fiscal '26 run rate, both of which are expected to benefit fiscal '26. The additional $9 million represents lower variable costs, including incentives. Price/cost reflects $12 million of incremental cost optimization. This is primarily in the form of sourcing benefits in polymers and closures, while metals cost base is assumed flat. Price/cost also reflects an $18 million incremental benefit of URB pricing recognized in fiscal '25 and lower expected OCC costs. Lastly, to round out our bridge, a $10 million EBITDA headwind from the lack of land management and a benefit of a $7 million positive FX driven by the weakening of the U.S. dollar. Our free cash flow low end guidance is $315 million, a 50% conversion ratio, demonstrating our progress towards our long-term objectives. We expect to spend approximately $155 million on CapEx this year. Our lower cash interest cost reflects our strong balance sheet and our other cash use includes approximately $40 million of cash restructuring related to the cost optimization as well as pension costs. Working capital assumes a source of $50 million, driven by both low-end volume assumptions and optimization gains. Please turn to Slide 10. With our pro forma leverage below 1.0x and strong cash flow guidance of $315 million, we anticipate minimal cash needs for debt service costs in the year ahead. Similarly, after divesting our most capital-intensive business earlier this year, our maintenance CapEx needs are approximately $25 million lower. Given the strength of our balance sheet and strong and durable free cash flow generation, our capital allocation outlook demonstrates the value creation driven by our business model. As a result of our fiscal year-end change, our scheduled Board of Directors meeting is now 1 month following each quarterly earnings release, still aligned to the previous fiscal calendar. As such, our dividend payments will be considered as usual by the Board on that same cadence with the next meeting occurring on December 9. Further, based on our strong conviction in our own ability to meet our long-term commitments and our belief that our stock currently presents compelling value, we plan to execute as quickly as possible on an approximately $150 million open market repurchase plan, utilizing our available authorization of approximately 2.5 million shares. Additionally, we intend to seek Board approval of a new stock repurchase authorization that will enable continued repurchases as part of our go-forward capital allocation strategy, which we expect to include regular stock repurchases of up to 2% per year of our outstanding equity value. While that leaves ample capacity for growth capital, we're going to be prudent in allocating it while maintaining our strong balance sheet. Where we do deploy growth capital, we will prioritize thoughtful and focused organic investments, which drive high returns on capital. Please turn to Slide 11 for closing from Ole. Ole Rosgaard: Thank you again for your interest in Greif. We acknowledge that the last 11 months have been bumpy given all the change occurring, and that showed up in this quarter in our tax results. As always, my commitment to you is transparency and candor. We are proud of how we finished fiscal 2025, more focused, more efficient and more aligned with our long-term strategy. We're also excited for a cleaner outlook in full year '26 and we'll continue to communicate progress on our strategy with as much clarity as possible. The divestments of containerboard and Land Management have meaningfully reshaped our business. We're now positioned with a sharper portfolio, lower capital intensity and stronger financial flexibility than ever before. Our cost optimization program is ahead of plan and with an expanded $120 million commitment by the end of 2027. We are building a stronger business, one that creates value in any environment and delivers accelerating performance as volumes return. Thank you for your continued support. Operator, please open the lines for questions. Operator: [Operator Instructions] one moment for our first question, which will be coming from Ghansham Panjabi of Baird. Ghansham Panjabi: So I guess, first off, on polymers and your comments about growth in some of the target markets that you've realigned towards. Can you just give us some more color on that, Ole? I mean many of these end markets you referenced ag and flavors, et cetera, are still quite challenged just based on what's happening at the CPG level, et cetera. So what is driving that improvement? Is it share gains? Is it just commercial success? What's going on there? Ole Rosgaard: Yes. Let me first give you some sort of general comments. So our macro environment is, as you know, in a prolonged down cycle and that's amplified by trade and tariff uncertainties. Demand softness remains a major driver for our customers' demand. And for example, weak end markets in construction and manufacturing are hurting volumes. In terms of the ag sector, we decided as part of our Build to Last Strategy to go into the -- or invest in end segments that grows faster than GDP. One of them was the agrochemicals market that is serviced by small containers and jerry cans, and we consolidated that market to become a global leader. And that has really paid off and it's in that market, particularly, we have seen significant growth. But when you look at these factors, our operational excellence, cost discipline, cost-out program and all the actions we just mentioned, that means that, that portfolio has become even more valuable to us in the near term. Ghansham Panjabi: Got it. And then in terms of fiscal year '26 guidance specific to EBITDA, how should we think about the sequencing of that on a year-over-year basis? Is it sort of flat to down in the first half and then an improvement in the back half? What's your baseline assumption at this point? Lawrence Hilsheimer: Ghansham, it's as usual, the first quarter will be the weakest, and let's talk about it roughly 20% of the year. And then the rest of the quarters will be 25% to 30% each, sort of modeled the same way after prior year. Ghansham Panjabi: Got it. And then just one final one, Larry, as it relates to the low end, if you will, guidance characterization, is it just purely volumes that would be determined as it relates to maybe the upper end bandwidth? Is that how we should think about that? Lawrence Hilsheimer: I think volumes would be the big driver for certain. But also, we have found acceleration in our cost optimization program. As Ole mentioned in his prepared remarks, this is really catching fire among our colleagues and we have a program of identifying ideas from the ground up. So we also think there's upside in our cost optimization numbers for the year as well. Operator: And our next question will be coming from Mike Roxland of Truist Securities. Michael Roxland: Congrats on all the progress. Just wanted to follow up on Ghansham's question in terms of the '26 guide. So Larry, if volumes come in weaker because certainly we've heard about weaker volumes from a majority of our companies this earnings season thus far, is cost the leverage that you have available to pull to offset incremental volume weakness to meet your guide for '26? Lawrence Hilsheimer: Yes. I would say 2 things. The bottom line answer to your question is yes. We can always pull back further on shifts and temporary furloughs and those kind of things. However, this is what we said, this low-end guidance. This is pretty pessimistic on the volume assumptions already. So we don't anticipate that being an item, Michael. But yes, we still could pull incremental levels on a variable cost basis if we needed to. Ole Rosgaard: Michael, just remind you that throughout the year, pricing has been under pressure and that's due to oversupply and weak demand. And despite of that, we have increased our margins and performed solidly. And I don't think that will change going into 2026. Michael Roxland: Got it. Very helpful. In terms of the cost optimization programs, you guys raised that for '27 by $20 million. As you've gone through the portfolio, do you -- can you comment on whether there's even more upside to be had or additional cost opportunities that you've come across that maybe you haven't specified right now but you've really scrutinized and you think that even there is an additional amount above and beyond the incremental $20 million? Ole Rosgaard: Obviously, our sites are much further and much higher, but we use the word commitment here. And at the moment, we are very, very comfortable committing to the $120 million we talked about. But obviously, as Larry just alluded to, that number could go up as we go through the year but we want to get a little bit closer before we would be able to increase our commitments. But we are very bullish about that. Lawrence Hilsheimer: Mike, we have a stage-gate process where there's a lot of discipline before we get to something we classify in stage-gate 3 and 4, which is where we're more certain. But yes, we believe there's potential upside. Michael Roxland: Got it. And then final question before turning it over. Last quarter, you mentioned a few times on the call that some of your larger chemicals companies -- or customers, excuse me, were not doing so well. We see that through in earnings. Your IBC volumes declined mid-single digits this quarter. They were down mid-single digits last quarter and have been weak for some time now. Now realizing that chemicals is a cyclical business, have any of those customers indicated to you that they intend to like maybe close capacity permanently or rightsize their businesses? And if so, what does that ultimately mean for your IBC business longer term? Ole Rosgaard: I mean, as I said, the demand softness is out there it's a major driver for our customers and they have adjusted their business. And they are -- a lot of them are relying in terms of chemicals on construction and manufacturing as end markets. I don't think that it will get any worse. That's my personal opinion when I speak to customers and see the numbers. But big question is when will it get better? And we're not sitting here waiting for it to get better. Just as you've seen, we are acting. We are highly focused on organic growth. We're deploying capital for organic growth in the specific segments that we have alluded to. We are taking cost out of our business and our business is generating a lot of cash and we're doing our share buyback of $150 million. So we're helping ourselves. We're controlling what we can control, and we're not in a waiting position. Of course, when volumes return, that will be nice, and we will take that as an extra benefit. Lawrence Hilsheimer: Yes, Michael, I would supplement Ole's comments, if this makes sense, we're hearing less bad comments, less bad than they were. And the other thing that's somewhat encouraging is the trending down of mortgage rates. As most housing industry analysts, investors believe that if you get with a 5-something interest rate pent-up demand in existing homes sales will take off. That's a big driver for the chemical companies and therefore, for us. Ole Rosgaard: We're encouraged by the 2x rate cuts we've seen, but it's not going to change anything overnight. But if we see more rate cuts, it will have a positive effect on demand, we believe. Operator: And our next question will be coming from Matt Roberts of Raymond James. Matthew Roberts: I appreciate all the color. Can you hear me okay? Lawrence Hilsheimer: Yes, yes. Matthew Roberts: Okay. Great. Good to see the cost coming through and all your color on capital allocation. And on capital allocation, so balance sheet is in a great spot. You initiated the open market repurchase for $150 million. So given that low leverage and the now newly discussed