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Operator: Good morning, ladies and gentlemen, and welcome to the Sagicor Financial Company's Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Friday, November 14, 2025. I would now like to turn the conference over to George Sipsis. Please go ahead. George Sipsis: Thank you, operator, and hello, everyone. Thank you for joining us today to discuss Sagicor's Third Quarter 2025 Results. I'd like to point out that our disclosures are available under the Investor Relations tab on our website at sagicor.com or at investors.sagicor.com, which includes a press release, financial statements, MD&A and the supplemental information package containing core earnings, drivers of earnings and additional disclosures. The link to our live webcast is also available on our website. This conference call is open to the financial community, investors, the media and the public with a reminder that the Q&A period is reserved for financial research analysts. I will begin by referring you to the cautionary language and disclaimers in our materials and public filings regarding the use of forward-looking statements and the use of non-IFRS financial measures and ratios, which may be mentioned as part of our remarks today. I would also like to remind the audience that actual results regarding forward-looking information could differ materially. And please note that a detailed discussion of Sagicor's risk factors is provided in our MD&A, which is available on SEDAR+ and on our website. A discussion of the assumptions underlying our expectations is provided in our previous filings and earnings releases. Unless otherwise noted, all dollar amounts referenced will be in U.S. dollars, consistent with our reporting practice. Joining me today is our President and CEO, Andre Mousseau; our Chief Financial Officer, Kathy Jenkins; and Anthony Chandler, our Chief Controller. We'll begin with prepared remarks by Andre and Kathy, followed by a Q&A session. With that, I'll pass the call to our President and CEO, Andre Mousseau. Andre Mousseau: Thank you, George. Good morning, everybody. Thank you for joining us. I'm very pleased for us to announce another outstanding quarterly performance. On a core basis, our results reflect broad-based strength. Our Canadian business continues to show outstanding profitability. Our U.S. business grew its assets by about $250 million from the prior quarter and continues to generate strong spreads. And both of our Caribbean operating segments showed strong core profitability, reflecting progress on initiatives that we've been working on for years. Our net income to shareholders was $81 million reflecting those strong core numbers plus a reversal of some of the income volatility that have gone the other way earlier in the year and seems endemic under the IFRS 17 standard. With these strong results, coupled with some opportunistic share buybacks, we're at a record book value per share, whether you follow in Canadian or U.S. dollars. Before handing off to Kathy, I would like to acknowledge the absolutely outstanding job our team in Jamaica has done in the leadership -- in the lead up to and the aftermath of Hurricane Melissa. Our business continuity plans were flawlessly executed, and we were out there serving clients across the island within hours of the storm passing. We have rallied our troops and are leading the recovery effort. While this may cause a temporary setback in the Jamaican economy, we're confident in the country and our company there, and we will build back stronger than ever. Now I'll hand over to Kathy to result -- to discuss the results of the quarter in a bit more depth. Kathy Jenkins: Thank you, Andre, and good afternoon, everyone. As Andre mentioned, we're reporting an outstanding third quarter of 2025. Our core earnings to shareholders were up 45% from Q3 2024 to $35 million. Revenues were $974 million for the quarter compared to $1.1 billion for the same quarter last year. New business CSM up $41 million for Q3 continues to reflect strong sales across all segments. You will recall that the third quarter is when we perform our annual actuarial review of nonfinancial insurance assumptions like mortality and policyholder experience. As we adjust our assumptions, some of the impact comes through the income statement and is captured in noncore within our drivers of earnings, while other adjustments affect our CSM. This time around, the effect was positive as we recognized net income but negative to CSM. In Q3, the impact on our earnings of the actuarial assumption changes was $5 million of after-tax noncore net income. CSM decreased in aggregate this quarter driven by the adjustment of assumed mix on Universal Life products in Canada and lapse assumptions in the U.S. as we take a more conservative CSM posture on our annuity products. Now I'll give you some more details on the segment financials. Sagicor Canada's sales production of $16 million of analyzed -- annualized new premium for the quarter was consistent with management expectations, resulting in new business CSM of $10 million for the quarter. Core earnings to shareholders of $27 million increased $7 million compared to the same quarter in the prior year, reflecting strong insurance experience gains from favorable mortality experience. Net income to shareholders of $53 million for the quarter was higher than core earnings to shareholders due to favorable market-related impacts from lower interest rates and higher-than-expected equity market returns. Net CSM was $559 million, a decrease of 2% quarter-over-quarter on a Canadian dollar basis. Sagicor Life USA's new business production of $335 million for the quarter grew 16% over the same period in the prior year. Core earnings to shareholders for the quarter of $10 million were lower than Q3 2024 due to favorable insurance experience in the prior year, while in line with expectations this quarter. The impact from higher MYGA mortality claims from the quarter were offset by positive experience from other business lines. Net income to shareholders of $21 million for the quarter was higher than core earnings to shareholders due to favorable market experience from interest rate movements. Net CSM was $151 million, a decrease of 5% quarter-over-quarter. As I noted in my remarks last quarter, we expected the negative market experience that rose in the first half of the year in both North American segments to reverse over time. Accordingly, as Andre noted, this quarter, the favorable market experience in both segments reversed much of the previous period's negative market experience. Sagicor Jamaica recorded strong insurance sales, evidenced by ongoing growth in insurance revenues and net premium income from last year. Our share of Sagicor Jamaica's core earnings to shareholders of $12 million for the quarter increased over the same quarter in the prior year due to price repricing in the short-term business, sales growth in the long-term business, and improved net interest margin and fee revenue in the Commercial Banking business. Our share of Sagicor Jamaica's net income to shareholders of $14 million for the quarter was higher than core earnings to shareholders due to positive experience adjustments from changes to lapse assumptions. Net CSM was $293 million and net CSF to shareholders was $144 million, both of which increased 6% quarter-over-quarter. Sagicor Life's business fundamentals remain strong with improving margins on short-term businesses and insurance experience aligning to expectations for long-term businesses. Core earnings to shareholders of $9 million increased 23% from the same quarter in the prior year, driven by repricing initiatives on renewal and adjustments on product offerings on short-term business. Net income to shareholders of $13 million for the quarter was higher than core earnings to shareholders, primarily due to positive market experience from lower interest rates in the U.S. and higher interest rates in the Trinidad and Tobago market. Net CSM was $255 million, a decrease 2% quarter-over-quarter. At our head office, other operating companies and adjustment segment, core loss to shareholders was $22 million for Q3, an improvement of $1 million year-over-year, reflecting lower interest costs from favorable debt refinancing that was completed in 2024. Net loss to shareholders was $20 million. As mentioned by Andre, our colleagues in Jamaica have done an extraordinary job supporting colleagues, clients and communities impacted by Hurricane Melissa. With respect to the economic impact on our business, our preliminary estimate is that the impact in Q4 will be either immaterial or just marginally material to Sagicor at a group level. So today, we would say a potential net income hit of $5 million to $10 million to SFC. Our small P&C business in Jamaica is heavily reinsured and could only generate losses of less than $3 million. It will take more time to assess the impact on our lending portfolio through our bank in Jamaica. But again, our major clients are insured with other companies, and so we are talking primarily about the knock-on effects to small borrowers. We are assessing forbearance for a number of smaller customers doing the right thing for customers in affected areas as they sort themselves out, not ultimately economic losses necessarily, but we'll see how those run through our ECL. And we have also given well over $1 million so far directly to relief efforts that we and other private sector leaders are championing and we will expense those. Once you factor in the fact that we own 49% of the Jamaican operations, our view today is that SFC's net exposure will be below $10 million. Prior to this event, Jamaican businesses -- our Jamaican business was really hitting on all cylinders. So we believe our Jamaican business will come back strong in 2026 and beyond as rebuilding efforts may stimulate the economy there. So having said all that, Sagicor remains well capitalized in Q3. The group's LICAT ratio was 141%. Our financial leverage ratio was 26.6%. Our book value per share significantly increased to USD 7.74 or CAD 10.78. As we saw the effect of the reversal of market experience increase our retained earnings. Our deployable capital for shareholders' equity plus net CSM to shareholders was $2.2 billion or USD 15.93 per share or CAD 22.18 per share. Subsequent to quarter end, on October 21, Global Credit rating agency Fitch Ratings upgraded Sagicor's long-term issuer default rating to BBB from BBB-, and also upgraded Sagicor's senior unsecured debt to BBB- from BB+. This upgrade provides a unanimous view from our credit rating agencies that Sagicor senior unsecured debt is investment grade. This is further validation of Sagicor's strong capitalization as we pursue stable and profitable growth. This upgrade will provide Sagicor with enhanced access to capital as we execute on our strategy, and we will examine our refinancing options as we move into 2026. With the continuing strong capital position, we are announcing our 24th consecutive quarterly dividend to shareholders since we've been listed on the Toronto Exchange and the third dividend at the higher level of USD 0.0675 per quarter or annualized USD 0.27 per year. We do intend to reassess the dividend payout following the release of our Q4 results as we are tracking dividend payments so far in 2025, below our targeted payout range of 30% to 40% and due to our core net income gain so much higher than our original guidance. With that, I will hand it back to Andre. Andre Mousseau: Thank you, Kathy. This quarter provides us with further validation of our current operating strategy to focus on return on equity, improving initiatives and delivering shareholder value. Our annualized core ROE was nearly 14%, well ahead of our original time line to achieve mid-teens core ROE and net income and book value growth followed significantly. We continue to see opportunities to further increase our ROE, whether through growth in our U.S. annuities business at high marginal returns on capital, active balance sheet management with our improved ratings and technology-driven improvements to our operating models across all of our subsidiaries. We look forward to presenting revised strategic plans for future periods when we deliver our year-end results in March of next year. Until then, we're very pleased to take your questions if there are any. Operator: [Operator Instructions] Your first question comes from the line of Gabriel Dechaine from National Bank. Gabriel Dechaine: A quick one on the fixed annuity sales. You had another good quarter and it looks like you're well on track to exceed the $1.3 billion number you floated on the last call. Just wondering if there's any expectation that would lead to a different outcome or maybe even a better outcome? Andre Mousseau: Thanks, Gabe. It could be better. We deliberately originally set out a target that was a little short of what we were trying to do internally. We still do see strong return on capital. We're seeing some of the strongest returns on capital in some time for the new business that we're putting on the books this quarter. That said, the production can ebb and flow. So I don't want to be too specific about any individual quarter, but it's fair to say that our target for 2026 will be to build on wherever we end up for 2025 and exceed it. Gabriel Dechaine: Okay. I would get back to fixed annuities in a minute, but just on the -- the couple of numbers thrown around there, on the Jamaica situation, which, of course, is unfortunate, very unfortunate. But you said USD 5 million to USD 10 million that's the potential hit to your P&C business profits, correct? And then there was another $10 million reference that just... Andre Mousseau: No. No. So $5 million to $10 million is the aggregate ZIP code of net income exposure to SFC in total. As Kathy said, the P&C business -- there is building blocks to get up to it. The P&C business is about -- is heavily reinsured. And so in aggregate, the loss there is going to be less than $3 million. We've spent, call it, $2 million on relief efforts with kind of with the multilaterals and the things that we're doing internally. And then there's a bit of an unknown for as we give forbearance through the bank, how much that's going to be. And so if you say that, that number would be -- work its way as a $5 million ECL, that would be a $10 million total net income hit in Q4. And then we own half of that. So if you look at that stack, which, if I had to give a best estimate, it would be in and around that. It would say, okay, we're in the ZIP code of $10 million. We own half of that. It's $5 million off of our -- off of SFCs to Q4 P&L. Don't know how much of that is core versus noncore. I haven't really thought about that. It's not about the accounting today. But that's kind of the ZIP code. And what Kathy was talking about is we want to give ourselves some room in the guidance in case it turns out there's a little bit more. But because we're focused in Jamaica on the long game. And if it's the right thing to do for our customers, maybe we extend more forbearance. And so this is all on a week-to-week basis. But the point here is that it's just scratching the edge really of materiality for us. Gabriel Dechaine: Got it. Now getting back to the fixed annuities business, I know there's a lot of components to this year's actuarial review, but the one that stuck out for me was the $30 million or whatever strengthening of reserves for multiyear guaranteed annuities. I believe -- and related to lapse, I believe this is the third year in a row that's been requirement or an outcome rather. Can you remind me what's going on there? I believe it's that you assume there's a certain persistency, I guess, retention or renewal of these policies as they mature, but that renewal rate was lower, so you're having to pay more renewal commissions or something -- what sort of behavior are you witnessing? And if I'm correct in my numbers there that this is maybe the third year that this has happened. What's the confidence level that we've cleared that this issue has put the rest, so to speak? And then what have you done on new product sales to adjust for this issue in your back book? Andre Mousseau: So what you're seeing here is two different things. There's the insurance behavior piece of it. But there's also the -- there is also continuing refinement and improvement of how you reserve for these products under IFRS 17. And so there's -- some of what you're seeing is related to lapse behavior and the mitigants that we have to take care of it. More of it is around us refining our views with our advisers of how much CSM should be in these products when you reserve for them. And how much of the profitability should come out through other parts of the drivers of earnings. We're in a bit of a unique situation because we're an IFRS reporter in the U.S. market. Most of the folks in the U.S. market aren't dealing with this issue. So it does feel as we work with our actuarial advisers and with our auditors that we're plowing new snow, so to speak. And so if we could go back in time and take, even with -- even without any effect of policyholder behavior, we would have had lower CSM in retrospect 2 years ago when we did the transition to IFRS 17 because we're seeing more of the profitability come out through the investment earnings and other pieces of the drivers of earnings. So that's a really big part of it. You're right. This is a couple of years in a row. It's more about wanting to really take a conservative position and not have to deal with this again. The unit economics of the business that we're selling are very strong. We're able to add the assets at the pace that we feel good about. And the aggregate return on equity on the portfolio, if you look at the profitability, plus the other $10 million or so a year that we're taking out of our U.S. business and profits through internal financing on our surplus notes, tell you that the business is strong and it's really, really running well. So this is really about resetting for the new way that we're looking at the accounting. In terms of what we have done, we did put in place a more robust renewal commission program in place as we -- and that helps retain more business. It's a really interesting question on a statutory basis about whether you -- whether you're better off retaining all the business versus writing new business, if you -- in today's environment, the way you ask statutory accounting works, you have to stick with your old assumptions from when you wrote the business when you renew it. And what that means is for Vintage 2020 and 2021 and 2022 policies when they were written in lower interest rate environment, it's actually more punitive to hold the renewing policy than it is to write a new one, which means we're trying to be -- we're trying to take a relatively sharp pencil and decide on a week-to-week basis, are we better off retaining versus are we better off just selling more, and it's a hard concept to get through in a 5-minute answer to an earnings call. But big picture, we can observe the gross margin on our book getting bigger every quarter, and we think it's marked properly now. Operator: Your next question is from the line of Mike Rizvanovic from Scotiabank. Mehmed Rizvanovic: A couple of quick ones for me. I wanted to start with the natural disaster in Jamaica, obviously very sad to see. But just in terms of how you sort of put the parameters on that tail risk and your reinsurance approach. I'm just wondering, should we think about this as irrespective of the type of natural disasters we may see in the future. It is an area that's prone to these that you're basically covered off and you are, in fact, hedging through reinsurance, the majority of that tail risk? Andre Mousseau: Yes. That is the lesson you should take. It is -- the region is prone to this. That said, Melissa was the worst to hit the region and Jamaica, in particular, in a generation. This is not -- it's hard to tell the future in today's world, but this is not Florida at the moment, which is getting the one in 100-year storms seemingly every year. But I agree with your fundamental point that this kind of puts a bow around -- this is as bad as we've seen a storm in our region, and we -- this proves that our reinsurance works and it's less than a $10 million hit today. Mehmed Rizvanovic: Okay. That's very helpful. And then a quick one on the ROE. Obviously, you had an outsized quarter in Q2, well above your 13-plus target. This quarter, you're a little bit above your target? And just thinking about some of the momentum you have in some of your business lines here. And when you have that 13-plus target, like what does that target represent? Do you have any updated thoughts? I'm not sure to think about it as more of a 3- to 5-year target, like we hear with some of your -- some other financials. They tend to have that longer view. But like you're already there, and I'm wondering if we shouldn't be maybe starting to think about getting to a better number in, say, 2 to 3 years? Andre Mousseau: You sound like a board member. The original -- when we put the 13-plus guidance, that was a medium-term guidance, and that was supposed to be code for year-end '26 going into 2027. Kind of to your point, that was supposed to be towards the end of the 3-year planning cycle. And so that's where we were going with -- in my commentary, where I've said we have hit it early. We are pleased with it. It's a couple of quarters in a row that we're running through 13%. We will update our forward guidance as we get through strategic planning, and that will come in the next call. What I would say is that the last 2 quarters, validates a certain base, and you can call that 13%, 14%. And we have a lot of options on the table to continue to enhance our ROE. Kathy talked about the final re-rating up to full investment grade. So we have the opportunity to improve our cost of capital throughout the system. Every dollar we put into the U.S. on a marginal basis is improving our ROE. There's a lot of opportunity to achieve efficiencies in our business and better serve customers using technology. These are things that will be observable over a couple of years, but will allow us to get targets for return on equity well through the 13% or 14% as we look forward. And every time you can also buy a share back at a 30% discount to book, you're only jacking it even more. So we do see the opportunity over the medium term to get to a higher return on equity. And our intention