long-term repurchasing intentions of, I believe, it was 2% per year. Does that change how much capacity remains for M&A? Or has the hurdle rate for M&A changed versus your view of, I think, what you said stock offering compelling value. And all those things considered, where do you expect leverage to shake out by year-end '26? Ole Rosgaard: Let me just answer the first one and let Larry deal with the leverage one. So on M&A, I mean, first of all, our focus is on growing much faster organically and we are deploying CapEx for that. We have a number of areas we have invested in for organic growth. In terms of M&A, we've said many times, we have a very solid pipeline. We keep working on the pipeline. We don't expect any transformational M&A to happen. We have our focus on what we would call tuck-in M&A to complement what we're doing organically. And our criteria remain the same. We are looking at M&A with EBITDA margins in the 20s, 50% free cash flow conversion and primarily within Polymers and primarily within the closures segments. Lawrence Hilsheimer: Yes. You might want to supplement that, Ole, maybe talk about -- talk to the group about hunters and farmers and also about IonKraft maybe. Ole Rosgaard: Yes. So we have reorganized our entire commercial organization globally and from being -- we've been farmers in the past and taking really good care of our existing customers but we've changed that to become more hunters now. We've changed the incentive program. We've changed the way we operate commercially. And we are targeting around 8% organic growth. That's part of -- that part is securing additional volume, extra share of wallet, but it's also deploying CapEx in terms of new capacity where we see that -- we have also invested in a new -- it started off as a start-up out of a university in Germany. We created a partnership with the start-up, and we are now investing in that and we are deploying a very unique proprietary form of barrier technology that only we have. And we're just ramping that up right now. We have 3 lines on order and we are negotiating further lines. And this is something that's exclusive to us. And we will see that start to come through towards the end of '26 and really ramping up in '27. Lawrence Hilsheimer: Yes. And Matt, purpose that, obviously, the focus that we are really driving a different growth pattern than we have in the past. But relative to our leverage ratio, we're obviously in a really good place. And with the free cash flow generation that we're talking about, I think it's very highly likely, even with our stock repurchase and things we do, very highly likely, we'll remain under 1.5x by the end of next year. It's possible if some things came up that were attractive, we'd be higher than that, but I don't see any scenario where we'd be over 2x at any chance. So really, we'll remain in that range for the foreseeable future. Matthew Roberts: Very helpful. Secondly, on the closures. So isolating that as a stand-alone segment, Ole, I know you did touch on this in the prepared remarks, so I apologize if I missed any of that. But are there operational changes here or more of a symbolic shift as closures have been a growth focus. And now with the -- as lower recycled fiber has been a drag on the margins in Integrated Solutions, how should we think about the margin profile and growth of that segment going forward? Ole Rosgaard: The closure has always been very attractive for us. It's a unique part of our business that comes with very high and attractive margins. There's a lot of growth opportunities out in the market for closures. And for example, with the 3 acquisitions we made in Polymers, most of them were using closures from other companies than our own. So there was a big synergy there we'll be executing on. Closures, we separated that out now in a separate segment really to put extreme focus on this segment. We have a new leader in that business as well. And his focus will be growth, M&A growth but importantly, also organic growth. And we'll deploy CapEx accordingly to that. So hopefully, you will see us in the many quarters to come growing that segment significantly. Operator: And our next question will be coming from George Staphos of Bank of America Securities, Inc. George Staphos: I also -- I just want to give you some credit here. By sell or hold, the company has really done a wonderful job transforming itself over the last 10 years and moving to a more, if you will, common fiscal quarter end, I think, really helps everybody on the street. So we thank you for that, guys. And we know it wasn't an easy undertaking. So thanks so much for that. I guess my first question, can you talk about, Larry and Ole, the growth rates that you saw relative to your guidance entering fiscal '26? I assume your assumptions are consistent with what the exit rates are, but were there any exit rates that were maybe trending below what's embedded in your guidance, recognizing you've got a lot of levers to pull, et cetera, as was talked about earlier on the call. Lawrence Hilsheimer: Yes. I mean when you look across our portfolio within the fiber segment, probably one of the weakest lines that we had is our fiber drums. So fiber drums were down double digits, which was more than we expected them to be down. We expected them to be down less than that, high single digits. So that was a trend that was worse. On the other hand, small polymers did better than we expected. So those were the 2 primary ones that were different than our expectations going into the quarter, George. Our guidance going forward is essentially aligned to what we started to see. So in our low-end guidance, as we said, we've got low single-digit up on polymers and on closures with more in the small polymers than in the large polymers. And then within metals and fiber, we've got low single-digit declines just as a low-end guidance assumption. George Staphos: Understood. Okay. And you're saying drums at this juncture, fiber drums, those have gotten back to kind of your guidance range or even though they started pretty weak. Would that be fair? Lawrence Hilsheimer: No, they're just really off right now. And it's all tied to the whole chemical industry sector. So yes, we're not bullish on any kind of significant growth in that one right now. George Staphos: Okay. I was hoping you could go a little bit further into the SG&A pickup that you're expecting this year. Thank you for the bridge and the discussion on the $45 million. Can you talk about what's in sort of the activity that you took in from fiscal '25 into fiscal '26, What, if anything, is different about what's in for this year on the fiscal '26 actions? And just any other color on the $45 million would be great. Lawrence Hilsheimer: Yes. The predominance of our SG&A takeouts are related to the headcount numbers that Ole gave on the 8% of our overall professional headcount. And the majority of those actions were taken in the fourth quarter. So they play out into the entire year going forward. We also have a lot of things where we've moved more things to low-cost countries. We've also taken in where we had contractors in our IT organization that you think are temporary and then all of a sudden, they're around 8 years. Well, you're better off to hire them as employees and then you're better off to offshore things. Our IT group has also done a fabulous job of rationalizing our IT licenses, which is a significant cost. We've restructured how we're doing our AI activities and going to a model that's basically pay for what you eat instead of a basic core per person license. So there's a whole bunch of elements that go into those cost saves. But those are the predominant ones that are driving the major numbers. George Staphos: Okay. And on that point, Larry and Ole, you talk about changing the incentives and the approach to organic growth in the organization, that sounds exciting. And at the same time, for understandable reasons and to benefit because you're getting savings from it, you're cutting headcount. Are there any areas where you're maybe a little bit more -- maybe word is not the right term but you've got to stretch a little bit further to get everything done on the front end of the business while you're reengineering the back end. Any tension points there? Ole Rosgaard: Not really, George. I mean, we decided not to do the SG&A as like thousand needles. That's why we took the actions in Q4 to get most of that behind us. We -- in terms of the commercial organization, we have by and large, protected that because we're really focusing on organic growth, although we have been rearranging that, as you say, with the incentive program. But we're doing a lot of other things there as well in terms of how we manage performance in sales. And we have -- I mean, Tim Bergwall, who's our Chief Commercial Officer, he's just doing a fantastic job with his team to do that. And it doesn't happen overnight and we still got a long way to go in that area. George Staphos: Okay. My last question, a couple of parts, and I'll turn it over out of courtesy. Sorry, I've gone long here. One, I assume the pricing change in integrated/closures is just the effect of OCC, but can you talk about what the pricing change was actually within closures? Given you've done a lot of other things to simplify the organization, any thought perhaps at some point to simplifying the share structure between the Class A and Class B? And then lastly, with great resources and everything you've done to have the balance sheet where it is, comes great responsibility. Where are your customers telling you they'd like you to most sort of grow inorganically from an end market standpoint so that you get the highest return going forward? Ole Rosgaard: That was a lot of questions. George Staphos: We've been doing this a while. Lawrence Hilsheimer: The first one was... Bill D’Onofrio: The price impacts on the Integrated segment between RFG and Closures. Ole Rosgaard: So first of all, the reason for why we put the recycled fiber group and adhesives into the fiber solutions group was that they're serving that group. It's the same customer, and it's -- the adhesives is going into fiber also amongst customers. And to have that managed by the same leader made sense. And that was part of that -- as part of that, we could take out a leadership level. And that left sort of Integrated as a stand-alone closure business. George Staphos: Ole, what was the price change in closures, really what I'm asking? Lawrence Hilsheimer: Yes. The price change in Closures, George, was basically $12 million of benefit from procurement activities and that was in the polymers and closures. That's the segment. It's not the OCC side of it. And then with respect to share structure, I mean, that's something that we continue to dialogue and look at but nothing on the -- in the near term on anything like that. And then what was the third question? George Staphos: Where are your customers telling you to... Lawrence Hilsheimer: Yes, on nonorganic, basically, I mean, our customers like us to serve them in any of their needs that they have. So us getting broader enclosures where we might be able to serve more of their needs. Clearly, they've enjoyed us getting more into like the small plastics that we didn't use to serve on a global basis. That's been a positive. But there's nothing else that they're out there asking us to get into right now other than the one Ole went over on IonKraft which is just a brand-new technology that is more highly recyclable, very favorable environmentally. And we just had UN approval on the first container with this step in. It's a very unique opportunity for us. Ole Rosgaard: Just to remind that we -- our NPS of 72 is just unheard of in our industry and that gives you an idea of how close we are to