is to be a bit more granular about that next year as we put forward our revised medium-term guidance. Operator: Your next question comes from the line of Trevor Reynolds from Acumen Capital. Trevor Reynolds: I think just following up on kind of the guidance, there is no real update with the quarter. In terms of kind of where you sit about $110 million of core earnings year-to-date and the previous guidance of $120 million to $130 million. It looks like that's more than achievable. I just want to kind of get a sense of where that -- where your kind of outlook that's here in the near term on that. Andre Mousseau: Yes. I think more than achievable is a good term. We want to -- we'll see how Q4 turns out. Sitting here, I think we have an idea that Q4 will be a little lighter than Q3, just given the inflow that we have on Jamaica. But we haven't put a lot of thought yet into how much of that is core versus noncore. And even with the big daily volatility, there hasn't been a lot of aggregate volatility in either rates or equities. So we were managing -- we're trying to manage on a longer-term basis, but we feel good that we're not going to embarrass ourselves on the guidance. Trevor Reynolds: Okay. And then maybe just on the CSM as well, like you had about $125 million year-to-date, like looks more like the range is kind of the target there? Andre Mousseau: Yes. If you take the commentary that I talked about to one of the earlier questions on CSM, we've come to this revised view working with our advisers -- our outside actuarial health that we should just be putting less CSM into these annuities products than we thought before. And so our sales -- the volatility in the CSM for new business is really -- versus guidance is really out of the U.S. because Canada and the Caribbean has been pretty consistent with how we build up to the guidance. So it's really about less CSM coming through in the U.S., even though we're hitting our sales targets and on a statutory or economic basis, the business that we're writing is right on budget or better, and our numbers have been ahead of guidance. So it's really all part and parcel with that. Trevor Reynolds: Okay. And then last one is just, I guess, around your free cash flow priorities, I guess. You hinted that there's maybe some room for upside on the dividend. How do you weigh that against the share buyback given your discount to book today? Andre Mousseau: Yes. You saw in our public disclosure that we did buy back some shares in Q3. I'd expect us to continue to do that in Q4. If you look at our shares today in the $8 range, to us, if you look through to the core earnings generation, they're as cheap today at $8 as they were a couple of years ago at $6. And you could observe that when it was below $6, we were buying as much as we could. So you look at our leverage ratio or our LICAT or however you want to look at it, we're very well capitalized today which, to me, I think there's room for us to continue to grow and at the same time, return capital to shareholders. So I would expect we would continue to buy back shares. We've been pretty open that we're going to look at our dividend every year in March as well. And so we intend to do so. Operator: Your last question comes from the line of Darko Mihelic from RBC Capital Markets. Darko Mihelic: I just wanted to return to the tragic events in Jamaica, and I really appreciate the color, it's very helpful for Q4. But I'm thinking beyond Q4. I just wanted to think about how you view the situation with respect to earnings power beyond Q4 and momentum that may be lost as a result of this event and thinking about the economy, currency, top line impacts. What's your early read on how we should think about your segment for '26? Andre Mousseau: Yes. So that's a great question, Darko. And I think it's really the one that's topical. And the reason that we don't have a firm view on this is that there's a lot of pushes and pulls on this, just from a macro point of view. And when you're as big as we are, there is a pretty robust correlation between economic activity and the performance of our business. I mean, our Jamaican business has been an incredible performer since -- over the last generation kind of 12, 15 years since Jamaica got its fiscal house in order and has had strong growth. So there is certainly a significant near-term hit to GDP and a near-term first order hit to foreign currency remittances and that a lot of the worst affected areas were farming areas. And so Jamaica in the near term, well, these are cash crops that turn over a couple of times a year. But in the near term, there will be more importation of food. They're still taking stock of Montego Bay, which was relatively harder hit and a meaningful percentage of the hotel stock in Montego Bay may end up missing the Christmas season, that's bad first order for foreign currency as well. Now, on the other side, we're seeing positive remittances from friends and families that send foreign currency directly to the country. The country did avail itself of some catastrophe bonds that will now be in the money. And so there's hundreds of millions of dollars of hard currency that flows in through that way. And as infrastructure and housing and commercial pieces are rebuilt, you have funds that are coming in from international reinsurance that carry the catastrophe losses for businesses that are owned under multinationals, which is a lot of the big, big stock. And there is a stimulative effect to an economy of going out and rebuilding roads and building. So it's very difficult to really establish what is this going to do for economic activity and for new business sales next year and for our loss ratios on our group businesses. And at this point, we don't have a view as to -- is it not a big step back from a budgeting point of view as the Jamaica business was really growing or is this net neutral. And that's really the challenging part of the budgeting exercise for next year that we -- it's hard to speculate on until we take stock a little bit more. Darko Mihelic: Okay. I appreciate that. That's a good fulsome answer and giving me more to think about, too. And so just my last question then would be with respect to Sagicor Life. Maybe you can speak to sort of where you are with the repricing initiatives. And also there, what I'm interested in understanding is the potential benefit into '26. I'm not so interested in Q4. What I'm really looking for is sort of how you see that developing into '26? Andre Mousseau: SLI, the repricing initiatives do continue to be helpful on an economic basis. I think we saw a little bit of onetime help in Q2 compared to what we had in Q3 as sometimes -- when you change your assumptions sometimes stuff comes through all at once. Big picture, when you step back from the quarterly noise, we would continue to -- all things being equal to continue to see margin expansion in SLI in 2026 and 2027. Darko Mihelic: Okay. And then just lastly, back to the U.S. business. If this is essentially a shift in the accounting less CSM, more investment sort of income, what is it that you're doing there? Is it just a higher risk adjustment? Or is it something else to fulfillment cash flows? Can you just give you a general rough idea? Because I do think from a geography point of view, I want to understand better how to model this business into '26 and '27? Andre Mousseau: It's prevalent throughout the drivers of earnings. We've gone through and we had a project to go and -- to go and really retool the way in which we reserve for it. And part of it is around conservatism and wanting to make sure that we get away from negative quarterly noise, but part of it was also an effort to minimize the actual reported earnings volatility a little bit. And so there was a change throughout. I think that we should get together with the folks in the research community and find a forum to educate on the way to model it going forward, and take the time to do it properly. It's hard to wrap it all in a bow on a call like this. Operator: There are no further questions at this time. I would like to turn the call back to George Sipsis for closing comments. Please go ahead, sir. George Sipsis: Thank you, operator, and thank you, everyone, for joining the call today. A reminder that a replay of this call will be available for one month on our website and a transcript will be posted as soon as available. If you have any additional questions, please do not hesitate to reach out to any one of us. With that, thanks again for your participation and interest today. Have a great day, everyone. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Joshua Schulman: Good morning. We actually have some seats here in the front row. This is like the first day at school. No one wants to be -- it's not like a fashion show because at the fashion show, they really want to be seated in the front row. It's all about your seat. In any case, good morning, and welcome to our interim results and our update on the Burberry Forward strategy. I'm Josh Schulman, CEO of Burberry, and with me is Kate Ferry, our Chief Financial Officer. One year into Burberry Forward, my belief in this extraordinary British luxury house is stronger than ever. Since we met last November, we have moved from stabilizing the business to returning to growth. I am encouraged by the signals I'm seeing throughout the business, which provide initial proof points that our Burberry Forward strategy is working. With our timeless British luxury brand expression and an improved product offer, our brand has become more desirable. We're attracting new customers to the brand while welcoming back existing customers, resulting in sequential improvement in customer growth. And these customers are responding strongly to our autumn and winter collections with a significant increase in sell-through rate compared to last year. We're accelerating our momentum in our iconic categories, outerwear and scarves, and now this growth is extending into additional categories. In Q2, we returned our retail business to comp sales growth for the first time in 2 years. And now our most important wholesale partners are seeing the momentum as well. We recently completed our Summer 2026 wholesale market, and the reaction has been very positive with a significant increase in orders from key opinion leading partners in the U.S. and Europe, an incredible vote of confidence in our product and Burberry's relevance. While I am pleased with what we've achieved in our first year of Burberry Forward, these are just the first steps to reigniting desire. There is a lot more to do, and I am looking forward to building on these foundations in the year ahead. I will now turn it over to Kate to take you through our first half financial results, and I will then update you on our strategy, our progress and our priorities as we look to year 2 of Burberry Forward. Catherine Ferry: Thank you, Josh, and good morning, everyone. For the first half, comparable retail sales were flat with sequential improvement between quarters. In the second quarter, we delivered growth of 2%, our first positive comp growth in 2 years. Total revenue was GBP 1.03 billion in the first half with adjusted operating profit of GBP 19 million. Free cash outflow was GBP 50 million, an improvement from this time last year and in line with our expectations for the half. When we launched Burberry Forward a year ago, we talked about actions to drive sustainable performance. We've returned to adjusted operating profit in the first half. Our gross margin is recovering, up 410 basis points at constant exchange rates versus last year to 67.9%, driven mainly by a healthier inventory position. We continue to bring scarcity back to our inventory model. We have tightly managed buys throughout the half with net inventory down 24% versus last year. Following the expanded restructuring program announced in May, we're on track to deliver GBP 80 million annualized savings by the end of the year. And finally, we continue to invest our capital where we know we can get the highest returns with continued focus on cash generation. I'll now take you through a more detailed review of performance, starting with revenue by channel. I'll refer to changes at constant exchange rates. Retail revenue declined by 1% during the half. Space reduced by 1%, while comparable retail sales remained flat year-on-year. Wholesale revenue decreased by 11%, slightly better than our guidance of a mid-teens decline, reflecting phasing and some uplift in in-season orders from our key strategic partners following improved sellout of Autumn '25. Licensing revenue was down 8% versus last year with ongoing strength in our fragrance and beauty businesses, including the Goddess and Her franchises, offset by the planned destocking of older fragrance lines. As a result, total revenue for the first half declined 3% at constant exchange rates or 5% on a reported basis. Turning now to regional performance. Comparable retail store sales were flat or positive in all 4 regions in the second quarter. Traffic at our stores remained challenging throughout the first half of the year, but we're pleased with the improvement in conversion we've seen. Greater China led with the strongest improvement as compared with Q1 with 3% comparable retail sales growth in the second quarter. This was supported by a strong Chinese Valentine's Day. Globally, the Chinese customer group slightly lagged the regional performance with growth in locals offsetting the decline in outbound tourist flows. Asia Pacific also improved to flat in the second quarter with the first half down 2%. Japan returned to growth in the second quarter, up 2%, offsetting decline in South Korea. Americas saw 3% growth in the second quarter and the first half. The region is continuing to benefit from new customers, offsetting lower tourist spend in the United States during the summer months. EMEA remained in line with the first quarter despite reduced tourism activity, growing 1% in Q2 and the half, supported by growth in local and returning customers. Moving on to the income statement and staying with changes at constant exchange rates. Gross margin was 67.9%, a 410 basis point improvement year-on-year. I'll give more detail on this in just a moment. Adjusted operating expenses were down 5% year-on-year at constant exchange rates following the delivery of our expanded cost savings program as well as nonrecurring store impairment headwinds in the prior year. We remain on track with our cost program, expecting to deliver GBP 80 million in annualized savings by the end of the year. As mentioned the last time we spoke, we're investing behind our journey to reignite desire, restore growth and continue on our path of sustainable value creation. We've prioritized investment in the first half using some of these savings to invest in consumer-facing areas such as marketing. This year, we continue to invest a high single-digit percentage of sales in our brand with a focus on maximizing our return on investment. We delivered an adjusted operating profit of GBP 19 million with an operating margin of 1.9%. Adjusting items amounted to GBP 37 million. This primarily related to restructuring costs resulting from the transformation program announced in May. The business has demonstrated resilience during this period, allowing us to progress swiftly through the program over the summer. Our full year guidance remains unchanged with restructuring costs expected to be around GBP 50 million. As a result, we've reported an operating loss of GBP 18 million for the first half. The net finance charge was GBP 30 million, of which GBP 23 million was interest charge on lease liabilities and GBP 7 million was other financing interest. Gross margin benefited mainly from the non-repeat of inventory actions taken last year. As a reminder, these inventory actions were a combination of provisioning and discounting. This year, we have significantly less inventory, down 24% at the end of the first half. We're also seeing the benefits of our transformation program in gross margin. We experienced a free cash outflow of GBP 50 million in the first half, an improvement versus this time last year. Working capital was GBP 43 million outflow given the seasonal inventory buildup ahead of the festive period, albeit still reflecting tighter inventory management than this time last year. Capital expenditure for the period was GBP 38 million, with investment targeted to those projects with the highest return on investment. In our retail network, we're focused on amplifying our most iconic categories. We've launched over 100 scarf bars to date and are on track to deliver 200 by the end of the year. We also opened a new showroom at our headquarters here in London, which is already driving cost efficiencies and enabling closer collaboration across our global retail teams. Borrowings reduced by GBP 221 million following the repayment of our September 2020 bond, and we closed the period with net debt of GBP 93 million or GBP 1.1 billion, including lease liabilities. At the end of the period, net debt to adjusted EBITDA was 2.2x. We remain comfortable with our liquidity and headroom and are focused on continuing to reduce our leverage through the actions we are taking to rebuild profitability. Turning now to the outlook for full year '26. While we remain in the early stages of our turnaround, we're encouraged by the progress made so far and expect to see the impact of our initiatives build into the second half and beyond. The macroeconomic environment remains uncertain, but our focus this year is to build on the momentum and reigniting brand desire as a key requisite to growing the top line. We will deliver continued margin improvement with a focus on simplification, productivity and cash flow. To help you with modeling, in full year '26, we expect no changes to our guidance with retail space remaining broadly flat and annualized savings of around GBP 80 million alongside a GBP 50 million restructuring charge. Within wholesale, we expect a mid-single-digit percentage revenue decline for the full year, slightly ahead of our original expectations and returning to growth in the second half. This reflects our key wholesale partners' confidence in our new direction. We expect capital expenditure of around GBP 120 million, slightly lower than initial guidance as we've been very intentional in our investment approach, focusing on the highest return on investment projects during this year of transformation. And finally, we expect currency to be a headwind of around GBP 50 million on revenue and around GBP 5 million on operating profit, all based on the 24th of October spot rates. Further detail can be found in the appendix of this morning's statement. As we move into our second full year of Burberry Forward, we are confident that we can build on the progress we've made in quality of earnings, continuing to improve performance and driving sustainable long-term value. I will now hand back to Josh. Joshua Schulman: Thank you, Kate. As we move into the second year of Burberry Forward, we are increasingly confident that we're on the right path to build brand relevance and value creation. If the strategy for the next year of Burberry Forward looks very similar to what we presented last year, this is intentional because we are now focused on accelerating and delivering on our 4 pillars with consistency, placing the summer -- sorry, placing the customer at the center of everything we do. We will continue to anchor Burberry Forward in timeless British luxury as we enhance our product, marketing and customer experience to engage a broad luxury audience. This will be underpinned by an organization that is fit for purpose and executing at pace. Starting with our brand. Our traffic and sales inflected in August as we launched our Chinese Valentine's Day campaign, followed by the Back to the City campaign focused on a more polished expression of city dressing against a backdrop of iconic London landmarks appealing to our investor customer. Next, the elegance of our winter runway campaign set in a quintessentially English country house attracted our opinionated customer, while the winter wardrobing campaign showcased looks that could be worn every day, appealing to all of our customer archetypes. Collectively, these campaigns have driven an improvement in brand engagement in September. In addition to these fashion campaigns, we have continued our institutional outerwear campaigns with the latest installment of It's Always Burberry Weather: Postcards from London, which launched in October across all of our channels. [Presentation] Joshua Schulman: Looking forward, we will continue to fully embed our timeless British luxury brand expression across all touch points, creating universally recognizable stories and imagery, balancing town and country. And our marketing initiatives will celebrate our customers' cultural occasions around the world with a dose of British warmth and wit. We are looking forward to celebrating our 170th anniversary next year with a series of campaigns and activations to celebrate our iconic trench. This will include disruptive amplifications across product and marketing initiatives to drive broad global appeal. Even global icons are leaning into our most beloved Burberry codes and showing that when we have -- where we have the most opportunity, where we have the most authenticity. When influential personalities of the world come to Burberry, they are selecting to wear our most beloved brand codes. From Olivia Dean wearing a modern interpretation of our iconic Check to Tommy Paul and Jack Draper dressed in our Ready-to-Wear and Dua Lipa wearing a full Check dress. It's clear that Burberry continues to resonate in popular culture. Just last week, we launched our festive campaign, bringing a warm and joyous rendition of the British holidays to our customers around the world. Amid the charm and commotion of party preparations, Jennifer Saunders is joined by an all-star cast, including Naomi Campbell, Rosie Huntington-Whiteley and Son Heung-min, who each share beautiful Burberry gifts with their friends and family. [Presentation] Joshua Schulman: We are so excited about the early reaction to Twas The Knight Before..., our festive campaign. And we look forward to bringing other extraordinary experiences, including at Claridge's, where Daniel is designing a special tree decorated with Burberry textiles alongside a pop-up shop featuring iconic Burberry gifts. Building on our momentum in China, we are looking forward to celebrating