our customers. I'll mention an unnamed customer who has been establishing new plants in several countries. And every time they do that and this is a multinational, they come to us and ask if we could provide capacity on that particular location. And we go in and we do a long-term agreement and then we add lines or build a plant to service them. And that's an example of what customers ask us for and how close we are to them. Operator: Our next question will be coming from Gabe Hajde of Wells Fargo. Gabe Hajde: I had a question about the Durable Metals business, which is now going to be your largest. And if memory serves, I don't know, 40% to 45% of that sits in Europe. And not to put you guys on the spot, but looking at a decent list of chemical plant closures across Continental Europe, Eastern Europe, et cetera. I know you're talking about volumes being down, I think, flat to down low single digits. Can you talk about just maybe -- I know by region, historically, you kind of gave us performance in the legacy segments. Things have been changed around a little bit. But I think you mentioned in your prepared remarks, Europe slowed down. And so maybe just by region, sort of what your expectations are in that. Lawrence Hilsheimer: It's interesting -- it's actually been a little bit of astounding to us. So for example, the North American steel business has been down similar levels to EMEA quarter-by-quarter. But on a 2-year stack, EMEA steel was actually up every quarter this year. every single quarter. Ole Rosgaard: They have consistently performed better than North America. And then we have also -- as and when customers reduce capacity, we do the same. I mean, plants where we have been operating at two shifts, we now have gone down to 1 shift as an example. And we do that because we're managing that business for cash basically. So the closures that has happened, they have already been factored into our production capacity. Gabe Hajde: Okay. I guess the second question is kind of revisiting a little bit on the M&A front. Is there a scenario where maybe there are just kind of some tuck-ins along the way? And I think, Larry, you said you don't really envision a situation where you're above 2x levered. And so between now and 2027, I didn't see the $1 billion reiterated. And again, I know it's tough when you're moving assets around. But is that still explicitly sort of the target given sort of what you know about the M&A environment right now? Lawrence Hilsheimer: Yes. I mean, for us, on that, Gabe, I mean, it's still our objective to get there but we're not going to slowly deploy capital to get there. But if you just walk through, we gave low-end guidance. So obviously, our hope is that we do better than our low-end guidance. So if you take the $630 million and you then look at our $120 million commitment, that's a net another $45 million. So you're already up to $675 million. We're hoping you see industrial volume recovery. Obviously, that's a big component. It's been a component of our original stack was $140 million. I mean those things get you up to $815 million. We do some tuck-in acquisitions. We invest in organic CapEx and IonKraft and other opportunities. We still think there's a path to get there. But it's not like, okay, we're going to go chase M&A to get there and risk doing bad deals. We're just not going to do that. Gabe Hajde: But the $140 million are largely intact in terms of going back to the 2022 volumes. Lawrence Hilsheimer: Yes. Operator: And this concludes our Q&A session. I would now like to turn the call back over to Ole Rosgaard for closing remarks. Ole Rosgaard: Thank you. Thank you for joining us today. Our disciplined focus on margin expansion, cash generation and reducing cyclability is delivering meaningful high-quality returns for our shareholders, further validating your investment and confidence in Greif. We really appreciate your time and your partnership. Thank you. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to Joby Aviation's Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Teresa Thuruthiyil, Head of Investor Relations for Joby Aviation. Teresa, please go ahead. Teresa Thuruthiyil: Thank you. Good afternoon and evening, everyone. Thank you for joining us for Joby Aviation's Third Quarter 2025 Financial Results Conference Call. I'm Teresa Thuruthiyil, Joby's Head of Investor Relations. We will begin the discussion with comments from JoeBen Bevirt, Founder and Chief Executive Officer; and Rodrigo Brumana, Chief Financial Officer. For the Q&A portion of today's call, we'll also be joined by our Executive Chairman, Paul Sciarra; and Blade CEO, Rob Wiesenthal. Please note that our discussion today will include statements regarding future events and financial performance, as well as statements of belief, expectation and intent. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a more detailed discussion of these risks and uncertainties, please refer to our filings with the SEC and the safe harbor disclaimer contained in today's shareholder letter. The forward-looking statements included in this call are made only as of the date of this call, and the company does not assume any obligation to update or revise them. Also, during the call, we'll refer both to GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our Q3 2025 shareholder letter, which you can find on our Investor Relations website, along with a replay of this call. And with all of that said, I'll now turn the call over to JoeBen. JoeBen Bevirt: Thank you, Teresa, and thank you, everyone, for joining us today as we discuss our third quarter 2025 results. The past few months have been momentous for our team, as well as demonstrating the remarkable potential of our aircraft by flying in front of hundreds of thousands of people here at home and overseas, we've also moved the ball meaningfully down the field on certification, and we've passed one of the most important milestones in Joby's history to date. As we announced this morning, we have now begun power-on testing of the first of several aircraft we will build for TIA or Type Inspection Authorization. Entering TIA is widely understood as marking the final stage of the certification process and is a very strong indicator of a company's ability to reach Type Certification. This is the moment when our certification strategy, our intended type design and our manufacturing processes all converge into one physical asset. Let's take each of these in turn. First, our certification strategy. It might sound simple, but our certification strategy is the result of more than a decade of working alongside the FAA to develop a certification basis, the means of compliance for our aircraft, certification plans and test plans. These are the documents we've been talking about quarter after quarter in these calls, and they are absolutely required to get to TIA. Second, having a stable design is the result of years of focused engineering and testing using the same design and putting it through thousands of hours of testing on the ground and in the air. If you continue to make changes to your design, you can't enter TIA with a high degree of confidence that you'll complete it expediently. Finally, on manufacturing processes. This aircraft is one of a series that we are producing under Joby's FAA-approved quality management system. Each of the TIA aircraft, including this one, will be built with FAA-conforming components as required by our FAA-approved test plans. Each of the relevant components will be built to FAA DER or Designated Engineering Representative approved designs, and then inspected and signed off by FAA Designated Airworthiness Representative or DAR. This process adds a lot of overhead to the build processes. It's not fast or easy, but it is what's required to start TIA flight testing. Bringing all of these elements together is a huge achievement and I'm incredibly grateful to the team at Joby and at the FAA for the years of hard work that led up to this moment. We continue to plan for this aircraft to take to the skies later this year, flown by Joby pilots, clearing the way for FAA pilots to start for credit testing next year. As I mentioned earlier, having a mature and stable design is central to being able to move with certainty and pace through the certification process. And over the past quarter, we've been able to build on that maturity, demonstrating a remarkable cadence of flight testing and demonstration flights as well as continuing to fly several times a day out of Marina where we've demonstrated climbing, descending, accelerating and decelerating all at max rates. We also flew our first A to B mission, flying down to Monterey and back. A few weeks later, we participated in the California International Air Show, completing a 20-minute flight that saw us take off vertically, fly to Salinas, completed a demonstration that included multiple transitions between forward flight and hover and returned to Marina for a vertical landing. And we did all this while a separate Joby team completed 2 full weeks of regularly scheduled flights in Osaka as part of the World Expo, demonstrating the aircraft to hundreds of thousands of attendees, including the Japanese Prime Minister and the Governor of Osaka. The operational rigor and consistency we've demonstrated in completing these flights is a testament to the remarkable team we've built and the maturity of our aircraft. It is also preparation for our future commercial service. Speaking of which, it was a privilege to fly Ryder Cup fans back and forth from Manhattan to Long Island this quarter via our Blade service. 2.5-hour drives were replaced with 12-minute flights, highlighting the potential of vertical lift to a key audience suppliers. Our Blade team excels at delivering operations at scale, combined with the highest levels of customer service. This operational experience, combined with the maturity of our eVTOL platform puts us in a great position to take on the opportunity presented by the U.S. government's recently announced eIPP program. Through an executive order, the President has directed the Department of Transportation and the FAA to ensure that mature eVTOL aircraft can begin operations in select markets in the U.S. ahead of full FAA certification. We are already in advanced conversations with a wide range of state and local government entities who are submitting applications for the program, and we believe that having a TIA-ready aircraft as well as a wide set of operational experience will put us in a very strong position to deliver the high levels of safety the FAA will require to participate in this precertification program. We see the eIPP program pulling early demand for our aircraft forward. Taken alongside the demand we're also seeing from a range of international early adopters, it's clear we'll need to keep accelerating production if we are to keep up with the incredible demand we're seeing for our product. The level of production we are preparing for has never been seen in the aviation industry, and we're incredibly grateful to be working closely with Toyota as we plan and execute for scale. And we've already produced 15x more FAA conforming parts so far this year in Marina than we did in all of 2024. As well as growing in Marina and adding more than 100 manufacturing roles this past quarter, we've now begun production of propeller blades at our Dayton, Ohio facility. This is a great example of our approach to scaling, where we'll perfect manufacturing processes at home in California before scaling them alongside Toyota. Before I hand it over to Rodrigo to talk about our financials, I wanted to touch on my excitement for the future of Joby. Our core focus is and always has been the development of our core S4 platform. That's the aircraft you see flying every day. We've put a huge amount of work into designing it from the ground up, and we've built it in a vertically integrated way. As I've said many times before, this vertically integrated approach is our superpower. Because now that our platform is mature, we're able to move with incredible pace to adapt it to a wide range of use cases and technologies. Last year, we adopted it to fly with liquid hydrogen, completing a 561-mile flight with water as the only byproduct. I'm confident that hydrogen will play a very significant role in the future of aviation, supporting a wide range of new applications and aircraft types and the experience we've already built in this field puts Joby at the very forefront of innovation. This year, we announced we would work with L3Harris to develop a turbine electric variant for defense use cases. And I'm pleased to say just 3 months after that announcement, we're already ground testing this aircraft with the hybrid system in the loop, and flight testing is set to begin imminently. In fact, just yesterday, we had the FAA on site working with us to grant airworthiness for this vehicle. L3Harris has been a great partner on this journey, and we remain on track to demonstrate the full capabilities of this aircraft in the coming quarters and compete for some of the $9 billion the U.S. Department of War has requested for the acquisition of resilient, autonomous and hybrid aircraft in the FY '26 budget. Joby's approach to vertical integration puts us in a unique position to move from concept to demonstration and from demonstration to deployment at a pace that's almost unheard of in today's aerospace industry. And it demonstrates the value of dual-use technologies, allowing us to get new tools into the hands of America's troops as quickly and cost efficiently as possible against the rapidly evolving national defense landscape. That advantage also counts when it comes to autonomy. While our initial air taxi product will launch with a fully qualified commercial pilot on board, I believe, a future where we are able to take the pilot out of the loop is approaching more rapidly than I expected even 6 months ago. For decades, the principal barrier to commercial autonomy hasn't been technical or regulatory. It's been the way our commercial air traffic control system works. The current system still requires a human being on a radio to speak with another human being to deconflict airspace, file flight plans and confirm departures and arrivals. The current administration has indicated its intent to invest in modernizing this approach, making much needed investment in the infrastructure that controls our skies and laying the foundation for commercial air autonomy to take off much like the adoption of autonomous ground vehicles has. At Joby, we're making sure we're ready for that step when it happens. Over the summer, the team we brought on board from Xwing demonstrated our Superpilot AI technology stack as part of a landmark Department of War exercise over the Pacific Ocean. Using a conventional Cessna 208 aircraft, our team logged more than 7,000 miles of autonomous operations across more than 40 flight hours in and around Hawaii, managed primarily from Andersen Air Force Base in Guam, more than 3,000 miles away. Once again, illustrating our commitment to not just talking about innovation, but demonstrating it. The same technology is set to be supercharged by our recent announcement with NVIDIA. Joby will be the aviation launch partner for NVIDIA's IGX Thor platform, which uses their Blackwell Architecture to help ingest extraordinary amounts of data in real time to support an even more performance and safe autonomy stack for our aircraft. Integrating this level of compute will help us maximize the potential of autonomous flight. We'll be able to deliver autonomous mission management that enables the aircraft to determine, request and follow optimal flight plans while adapting to changes in weather, air traffic control instructions or unexpected events. It will also support onboard compute processes for high rate data from radar, LiDAR and vision sensors as well as supporting sensor fusion, combining data from a range of sensors to deliver reliable and accurate aircraft state estimation and situational awareness in the most challenging environments. It also establishes a foundation to develop features that enhance operational insight, reliability and performance, including predictive system, health monitoring and digital twin modeling. We'll be deploying Superpilot on the aircraft we're developing with L3Harris, allowing us to deliver to the government the same tech stack they've already seen successfully deployed on conventional planes. But this time, on a low altitude VTOL capable aircraft. The testing we complete on this defense-focused vehicle will also feed forward into a commercial AI autonomy stack that we plan to have ready and tested just as soon as the commercial air traffic control system is ready for it. The level of technological and regulatory progress we're seeing today is unprecedented, and it is matched by an incredible commitment to aerial innovation at both the state and federal level. We've positioned Joby to make the most of these opportunities, and I've never been more excited about the company and the technologies we're building. Rodrigo, over to you. Rodrigo Brumana: Thank you, JoeBen, and good evening, everyone. During the third quarter of 2025, we made several important advancements further positioning Joby to create durable long-term value for our shareholders. When we spoke last quarter, I identified three areas of focus: implementing a disciplined capital strategy, scaling methodically and translating our technical and regulatory progress into long-term value. Let's talk about capital strategy first. At Joby, we are shaping a new industry in bringing an entirely new technology to market. This requires substantial efforts across engineering, regulation, partnerships, infrastructure and manufacturing. To achieve this, we are strengthening our balance sheet. At the end of the quarter, we had approximately $978 million in cash and short-term investments. In October, we added net proceeds of approximately $576 million further strengthening our position. This gives us the financial strength to continue to lead the industry and bring new innovations to markets across the globe. Next is the scaling. We are investing now to build capacity for global air taxi demand. We are methodically scaling manufacturing, and we are very fortunate to have Toyota with us on that journey. As JoeBen said, propeller blades are a critical component in the highest part count on our aircraft. We have started to leverage our Ohio facility to begin ramping our production of propeller blades. Ohio has the skilled labor, the supply chain network and the space to scale our production as we grow. Scaling also means preparing our global operations. Following our acquisition of Blade, we are already running a network of high-frequency routes in New York and Europe, connecting major airports like JFK in prime locations like Nice to Monaco and Manhattan to the Hamptons. These routes are the blueprint for electrified air taxi service, proving the model today, so we can transition seamlessly once our aircraft is certified. At the same time, in addition to our successful flight demonstrations in Japan with ANA, we also expanded our global partnership with Uber to include Blade services. This opens up a powerful opportunity over time to connect thousands of daily Uber users with the experience of vertical lift well ahead of Joby's commercial launch. Meanwhile, in Montreal, we formally accepted our first flight simulator developed in conjunction with CAE, a global leader in pilot training systems. This fully immersive simulator is a prerequisite for commercial pilot training and marks an important milestone in preparing Joby for scaled operations. These efforts are building the foundation for our global network, beginning with Dubai next year and expanding to new markets around the world, turning our regulatory commercial and technical progress into long-term value. Now I'll present our Q3 financial results in more detail. We ended the third quarter of 2025 with cash and short-term investments, totaling $978 million. During the quarter, we raised $101 million through our ATM facility and an additional $33 million from warrants that were exercised. As I said earlier, after the quarter ended, we received net proceeds of $576 million through an equity offering, further increasing our cash reserves. Our Q3 use of cash, cash equivalents and short-term investments totaled $147 million, $35 million higher than last quarter. That was primarily due to an extra payroll run in Q3 versus Q2, growth in operating expenses, working capital changes and onetime costs related to our Blade acquisition, which accounted for $6 million. This spending also included about $30 million on property and equipment, up $1 million from last quarter. We remain on track to hit the upper end of our full year 2025 guidance of $500 million to $540 million in use of cash, cash equivalents, in short-term investments, and that includes the impact of our Blade acquisition. On a GAAP basis, we reported a Q3 net loss of $401 million, $77 million increase from Q2, largely driven by $262 million in noncash items, of which $229 million was a noncash charge related to warrants and earn-out revaluation. The remaining noncash items were related to stock-based compensation, depreciation and amortization, all within the normal ranges. The large noncash revaluation charge related to warrants in earn-out shares was due to the increase in our share price, which negatively impacts the calculation and gets updated every single quarter. Revenue for the quarter was $23 million, including $14 million in revenue from Blade from August 29 through September 30, and $9 million from other revenue, which includes the completion of all required deliverables as part of our Agility Prime defense contract as well as other engineering services. We do not expect Agility Prime revenue to continue as the work has been completed. Total operating expenses for the quarter, including about 1 month of late were $204 million, up about $36 million from the prior quarter. The increase was largely driven by the inclusion of Blade operating expenses and acquisition-related costs, coupled with higher staffing and program spend to support key milestones, including progress on the final assembly of our first TIA aircraft. Adjusted EBITDA, a non-GAAP metric that we reconcile to our net income in our shareholder letter was a loss of $133 million in the third quarter. This was just about $1 million higher than the prior quarter, reflecting the revenue booked in Q3, offset by the increase in spending I called out before. Compared to the same period last year, our adjusted EBITDA loss was $12 million higher, driven by the growth in our team to support aircraft design, manufacturing and certification along with early commercialization investments. As we look ahead, our focus remains on disciplined execution, advancing certification, scaling production and preparing for commercial launch. With a robust balance sheet, proven technology, mature program, flying aircraft and world-class partners, we are operating from a position of strength. We look forward to many folks at the Dubai Airshow in 2 weeks where our aircraft has been cleared by both, the General Civil Aviation Authority and the Dubai Civil Aviation Authority to fly full transition every single day. Thank you for your continued support. And operator, please open the call for questions. Operator: [Operator Instructions] Our first question today is coming from Kristine Liwag from Morgan