Lunar New Year, the Year of the Horse. We will be increasing our investment in product and marketing with a more complete product capsule and an immersive campaign, including 4 well-known ambassadors. Moving to product. Our customers are clearly responding to the timeless British luxury brand expression and the synchronicity between our runway looks and the commercial core that is allowing us to reach a broad luxury audience. Here, you can see how the spirit of our runway shows has been interpreted to appeal to a broad luxury audience. On the left is an extraordinary, fringed runway trench from Daniel's Winter '25 show. The item retails for almost GBP 10,000, and we had preorders from our most elite clients from the moment this walked down the runway. And now Daniel, together with our merchandising team, has reworked this inspiration into different silhouettes appealing to a wider audience. These looks are among our best sellers for the season, retailing at around GBP 2,500. Building on our success with Winter '25, on the right, you can see we are taking the same approach to our Summer runway collection. Summer '26 captured the intersection between fashion and music and was yet another uniquely British story that only Burberry could tell. You can see the beautiful leather fringed trench that walked the runway and how this inspiration has been reinterpreted into classic gabardine with leather detailing to reach a broader audience. The product mix and strategy is capturing the attention of new customers and attracting existing customers to return with sequential improvement in customer growth over the course of H1. In particular, we're seeing new customer growth among Gen Z. I was just in China a few weeks ago and walking stores with our teams there, and they were sharing how the evolution in our collection architecture is attracting different customer profiles to the brand. These customer profiles are now fully embedded in our product development cycle. Looking forward, we will be integrating even deeper consumer insights to ensure we're meeting all of our customers' wardrobing needs. As we enter the second year of Burberry Forward, we now have significantly greater knowledge of our customers, which is informing our product strategy. One of our priorities is to refresh our heritage rainwear assortment in the new year. We will be introducing lighter tropical gabardine and strengthening the trans-seasonal appeal of our iconic trench. This will enhance customer centricity, allowing our trench to be worn in global markets year-round. Another observation is that we are only scratching the surface with wardrobing. Building on our foundational strength in outerwear, we are now completing the look with a stronger assortment of knitwear, trousers, skirts and dresses. Across the assortment, we are developing with customers' needs in mind, including the right fabric, the right fit and the right silhouettes for men, women and children. And in accessories, we've made progress on our foundation with the amplification of scarves and resetting the base in handbags. Looking forward, we are strengthening our assortment of leather goods and shoes with a focus on both subtle and overt branding, driving commercial shapes with clear brand signifiers. Across categories, we now feel more confident to place bigger bets on selected families of newness to fuel our growth and improve our productivity. Moving to distribution. In our stores, we are creating more warmth and desire by increasing product density, enhancing our displays and encouraging cross-category selling. We are so excited to have the majority of our scarf bars open for the festive season. These stores are already outperforming, positioning us strongly for the season ahead. Our stores now offer a richer experience, one I hope that you will all enjoy during the festive season. Our e-commerce channel was the first to turn positive and continues to outperform. We've elevated our product storytelling, seamlessly integrating shopping journeys with rich editorial imagery and improved our styling across the offer. Building on the success of our monogramming and scarf personalization services, we're expanding our personalization offer to knitwear and capes launching in the weeks ahead, just in time for festive. Looking ahead, our focus is on driving productivity. Building on our momentum with scarf bars, we're launching more category destinations in the year ahead, including for trench coats and polo shirts. We are also investing in clienteling capabilities, deploying new AI-enabled tools to support our client advisers and serve our customers with a warm and personal approach informed by data. And while wholesale only accounts for around 13% of our business, it serves several very important purposes. Our opinion-leading digital wholesale customers are the ideal place for customers to discover the evolution of Burberry alongside our luxury peers. As I mentioned, we've seen growth in our wholesale order book from these opinion-leading wholesale customers globally who are enthusiastic about the new direction of Burberry. Being present on luxury platforms allows us to share our refreshed brand expression with a broader array of consumers than visit our own sites. And our omni-channel department store partners provide visibility in key locations. I am so excited to get on a plane next week and go to New York. We are literally lighting up the facade of Bloomingdale's, an iconic flagship, with an enormous sparkling Burberry Check scarf. And this activation is going to -- is anchoring dedicated Burberry windows and pop-up shops throughout the store in the flagship and in key branch stores, which tell our brand story. One of the things I am most proud of this year is reigniting our culture. I continue to be encouraged by our incredible team around the world whether it's the product triangle of design, merchandising and marketing coming together, the regions working with the center or our teams across stores, manufacturing sites and warehouses, delivering exceptional service for our customers. We are rekindling the creative and commercial alchemy that is unique to Burberry. We continue to uphold our commitments to social and environmental responsibility. This remains an integral part of who we are and is important to our colleagues and customers around the world. As we move into our 170th year, we are embedding the spirit of Burberry Forward into our purpose. [Presentation] Joshua Schulman: In the first year of Burberry Forward, we moved at pace to execute our strategy and stabilize our business. With the consistency of our timeless British luxury brand expression and an improved product offer, we now have begun to capture the attention of new customers while seeing existing customers return to the brand they love. This has resulted in comparable store sales growth for the first time in 2 years. As we look ahead, our ambition is to deliver sustainable performance, growing the top line while expanding our profit margin and delivering strong free cash flow. As I mentioned earlier, my belief in this extraordinary British luxury brand is stronger than ever. We now have proof points that illustrate that Burberry is at its best when it forges its own path, grounded in timeless British luxury and guided by authenticity. Although it is still early days and there is a lot more to do, as we approach our 170th anniversary, we are confident that Burberry Forward is the right strategy to build brand relevance and value creation. I will now hand it over to Lauren for Q&A, and Kate and I will take your questions. Thank you. Lauren Leng: So we'll kick off the Q&A. I'll just ask that you limit to 2 questions each so we can reach everyone in the room, and please state your name and your firm before you ask your questions. I can see Carol here right in front of me and then we will move over to this side to Luca, Erwan and then I think I saw Grace as well and Thomas. I thought you were there, too. Thank you. Carol Mathis: Carol Mathis from Barclays. So 2 questions then. The first one, I think you mentioned that you went to China or Asia just recently. So can you come back on what you're seeing there in terms of trends mostly on the macro environment? Any sign of stabilization that you saw on the ground on top of, I guess, you've been doing some more work to see improvement of your China performance down there? That's the first question. Second one is about the improvement of, I guess, increasing new consumers at the brand. When you think of the chart you talk about the consumer being investor, conservative, hedonist, what kind of new consumers were you able to attract more if there is a way to put them in those categories? Joshua Schulman: Yes. Two great questions. So I'll start with China. It was a really wonderful trip that I took with several of my colleagues to China. And ironically, it was 1 year to the date that I took my first trip to China last year as part of Burberry. And so literally, we could see the difference in the market year-on-year, but we could also see the difference in the expression of Burberry year-on-year and hear from our field teams, the people who interact with customers every day. In terms of the market, clearly, I do think there is a little bit of stabilization happening in the market. I do think that our inflection in China this quarter was probably driven more by our internal changes that we've made. It was really wonderful to walk through our store estate and to hear about customers literally returning, people who they had been trying to get in for the last couple of years who didn't see themselves in the product that we were offering. And now they were coming in and they were -- and their conversion was way up. We really saw customer engagement globally improve as we went through the quarter but particularly in China. Our earned reach was up 129% in China, which translated into new customer growth of 10% in China. And so they really led. And on a global basis, we had 18% customer growth customer in Gen Z with substantially higher growth in Gen Z in China. So this -- I think, in the past, there may have been an idea that in order to attract younger customers in China, you need to be super edgy and kind of do what other brands are doing. But actually, what's working in China now is this authenticity, the timeless British luxury, the authenticity, and we're seeing that across all of our customer archetypes. We're seeing that against younger, cooler customers. We're seeing that against more mature, sophisticated customers. And the breadth of our customers coming back to the brand in China and globally and starting to attract new customers, especially in China and in the Americas, has been one of the most gratifying things that we've seen in the last couple of months. I would also say that if you double-click on some of these metrics, you really see the quality of the business changing year-on-year in terms of the types of products we're selling, in terms of the channel mix, in terms of the breadth of customers that we're touching. So it just gives us a lot of encouragement for what lies ahead. Luca? Luca Solca: Luca Solca from Bernstein. I have a question on these metrics and the double-clicking in particular, what you're seeing in terms of full price sell-through. One of the pushbacks we're getting is that Burberry has been discounting a lot and is discounting a lot. But I think -- and I assume that, that is connected with the phasing out of the old Burberry. And if you could give us a couple of data points on how you see that has been evolving and how that is impacting, for example, your used dependence on off-price and factory outlets and discounts. Maybe a second question, again, going back to the point about China. I see that there's a lot that you're doing yourselves in terms of improving your predicament there. Do you have a view based on what you see from the landlords and the shopping malls where you operate, how the broader Chinese consumer nationality is doing? Joshua Schulman: Okay. So I really appreciate both questions. But on the first, let me walk you through how we're thinking about this and why I'm so encouraged about what I call the quality of sales. Normally, we don't talk about what's happening in the full-price channel versus the outlet channel. But I think it's important in this case because what we saw in the quarter was that the strength in the newness that we were delivering in our full-price channel fully offset the declines that we were having in the outlet channel, the declines in traffic that we were having in the outlet channel. And traffic has been challenging in that channel in general, but also, we just have less inventory going through that channel now, and we are discounting less. And so all of that is really good for brand health and for brand heat. And you'll see that really across the business. In our full-price stores, last year, we did an exceptional public clearance, and we did that online and in stores, and that contributed about 3 points to our comp in the festive quarter. This year, we're not doing that. We're reverting to our normal end-of-season activities, which are substantially smaller, more discrete, shallower and less. And all of these are contributing to what I call the quality of earnings. Finally, in our wholesale channel, where we're seeing the growth is from our strategic partners. These are the luxury pure-play digital partners. They're the U.S. department stores. They are even travel retail. And they're coming back because they're seeing their sellout of Burberry in the autumn and winter collections. Their sellout is going up. They're coming to our showroom, enthusiastic about finding opportunity, and they loved what they saw from the summer collection, and they believe that their customers will likewise love it. And so that builds a virtuous cycle with the strategic wholesale partners, and that is helping us to offset the planned decline in nonstrategic partners. So overall, I would say [ this print ] is, as you said, no drama, but under -- if you double-click under the covers, there's a lot going on that we feel very positive about and that sets us up in a good way looking forward. In terms of China, what I would say is there does feel to be a little bit of a market stabilization that is happening. But what we understand is that it's very bifurcated and very specific in terms of how a brand is performing there, probably more polarized than the rest of the world. Erwan Rambourg: Erwan Rambourg from HSBC. Congrats on the consistency of messaging and execution quarter after quarter. So I'll stick to 2, even though I have probably 15. So you historically talked about good, better, best coming back with maybe more palatable price points after being disconnected for a while. You just flipped positive in terms of like for like. Can you maybe just talk about the role of volume as part of that equation? I suspect mix is negative. I suspect pricing is limited. But yes, maybe can you talk about how that like for like is built up and what we can expect for the longer term? And then you just mentioned that the disposition channel, the cleanup of obsolete inventories last year meant a 3% headwind on comp for H2. How should we feel about like for like for H2 in that context? And I think historically, Kate, you mentioned whether you were comfortable or not with consensus, so I'm going to be the one to ask the question. What do you think about consensus in terms of sales and EBIT? Are we at a reasonable level today? Joshua Schulman: So Kate, why don't I let you start on the headwind and the -- our view on consensus, and then I'll come back on the other piece? Catherine Ferry: Yes, sure. So yes, I think it's the usual veiled ask about current trading. So I think as usual, I'll say we're not going to comment too much on current trading at this stage, but I will say that Q3 has started well in line with the previous quarter. But Josh has already helpfully highlighted the very public markdown that we had last year. As Josh said a moment ago, that was 3 points on last year's comps, so we're not repeating those activities. So I will just highlight that again. And of course, although we're pleased with performance so far in the quarter, we're mid-November. We've got Thanksgiving, Christmas, Lunar New Year, everything to come, so it would be premature to call it. But in terms of, I guess, half 1, half 2, we would anticipate sequential improvement there. I think on the consensus point, probably similar answer in that, look, we're broadly happy with consensus. Again, really, really important trading period ahead of us. So I think it would be premature to change guidance at this point, but I would just add that we also want to leave ourselves some firepower to invest. So depending on where we get to, you've heard it in the presentation there, we are spending more year-on-year on the kind of consumer-facing areas, specifically marketing. You heard there, we are investing more in Lunar New Year, for example. So I think leaving consensus where it is today feels the right thing to do for the business. Joshua Schulman: So then I'll pick up on the retail equation and what we're seeing in terms of pricing. So we start -- our inventory is down 24%. And then when we look at our traffic in the stores, traffic remains challenging across the board and continues to remain challenging. However, our conversion is up in the low teens, and our AUR is down slightly, which was planned because we did the realignment of pricing along good, better, best and with certain key categories like scarves outperforming, so all what we would want to see at this point in the turnaround. Erwan Rambourg: And the element of pricing in any market? Joshua Schulman: Not so much. We took some surgical increases in the U.S. specifically earlier this year, but pricing is relatively in line globally. And any pricing that we took on individual items was somewhat offset by the difference in mix. Lauren Leng: Grace and then Thomas. Grace Smalley: Grace Smalley from Morgan Stanley. My first question would just be on marketing. You mentioned a few times there that you've increased the marketing spend. You seem very happy with the results you've seen from the marketing campaigns. So just how are you thinking about the return on marketing spend and whether you're still tied to that marketing as high single digit as a percentage of sales or if there's actually room to further increase that and take kind of, I guess, capitalizing on this moment in time and shouting about what you're doing in terms of the brand? Joshua Schulman: Yes. Well, I mean, I think this also relates to what Kate was saying about consensus. We want to leave ourselves more firepower to invest in marketing. And my Chief Marketing Officer is in the front row over there, so he's listening very carefully to this. But we're very focused on having an ROI, and we're pleased that the initiatives we've had have resonated. We are seeing a direct impact from the marketing into the sales. So a year ago, we didn't have that luxury to even consider given where the P&L was. And now we want to be very mindful of those opportunities and not let a moment pass without investing appropriately. I don't know if you have anything to add, Kate. Catherine Ferry: No. And I think the key is, yes, for now, maintaining the high single-digit percentage of marketing, but let's see where we get to. Grace Smalley: Very clear. And then my second one would just be on gross margin. Thank you for the helpful bridge slide. As you think about gross margin in the second half, could you just perhaps talk through those dynamics in terms of the inventory benefits, transformation benefits? And then also given the -- Josh's comments on the improved full-price sell-through, how we should think about that impacting gross margin in the second half as well? Catherine Ferry: Yes. So I mean, recap, obviously, H1, you can see that, that -- there's that -- it's 330 basis points, which essentially is the tailwind from this time last year, all of that inventory actions. I then did flag that we had, which was probably the bit over and above what you might have expected, was what we have badged as transformation benefits. And I think the message there is that although most of the transformation benefits have been in OpEx, we've been looking at cost across the business, and we have actually seen some benefit in gross margin. In terms of then what to expect for the full year, which will help you with the second half, I think guidance there remains the same. We talked about a 300 basis point tailwind for the full year, and that remains the same. You'll remember that, of course, in the second half, in terms of phasing, the trend of the last 2 years has been for H2 to be lower than H1. You'll see that again. But in terms of absolute H2-to-H2 margin improvement, yes, you'll see that because you'll remember, it really was this time last year where we did a lot of nonrepeatable heavy discounting. So I think you'll certainly see that come back, so remaining the same on full year gross margin guidance. Lauren Leng: Thank you. Let's go to Thomas. Thomas Chauvet: Thomas Chauvet from Citi. Two questions. The first one on product newness and categories. If we look at your H1 performance, retail, wholesale by category, I know it's a bit diluted by the wholesale performance, but womenswear was already positive in the half, which is quite an achievement. Menswear, accessories, down 3%, 4%. Has menswear and accessories improved sequentially in Q2? And then when you look at your upcoming spring/summer product, is there anything that excites you in terms of menswear, accessories offering to drive a bit of a catch-up and bring these categories back to growth where they should be? Joshua Schulman: So we are very pleased that the initial improvement in the strength of outerwear and scarves is now spreading, and we're obviously seeing that, first and most importantly, across women's, which historically has been challenging for Burberry. And yes, both men's and accessories improved sequentially during the quarter. As we moved into, I'd say, mid-August, September and that winter wardrobing came into the stores, that has really ignited those categories, specifically on leather goods and shoes. So again, if you double-click here, we reduced our inventory the most in leather goods. So this is really where we really took out a giant amount of inventory, and we said that we would test and learn this year. And we have been doing that, and