Stanley. Kristine Liwag: I just wanted to follow up on your progress with your international partners. I was wondering with the early adopters, are you planning to provide commercial service with the Joby aircraft prior to getting FAA certification? Or are you waiting for FAA certification to start flying globally? JoeBen Bevirt: Kristine, this is JoeBen. Great to speak to you. We -- I assume you're speaking about Dubai in terms of the international partner, we will -- we're making incredible progress in Dubai. We have aircraft that's there and flying right now. And as Rodrigo mentioned in the prepared remarks, we have permission from the GCAA and the Dubai Civil Aviation Authority to be conducting daily flights at the Dubai Airshow. So that's incredibly exciting. And I think what you're going to expect to see over the course of 2026 is more and more flying there as we deploy more takeoff and landing locations. And we're seeing incredible momentum and amazing support from the local regulators. So in short, the answer to your question is, yes, we continue to expect to be operational in Dubai prior to FAA Type Certification. Kristine Liwag: I see. Great. And for a follow-up, you guys highlighted your progress on autonomous systems with Superpilot, which sounds really interesting. So is this going to be a software that's also going to be added to the Joby aircraft? And because from my understanding, the Joby aircraft initially would be VFR. So are you adding the IFR capabilities with autonomous systems? Or are you also going to add an expansion to IFR before going to full autonomous, like can you please help me understand the bridging there? JoeBen Bevirt: Yes. So thank you so much. This is a huge -- a bunch of -- huge accomplishments on the autonomy front and something that we're really, really excited about. The first, just to reiterate, the Superpilot, the Xwing team took Superpilot-enabled Cessna 208 and flew it 7,000 miles around the Pacific as part of the REFORPAC exercise earlier this year. That demonstrates the operational maturity. We operated that aircraft in a whole bunch of different classes of airspace. And really showcased how robust that autonomy platform is. As it comes -- when it comes to taking that autonomy platform and putting it into the S4 platform, that's going to be something that we will do progressively. It's a very step-by-step approach that we're taking. But we do think that it's going to have really significant benefits when it comes to -- on both the safety side and the operational efficiency side. So we're really excited about that. And we think that, that is built on the foundation of these changes that are -- we're expecting in the air traffic control framework, as I talked about in my prepared remarks. So we're really, really pleased with both the regulatory side of things and the technical side of things, also thrilled to be working closely with NVIDIA and bringing the phenomenal compute capabilities that they've developed to aviation. And yes, thrilled across all the different dimensions on the autonomy progress. Operator: Our next question today is coming from Austin Moeller from Canaccord Genuity. Austin Moeller: As part of the eIPP, are there any avenues for you to generate revenue in any way in that test phase with those aircraft? And as a second part, could you generate revenue from flying aircraft in a JV partnership overseas during this test phase? Paul Sciarra: Austin, this is Paul. So with respect to eIPP, this is kind of what's going on and sort of how we think it's going to play out. So right now, we have a number of different applications that we are close to that are in the process of getting filed with the Department of Transportation. Those are going to get filed basically through the end of the year. In the early part of next year, they will then down select to 5 with those starting, we think, in the middle of next year. Now look, this is a really exciting opportunity for us because it allows us to put aircraft into operation here in the U.S., I think on a far faster time scale at scale, then we might have thought. And it's really one of the things that's driving the focus that JB mentioned in the prepared remarks around scaling production to now meet this kind of faster demand than we were expecting. When we've -- based on what we know now, the application set is pretty broad. A number of them include passenger transport, cargo transport, medevac and certain of them, we think are going to have an opportunity to have a sort of commercial bent. So without having 100% confidence at this point, but we do think there are going to be interesting revenue-generating opportunities that come out of the eIPP program. Regarding your question with respect to JVs, I think the revenue that you may see from those sorts of partnerships would be preorders and/or prepayments for aircraft that were going into those JVs. We announced, obviously, the partnership with ANA in Japan. That is one that could sort of look like that. But I think the real question now is ensuring that we're able to build enough aircraft to meet this broader, faster demand that we saw. So that's why manufacturing is sort of the focus. Austin Moeller: Okay. And just a follow-up. Are you going to be able to fly the conforming aircraft in TIA testing as long as the means of compliance remains at 97%? Or does it not matter for proceeding with flight testing in that space? JoeBen Bevirt: Yes. Thanks, Austin. So just to be really, really clear here, we are so excited about the progress we're making on building these aircraft for TIA testing. This is the culmination of all the work that we've been doing over more than a decade, and it builds on an incredible foundation of work from both Joby and from the FAA. And as I spoke about, this is heavy lifting from FAA DERs, FAA DARs to ensure that as each of these aircraft is getting built that they're getting built in a really meticulous way. So this is a huge moment to be beginning the power-on testing of this aircraft. I will also add that we are building a total of 5 aircraft for TIA testing. And all 5 of those are in the production process as we speak. So the momentum we're seeing on manufacturing and scaling manufacturing is really fantastic. The reason this is so important is these are the aircraft that FAA pilots will get in and fly for credit, and that is the -- those are the final stages of our TC process, like we're doing the heavy lifting. We're doing the work that's required to get us through TC and it's happening right now. So just can't tell you how proud I am in the manufacturing team, how proud I am of the certification team, how grateful I am to the FAA and their lean in, they're working shoulder to shoulder with us. They were here yesterday, giving us airworthiness -- moving through the airworthiness process on the hybrid aircraft, and they're not getting paid, right? So the commitment, the lean in, the passion from these aviation professionals is just really unprecedented, and we can't say how grateful we are to all of them. Operator: [Operator Instructions] Our next question is coming from Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on the quarter. JoeBen, I wanted to maybe go back to the first question just around commercialization. So it sounds like we're still targeting commercialization ahead of FAA certification in the Middle East. Are we able to get more clarity on kind of how you see that unfolding or just in terms of timing or number of aircraft. I think in the past, you had mentioned passenger flights potentially by the spring. So just wondering, is that time line for next year? Is that still on track? Or do we perhaps see maybe pushing into the right slightly? JoeBen Bevirt: Thank you, Andres. Great to catch up with you. So the progress we're seeing and the momentum, as I mentioned, in Dubai, was really fantastic, both with the GCAA, with the Dubai Civil Aviation Authority, with the RTA. We've got all the regulators leaned in. Skyports is doing a phenomenal job on moving forward with infrastructure. We have a team there, and we're building out that team, staffing that team, doing the training and putting all the pieces in place, and I'm really excited and grateful for the progress that we're making day in and day out. In terms of -- we expect to be ramping that operation through the course of this next year. I think the real critical bottleneck is going to be -- and the demand you asked about is very, very substantial there. The bottleneck is going to be how fast we can ramp manufacturing, as Paul was talking about, to meet that demand. And this is where I'm so proud of the team and the progress we're making on scaling production and scaling it alongside Toyota, whether that's in Marina, whether that is the progress we're making in Dayton on Blades. And I think this is the real central pillar of the work that we have in front of us is to scale the manufacturing as aggressively as we can, and we're making great progress. Andres Sheppard-Slinger: Got it. Okay. And I guess maybe a follow-up for Rodrigo. Are you able to maybe help us understand like how should we think about Blades revenues for Q4 and for the -- I guess, throughout next year? I mean is $22 million in quarterly revenue and 55% gross margin, is that the norm or what's the best way to think about that for maybe next quarter and throughout next year? Rodrigo Brumana: Andres, thanks for the question, Rodrigo here. Well, we are not providing any guidance specific for next quarter or next year. However, we would like to point you to what has been said publicly and Blade had a number right before the acquisition on August 29. So essentially, we are not deviating from it. Number two, let's just remind you that Q4 is when the low season starts. So Q4 is one of the slowest quarter there, and we are happy to have Rob here just to add a little more context here, Rob? Robert S. Wiesenthal: Andres, it's Rob Wiesenthal, speaking. It's been -- performance has been pretty good this summer as you've probably been reading. But I think what's also important to announce is kind of the expansion opportunities that we've taken advantage of. Shortly before this call, we announced a pilot program for our very first commuter route to the public, serving New York suburbanites, who live in Westchester, Bedford, Rye, Scarsdale, Greenwich with flights that go between Westchester Airport in Manhattan that turns a 1.5-hour drive during rush hour into a 12-minute flight. You can fly with the Commuter Pass for as little as $125. That will be a 5-day a week service. It's actually our very first public commuter route. And that's important because the industry has been very much focused on airport flights, which is clearly an important use case. We've been doing it for over 6 years, but it was really time for us to kind of expand our service offerings to include commuter routes. And once the Joby aircraft is certified, we expect new landing zones to be approved and activated, which will offer even more convenience to people who work in big cities. And we're going to see more of this in the future. We already have pods of communities like in Deal, New Jersey on the Jersey Shore where people fly to work there and back every morning, that's a 2-hour drive that comes a 15-minute flight. So we're very excited about the prospects of expansion under Joby's ownership and things are off to a great start. Operator: Next question today is coming from Savi Syth from Raymond James. Savanthi Syth: Just a follow-up on one of Austin's questions earlier, just around certification and the shutdown as well. Just the flight that you are -- aircraft that you're building and doing ground testing right now, is that the one that would be flying? Do the propellers kind of get added back? And then what exactly can you do with that aircraft in TIA testing while the government just shut down? It sounds like, as you pointed out, FAA is coming in and doing certain things, but I was curious what you can and cannot achieve during this time? Paul Sciarra: Savi, this is Paul. So thus far, we've got an incredible lean-in from the FAA even during the shutdown. That included, as JB mentioned, I think, in the prepared remarks, having their FAA airworthiness folks here on site to do the checkout for the hybrid version of the aircraft. That's actually still ongoing today. And these are folks that are showing up without getting paid. So we're really obviously sort of grateful for their work on this, in this sort of difficult period. When it comes to the progression of the TIA aircraft, look, we're going to be doing the power-on checkout, progressing then to Joby piloted flights and then moving from there to FAA highlighted flight testing for credit on that vehicle. Right now, we don't necessarily anticipate that the FAA flight test pilot portion of that testing is going to be delayed by the shutdown, but this is obviously still a very much evolving process. And we have been very pleased with the lean that we've gotten. But like if this shutdown persists longer and longer, there's certainly some uncertainty on how that's going to play out. But from the Joby standpoint, we just want to make sure that we're ready, ready with the right aircraft, ready with the training for those pilots and then ready to begin the FAA flight testing just as soon as we can. Savanthi Syth: That's very helpful, Paul. And maybe if I can just follow up on that then. I think the rule of thumb is once you start TIA flight testing, it's about 1 year, 1.5 years from there to full certification. Just how much of that happens with kind of the Joby pilot, which versus kind of when do the FAA pilots going to step in and do that part of the testing? Paul Sciarra: So this is Paul, I guess I'll pick that off. Look, the timing of the TIA flight test portion is sort of variable depending on the program. And we've obviously got a plan that we're sort of working with FAA that includes 5 different aircraft that are going to be flown in various levels of parallelization to try to speed that process up as quickly as we can. As JB mentioned, all 5 of those aircraft are in some part of production at this moment. And obviously, the first one of those is sort of in this power-on stage as we get ready for its first flights. With respect to how much time is spent with the Joby pilots versus the FAA pilots. As a general rule, we want to make sure that we are doing the things that we need to do for FAA for credit flight testing internally before we do them with FAA pilots in seat. Much of that work has already been done on other versions of these aircraft. So it's really about making sure that we have those TIA aircraft ready at the right time. And in turn, we line that up with the availability of the FAA flight testing pilots. And that's going to be the sort of synchronization that we have to manage, starting basically now. Operator: Our next question today is coming from Bill Peterson from JPMorgan Chase & Company. Mahima Kakani: This is Mahima on for Bill. I was curious, how should we think about the pace at which you'll move across the Stage 5 certification progress bar once TIA testing starts? And should we really start to see that acceleration beginning next year as soon as you get the FAA pilots on board? JoeBen Bevirt: Thanks, Mahima. So we're really excited to get into TIA, as Paul talked about. The other element and a key piece to be cognizant of is the way we built our reporting on Stage 5 is that we will get points on the board when we submit those test results. So there's a huge amount of work that's happening on the Joby side as we take the approved test plan and we build the part that is going to get tested or the aircraft is going to get tested and then we run the testing on it. And then we write the test report. We submit that and then we get credit on Stage 5. So it may be that a lot of the progress that happens on Stage 5 is when we're very, very close to the finish line. I think the important thing is that in addition to making incredible progress on manufacturing of the 5 TIA aircraft, the team is also making incredible progress on the manufacturing of the test articles, and those test articles are very challenging from a manufacturing standpoint because each one of them is different from a production part. It has intentional changes that are -- that we're putting into those parts that have been specified by the FAA DERs. And so this is really fantastic work by the manufacturing team, and we're making incredible progress on it, which puts us in a great position, both for the TIA flight test, but also in terms of completing all of the component level testing required to complete Stage 5. Mahima Kakani: That's really helpful context. Maybe as a follow-up. You started manufacturing propeller blades in Dayton, but are there any other conforming parts you expect to also transition to Dayton in the near term? And then how quickly could you ramp up that capacity you'll need to support certification efforts? JoeBen Bevirt: Yes. Thank you. So really thrilled with the team in Dayton and the quality of workforce that we've been able to build there and the speed at which we've been able to onboard those folks and have them contributing in a huge way. We were also thrilled with the support that we've received from the state and local government in Dayton. And we see massive opportunities to continue to expand our footprint, both in our existing facility and as we look forward in the Dayton region more generally. In addition, and again, following the model that I spoke about, where we perfect the process here at our pilot facility in California, and then we're able to scale it alongside our partners with Toyota -- our partnership with Toyota, I would love to just highlight how vitally important Toyota is and how strong relationship that we have with Toyota right now. We have never been closer to Toyota. Toyota has never been more leaned in. And we think that they are an unparalleled partner for us as we look to take aviation to a scale that has never been seen before. Operator: [Operator Instructions] Our next question is coming from Edison Yu from Deutsche Bank. Xin Yu: I wanted to ask about the hybrid for defense. How should we think about the design? Is that something you just kind of put an engine on the existing airframe? Do you need to redo the airframe? Is the supply chain going to get more complicated? Just how to think about the process and design for the hybrid? Paul Sciarra: Thanks, Edison. This is Paul. So look, our approach is really in line with the sort of principles of dual use. Where possible, we want to take full advantage of the proven airframe that we have developed and tested over the last 5, 6 years. And we also want to be able to take advantage of the manufacturing lines that we already have ready to produce those components down the line. So I think the right way to think about that aircraft is a sort of variant of the existing vehicle that is then in turn missionized for different customer use cases. What I think is really exciting, though, is that we've been able to move from concept to soon sort of demonstration of that vehicle at a very rapid pace, basically sort of 3 months from when we announced the L3 partnership to the preparations for flight testing that are happening right now. In turn, we think we're going to be able to move from demonstration to flexible deployment with those customers very quickly because we've got a manufacturing line that we do not have to scale up or retool where most of the components are essentially the same manufacturing line that we're using for the broader sort of commercial vehicle. And that speed is something that in our conversations to date, the customers are really looking for. They are not so happy with the sort of traditional procurement process, long spec writing, competitions and then sort of moving to these sort of restrictive contracts. They are instead looking for things that get new technology into the hands of warfighters far more quickly. And we think we've got an opportunity with this platform in conjunction with L3 to deliver exactly that. Operator: Our next question is coming from Chris Pierce from Needham & Company. Christopher Pierce: I was just curious, and if you fast forward a year from now, like what's the best possible outcome for the Blade transaction? Is it just more passenger throughput in New York? Or what Rob talked about? Is it adding routes so you can see kind of customer demand to get through to consider air taxi at a higher rate? Like if you fast forward a year, what would you consider to make a success out of this to get people enthusiastic about air taxi in the business? Robert S. Wiesenthal: It's Rob Wiesenthal. I think if you step back and you look at the thesis of the acquisition, it was to derisk and accelerate the deployment of the Joby aircraft into commercial service. So we're going to continue working on projects where we can achieve profitable growth in new routes, expansion of existing schedules. We recently expanded our JFK schedule to include another note on the East side and also deepened our Newark efforts. And in Europe, we have been focusing there as well on opportunities. So I think the focus on profitable growth to continue getting more data, acquiring more customers, getting more infrastructure access. And I think that's going to be terrific. That's really going to educate us and help us deploy these aircraft once they're certified and to do it in a way and at a speed that I don't think the competition can match. It's a real head start versus the competition in every market Joby wants to enter. Operator: Next question is coming from Amit Dayal from H.C. Wainwright. Amit Dayal: Just with respect to all the comments on the call today, keeping in mind where we are with manufacturing readiness and all of the testing going on. What is the earliest we can take advantage of this eIPP initiative? Is 2027 a reasonable time frame? Or could it be potentially earlier than that where some of these aircraft get into operation? Paul Sciarra: Amit, this is Paul. I'll try to pick that up. I'm not sure I totally heard it, so I'm going to sort of repeat what I understood the question to be. So your question was when do we think we can start first operations under eIPP? And the answer to that is that we now have with the eIPP program once the down select happens early next year, we've got a date certain for the start of those operations, and that's essentially mid next year. That is a really exciting opportunity and one that I think Joby is sort of uniquely positioned to take advantage of. Our understanding under eIPP is that it's going to require aircraft to be at a high level of maturity. Our understanding is that means it has to be in the TIA process. It's also going to require the operational know-how to put those aircraft into service in the real world. We already have a lot of that from the demo flights that we've done, and we get to really supercharge that with Rob's team at Blade that obviously knows a lot about high tempo vertical takeoff and landing operations already. But finally, you also need to make sure that we have the aircraft. So part of the focus now around scaling production is to meet this demand that is now higher next year than I think we were initially anticipating. So our focus with both the expansion of the Marina facility, the continued rollout into Dayton and obviously, doing both of those things in close conjunction with Toyota is to make sure that we really ramp production to meet