we have some areas where we have green shoots where now we're going back and building those back. So I think we talked about the B Clip bag. Last time, that family has been strong. We've recently refreshed -- done the first stage of a refresh of our iconic vintage Check. We introduced a vanity case, which has been very strong. We currently have a novelty color in ruby, which is performing well. And we -- and this is all in advance of a bigger relaunch of vintage Check in the coming seasons. And so we've been very deliberate in how we've approached that category. But it's interesting because there's -- we're seeing success in the good, better, best strategy across the estate even in a category that we don't talk about a lot like shoes. And on the runway, there were these beautiful riding boots. And we took a big bet on those beautiful riding boots, even though we had no history of selling very elevated product with minimal branding, frankly. It's GBP 1,500 and up for the Cavalier boots. And they have become among our best shoes and are meaningfully contributing to the growth of this small category. And that was such an important lesson for me because it's such a quintessentially Burberry item. It's something that, in your mind, you would think that you could go to Burberry and find a beautiful English riding boot. And when we put it there, in the context of that beautiful fashion show collection, the customer responded, and actually, it was one of the items leading to customer acquisition. So I know I sound like a broken record with our team talking about the timeless British luxury brand expression and the good, better, best pricing architecture, but it really is resonating with our customers. Thomas Chauvet: My second question on licensing. Could you give a bit of an update on your relationship, first, on eyewear with EssilorLuxottica and of course, beauty? I think Coty's CEO, Sue Nabi, gave interesting numbers recently, implying Burberry has been growing at about mid-teens percentage since 2019. So curious to hear your view here. And just on the cleanup of the older fragrance line that impacted your licensing revenue down high single digit in H1, I understand it will be the case also in H2. That shortfall of licensing revenue, if you gross that up to wholesale, i.e., Coty sales, there's quite a big number of bottles. So I was just curious what's happening to these models. Are they heavily discounted by Coty? Are they being destroyed, gifted? What is Coty doing to drive such a big decline in revenue given Goddess and Her, your top fragrance line, are actually doing very well? And as I said, Sue Nabi mentioned mid-teens sales for Burberry beauty in the last 6 years. Joshua Schulman: Yes. So broadly speaking, we think we have 2 best-in-class licensing partners in Luxottica and Coty, and we are pleased with the trajectory. Within beauty and fragrance specifically, the fragrances that you mentioned, Her and Goddess, have been very strong. And similar to what we're doing in the core brand of focusing on the quality of sales, they're doing the same. They are -- because Goddess and Her are in a position of strength, they're able to destock on some of these lines that are older and less relevant. And so that is why you see this significant decrease this quarter in the channel. Kate, I don't know if you have anything to add. Catherine Ferry: Yes. I mean, I think the key being that we're still seeing good steady growth in those core lines. And in terms of the look forward, obviously, it's not something that's just done in the quarter, so we would actually expect the destocking to continue into the second half. Thomas Chauvet: And be over by the end of fiscal '26? Catherine Ferry: Yes. Lauren Leng: I think we've got one final from Daria. Daria Nasledysheva: It's Daria from Bank of America. And congratulations on your results. I have 2 questions. The first one, could you please talk about what you're seeing in the U.S. market? You saw flattish, no acceleration in trends in this geography. So I was just wondering, could you please help us understand how it's shaping up into the holiday season? And if I can just ask my second question straightaway, outside of some marketing reinvestment that, Kate, you already mentioned, are there any other initiatives that we should be aware of for the cost savings for the second half, like bonuses, remuneration, anything that we should be modeling? Joshua Schulman: Kate, do you want to take the cost savings, and then I'll talk about the U.S.? Catherine Ferry: Sure. So yes, I mean, I guess there are a number of moving parts within cost. We've been very open about the incremental investment in marketing. Of course, the other pieces to consider, as always, there's inflation in our cost base. We've got a very high fixed cost base, 80% of fixed costs. That will be inflating at around 2%, 3%. You talk about people costs. Yes, there's the usual merit in there, and there will be potentially incremental performance-related pay reflecting the performance being below what we would have expected for the last couple of years. And I guess those are probably the key moving parts. It will be people, inflation and marketing. And then the U.S.? Joshua Schulman: And then in the U.S., the U.S. was the first region to return to growth for us. And what we've seen is that the brand expression and the way that we're showing up at retail in exciting ways is really resonating with the customer there. Our team in the U.S. has been very creative in terms of how in a market where retail traffic is so, so, how they're really going to the customer. They hosted over the summer. They hosted an exciting VIC event in the Hamptons, inviting customers from across the country to stay with the Burberry team and have a one-of-a-kind experience in the Hamptons. They're planning something similar for the VICs for Aspen, and that's really for our top-of-the-pyramid customers. And then we also have an opportunity there to really build on the broad universal appeal of the Burberry brand. And that's why this Bloomingdale's takeover -- facade takeover and activation is so powerful for us, because it gives us an enormous stage to share with people the Burberry story and who may or may not come into our network of stores. And so it's that mix of how we do really high-end elite events and then customer-centric events with broad universal appeal for customer acquisition. And so we're really excited about the trajectory there. I would just kind of step back from the U.S. specifically and just reiterate, as we're at the end of the -- I think we're at the end of the Q&A. I would reiterate that after our first year of implementing Burberry Forward, that we are more confident. I am more confident than I was 12 months ago. 12 months ago, this was really a thesis. It was a thesis that we were too niche. We were trying to be kind of a me-too of other brand strategies and that we weren't true to our own unique DNA. And as we've leaned into that at all levels from the runway to the marketing campaigns to the type of visual merchandising you see in stores to our sites, that's resonating with customers. It's resonating with the customers we want to have. And long term, I see this as a bigger opportunity than I envisioned a year ago. We're going to do the right thing with the brand and do it in a steady, slow way, and we're not going to chase sales for the sake of it. But we're feeling confident in the Burberry Forward framework that this is the right path for value creation and for the brand relevance. Lauren Leng: Great. Thank you, Josh. I'll hand over to you for closing remarks. Joshua Schulman: I think I made the closing remarks, but I'll come up here. So really, as we approach 170 years, I want to thank all of my colleagues around the world who have been working so hard to drive Burberry Forward. You only see Kate and I up here, but this is literally the work of thousands of people around the world. And I'd also like to thank all of you, our investors, analysts and partners who have supported us on this journey. So thank you.
Operator: Greetings, and welcome to Faraday Future Intelligent Electric Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to John Schilling. Thank you, John. You may begin. John Schilling: Welcome, everyone, to Faraday Future's Third Quarter 2025 Earnings Call. This is John Schilling, Director of PR and Communications at FF. Today, I'm joined by a few members of our leadership team, including our global Co-CEO, Matthias Aydt; our CFO, Koti Meka, and our Global FF President, Jerry Wang. Today, we will be sharing details from our third quarter 2025 results. The press release as well as today's presentation will be available in the Investor Relations section of our website at investors.ff.com. A replay of this call will also be posted there later today. Please note that on the call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today, should not be relied upon as representative of views as of any subsequent date, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC. In today's call, we will be covering the following topics: the third quarter overview and financial highlights; our development progress, together with our fourth quarter and 2026 outlook. At the conclusion of the overview, the management team will also address questions from our shareholders submitted electronically in advance of the call. With that, I will now turn the call over to Matthias. Thank you. Matthias Aydt: Thank you, John. Hi, everyone. This is Matthias, Global Co-CEO of Faraday Future. I am pleased to share our key developments for the third quarter of 2025 through today structured around our 7 Tier 1 strategic goals and pillars from S1 to S7, highlighting meaningful progress in operations, improvements in our business and financial fundamentals and continued strategic execution across our AI-driven mobility road map. For S1, our user ecosystem at the global launch of the FX Super One NPV in L.A. on July 17, we unveiled 3 groundbreaking innovations, the FX Super One EAI-MPV, the FF Super EAI F.A.C.E. System and the FF EAI Embodied AI Agent 6x4 Architecture. The event drew major attention across the U.S. and China, further elevating the FX brand. As of the launch, FX has secured over 11,000 paid nonbinding Super One preorders. Faraday Future also finalized the U.S. production assembly plan for the FX Super One. The company's bridge partners and supply chain collaborators will commence component supply for the production assembly phase. FX has also rolled out national co-creation and sales events across 8 major U.S. states receiving enthusiastic feedback in New York, Boston and L.A. The FX Super One continues to build strong momentum, reflecting the growing success of our co-creation ecosystem online direct sales model. In the third quarter, we have signed a 100-unit nonbinding and nonrefundable FX Super One deposit agreement with Ariana Motors, one of the largest independent dealerships in Las Vegas. We also expanded our co-creation network through new nonbinding and nonrefundable deposits with the ALPS, a leading global MCN agency and a key TikTok partner managing over 3,000 influencers, Space Auto of Beverly Hills-based luxury auto dealer, strengthening our reach across Southern California's ultra-luxury market and both auto, one of Boston's largest independent dealerships through a 100-unit preorder agreement that marks our entry into the Massachusetts market. In October, we also signed a nonbinding 1,000-unit preorder agreement with ZEVO, the U.S. Pioneer and peer-to-peer EV sharing platforms. In total, we have more than 11,000 B2B nonbinding preorders for the FX Super One. These will help FX expand into new markets and represent innovative steps in our B2B2C sales model. With their preorders and rising brand visibility, FX Super One is strengthening its position as the leading AI-driven ultra-luxury mobility brand. Moving to S2 and S3 product and technology. Building on last quarter's progress, we continue advancing both FF 91 and FX Super One. One exciting update is coming to the B-pillar AI system, which will soon include intuitive gesture control powered by AI, allowing users to open and close doors with simple hand gestures, completely touch-free. On FX, more than half of the Federal Motor Vehicle Safety Standards, FMVSS, 201U test points have been completed. Full vehicle safety testing have also delivered interim results. The series of assessment tests continues at MGA Research, keeping the vehicle on track for development and validation after multiple rounds of discussion and alignment, we have finalized the U.S. assembly plant for FX Super One. Our bridge partners and supply chain collaborators are now supplying components for the production assembly phase as the team pushes towards the milestone of rolling the first preproduction U.S. version FX Super One off the line. With more than $3.5 billion invested in our EAI EV strategy, FF has built a complete ecosystem, spanning R&D, manufacturing sales and aftersales. Operating FF as ultimate AI tech luxury and FX for broader markets, we continue to strengthen our foundation for sustainable long-term growth in the AI-driven ultra-luxury mobility space. This quarter, we released version 2.00.58 of the FF 91 operating system software delivered via OTA. This version enhances software stability and user experience and includes the latest FFAI 2.0 FS, proprietary next-generation voice assistant and ecosystem service platform, powered by large language models and generative AI. These advancements mark an important step forward in our long-term platform strategy. Lastly, the patent application for the Super One EAI phase product has been submitted. Shifting to S4, our progress on supply chain, industrialization and delivery. The FX Super One entered the trial preproduction phase at our facility in Hanford, California. We are progressing with process planning and validation, defining manufacturing processes, refining work procedures, establishing quality standards and ramping up training for engineers and production teams. FX also signed a procurement agreement for the first batch of complete parts with our supply chain partner with shipments scheduled to begin soon. The next focus will be accelerating logistics and supply chain efforts to ensure timely arrival of this first batch of parts at Hanford. Meanwhile, construction at our Ras Al Khaimah facility in the U.A.E. is progressing positioning us to begin our first few regional deliveries as early as this month. Regarding S5, our financial strategy and capital markets activity, Jerry, our Global President, will provide details shortly. Our efforts in the Middle East and China under S6, we continue to advance our three-pole strategy within FS global expansion. At the Sustainability and Clean Energy Conference in Dubai, FF 91 2.0 and FX Super One were showcased and received high praise and strong interest from members of the U.A.E. and Dubai royal families and senior government offices. The event highlighted not only our vehicles but also our solutions for future mobility, energy and sustainability, marking an important step forward in the region. The Middle East final launch of the FX Super One took place on October 28 at the Armani Hotel of Burj Khalifa, Dubai and was a tremendous success. The launch featured the debut of the first-class EAI MPV in the region, the release of the FX Super One price point, starting at approximately $85,000 and announced the first global FX Super One to Andres Ingesta, which will make him the vehicles' inaugural global owner. This event reflects the strong traction of our co-creation ecosystem in the region and demonstrates FX Super One appeal among high-net-worth and influential customers. On the event, we received nonbinding nonrefundable paid preorders from 3 B2C customers for more than 200 total units within 48 hours after this event. Finally, let's look at S7 operations system buildup. A key milestone this quarter was FF strategic investment in Collagen Therapeutics. This investment underpins FF's dual flywheel and dual bridge ecosystem. The transaction strengthens the synergy between our EAI EV platform, and our fast-moving AI, crypto and digital asset initiatives. The dual flywheel strategy can help drive growth by combining long-term value and building through the EAI EV ecosystem with immediate impact opportunities in the crypto and digital space. Jerry will discuss more details of the investment during his coverage of our third quarter capital markets activities. We also made significant strides in the system buildup and leadership expansion. This quarter, we welcomed George Lee as Head of FF and FX Global Supply Chain, and he also serves as FF-China Chief Strategic Cooperation and Business Growth Officer. George's extensive experience in other EV companies will strengthen our global supply chain ecosystem. We also added 3 new senior leaders, Todd Harrington, Deputy General Counsel; Steven Park, Head of Investor Relations; and Kevin Wong, Treasurer, further enhancing our capabilities in legal affairs, investor relations and financial management. Faraday Future continues to expand government affairs and policy engagement efforts, enhancing our presence in key policy discussions and supporting U.S. innovations and clean energy priorities. I would like to announce that Chris Nixon Cox, grandson of former U.S. President, Richard Nixon and Board member of the Nixon Foundation has been engaged as a strategic adviser, providing support with investors, high-level government officials and industrial partnerships. In this role, Mr. Cox will introduce potential global strategic investors, enhanced government engagement and policy communications and expand cross-border industrial cooperation on behalf of FF. In addition, Shahryar Oveissi was engaged as Global Strategic Advisor, focusing on Investor Relations and government affairs in the Middle East with extensive experience in business development and operations consulting. Heath Shuler, former U.S. representative at NFL, star has also been engaged as a senior adviser to the company to help support government affairs and offer strategic counsel to FF leadership regarding federal and state legislative regulatory and policy developments. Now, let's welcome Koti Meka, our CFO, to walk through the financial results for the third quarter. Koti Meka: Thank you, Matthias. Hello, everyone. I will walk you through some key metrics that highlight both our operational execution and improving financial position in Q3 2025. For the quarter, our loss from operations was $206.8 million compared to $25.2 million in the same period in 2024. These changes reflect our investment in engineering, talent expansion, strategic initiatives and alignment of the value of our assets related to manufacturing. For the 9 months ended September 30, 2025, operating cash outflow totaled $79.2 million compared to $51.8 million for the same period in 2024. This increase was primarily driven by changes in working capital and the operational ramp-up of the FX platform. The increase in operating cash usage reflects our ongoing investments in product development and strategic execution as we position the company for growth. Our financing activities generated $135.8 million in net cash inflows during the 9 months ended September 30, 2025, a 144% increase from $55.7 million in the same period of the prior year. In Q3, we received approximately $132.4 million in net financing proceeds from third parties, substantially exceeding $54 million from the same period last year. Notably, Q3 2025 marks the sixth consecutive quarter, in which financing inflows outpaced operating outflows, reinforcing a sustained trend that supports our operating runway and FX platform execution. Turning to our balance sheet, which now includes investment in Qualigen. Our net assets decreased compared to the year-end on December 31, 2024, primarily reflecting a realignment of asset values based on the updated operational plans and near-term production forecasts, while total liabilities grew by approximately $47.2 million over the 9-month period, a material portion of that increase reflects mark-to-market changes in existing convertible instruments. These dynamics underscore the sensitivity of our balance sheet to equity-linked valuation movements under fair value accounting. In summary, our Q3 performance reflects meaningful progress, and we remain focused on executing strategic investments aligned with our road map while optimizing capital deployment and driving toward long-term sustainable growth. I will now invite Jerry Wang, Global President of FF to provide some comments. Jerry Wang: Thank you, Koti. This is Jerry Wang, the Global President of Faraday Future. I will now share our progress with capital financing in the third quarter. First, we remain grounded in our stockholder-first philosophy. During the quarter, we continued our stock purchase program, which offers exclusive benefits for verified stockholders and eligible retail investors who participate in our ecosystem and preorder channels. Turning to liquidity and financing. We previously announced approximately $136 million in financing commitments to support our growth strategy, FX Super One launch readiness, and our position in the AI EV market. As of the end of the third quarter, we have received approximately $82 million, with the remaining amount subject to closing conditions and timing. We continue to manage deployment carefully and evaluate additional financing opportunities as needed to prudently support commercialization and ecosystem execution. Turning to corporate compliance and governance. In September, we successfully completed the NASDAQ 1-year compliance monitor period, returning to fully normalized normal listed company status. In addition, our management continued to demonstrate alignment with stockholders through Rule 10b5-1 stock purchase plans. Founder and Global CEO -- Co-CEO, YT Jia completed approximately 560,000 in purchases of FFAI common stock under a previously announced plan as of September 8, 2025. These purchases underscore management's long-term confidence and commitment to create shareholder value. We announced, and subsequently closed an approximately 41 million strategic investment in Qualigen Therapeutics, Inc., a NASDAQ-listed company including $30 million invested directly by Faraday Future and a $4 million personal investment from our founder and Global Co-CEO, YT Jia. This investment is intended to accelerate deployment of a crypto flywheel business