this opportunity, because from our perspective, an opportunity to get these aircraft operating in the U.S. as quickly as possible, benefits Joby, and it certainly benefits the broader industry, and we think we're in pole position to kind of make that happen. Teresa Thuruthiyil: Terrific. This is Teresa again. Thank you, Amit, and Kevin, and thanks to all the analysts for your questions today. This quarter, we're doing something a little different. We also invited our broader community to submit questions on X and Reddit. We were thrilled with the volume and the thoughtfulness of the engagement. We selected a few representative questions to ask and answer now. First, what actually is coming right back to you, Paul, it says, when do you expect to start the integration of autonomous capabilities into S4? Paul Sciarra: Thanks, Teresa. So as JB mentioned in the prepared remarks, the first instantiation on a Joby developed aircraft of autonomy is very likely to be the hybrid aircraft that I mentioned earlier on in the call. This is one that's obviously focused on defense applications. We think that's a perfect test bed for the stock, one, because it's already been well tested with its customer on conventional aircraft; and two, because there's not the same sort of regulatory rigor around certification for these sorts of platforms. So it's the right place to begin to extend the existing Superpilot capabilities to low altitude VTOL capable to prove that out as soon as we can and in a wide range of mission sets, so that we're ready if and when there is an opportunity to translate that to the commercial side of things to move very, very quickly. So long and short, that's going to be, I think, the first example of how we begin to roll this out on a Joby developed aircraft. Teresa Thuruthiyil: Terrific. Thank you. Another question also coming in from X. How do you see the future product offerings as both Joby and Blade actively scale operations, particularly in Dubai? Rob, would you like to start with on that one? Robert S. Wiesenthal: Sure. Let me take that. Just as we mentioned before, Blade helps to derisk and accelerate the deployment of Joby aircraft into commercial service, and that includes Dubai. So the knowledge we have on the routes, on infrastructure, the flyer base, we are not starting cold, we're not starting from scratch. Anybody else tries to do this, they're starting with zero knowledge. We have flown hundreds of thousands of people over the past decade. And then if you take a look at our European operations, 1/3 of our European flyers are from the Middle East. So it's a brand that's well known there. The Middle East consumer consistently embrace premium brands from the West that provide exceptional experiences that have trust. So I think we're in terrific shape to help get that launch out and in front of the public and have something that people really enjoy and find us extremely reliable. Teresa Thuruthiyil: Terrific. Thank you. Okay. I think we could maybe get one more in. And there's -- this one is a fun one. It asks for how about something fun. Five years into passenger flight, what kind of crazy things can you see Joby involved in that will blow our minds now? JoeBen? JoeBen Bevirt: Thanks, Teresa. So I think the key thing to focus on is that vertical integration is Joby superpower. This is something that we have invested in heavily for many years, and it puts us in an incredible position to be able to develop game-changing aircraft, all built on the foundation of the incredible technology foundation stack that we've built. I'll add two other dimensions. One we've talked about, which is autonomy. Autonomy is going to unleash many new and exciting applications for aviation. And by leading the world in aviation autonomy, we think we're in a really strong position. The final dimension is hydrogen. Hydrogen, as I think many of you have heard me speak about, it has 3x the specific energy of jet fuel. With fuel cells, we're able to convert the chemical energy and hydrogen into propulsion twice as efficiently as a small turbine can convert jet fuel into propulsion. And what that means is that you can build aircraft with game-changing new capabilities. And so as we look to the 5-year horizon, we think the future for Joby and the future for the technology stack that we're building has never been more promising, and I'm so excited to bring these transformations to the world. Teresa Thuruthiyil: Awesome. Thank you, everyone, for joining us today. We greatly appreciate your support. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation.
Asli Demirel: Ladies and gentlemen, welcome to Anadolu Efes' Third Quarter 2025 Financial Results Conference Call and Webcast. Our presenters today, our CEO, Mr. Onur Alturk; and our CFO, Mr. Gokce Yanasmayan. [Operator Instructions] Unless explicitly stated otherwise, all financial information disclosed in this presentation are presented in accordance with TAS 29. Just to remind you, this conference call is being recorded, and the link will be available online. Before we start, I would kindly request you to refer to our notes in our presentation regarding forward-looking statements. Now I'm leaving the ground to Mr. Onur Alturk, Anadolu Efes' CEO. Sir? Onur Alturk: Good morning, and good afternoon, everyone, and welcome to Anadolu Efes Third Quarter 2025 Conference Call. Thank you for joining us today. As you may recall, due to the continued uncertainties around our operations in Russia, we have classified these operations as financial investments on our balance sheet at the beginning of the year. And accordingly, they are no longer consolidated in our income statement until there is more clarity. However, we separately disclosed the financial results of these operations in our earnings releases for the last 2 quarters. And starting from quarter 3, we decided to stop providing separate disclosure for Russia. And this is primarily because of the information flow has not been as stable, as consistent as before. We will reassess this approach as the situation evolves. And looking at the third quarter, it was a mixed set of results where the profitability was solid. However, the volume momentum came with its own set of challenges. Even so, our broad market presence and agile execution helped us to preserve overall stability as growth in several markets balance softer demands in others. So we maintained our growth trajectory from the second quarter with consolidated volumes reaching 31 million hectoliters, up by 7% on a pro forma basis compared to the same quarter last year. The volume growth was driven by our Soft Drinks operations particularly supported by robust performance in international operations, while Beer group volume performance was softer, mainly impacted by domestic markets. Strong volumes supported top line growth, but the revenue per hectoliter was pressurized due to the ongoing focus on affordability and increased discount rates. On top of strong top line results through gross profit improvement and strict management of operational expenses, we are able to record an expansion in EBITDA margin. Additionally, we successfully generated positive cash flow amounting at TRY 9.4 billion, which was mainly driven by strong operational profitability. As of September 30, 2025, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x. As we shared before, as part of our Vision 2035, one of the key pillars of our growth strategy was geographical and categorical expansion. In this regard, I'm truly pleased to share two important milestones today we achieved during the quarter. Firstly, we have recently started the distribution of Mercan raki spirits in the final days of October, while the discussions regarding the acquisition of 60% of the company are still ongoing. And secondly, we have signed a licensing agreement with Salyan Food Products, which will enable us to produce, sell, distribute and marketing of Efes and Efes Draft brands in Azerbaijan. Turning to Beer group performance. During the third quarter, our consolidated Beer volumes declined by around 5% year-on-year on a pro forma basis. This was mainly driven by a slowdown in Turkiye, where volumes were down by 8.4%. In our international Beer operations, volumes were down low single digits on average. As expected, Moldova reflected a slowdown following the last year's high base. Georgia was temporarily affected by export-related business. On the positive side, Kazakhstan delivered solid growth, supported by strong portfolio execution. And Ukraine also contributed positively by growing low single digit, thanks to ongoing recovery and the low comparison base. Let me discuss Turkiye in more detail. Beer volumes declined by 8.4% in the third quarter. And as mentioned earlier, this was mainly driven by affordability pressures stemming from persistent inflation and weakening of consumer purchasing power. In the second half of the year, the absence of midyear minimum wage adjustments further deepened the pressure on consumer purchasing power and making its impact increasingly evident in the market. In addition, the price adjustments we implemented in early July had a temporary impact on demand, while the slowdown in tourism also weighed on overall volumes, particularly in on-trade and HoReCa channels. And this quarter marked a period of strengthening our portfolio and ensuring it remains well aligned with the customer expectations and market trends. We launched Jupiler 0.0%, a non-alc beer in Turkish markets, which marks an important step in expanding our product range. Although it's very early and it's very small, we expect these launches to be a new strategic pillar for growth for future. And about our CIS operations, starting with Kazakhstan, we delivered low single-digit volume growth, supported by strong brand activations and robust export performance. Our premium segment continued to perform well, driven by effective brand activations like strategic pricing and new can designs that further enhanced brand visibility in the market. And during the quarter, in line with our KEG focus, draft focus, we also launched successfully the Pegas brand SKU, Khmelnoy Los. In Georgia, volumes declined by low to mid-single digits, in line with expectations, actually, mainly due to the restructuring of our export business, which had no impact on profitability right now. And additionally, introduction of Lowenbrau-Oktoberfest Limited Edition helped us to maintain our market presence and customer engagements. In Moldova, volumes contracted in low single digits as expected, reflecting last year's high base. And moreover, year-on-year volume decline was affected from calendarization impacts. Let's briefly review our Soft Drinks operations, too. In the second quarter of the year, CCI's consolidated volumes increased by 8.9%, driven by positive contribution of all international markets. Turkiye volume declined by 1.7%, mainly impacted by weakening consumer purchasing power and deteriorating weather conditions during September, whereas international volumes demonstrated a remarkable growth, posting a 16.1% increase, mainly supported by Central Asia and Iraq. And in Pakistan, volumes increased by 0.7% year-over-year despite severe floods and ongoing political sensitivities. Kazakhstan and Uzbekistan delivered robust growth with 24.2% and 36.5% growth, respectively. And lastly, Iraq volumes up by 7.8%, marking 10th consecutive quarter of growth. When we move on to our operational results. In the third quarter, we continued our solid volume generation on a consolidation basis, although effective portfolio management and price adjustments made in certain markets helped to ease the impact of discounting and affordability focus and revenue per hectoliter decreased by 3%. With improved gross profitability