and further advance the dual flywheel and dual bridge strategy. Qualigen's future financing will be conducted through a new entity without diluting FFAI's share capital. In summary, our capital markets efforts during the third quarter centered on 3 priorities: securing and prudently developing capital to support commercialization; building new digital asset financing platforms that completed building new digital asset financial platforms that complement our mobility business; and reinforcing strong compliance and investor alignment. We believe these initiatives position Faraday Future to execute the milestones ahead while maintaining strategic flexibility. I will now turn the call over to Matthias for the fourth and next year's outlook. Matthias Aydt: Thank you, Jerry. I will now walk you through our key updates with the primary focus on Q4 and next year also structured across the S1 to S7 framework. For S1 user ecosystem, we will be focusing on multiple areas on the user acquisition side. We continue to drive the FF 91 2.0 Futurist Alliance deliveries and FX Super One preorders. We are on track to deliver an additional FF 91 2.0 Futurist Alliance unit in December. For FX, we have now established FX Pars, our preorder holders in California, New York, Massachusetts, Texas and Nevada. The next phase of expansion will target New Jersey, Florida and Washington, where we are seeing strong signs of demand. We believe this expansion will support incremental preorder volume and broaden our FX Pars network. In parallel, we are making steady progress and tasks required to support vehicle deliveries, including sales operation, aftersales and service capability, auto finance and compliance. In addition, we continue to build the organization's execution capability through targeted hiring. Lastly, we are focused on enhancing our customers' user experience. On FF 91 2.0, we continue to upgrade our third AI space experience and specifically for the FX Super One, we will collaborate with content and application partners, including live sports, streaming, and in-vehicle entertainment to broaden our third AI space strategy. We also expect continued improvements in the experience and performance of the EAI space as part of this road map. Now shifting to S2 and S3 with product technology. We will continue to focus on building a robust internal R&D capability in software and AI while accelerating the transfer of core technologies from our flagship FF 91 into the FX product line to deliver a deeply interactive user ecosystem across all our vehicles. On the regulatory front, we expect to complete a series of Federal Motor Vehicle Safety Standards Assessment Tests at MGA, paving the way for further engineering development to ensure full compliance, enable the rollout of the first U.S. version FX Super One. From there, let's look at S4 where we will cover progress on supply chain, industrialization and delivery. Following the launch event of the FX Super One in the U.S. and U.A.E. in July and October, respectively, we have been accelerating our logistics and supply chain initiatives, enhancing training and strengthening our qualified team metrics management. We will release the first version of the manufacturing management system. For our second plant FX model, FX 4, we plan to show it's redesign rendering during the time period of Los Angeles Auto Show in November, subject to securing the necessary agreements. We also reaffirm our plan to introduce a series of models over the next 5 years, covering 4 major segments in the U.S. market. We do look forward to sharing more updates. Shifting to S5, we will focus on increasing our stockholders' base and additional outreach to investors and bank relationships with global efforts. We will be opportunistic in our fundraising efforts and evaluating various funding channels. Now to S6, our efforts in the Middle East and China. Our other key markets beyond the U.S., following a successful Super One product final launch event in Dubai, the preparatory work related to the delivery for the Middle East has officially been completed. The first Super One is scheduled to be delivered in November. We believe that high-net-worth users and investors in this region will strongly support our international expansion. Finally, let's close with S7 system development and strategic growth with new leadership recently joining FF, we are strengthening our expertise in legal affairs, capital markets and communications, financial management and government affairs. We are solidifying compliance. We will also continue improving operational efficiency and cost control across all entities, reinforcing our corporate goal of putting stockholder-first. Looking to the future, we expect to achieve a key milestone with the delivery of the first FX Super One vehicles in the U.S. and the Middle East making the beginning of a full-scale effort to strengthen FF's global delivery capabilities to support future rollouts. Now let's turn back to John for Q&A. John Schilling: Thank you, Matthias, and thank you to everyone who presented here today. With that, we'd now like to open the floor to Q&A. John Schilling: The first question, what are the key features of FX Super One? Matthias Aydt: FX Super One is more than an MPV. It's the world's leading EAI MPV, a truly AI-driven luxury cabin that intelligently adapts to your lifestyle. Powered by the super EAI FACE system, it transforms your relationship with the vehicle into something far more engaging and human. AI tech luxury and comfort, this FX Super One blends artistry and intelligence to craft an atmosphere of tranquil indulgence. It's zero gravity NAPPA leather seats with 10-point massage deliver effortless serenity and a purification system, antibacterial intelligence and super-quiet acoustic engineering create an environment of calm purity. FX Super One delivers a luxurious, comfortable, healthy, and private experience across all scenarios, turning every journey into a first-class experience for both body and mind. Dual power options AI HER, and AI EV engineered for effortless strength, composure and precision, the FX Super One introduces a new generation of intelligent power, AIHER hybrid extended range and AI EV battery electric systems, both paired with standard intelligent all-wheel drive. The result is best-in-class efficiency across all conditions and a seamless human machine connection that inspires confidence in every drive. Expansive and adaptive design with a commanding 213-inch overall length, 150.5-inch interior space and a 72.6-inch shared track layout for the second and third rows, the FX Super One creates an open, flexible environment that adapts to every lifestyle. Every detail has been sculpted for balance, comfort and ease, ensuring that every passenger enjoys true VIP serenity within this executive class EAI MPV. Truly perceptive EAI agent equipped with the world's first FF Super EAI FACE System and the EAI space, the FX Super One offers an ultra-clear, immersive multiscreen and multimodal interactive experience. It becomes the embodied AI agent, an intelligent life form that perceives things, communicates and grows. It understands you better than you do and reshapes the bond between you and your vehicle, 360 degrees intelligent safety. Built upon a high-strength steel cage body with extended full-length side curtain airbags, protecting all 3 rows and 4 longitudinal, 7 transversal multi-beam architecture, the FF Super One delivers next-generation safety intelligence. Through dual core protection, structure and algorithm, it fuses predictive sensing with physical resilience to create a truly holistic intelligent safety ecosystem. John Schilling: Question number two, how many preorders has the company received to date? And when will they turn into firm orders? Matthias Aydt: As of October 28, the company has secured nonrefundable deposits, nonbinding B2B reservation orders for more than 11,000 FX Super One units and approximately 250 refundable nonbinding B2C preorders. We continue to expand our market through the co-creation ecosystem, direct online sales and FX Par partnership models. Partners do not only reserve vehicles, but also responsible for off-line operations and services in specific regions, sharing in the revenue. Preorders will convert to binding sales orders ahead of vehicle availability. John Schilling: The third question, update on tariff impact. How much will it increase costs for next year? How are you mitigating it? Matthias Aydt: We see tariffs as something that affects the entire U.S. auto industry, not just one company. In many ways, tariff policy is part of a broader industrial strategy. It can help drive more local production, innovation and supply chain resilience, which ultimately strengthens the competitiveness of U.S. brands. The recent progress in U.S.-China trade discussions is encouraging. A more stable and predictable tariff environment benefits everyone. It reduces uncertainty for manufacturers and helps keep costs manageable for consumers. At FF, we operate our own factory in Hanford, California, with an annual SKD capacity of up to 30,000 vehicles as production of both the FF and FX brands scales up and more components are localized, we expect to rely less on imports and contribute even more to U.S. advanced manufacturing. At the same time, with the FX Super One model entering mass production in 2026 and gradually ramping up capacity, we expect the impact of tariffs on our cost over the next 12 months to remain manageable. While tariffs on Chinese-made EVs could reach up to 100% under certain policies, their main goal is to balance global competition and boost domestic capability. In that context, our FX bridge strategy becomes even more important. It helps connect global supply strengths with the U.S. innovation and efficiency. We've also been in active and constructive dialogue with policymakers to ensure tariff measures, support innovation, sustainability and affordability. So the entire industry can continue to grow in a healthy way. John Schilling: Question number four. Following the UAE launch, what initial reservation volumes have you seen? And what is your business strategy in the UAE? Matthias Aydt: We have received B2B preorders for more than 200 Super One units in the UAE. We have strong support from high-value co-creators including government officers and potential investors. We can also ramp up crypto-related business more quickly due to government support. Following the official launch of the FX Super One in the UAE, we have opened preorders through our local partner network and have seen strong early interest from both private buyers and institutional customers. John Schilling: Thank you for your time. This concludes our investor Q&A session. We appreciate all the questions submitted and apologize if we couldn't get to all of them today. We remain committed to maintaining open communication with our investors. That concludes today's conference call. Thank you for your participation. Operator: Thank you. And with that, this does conclude today's teleconference. We thank you for your participation, you may now disconnect your lines at this time, and have a wonderful day.
Mark Allan: Welcome to the presentation of Landsec's 2025 Half Year results. So we continue to see clear positive momentum across all parts of our business. Our primary focus is on delivering sustainable income and EPS growth, and we continue to do so effectively. I've been saying for some time that owning the right real estate has never been more important, and our performance over the past 6 months illustrates this yet again. Following our significant portfolio repositioning over recent years, our best-in-class office and major retail assets now make up over 90% of our income. And driven by the high quality of our market-leading platforms in both sectors, we have again delivered strong like-for-like net rental income growth and positive rental uplifts on relettings and renewals across both office and retail. We see no signs that the strong customer demand for high-quality space, which underpins this positive trend is abating. So this will remain the key driver of near-term income and EPS growth with further asset rotation and residential expected to enhance this over the longer term. As a result, we are raising both our near-term and medium-term EPS outlook, which means we are well placed to deliver material shareholder value as we move to higher income, higher income growth and lower cyclicality over time. To deliver our strategy, we set out 9 key objectives back in February, and we are on track or ahead of plan on each of these. In the near term, most of our EPS growth will be driven by our current platforms, the assets we own today. So that is what the first 5 objectives are built on. We continue to capture the growing reversionary potential in our office and retail portfolios and today raise our guidance for like-for-like income growth for this year to around 4% to 5%. We have also raised our overhead cost savings target, which now implies a saving of more than GBP 10 million against financial year '25 by next financial year. We are on track to deliver half of our 3-year target to reduce our capital employed in predevelopment assets by GBP 0.3 billion during year 1. And we have sold 1/3 of our retail and leisure parks, whilst we are seeing an increasing number of acquisition opportunities in major retail coming to the market over the next 12 to 18 months. Our 4 longer-term objectives are designed to ensure that in 3 to 5 years' time, our asset mix is such that we are still as confident about this outlook for income growth at that point as we are today. Again, progress on each is positive as we've sold nearly GBP 300 million of offices over 12 months ahead of plan. We set a clear expectation for our income growth in retail at our recent Capital Markets Day in September, and we have made good planning progress in residential. Still, as returns in retail continue to look most attractive, we do not plan any meaningful new development commitments over the next 12 to 18 months. And that means that our committed development exposure is set to come down to just GBP 200 million by mid-2026. And we expect this to remain meaningfully below the current GBP 1 billion level beyond that. Our sharper focus on sustainable EPS growth as our primary financial objective that we set out earlier this year is providing real clarity of focus and clarity in decision-making. And we're seeing the benefits of this across all parts of the business. Across the whole portfolio, we have driven 5.2% growth in like-for-like income, and our occupancy is now at a decade high. We have had a highly active half year in terms of shifting our portfolio mix with the sale of GBP 644 million of assets, which generated limited or no return, and we're expecting further capital recycling in the second half. Meanwhile, our capital base remains solid, supported by continued growth in rental values. And we are committed to further improve this as we now target net debt to EBITDA of below 7x within the next 2 years. That's down from a previous target of below 8x. All of this translated into a positive set of financial results for the half year. Our strong like-for-like income growth and continued overhead cost savings meant that EPS was up 3.2%, whilst our dividend is up 2.2%. NTA per share was down slightly at 1.3%, but principally driven by the sale of nearly GBP 650 million of low-returning assets that I mentioned earlier. Aside from the finance lease income on Queen Mansions, the impact on EPS from these disposals was broadly neutral and the cost to NTA about 1%. Our LTV is now 38.9%, and our net debt to EBITDA was up as expected, yet we expect this to come down to below 7x within the next 2 years as our current developments complete and lease up and future development exposure reduces, whilst we expect LTV to reduce to below 35% over time. Reflecting our positive performance, we raised our outlook for EPS growth for the full year and now expect this to be at the top end of our 2% to 4% guidance range. This is before the disposal of QAM, which turns the residual finance lease on the asset from a receipt of income across 2025 and '26 into an upfront capital receipt on completion of the sale next month. So although the amount of cash we receive is effectively the same, this reduces reported earnings for the year by GBP 7 million. In addition, we have also raised the outlook for our financial year '30 EPS potential from around 60p to 62p, and that's a 20% increase in our earnings growth objective. driven by higher growth in retail income, lower overhead costs and lower development. Any upside from our planned medium-term investment in residential only becomes meaningful beyond financial year '30. We'll continue to pursue opportunities to further improve on this, but this now implies a compound annual growth in earnings per share of 4% to 4.5%, adding further to our attractive existing income return. So now on to our operational review. Customers unquestionably remain focused on the best space in both office and retail. So driven by our high-quality operational platforms, our leasing performance remains market-leading and our relative outperformance against the wider market continues to widen. Our occupancy is up to a decade high as our portfolio is effectively full, which is driving growing competition for space. This, in turn, is driving up rental values. So rental uplifts are rising, principally in retail and like-for-like income growth is trending higher. Reflecting this, we now expect like-for-like net rental income to grow around 4% to 5% this year, up from our initial guidance of 3% to 4%. And this established trend remains a key driver for our near-term EPS growth. Turning to offices in more detail. We continue to see growth in utilization rates with turnstile tap-ins up 11% over the 3 months to October compared to the same period last year, even though TFL tube traffic was slightly down over the same period. Mirroring the experience we see across our own portfolio, the majority of active demand in the overall London market comes from businesses looking to increase space. So as the availability of high-quality office space in locations with the right transport connectivity and attractive amenities is limited, this continues to drive rents higher. And that is not just for brand-new developments, but also for existing high-quality assets. And we see the evidence of this in our 2.3 million square foot estate in Victoria, which is 100% full, and we are now achieving rents on existing buildings in line with what just 2 years ago were record rents for a new development. All this is reflected in another set of market-leading operational results. Our office occupancy is now nearly 99%, and that's significantly ahead of the overall London market at 92%. Like-for-like income was up 6.8% with uplifts on relettings and renewals of 6%. And we signed or in solicitors' hands on GBP 19 million of lettings on average 9% ahead of ERV. This drove 3.1% ERV growth over the 6 months, which is well on track against our guidance of broadly similar full year ERV growth to last year's 5%. As our portfolio is now effectively full, capturing this market growth in like-for-like income is increasingly a function of lease events and will therefore be more balanced over time than it has been over the past 6 months. Yet our growing reversionary potential continues to support a positive outlook for like-for-like rental growth from here. This positive customer demand extends to our near-term office completions. Over the next 9 months, we will see 4 new projects complete, including the repositioning of an existing asset to Myo flex office space and a small full purchase that we agreed back in 2021. Now in total, we expect these projects to generate around GBP 58 million of net effective, i.e., P&L rent once let with an associated incremental GBP 43 million of annualized interest expense. The outlook for FY '27 EPS is, of course, sensitive to the pace of lease-up of these schemes, but current engagement with prospective customers is encouraging as we have interest in the form of active negotiations, requests for proposals or live engagement equating to an excess of 100% of space across our nearest term completions. Now not all of that will translate into actual leasing, but in our FY '27 EPS outlook, we currently assume around 40% of the 2 main schemes to be let by the time they complete and for all space to be let around 12 months post completion. And we are comfortable that these assumptions reflect those current activity levels. In retail, brands continue to focus on the best locations as these provide the best access to consumer spend and the highest sales growth. As the chart on the left shows here, the top 1%, 60 of all U.K. shopping destinations capture some 30% of all in-store retail spend. And so this is where major brands focus their investment with, for example, around 90% of all Apple and Intertek stores in these locations. And it's also where close to 90% of our portfolio is focused. The quality of our assets and our platform is driving superior footfall, which in turn is driving substantially higher sales growth than the wider market. Indeed, whereas overall U.K. shopping center retailer sales have increased just 3% over the past few years, sales across our portfolio are up nearly 20%, and the gap in performance continues to widen. And this is why brands want to be in our locations. And as our portfolio is now nearly full, this is why rents continue to grow. And this is clearly reflected in our operational performance. Rental uplifts continue to trend higher, as shown here on the left, whilst occupancy is up 50 basis points year-on-year to almost 97%. This means that like-for-like income growth remains attractive at 5%, and we expect this to continue. We signed or in solicitors' hands on GBP 33 million of leases on average 10% above ERV, which drove 2.2% growth in ERVs over the 6 months, comfortably on track with our expectation of similar growth for the full year to last year's 4%. And as we set out at our Capital Markets event in Liverpool in September, the outlook for future income growth from retail is firmly positive. Building on the unique data and insights that our market-leading U.K. platform provides, we continue to invest in creating experience-led places. The growth in footfall and sales that this then creates continues to attract leading brands. So alongside enhancing our social eating, dining and leisure offer, this