margin and limited increase in operating expenses, EBITDA increased around 8%. As a result, margin also expanded, which was supported with contribution from international operations in both Beer and Soft Drinks businesses. And our consolidated net income was recorded around TRY 5 billion. Although operational profitability remained solid, higher financial expense and lower monetary gains weighed on earnings in the third quarter. Beer group delivered a year-on-year decline in earnings as a result of higher financial expense and a softer operational profitability amid challenging environment. Following a softer quarter 2 performance, we delivered strong free cash flow generation at the consolidated level, driven by our Soft Drink business. On top of the strong operational profitability, we benefited from improving working capital, lower CapEx spendings and tax expenses compared to same period of last year. In the current environment, as I emphasized in our previous conference calls as well, there is no doubt that strengthening free cash flow remains a top business priority, of course, in Beer group, and Gokce will share more details about this. And consequently, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x as of September 30, 2025. And now Gokce will give details on financial metrics. Gokce, please. Gökçe Yanasmayan: Thank you, Onur. Good morning, good afternoon to everyone. Onur covered, as usual, Anadolu Efes' consolidated results. So I will provide an update on the Beer group's performance for the third quarter. But before I start again, I want to remind once more that disclosed figures in my presentation are on a pro forma basis, meaning that they exclude the financial results of Russian operations as of January 1, 2024, to ensure comparability. So in the third quarter, Beer group sales revenue declined by 6.9% on a pro forma basis to TRY 15.7 billion. Even if volume performance and revenue in local currencies were high, international Beer operations sales revenue was recorded at TRY 5.9 billion with a 4.5% decline. Like previous quarters, the decline in sales revenue was driven by TAS 29 implementation as inflation in Turkiye exceeded the depreciation of Turkish lira against local currencies of international Beer operations. So excluding TAS 29, international Beer operations revenue was up 24% on a pro forma basis, again, reaching TRY 6.7 billion. Turkey Beer operations generated a revenue of TRY 9.6 billion in the third quarter, representing an 8.7% decline despite price adjustments during the quarter, revenue per hectoliter decreased due to lower volumes alongside more controlled yet still elevated discount level in line with the market dynamics we have in the country. Thus, on a pro forma basis, Beer group revenue decreased 5.3% to TRY 41.4 billion in 9 months of 2025. And Beer group gross profit declined 11.1% on a pro forma basis again to TRY 7.8 billion in the third quarter, and that came with a margin contraction of 236 bps, though gross profit margin remains at a remarkably good level of close to 50% still. And the decline in the gross margin stem from softer volume performance and higher COGS per hectoliter, driven by increased material costs across our operations and higher hedge levels in packaging costs, especially in this period of the year for Turkey. So in the next slide, I'm going to present the EBITDA. So with an EBITDA of TRY 3.4 billion, Beer group had a 22% margin in third quarter, indicating only a 57 bps decrease. The decline in the top line performance and gross profit in the group -- Beer group was actually partially limited through disciplined operating expense management this quarter, particularly in Turkey operations. On the international front, CIS region on average continues to deliver above 30% margin performance. However, profitability was moderated in this period due to high base of last year. Consequently, Beer group EBITDA in 9 months was TRY 6.4 billion with a 15.4% margin. Again, in the third quarter, Beer group generated unfortunately, a negative free cash flow of TRY 1.3 billion. Softer profitability that we mentioned, together with a temporary deterioration in working capital and lower monetary gain collectively weighted on cash generation despite an absolute reduction in capital expenditures year-on-year. Next slide, please. So for again, information purpose, I'm going to show you the financial statements without -- excluding the impact of TAS 29. However, I have to again say that Anadolu Efes' financial statements are prepared in accordance with TAS, the standard for financial reporting in hyperinflationary economies and the numbers that you are seeing here are just presented for analysis purposes. And excluding the impact of TAS 29, Beer group revenue was TRY 40.5 billion with a growth of 27%. And again, excluding the impact of TAS 29, Beer group EBITDA would increase by 21% to TRY 8.8 billion and net income was reported as TRY 1.8 billion, excluding the CTA impact coming from the scope change in consolidation of Russian operation. About cash and debt management. So as of September 30, 2025, we had 63% of our cash in hard currency denominated in the Beer group and 61% in the consolidated Anadolu Efes level, which is pretty much in line with our previous practices. And the net debt ratio for the period was 1.7x (sic) [ 1.5x ] for Anadolu Efes and 3.9x for Beer Group. And about the risk management, so the key figures to update them, actually no new news for 2025, we are almost done with the year. As for 2026, we have already started hedging aluminum and 16% of our exposure of next year -- sorry, 14% of our exposure of next year for Turkiye and CIS countries has already been hedged. And for the FX of next year, actually as usual practice, we are going to start hedging towards the end of the year for next year. So that basically ends my part of the presentation, and I hand over to Onur. Thank you. Onur Alturk: Well, Asli, let's check the Q&A. Do we have any questions on this one? Asli Demirel: There are a couple of questions from [indiscernible]. Let me start with the first one. Thank you for your presentation. Could you please provide more color on Azerbaijan? When will you start production sales in the country? What are the potential sales volumes and EBITDA contribution and also CapEx? Let me address this to Onur bey, and then there are a few questions more, then I'll address them to Gokce bey. Onur Alturk: Let's briefly discuss Azerbaijan. Azerbaijan is a promising market actually, and CCI already has a strong footprint in the markets. Population is around 10 million, with per capita beer consumption is around, again, 7 liters. And in quarter 3 '25, a license agreement was signed with Salyan Food Products in Azerbaijan for the production, sales, distribution and marketing of Efes and Efes Draft brands. So we already started production of Efes in Azerbaijan. We see it as a strategic step expanding our regional operational footprint. And of course, we want to strengthen our local presence in the market. No CapEx is used for that because it's a [ toll ] fill, third-party manufacturing. And if we see more potential in the markets, there will be an M&A. So we are evaluating this. And also, let me mention a little bit about Uzbekistan, just like because these are the two potential markets for us. And Uzbekistan is even more promising markets where, again, CCI already has a strong footprint. And the population is around 36 million and adding up 1 million every year. And the per cap beer consumption is around 12 liters. So that's a more favorable tax environment is expected in '26. It used to be 3x compared to the local ones. Now it's 2.5. And at the end of '26, we are expecting to the equalization of local and import tax. So if the gap is fully closed, there will be a huge potential. And imports from Kazakhstan has already started in July. Our legal entity and on-site team has been established in Uzbekistan. And our business development team is closely analyzing the market dynamics and potential opportunities like [ toll ] filling, and we are so close to start [ toll ] filling in Uzbekistan as well. And again, we are chasing M&A opportunities with very small investments in this country as well. But the reward seems to be, I mean, very promising in these two geographies. Asli Demirel: The next question from [indiscernible]. Could you please also provide more color on the working capital more at the Beer group level? And what are the initiatives you undertake to improve it? Gokce bey? Gökçe Yanasmayan: Sure. Sure. I mean, overall, as Onur rightly mentioned in his presentation, one of the key focus for us is the cash flow generation on the Beer group side and to turn our free cash flow generation into positive in the coming year. And a very important component of that is working capital, one of the important components of that. On the group level, we can say that our working capital on average is mid-single digit. However, there are certain countries hitting double-digit numbers, some countries close to 0. So on the average, we end up at mid-single digit. And for those who have double-digit or higher working capital, we have started a clear focus project this year and very clearly working on targets for next year to improve the numbers and at the same time, where we want to focus in every other country that we have these high numbers. Therefore, that's especially critical for Turkiye because this working capital financing requirement is being financed with high interest rates. So all the efforts are focused now, especially in Turkiye to decrease this number and the interest payment of next year. Asli Demirel: Thank you very much. Another question is regarding 2026 about the Beer group outlook for volumes and profitability. It's a bit early to comment on this. So let's postpone this to... Gökçe Yanasmayan: Yes, we are at the beginning of our budgeting cycle now. I mean -- and we are changing the numbers very frequently as the assumptions are changing. So we would prefer to give better color towards the end of the year or next year, beginning of next year. Asli Demirel: Exactly. But there is a question from [indiscernible]. Do you expect cost pressure in Turkey after rising food inflation, which may impact wheat and barley prices due to weather conditions? Or have you hedged this cost? Gökçe Yanasmayan: I can give a very, very general color here, maybe just to help you think about it. Recently, our cost base were acting very in line with the inflation in the country. Therefore, for next year to come, initial expectations, again, I mean, we have to work on them towards the end of the year more precisely. Initial indications show currently a slow decline as inflation will decline in the country. So that gets reflected into COGS per hectoliter as well for the next year. Asli Demirel: Another question from [indiscernible]. Can you give more information about Turkey gross margin and EBITDA margin in the third quarter? Gökçe Yanasmayan: Well, I mean, very roughly, we can say that the numbers are in the gross profit in the range of 50s, let's say, EBITDA margins in the third quarter are 20s, we can say so. And those numbers in gross profit margin level, we have seen more contraction as we have discussed in the presentations, but that has been compensated to a great extent with OpEx management. Therefore, the contraction in EBITDA is less than 100 basis points overall. Asli Demirel: Thank you very much. There seems to be no more questions. Let me remind once again, if there are any questions, we can wait a few seconds. And if there are none, we can close the question [ part ]. Okay. There seems to be no more questions. Thank you, everyone, for joining. Onur Alturk: Thank you.
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.