creates an environment and experience, which in turn attracts higher footfall, higher sales and so on. Our growth outlook is further enhanced by selective investment in highly accretive smaller CapEx projects. So combined with growing turnover income and commercialization income, this is what underpins our target to deliver between 4.5% and 7% compound annual growth in net rental income from our existing retail platform over the next 5 years. So turning now to capital allocation. We continue to prioritize our capital allocation decisions based on this clear framework. This looks at how our investment decisions contribute to income and EPS growth in the short term and how they shift our portfolio mix such that it can continue to deliver sustainable income and EPS growth for the longer term, underpinned at all times by our commitment to maintain a strong capital base. We continually monitor for any changes in risk and return prospects, but as things stand for the next 12 to 18 months, our priority is further investment into major retail destinations given the high income returns and attractive income growth on offer, funded by further rotation out of lower return assets, including London office assets as we have done over the past 6 months. And we do not plan to commit any meaningful capital to new development over that period, creating further investment capacity. Based on the clarity that this framework provides, we've had a very active period of capital recycling. Our largest disposal was Queen Anne's Mansions, an asset which generated 0 total return despite the high short-term income profile as the valuation depreciates in line with every rent receipt until the end of the lease. Aside from the impact of turning the residual finance lease income into an upfront capital receipt, as I mentioned earlier, this has essentially no impact on earnings and derisks the value of the site by transferring planning risk for a change of use to the buyer. We also sold 2 predevelopment assets, which generated a negative income return as well as 4 retail parks. Combined, these parks comprised around 1/3 of our portfolio of retail and leisure parks. And whilst they delivered a reasonable income return, income growth has been limited. All in all, this means we have sold nearly GBP 650 million of assets, which generated limited or no return in just 6 months. This came at a cost to NTA of 1% when comparing sales to March book values, but will enhance our future income and EPS growth prospects, a clear example of our decisions being guided by a focus on EPS growth. We expect to remain active in terms of capital recycling in the second half. Investor interest in London has picked up from its low point. So whilst we already are ahead of plan in terms of office disposals, this provides us with an opportunity to recycle further capital to fund accretive investment in retail, where we are seeing more opportunities come to market, although not all of those will be opportunities for us. We will, to some extent, be pragmatic on disposal values as our principal focus should be less on NTA per se and more on ensuring that the NTA delivers growing cash flow, growing earnings and growing dividends for our shareholders. So in that respect, the roughly 200 basis points positive yield spread between office and retail, coupled with the superior income growth prospects for the latter is meaningful, which is underlined by the excellent track record of the GBP 1 billion of retail acquisitions that we've made over the past few years, where in all cases, performance is tracking well ahead of our initial underwrite. We expect to see further opportunities like this to add to our market-leading platform. So this remains our key focus in the near term. So whilst we do have a number of development projects that we could start in the near future, we currently see more attractive risk-adjusted returns elsewhere. So we're not planning to commit any meaningful capital to this. In London, we very much see the potential for continued rental growth. But as I explained earlier, our existing portfolio is benefiting from this trend as well. So taking into account the differing levels of risk, we see little upside in selling high-quality existing offices to fund the development of new ones. Although we do see an opportunity to leverage our skill set by working with third-party capital to bring projects forward. For residential development, the picture is a little more nuanced, partly because it would help shift our portfolio towards the higher income growth and lower cyclicality asset mix that we aim for, but also because we are seeing a shift in public sector policy, which could be supportive to returns. For example, with the recently announced reduction in affordable housing requirements and community infrastructure levy in London, which for our London projects could add between 50 and 75 basis points to our current net yields on cost of around 5%. Our near-term focus here is now on locking in this upside. So the outlook for returns could look different in 12 to 18 months' time. Until then, CapEx spend will be very carefully controlled and very limited. Looking beyond the near term, we plan to move to structurally lower levels of development exposure over time in any event as having large amounts of capital tied up in development for prolonged periods has a negative impact on our risk profile and on EPS growth, particularly so in a higher cost of capital environment. Part of this is reflected in our objective to release half of our roughly GBP 700 million capital employed in predevelopment assets, where we're making very good progress. But we also plan to keep our own exposure to committed development closer to about half of the roughly GBP 1 billion that it has been in the past. This means that our balance sheet will have a greater proportion of income-generating assets in the future, which supports our objective to grow EPS in a sustainable way and means that our cash-based leverage measures will also improve. With that, I will now hand you over to Vanessa. Vanessa Simms: Thank you, Mark, and good morning. We have had a positive start to the year with strong operational performance. Our occupancy is at a record high. We're leasing well ahead of passing rent and our like-for-like income growth of 5.2% is well ahead of our full year guidance. Reflecting this and the continued positive outlook from here, we have raised both our near-term EPS guidance and our medium-term EPS potential. For the half year, our strong like-for-like income growth and further reduction in overhead costs meant EPRA EPS was up 3.2%, supporting a 2.2% increase in the interim dividend. Our portfolio valuation was effectively stable with NTA per share down slightly at 863p. This was principally driven by our capital recycling as we sold nearly GBP 650 million of assets, which generated limited or no return, which came at a cost to NTA of 1%. Our capital base remains robust with LTV at 38.9% pro forma for the disposal since the end of September. And our net debt-to-EBITDA ticked up in line with the guidance that we set out in May, but we target this to reduce to below 7x within the next 2 years as our current on-site developments complete and they lease up and we move to a structurally lower level of development exposure in the future. Now turning to income and EPRA earnings. Overall, our net rental income was up GBP 15 million, supported by GBP 12 million like-for-like income growth. This increase was despite the fact that the prior half year benefited from GBP 4 million increase in the recovery of previously provided bad debts, principally relating to a few assets where we bought the management in-house. Surrender receipts were low as well at just GBP 3 million, which means almost all of our rental income for the half year was regular recurring income as the benefit of one-off receipts was limited. Our focus on operational efficiency meant our gross to net margin improved by 130 basis points to 87.7%. And overhead costs were down GBP 2 million with further reductions to come. Finance costs increased as expected, principally relating to the increase in average borrowings following our acquisitions in the second half of last year and a small rise in our weighted average cost of debt. All combined, this meant EPRA earnings were up GBP 6 million or 3.2%. And this slide shows the movements of how this translates into growth in earnings per share. Our high-quality office and retail assets continue to benefit from strong customer demand and our strong operating platforms. And combined, these assets make up 90% of our income. In total, like-for-like income growth drove a 1.6p or 6.4% increase in earnings per share for the half year. And further overhead savings, which added 0.3p offset the increase in like-for-like finance costs. Year-on-year movements in other items, which include lower surrender receipts and the bad debt recovery reduced EPS by 0.9p. But the overall benefit to EPS from both items is minimal now and it's unlikely to have a meaningful impact in the future. The net impact from investment activity was also positive with overall EPS up 3.2%. And as I will explain in more detail in a minute, the outlook for EPS from here remains positive. Our continued growth in income is further enhanced by our improving efficiency. Back in February, we set out a target to reduce overhead costs to less than GBP 65 million by financial year '27. But we've now increased our target savings, and we expect overhead costs next year to be in the low GBP 60 million. This reflects the benefits from our investments in data and technology, which I've talked about previously, and a cultural shift in our organization to sustain efficiency and maintain a structurally lower cost base going forward. We now expect overhead costs next year to be more than GBP 20 million lower than they were in financial year '23. That's despite GBP 9 million increase from wage costs and inflation. So in total, this marks a reduction in costs of over 25%. Turning to portfolio valuation. Our successful leasing drove 2.5% growth in ERVs over the past 6 months, with 3.1% growth in office and 2.2% in retail, both well on track versus our guidance for the full year. The positive impact of ERV growth was partly offset by the continued wind down of the valuation of QWAM as the asset is nearing the end of its leases, so the NPV of the future income continues to reduce and an increase in the business rates at Piccadilly Lights. Combined, these 2 factors reduced our overall portfolio valuation by 0.5%. But as we have agreed to sell QAM and the business rates review was the first since 2021, neither are expected to be continuing factors in the future. This means our overall portfolio valuation was effectively stable. Our main focus is ensuring that we turn this value into growing cash flow, growing earnings and growing dividends for shareholders. With that in mind, we said in February that we would be pragmatic about the value in terms of capital recycling. And the last 6 months have been an example of this. We sold GBP 650 million of assets, which generated little or no return, which came at a cost to NTA of 1% when comparing the proceeds to the book value. Ultimately, these disposals materially enhance our future income growth, yet this is the main reason our NTA was down 1.3%. And this continues to be underpinned by our robust capital structure, which will strengthen further in the near future. Our average debt maturity remains long at 8.9 years, and we have no need to refinance any debt until 2027 at the earliest. I mentioned in May that we expected our net debt-to-EBITDA to exceed 8x this year as our 2 on-site office developments in London are nearing full investment, but they do not produce any income until they complete in the 6 to 9 months' time. Combined with our predevelopment assets, this means we currently have around GBP 1 billion of capital that's invested in assets that do not produce income. So we carry all the debt for this, but none of the EBITDA. As these projects complete and they lease up and we move to a lower level of development exposure in the future, our net debt-to-EBITDA ratio will naturally fall. So we're now targeting a net debt-to-EBITDA of below 7x, down from the previous target of below 8x, which we expect to achieve in the next 2 years. We also expect our LTV to reduce below 35%, down from our current 38.9%. Our financial risk profile will, therefore, be even lower in the future, which further underpins the attraction of our growing income and EPS. And the positive, the outlook for both of these is positive. So following the strong first half of the year, we have raised our guidance for like-for-like income growth for the full year to circa 4% to 5%, up from our initial guidance of 3% to 4%. Combined with further cost savings, this means we now expect EPS growth at the top end of our 2% to 4% guidance range that we provided in May. This is before the impact of the sale of QAM, which turns the residual finance lease income of this asset into a cash capital receipt on sale. The overall amount of cash that we receive is effectively the same, but as we will now receive the cash when the sale completes next month rather than as lease income over the rest of 2025 and '26. This reduces EPRA earnings for this year by GBP 7 million. For next year, we expect like-for-like growth and cost savings to continue, yet the exact outturn in terms of EPS is also dependent on the pace at which we lease up our office developments. As Mark outlined earlier, we are seeing good engagement from potential customers. So we assume our 2 main projects on average to be 40% let by the time that they complete and leased up in full over the 12 months thereafter. On this basis, we currently expect EPS growth for financial year '27 to be broadly similar to financial year '26, again, before the impact of QAM, which reduces earnings for financial year '27 by a further GBP 15 million. As the impact on EPS from the sale of QAM is beyond financial year '27 is minimal, this means we're on track for our medium-term EPS growth potential that we've outlined. So turning to that in more detail. Back in February, we set out the potential for EPS to grow by around 20% to 60p by financial year '30, including the headwinds of QAM and the higher finance costs. We now raised this outlook to 62p driven by higher income growth in retail, a further reduction in overhead costs and a move to a lower level of development exposure. So let me just take a moment to explain the movements -- the moving parts in a bit more detail. So starting with last year's 50.3p. The sale of QAM, which I just explained, had an impact of just under 3p. By far, the biggest part of future growth is capturing the growing reversion in our existing portfolio. As you can see from our strong operational performance, we have a good track record of this with 5.2% like-for-like income growth for the first half across the whole portfolio, building on a 5% like-for-like growth that we reported last year. Our office portfolio is 12% reversionary, and our numbers here assume that we deliver like-for-like rental growth of 3% to 4% per annum, which is a more normalized level than over the last 6 months, given that our office portfolio is now effectively full. At our Capital Markets Day in September, we set out how we target to deliver income growth across our retail portfolio between 4.5% and 7% over the next few years. where rental uplifts are now up to 14%, turnover income is growing, and we're seeing the benefits of accretive CapEx. This outlook is based upon the midpoint of this range. The upside from further overhead savings I set out earlier equates to about 1.5p, and we have a good track record of delivering on this too. Our recent acquisitions and disposals, which include Liverpool 1 and the sale of our retail parks have a net benefit of around 1p. And as Mark mentioned, we are ahead of plan in terms of our objective to halve our capital employed in low and non-yielding predevelopment assets, which will add around 1.5p per share from interest cost savings. And the lease-up of our near-term office completions will add around 2p. The upside from future asset rotation effectively reflects our plans to recycle more capital out of lower return assets and invest a further GBP 1 billion into major retail destinations. As our planned capital recycling out of offices into residential is broadly EPS neutral on this time frame and will mostly benefit EPS growth beyond financial year '30. So taking into account the expected rise in finance costs, all this equates to just over 4% annual growth. Delivering sustainable income and EPS growth will, over time, result in an attractive return on equity. So with a strong capital base and attractive existing income return, we are well placed to drive substantial shareholder value. And with that, I'll hand back to Mark. Mark Allan: Thanks very much, Vanessa. So I'm now going to wrap up with a summary of what you can expect to see from us in the near future, where we see the differentiation opportunity for Landsec before we then open for Q&A. So the updated strategy that we set out back in February provides real clarity in terms of our key objectives and our primary target to deliver sustainable income and EPS growth for our shareholders. This means all of our priorities and decisions flow from this, creating a real clarity of focus across the business. For our best-in-class office platform, we are focused on capitalizing on the continued strong customer demand for space, and that's both for our near-term completions as well as across our existing estate. And this is similar to our market-leading retail platform, where we have robust plans to deliver 4.5% to 7% growth in income over the next few years. As investment activity continues to pick up, we will look to rotate further capital out of offices into retail to capture the superior risk-adjusted returns. Meanwhile, in residential, we are focused on locking in the positive impact of strengthening public policy support as this remains a highly attractive opportunity in the longer term, supported by strong growth fundamentals. So we have now created a clear differentiation in our positioning. We have 2 unquestionably best-in-class irreplaceable portfolios operated by 2 market-leading platforms of real scale and stature. Our primary focus on sustainable income and EPS growth as our principal performance measure provides absolute clarity across our entire business. And our clear capital allocation framework means that we're clear-eyed and rational about investment decisions in pursuit of our primary financial objective as reflected in our decision to significantly reduce our future development exposure, which underpins our move to an even stronger capital base with a net debt-to-EBITDA below 7x. At the same time, the outlook for income growth remains firmly favorable. Strong customer demand for the best office and retail space continues to drive ERV growth, and our overall occupancy is at a decade high of 98%. Both our office and retail rents are highly reversionary, underpinning future income growth, which on an earnings level is supported by additional overhead savings. This provides us with the confidence to raise our guidance for FY '26 earnings per share and increase the outlook for our financial year '30 EPS potential, with dividends expected to grow alongside growth in EPS and a strategy which is seeing us move to higher income, higher income growth and lower cyclicality over time, we are well positioned to deliver significant value for shareholders. Ladies and gentlemen, thank you very much for attending this morning and listening to our presentation. As usual, I'm now going to open for Q&A. We'll start here first in the room here. So please, if you have a question, raise your hand and wait for a microphone. And then we've also got people attending via webcast and conference call, and we'll go to both of those in turn as well. So a couple of questions here at the front first, and then we'll go to a question at the back in the middle. Marios Pastou: It's Marios Pastou here from Bernstein. If I maybe turn to your longer-term plans in residential. I think you've quantified now kind of policy changes that will actually support your development yields within your kind of London schemes, for example. Would that uplift be enough for you to commit to those projects? Or are you looking for more upside potential from other maybe cost savings, for example? Mark Allan: So we've indicated that we think -- and we have to be clear at the moment, what we have is policy announcements from government and GLA together to reduce affordable housing and community infrastructure levy charges. We need to see how those things actually play through in the detail to individual projects. So -- but the indication we provided is if those land at a project level, that would be 50 to 75 basis points improvement. And that would take us to somewhere in the high 5s as a yield on cost, which for a sector which has got structural growth and annual capturing of rental growth feels a pretty attractive starting point. But it's a decision really for us to look at probably in -- towards the end of 2026 when we have more clarity at a project level, we also have an understanding of what the other opportunities to deploy capital look like and what the relative risks and returns look like. It is unquestionably positive in terms of the direction of travel policy support, but it will be a decision ultimately for later in 2026 when we can look at things with a greater degree of certainty. Marios Pastou: Okay. Very clear. And then also just turning to retail. I think you've mentioned again, you're expecting more potential investment opportunities to come to market, and that's where the focus is today and putting capital to work there. It feels also quite crowded with what we're seeing in the market. So are you confident on being able to allocate that capital and at the levels of returns you're previously targeting? Mark Allan: We are in short. There is more capital coming -- starting to look at the market. But I think we have to remember sort of a couple of things. It is a very operational market. I think having relationships with brands, having the operational expertise, having the data around consumer behavior are all critical to be able to successfully operate a shopping center. One of the reasons we have deliberately targeted that sector is because we have a demonstrable capital advantage. If you look at where we are today, our major retail portfolio has 40% more reach in terms of footfall than the next largest U.K. retail platform, and our plan is to build and grow on that. I think the bigger the lot sizes get, the more difficult it is for some of the other investors might be coming into the space to capitalize that and to underwrite an exit. So I think it's good news. You've got more investors looking at the sector in terms of validating what we see within it. I don't think it's enough at this stage for us to be overly concerned about capital deployment. But it does mean one of the reasons we think it's a 12- to 18-month window. And one of the reasons we've accelerated office sales to rotate into that window is we don't want to do things over too long a period of time and find that the cap rate is 6.5% rather than 8% when we start to deploy capital. Jonathan? Jonathan Kownator: Jonathan Kownator, Goldman Sachs. Three questions, if I may. First question is on retail ERV. When are we going to see this grow? You're obviously letting 10% ahead. So how do you think this is going to evolve? First question. Second question, share buybacks were on your allocation charts. How are you thinking about this? Would you need more disposals to do share buybacks? Are you considering those at this stage? And third question, you're obviously willing to redeploy in residential. We've talked about the economics. We've talked about the time frame. Given the long time frame for development as well, would student housing be something that you would consider instead of doing residential development? Mark Allan: Thank you. So just first on retail ERVs. I'll make a comment and then perhaps ask Vanessa just to explain a little bit in the context of valuation. My personal view is that the ERVs that they're putting into valuation metrics are not particularly meaningful on the basis that we see our letting evidence is consistently so far ahead of those ERVs. But I think there's been an issue over recent years of particular lettings being done and then a question of what does that provide rental evidence that can be ascribed to other demises within retail. And when occupancy was lower and there was a variety of different types of occupier demand, I think there were perhaps reasons to say, well, let's be a little bit more cautious on that. I think when you're 97% full and you're leasing, if you look at in solicitor's hands, double digits ahead, I think the evidence is clearer and clearer. For us, in terms of our decisions, we look at our leasing evidence, and we look at our leasing pipeline, and we base it on our conversations with retailers. So whether we find that ultimately finding its way into valuations is a sort of secondary point as far as we're concerned, we're looking at the cash on cash and how does it help us grow our earnings. Jonathan Kownator: And is that your impression that that's increasing, so the letting that you're doing is increasingly at better rates? Mark Allan: Yes. Yes. And I think you saw a chart in the chart which shows retailer sales across the portfolio, which I think is really quite striking. At the end of the day, as a retailer, what are you trying to do? You want space that can help you grow your top line and grow your margin. So to see 19% growth over 3 years across our portfolio in total retail sales compared to a market movement of plus 3%, which is substantially below inflation over that period shows that retailers are focusing on the best locations and so -- and that gap is widening. And so if the gap in terms of sales performance is widening, I think it follows that the room for rental values to grow is also widening. Is there anything, Vanessa, from a valuation point of view that you'd want to add on that? Vanessa Simms: I mean, no, I think the leasing stats speak for themselves that when you're leasing 10% ahead of ERV, you've got 2.2% reflected in your valuation. And we continue to lease ahead of ERV and ahead of passing rent. I think that kind of shows that there's -- we've a bit more successful leasing than probably the wider market. Mark Allan: So on to your second question, we've quite deliberately included share buybacks on our capital allocation framework. And you should take from that as it is something that we, as a Board, will continue to actively consider. You've seen the 2 axis of how we think about how we allocate capital, what does it do to our near-term earnings and how does it help our portfolio mix over time get us to a position that we think can support long-term earnings growth. At the moment, selling out of lower-yielding assets, including offices and deploying into retail is the most accretive use of our capital. We can buy an ungeared yield, which is higher than the implied ungeared yield on our shares. So that will definitely be where we would deploy. I think the second thing is then to make sure that we have a really solid balance sheet. And so we would always look at that quite cautiously. But I think one of the things you've seen with us today is talk about effectively taking development down to me, as things stand at the moment, if we were just looking at -- if we didn't have those other options, we would look at share buyback as being preferable to development deployment, for example, because it would have the same effect in terms of portfolio mix, but it would have much more benefit on earnings accretion. So it will remain on our framework, but we're very clear as things stand deploying into retail is the most accretive use of our capital. Jonathan Kownator: And how long do you wait? There's obviously a different execution risk in both products, right? Mark Allan: There is a different execution risk. There's also a different scarcity value. No one is building any more of these shopping centers. So if we can add 2 or 3 further locations to what is already the leading platform by quite a margin in the U.K., those chances aren't going to come around again. So if we were to say, well, let's do something short term in buying our stock and then not have the capital available in 9 months' time to buy an asset, which isn't going to be on the market again for maybe another 10 years, I think that would be a real shame. And then lastly, just on residential, you understand the time frame, you understand the direction of travel on build-to-rent. That's where we think there's opportunity over the medium to long term to leverage our skill set. We considered student housing as one of a number of living sectors when we looked at our strategy last year before the February announcement. I think it needs real expertise. I think there are some interesting questions about what the long-term growth characteristics of that sector look like. So it's not something that we would plan to deploy capital into. I might just -- if I may, in the interest of the -- oh, I've got my front at the back, sorry. So I know there's a question at the back, we'll go to first. And then I think there are a couple more in the second row here. Unknown Analyst: [indiscernible]. It might have some overlap to the previous question, but given the 1% pool of retail assets that you said you're interested in shopping in, you mentioned maybe about 30 centers, and you obviously haven't made any acquisitions yet since the CMD in February. If no assets do come to market available at the price or yield that you like, how does that kind of shift your larger strategy in terms of capital deployment? Mark Allan: Yes. I mean I think it's a largely hypothetical question because I think those assets will come forward, and they will come forward at returns that will make sense for us. But the reason we have that capital allocation framework is to make sure that we keep that discipline. So I think if we got to a position where in that hypothetical scenario, you had earnings accretion that was meaningfully below the alternative of buying our own stock, then we would need to reassess at that point in time. But as things stand, I think you've still got quite a lot of centers that are owned by investors either individually or collectively that are not natural long-term holders of these assets. As liquidity improves, I think one of the benefits that has is it will encourage some of those existing owners to bring assets forward to market that perhaps weren't available to invest in previously. So I think we'll see the market balance out. As I said to the earlier question, I mean, the operational component of this Plus, I think on some of these assets, the CapEx requirements on some of this, I think they will be, I think, reasons for investors without the real expertise in this sector to be a little bit cautious. Unknown Analyst: That's clear. And just quickly on the GBP 200 million of accretive CapEx, is there opportunity to increase that slightly in the interim if the opportunities are slightly delayed? Mark Allan: There might be. I think there's also hopefully opportunity to try and deliver the same for less, which will probably be our primary focus if we can get the benefit of the return from that GBP 200 million by only spending GBP 180 million, we'd rather do that. But I think there will always be investment opportunities across the portfolio, but we're really focused on the cash-on-cash yield that we can get from those things. There's a question -- we'll start in the middle of the row and then work that way, if that's okay. Unknown Analyst: Bjorn Zietsman from Panmure Liberum. You mentioned increasing opportunities in retail for acquisition. Can you give us a sense of the composition of those opportunities? Are they shopping centers, retail parks elsewhere? Mark Allan: Yes. So the comment was intended really to talk about shopping centers, which is the only sort of segment that we would look at. And within that, there will be some that would not be of interest to us. They don't have the dominance in the catchment. They're not in a strong enough catchment. We don't see the opportunity to leverage our platform sufficiently. So it will be the larger and more dominant of those that would be the likely area that we would look towards. Unknown Analyst: And just on capital recycling, can you give us a sense of on the pace, quantum and timing as well as composition of any disposals? Mark Allan: So it will be capital recycling for the first. So we will use disposals to fund acquisitions. I think that's the first important thing to say. So I think you can judge on the basis that if we're hoping to invest into retail meaningfully on a 12- to 18-month view, that will need to be funded from disposals over a similar time frame. We've said lower-yielding assets, including London offices. So looking at the composition of the portfolio, that will need to involve ongoing disposals of London office assets as we've signaled. Robert Jones: It's Rob Jones from BNP Paribas. This might be a question that's better offline, but we'll try it now to start with. Mark Allan: That sounds like fun. Robert Jones: I was excited when I wrote the question, put it that way. I don't know how you can get to your FY '27 EPS guidance that you published yesterday, which is 53.3p on your website. And the reason why I can't get there, but you'll be able to help me is, for '25, obviously, you did 50.3p. You've then got, let's say, 4% earnings growth for this year to March '26, which adds, say, 2p a share to 52.3p. I've then got to strip out 0.9p for Queens Anne's Mansions, it gets me to 51.4p roughly for FY '26. I then look forward to FY '27. We've got, as you said, the second impact of Queens Anne's Mansions of GBP 50 million, call that 2p a share. So my 52.3p for March '26 goes to 49 -- sorry, 51.4p goes to 49.4p ex Queens Anne's Mansions in FY '27. And then you need to obviously then grow income ex Queens Anne's Mansions from that 49.4p to the 53.3p that you've currently got as your analyst consensus on your website, but that's an 8% growth for '27. And let's say we do 4%, does that mean that consensus is 4% too high? Like what have I missed? And I definitely missed something. Mark Allan: I can't imagine why you thought that might be better offline. But perhaps I might as Vanessa just to comment, there might be a couple of sort of big moving parts in that. I mean... Robert Jones: You can come back if you want, honestly. Mark Allan: We wouldn't -- the number wouldn't be out there if we didn't have the component parts as well. Robert Jones: Or analysts are 4% too high. That's the other option. Mark Allan: I just have a -- is anything headlines to... Vanessa Simms: I'm happy to have a quick -- a bit more detailed offline. But effectively, you've got the continuation of like-for-like growth from leasing performance, cost reductions. We don't have any major refinancing coming through in that year, so a pretty stable position. But there will then be the development completions, which we've had really from now over the next 12 months or so. So we get some -- we're assuming in the bit of leasing performance and then you offset the QAM movement. Robert Jones: So you don't think that 53.3p FY '27 today is too high. Is that any fair? Vanessa Simms: I'll have a quick look at that, if you like afterwards. I haven't actually seen what you specifically talking about. John Cahill: John Cahill from Stifel. Just one question, please. As you say, one of your differentiating factors now is your risk profile is vastly reduced from what it once was. Leverage is going to be lower still, reducing the pace of developments. And in isolation, lower risk, of course, is a positive. But there must be a degree to which that slows down the rate at which you get to your 2030 diversified portfolio. Should we think of this as it's the executive's view that on a risk-adjusted basis, these are the best returns? Or is it that the shareholders via the Board are saying, well, yes, we want you to get where you're going with the resi developments, but actually, we're just going to put the brakes on you a little bit. Mark Allan: Yes. It's very much a -- I mean the capital allocation framework that we set out on the chart there with the exception of adding in share buyback is no different to the capital allocation framework that we set out with the strategy in February. And if you look at the objectives that we set the short term and the long term, the short term included invest GBP 1 billion in retail. The longer term is rotate office into residential. There's no change to that strategy. I think what we might reflect on post February is that there's a lot of focus on residential and perhaps say we needed to do a better job on explaining the time scales and that we were sharing a 5-year view of how we shift the portfolio mix over time. And that, I think, got conflated with what drives near-term earnings per share guidance. What we've sought to do since then and particularly with today is show, look, the earnings guidance near term is, of course, driven by today's portfolio. We're very, very happy with the quality of that. We think retail continues to be the best place for us to deploy capital and leverage our expertise. We still think the rotation into residential is the right thing to do, and we still think the time frame for that is medium to long term. So no change in that respect. I think just trying to be a little bit sharper on what's happening over the next 1 to 2 years, which is -- tends to be -- I may even be giving them a little bit more -- giving markets a little bit more credit, but that tends to be the sort of time frame that markets are more focused on. I think that's what we've sought to do. I may just pass to Paul, it's convenience, and then we'll come to Tom at the front. Paul May: Paul May from Barclays. Three questions from me. Given the losses on disposals on non-income-producing sites, have you proactively written those down in the first half? -- ahead of expected sales further forward? Or should we expect further losses on those as you're being pragmatic? Second one, if recent press comments are correct, sorry, apologies. Are you disappointed having lost out on Merry Hill? Just get some color there. And then final one, as you know, I applaud the earnings-based strategy. I think it'd be a shame if the market doesn't wake up to it and see the earnings growth potential because I think it brings to question the whole European listed sector. But I just wondered what more do you think you could do to convince people and what pushback do you get from investors on that? Mark Allan: Sure. So Vanessa, the first question around sort of, I suppose, where valuations sit relative to ongoing transaction activity? Vanessa Simms: Yes. So the disposal losses that we saw in the first half really related the majority of them to some development site sales where we're seeing that developers are really looking for a higher IRR from development activity than probably in the past they have. So I think that it's quite specific to those sort of assets. So we have reflected that through into our valuation for the first half of the September valuation. So we've been through the discussions that we have, as you would expect, with all the valuers. So we would -- we believe that our valuation now properly reflects what activity we are seeing and experiencing in the market. And we've been pretty active, as you can tell from having sold almost GBP 650 million over that period, we've been pretty active. So I'm sat here pretty confident that our valuation at this point reflects where we see the market position. Mark Allan: And of course, we have reasonable visibility on our own capital recycling plans and are comfortable in that respect as well. Your question on Merry Hill, you won't be surprised, I won't sort of comment on specifics. I guess what I will say is that there are a number of assets, including Merry Hill that are being marketed. And in how we look at those assets, we will look at what's the opportunity to leverage our platform, bring brands in that perhaps aren't there, reposition assets through investment using consumer data to see what might be missing or what might drive performance. And what do we think the CapEx bill is likely to be in order to affect those changes or to deal with backlog maintenance, which will be a feature on a lot of these assets. So that's what we will always look at. So I think you can be confident that anything we do acquire, we will have answered those questions in the positive, and there will be a decent number of assets we look at that we either won't spend much time on at all because we don't feel that they're right or we might spend a fair bit of time on, but struggle to get ourselves comfortable at the sort of levels others may end up being. But again, I think we're comfortable we'll get to our capital deployment targets with what we can see on the market at the moment. And then I think with respect to earnings growth and what more can we do. I mean we post our strategy, had a considerable number of meetings, both then and through results cycles and over the summer and into the autumn, we engage regularly with all of our shareholders. We certainly have had a pretty consistent message back that earnings growth and confidence and credibility in that earnings growth trajectory is what matters most to generalist investors, if that's the right term. Certainly, and you all understand this better than me, but the dynamic of investing in our sector is very different to where it was 10 years ago in terms of specialist versus generalist. I think it is the wider equity markets that we need to be able to talk to in a convincing way of how we are creating value for them. And I think that's a far more convincing story to be able to point in a quite granular way to how we're growing earnings and how you can form a view as an investor on the deliverability or otherwise of the different components of our earnings bridge to 2030 than pointing to a valuation and an NTA where I think there's -- certainly for investors that look globally, NTA is not necessarily a feature in other markets. So I think we're moving in the right direction. We certainly wouldn't be doing it if we didn't feel that. We've got to then deliver and execute on it. And the more we do that, the more confident market should become. Paul May: Sorry. And just on that last bit in terms of that is a bit with Rob's question as well, that consistency of earnings delivery into next year, what would be good to provide comfort for investors that you do have that into next year given the headwinds, as Rob mentioned. But also, are there any acquisitions baked into that FY '27 earnings assumption? Mark Allan: So we put the FY '27 earnings number up there. I think within that, we will assume there's a small amount of recycling based on what we can see today, but not a significant amount in terms of undue reliance on achieving massive amounts of recycling to achieve a number with respect to earnings next year. The biggest sort of sensitivity is the pace of development leasing, and we provided some color in the statement on what a sort of plus/minus 10% on the sort of average occupancy on those assets through the year would do to earnings. And I think that's the one that we're probably most focused on. Tom, on the front here. Thomas Musson: It's Tom Musson at Berenberg. Sorry, I just wonder if I can pin you down slightly on share buybacks. I appreciate what you're saying where you see best use of capital today, but markets are volatile, especially today. I'm just wondering at what share price or perhaps what earnings yield does it suddenly make sense for you to buy back shares? Are we close or still some way away? Mark Allan: We don't have a precise number in mind. I think it would probably be unwise to have that. I would point back to my earlier answer around the scarcity of the alternatives. So I think buying major retail is much less about just a comparison of the spot yield and much more about what does that do to the long-term earnings potential of the business, the quality of the underlying portfolio. So comparing a sort of a spot rate to a genuinely scarce asset, I think, is something that we would be cautious about doing. So at the moment, the cap rates that we believe we can invest in, in major retail would still make that very clearly the right place to deploy capital. And I think there is an opportunity to add some scarce assets to an already market-leading platform on a 12- to 18-month view. That's got to be the right thing to do for the long-term value of the business. Are there any other questions in the room? Otherwise, I'm going to go to the conference call. Okay. So we'll go to the call. I think there are a couple of questions on the call. So let me open up to the operator on the call. Thank you. Operator: Your first telephone question for today comes from the line of Zachary Gauge from UBS. Zachary Gauge: Can you hear me okay? Mark Allan: I can. Zachary Gauge: Sorry, I'm not there in person. Yes, just 3 questions for me, hopefully quite quick. Could you disclose what the discount to book was specifically on the GBP 72 million of development site sales that you had in the first 6 months? The second one is on the overall office acquisition. Just interested to see how that fits into your new strategy, particularly around obviously the office holdings and the location being close to South Bank. And lastly, on the current developments, based on my calculations, when you strip out CapEx, Timber Square dropped by about 5% in value over the period. Just interested to see what was driving that. And also, if you could touch on why Thirty High, which 12 months ago was guided to be completing October 2025, now has a June 2026 completion date. Mark Allan: Zach, I've written down your questions, and I've written the first one down so badly, I can't read my writing. Sorry, what was your first question? Zachary Gauge: The discount to book on the GBP 72 million. Mark Allan: Right. Yes. Yes. Well, look, on the first one, we don't disclose the specific sort of deal by deal of sort of achievements relative to book. I think what Vanessa mentioned earlier with respect to sales is that where we've been selling development sites, there's tended to be in the market a higher IRR requirement than had previously been the case and the valuations are reflecting. What I would say, though, is things are pretty sensitive, and we've got examples of other sites where we're talking to partners that are quite a different outcome to what we saw in the first half, including ones that would point to positive outcomes relative to book. So it is very sensitive, but it is a relatively small part of the portfolio that will, I think, be largely sort of taken care of during the current financial year. The overall acquisition dates back to 2021, very good quality assets just delivered within the last month or so, as you'll see from the schedule, good occupier demand. The thinking of that at the time was looking for assets with a good value entry point in terms of price, perhaps slightly different in terms of local amenity playing to what was quite a different occupier dynamic back in sort of COVID era times. And so we looked at a relatively small acquisition to test that. I think we're pretty happy with the way the occupier demand is shaping up on that particular asset. But as things have moved forward now, we've set out a very clear priorities of where we're looking to allocate capital. And I think you understand where office investment sits in that Thirty High, I'll just talk to briefly and then ask Vanessa just on the Timber Square sort of movement. So Thirty High, yes, I mean, an existing building where the contractors have some challenges within the existing building as a refurb, which has pushed the program back a little bit. We're indicating around middle of next year, there is a recovery program opportunity, which could outperform that. But it's important for us to set a clear date, particularly as we're starting to see quite significant incoming occupier demand, and there's quite short lead times on the sort of people that are looking to take, say, 10,000, 11,000 square foot floor plates. So we need to have a date that we're very confident committing to for those occupiers. So we've moved that guided completion date back for those reasons. And then Timber Square. Vanessa Simms: Yes. So Timber Square as an asset, actually, the valuation because it's pretty close to completion was -- has transitioned to a cost to complete basis. So looking at the end asset with the cost to go. And then it's then therefore, valued at the moment as an asset that's 100% vacant because we haven't actually signed any of the leases at this stage. So as we go throughout the remainder of the next 6 months until that completes on the basis we're expecting to lease that asset, we'll get to a position whereby the yield will shift to reflect that as a leased asset rather than a vacant office with cost to go. So it's just a nuance in the way that the valuations on developments transition over the life of development. Mark Allan: So a point in time factor. Vanessa Simms: Yes. So it's not necessarily any change to any major assumptions on that front. Mark Allan: Is that okay, Zach? Zachary Gauge: Yes. Mark Allan: I think we may have at least one more question on the conference call. Operator: The next question comes from the line of Adam Shapton from Green Street. Adam Shapton: Just one from me on the thinking around residential development returns. I know you had 1 or 2 questions on that already. But I'm going to preface the question by saying I realize there's political dimensions to the communication on this, but hopefully, we can put that to one side. If I look back to the February Capital Markets Day, you were pointing to net yield on cost of 5%, 10% to 12% IRR and described that as attractive. Today, swap rates are a little lower, your share price is broadly the same, and you're saying a 5% net yield cost is not sufficient. Could you explain why that stance has changed or correct me if my sort of February inference was wrong or I'm not comparing apples to apples. And then more broadly, can you explain how you think about what would be a sufficient yield on cost or IRR for you to commit more capital to resi in the medium term? Mark Allan: Yes, certainly. So I think 6 months on looking at what's happened across the wider market, not just residential, and I would include our development sales and what people are looking for an office development, et cetera, to the earlier question within this. I think our view on IRRs will probably be point to something a little bit higher than 10% to 12% being where we need to be. I think we would also take a slightly more cautious view on exit cap rates, which, of course, has a fairly sensitive impact on IRRs. So we're now suggesting, and as I stressed earlier, this is subject to all of this flowing through to the actual projects in detail. So it needs to be very heavily caveated. But at a headline level, the reduction in affordable, the reduction in sale looks like it could add 50 to 75 basis points. That would take us into the high 5s on a yield on cost basis, which with sensible cap rate assumptions, I think, delivers a better -- a decent increase on that 10% to 12% guide on IRR. So I think where we are now, and I think this would also be consistent with a lot of the shareholder discussions we had post strategy is pointing to a need for IRRs to be higher than that 10% to 12% range yields on cost, which we think, frankly, is the most important measure because that's what ultimately is going to flow through to our earnings and earnings growth longer term, high 5s feels a more sensible level at which to be seeking to underwrite these. Adam Shapton: Okay. Understood. And then just on those -- on the additional yield that might come from the policy changes, you would -- is your expectation or your hope that those become permanent rather than temporary or of time-limited measures, which I think is what we're looking at the moment. Mark Allan: I mean, at the moment, they're positioned as acceleration measures. One would hope that if those acceleration measures achieve the desired acceleration, there's a better chance of them being come permanent than if they don't. Certainly, from our point of view, without those changes, we'd have been unable to take any residential projects forward. Other questions on the conference call line. Operator: The next question comes from the line of Paul Gory from CTI. Unknown Analyst: Can you hear me okay? Mark Allan: We can. Unknown Analyst: Yes, just a quick follow-on from Rob Jones' question. I'm looking at Slide 28 and basically, the FY '27 outlook for earnings looks flat against FY '26. So I'm just trying to understand, is that correct? Is that the right interpretation? -- flat year-on-year '27 versus '26? Mark Allan: Is that before the QAM adjustments? Unknown Analyst: That's after the QAM. Mark Allan: After the QAM. Sorry, I haven't got it in front of me. Unknown Analyst: I'm just looking at the -- sorry, yes, it's like purple bars, the deep purple taking QAM fully into account. It looks like is flat year-on-year from Vanessa's comments. It sounded flat year-on-year. Vanessa Simms: Take out the finance lease -- if you take the finance lease income from QAM out because that basically we're receiving that as a cash receipt in the next month as opposed to through the finance lease income that comes through in those 2 years. So if you look at the underlying portfolio, how that performs, that will be the growth -- the guidance we've given is the 2% to 4%. And then if you net out the QAM, that's where it is, which I think goes back to Rob's point earlier, when I just had a quick look. I think what's happened is since we've announced the sale of QAM, not all of the analysts out there have adjusted for the impact of QAM, even though the announcement we were quite specific on the impact over those financial years. So I think that's where the difference is to the roll-up of the consensus that sits out there. So with all the moving parts, when you actually look at the reported, it would be flat, whether you look at the underlying performance of the portfolio, it would be the 2% to 4%. Mark Allan: Any more conference call questions? No, I think we're -- we've either cut them off or are any more questions. So we'll head to the webcast. A couple of -- a few questions coming down on the webcast. So first, with the business plan seemingly on track was the credit rating downgrade a surprise and our corrective measures called for from Mike Prew. So Vanessa, just on credit. Vanessa Simms: Yes, happy to talk about that. We had a Fitch rating that was reflecting of last financial year's position. That rating was reflecting the -- following the acquisition of Liverpool One, our debt was slightly higher as we talked about in our results being slightly higher. But it's worth noting that S&P have just reaffirmed their rating, I think a couple of weeks ago of AA rating, so still a very high investment-grade rating. And overall, we still have one of the -- we are the highest -- have the highest investment-grade rating in the sector. So there's no need for necessarily corrective measures our plan that we have in place at the moment, as we talked about with net debt to EBITDA improving and naturally improving positions us well and our capital operating guidelines position us well and commensurate with high investment-grade rating. So our plans for the future put us in a good position. Mark Allan: Thank you. Then a couple of questions from Alan Clifford. So on future London office development, talked about partnering with third parties to leverage platform. What capacity do you have for this? And how capital light is this likely to be? So I mean, we have, at the moment, following the 2 development site disposals that we've already made, we have 2 further city-based assets plus an additional one in the South Bank, all of which are well advanced in terms of being able to commit capital to and where we are in active discussions on how we best take those projects forward. That's what gives us the confidence to make reference within the statement here to opportunities to work with third-party capital. If you take that in alongside our comment within the results to not planning to commit any significant capital to development ourselves on a 12- to 18-month view, I think you can infer from that, that these would be very capital-light options should we choose to take them forward. And then with regard to the wait-and-see comment on resi, how does this impact progress on the currently owned schemes with planning consent. So that has no bearing at all on what we need to do on those, such as the detail required to take forward schemes from a resolution to grant planning plus deal with the additional requirements of the building safety regulator whilst finalizing detailed designs but more moving on site. even if we wanted to go as fast as we possibly could on those residential projects, it would be mid-'27 with a following wind before we could put a spade in the ground on any of those. So at the moment, there is no bearing. So that gives us the opportunity without spending significant amounts of capital because we've got the consents in place to now work through the viability of those projects by mid next year to then be able to make the decisions I talked about across the second half of 2026 without having any bearing on the delivery time lines of the projects we're looking at. And I think that is the last of the questions. So all that leaves me to do is to thank you all for taking the time to either attend here in person or to dial into the call, and we look forward to further discussions with you over the coming few days and weeks. Thank you very much. Vanessa Simms: This presentation has now ended.
Operator: Greetings, and welcome to the Milestone Scientific Third Quarter 2025 Financial Results and Business Update Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. David Waldman. Sir, the floor is yours. David Waldman: Thank you. Good morning, and I appreciate everyone joining Milestone Scientific's Third Quarter 2025 Financial Results Conference Call. On the call with us today are Eric Hines, Chief Executive Officer; and Keisha Harcum, Vice President of Finance of Milestone Scientific. The company issued a press release yesterday after market containing third quarter 2025 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the third quarter ended September 30, 2025. Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding timing and financial impact of Milestone's ability to implement its business plan, expected revenue and future success. These statements involve a number of risks and uncertainties and are based on assumptions involving judgments with respect to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond Milestone's control. Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are general economic conditions, failure to achieve expected revenue growth, changes in our operating expenses, adverse patent rulings, FDA or legal developments, competitive pressures, changes in customer and market requirements and standards and the risk factors detailed from time to time in Milestone's periodic filings with the Securities and Exchange Commission, including, without limitation, Milestone's report on Form 10-K for the year ended December 31, 2024, and Milestone's report on Form 10-Q for the third quarter ended September 30, 2025. The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, November 14, 2025. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason. With that, I'll now turn the call over to Eric Hines, CEO of Milestone Scientific. Please go ahead, Eric. Eric Hines: Thank you, David. So good morning, folks, and thank you for all joining our call. We're very fortunate to have so many people who believe in Milestone Scientific, and we are making progress. During the third quarter, we continued to execute our plan to build a leaner, more focused organization capable of sustainable growth and improved profitability. Through disciplined cost management and operational restructuring, we reduced operating expenses by over $0.5 million compared to the same period last year, while maintaining stable revenue performance. These results reflect the early benefits of our transformational strategy, which is centered around 3 priorities: streamlining operations and driving efficiency, strengthening commercial execution in both dental and medical and advancing our reimbursement and payer strategy to position CompuFlo for broad adoption in pain management. In our Dental segment, we made solid progress, expanding our direct sales programs in North America and advancing international registrations for our STA Single Tooth Anesthesia System. We have also enhanced our omnichannel marketing capabilities, and our maturing e-commerce platform continue to drive brand visibility and recurring customer engagement. International dental sales increased year-over-year, partially offsetting the decline in domestic revenue. On the Medical side, utilization of CompuFlo disposables rebounded slightly as we are starting to reenergize current customers, ensuring them that we are even more committed than ever as we continue to work on a structured and supported Medicare reimbursement strategy. We are particularly encouraged by feedback from leading pain centers domestically and internationally that are using CompuFlo to improve accuracy, safety and building confidence in epidural procedures. We also strengthened our organization through the addition of Dr. Dawood Sayed to our Board of Directors. Dr. Sayed is one of the country's foremost experts in interventional pain management and serves as Division Chief of Pain Medicine at the University of Kansas Medical Center. His appointment deepens our clinical and payer expertise and supports our strategy to accelerate adoption within hospital systems in integrated pain networks. In parallel, we continue to advance our reimbursement strategy for CompuFlo. And as we discussed last quarter, the system has secured Medicare payment rate assignments under CPT Code 0777T in 3 jurisdictions, supported by 2 MACs, Novitas and First Coast, that includes large population states like New Jersey, Texas and Florida. We are now building on that foundation, engaging with additional payers and expanding our commercial coverage footprint, essential steps for long-term medical growth. In summary, Q3 reflects disciplined execution and tangible progress toward our operational and commercial goals. We are in a more efficient organization. Our cost structure is leaner and our strategic priorities are sharply focused on growth and profitability. I'd also like to just point out that we'd like to invite you all to join our Instagram, Facebook and TikTok pages. Our Instagram page is @the.wan.sta. Our Facebook handle is just the Wan STA. And our TikTok handle is @the.wan.sta. We continue to put tremendous energy into our omnichannel digital marketing strategy, and we believe that will drive more people to understand who we are as an organization. With that, I would like to turn it over to Keisha Harcum. Keisha Harcum: Thank you, Eric. For the 3 months and the 9 months ended September 30, 2025, revenue was $2.4 million and $6.9 million, respectively, compared to $2.5 million and $6.6 million for the same period in 2024. Gross profit for the 9 months ended September 30, 2025, and 2024, was approximately $4.9 million for each period, reflecting no material year-over-year change. The stable growth performance primarily resulted from consistent product margins, favorable manufacturing cost management and a balanced sales mix between domestic and international markets. For the 3 months and 9 months ended September 30, 2025, SG&A expenses were $2.7 million and $9 million, respectively. Research and development expense for the same period was $16,000 and $437,000, respectively. Operating expenses were approximately $1.1 million and $4.6 million for the 3 and 9 months ended September 30, 2025, respectively. As of September 30, 2025, Milestone Scientific had cash and cash equivalents of approximately $1.3 million, and working capital of approximately $3.1 million. That concludes my financial review. I'll now turn the call back over to Eric. David Waldman: Thank you, Keisha. As we move forward, our focus remains clear: to execute efficiently, grow revenue and position Milestone for long-term profitability. We are strengthening our sales infrastructure, enhancing customer engagement and advancing the commercial rollout of CompuFlo through partnerships, payer engagement and medical education. In Dental, we continue to leverage our strong brand and product differentiation to drive international growth and expand the recurring revenue through our direct and e-commerce channels. I'm really proud of the progress we've made in such a short time, reducing expenses, stabilizing revenue and advancing the foundation for future growth. The path forward is about disciplined execution, operational excellence and ensuring that we continue to build value for our shareholders, customers and patients worldwide. I can't thank you all enough for joining this call today, and we will now open the lines for questions. Operator: [Operator Instructions] Our first question is coming from Anthony Vendetti with Maxim Group. Anthony Vendetti: So Eric, it sounds like you're very focused on stabilizing the business, which obviously is something that has to be done when you first come in. And in terms of the Dental business, which still obviously drives the vast majority of the revenue. In this particular environment that we're in economically and Dental offices, Dental clinics have always been, I think, and just in my experience, very concerned about investing new capital or buying new equipment. How do you convince them that this is a must-have product? And also if you could talk about the clinics that you're currently in, is there a target utilization rate or a way to ensure a certain level of utilization of your STA unit? Eric Hines: Thanks, Anthony. No, those are great questions. And the Dental business is the foundation for the company, right? At the end of the day, 80 or 90 or even maybe higher than that percentage of the revenues come from the Dental business. What we are learning is that there's really 3 tiers of customers who are sort of low users, mid and high users. And we really believe that a big challenge for us in the marketplace in general is that when we moved over to the direct sales, the e-commerce model, a lot of customers felt that we had really sort of gone more or less out of business and didn't know a whole lot about us. And so we are spending a lot of time really reconnecting with old customers who maybe thought that we didn't exist anymore. But more importantly, really sort of starting to expand our digital marketing to start to get to more dentists because a lot of times when we talk to dentists just in my hometown and what Jason speaks to them in Dallas, they don't even really know about the company or the Wand in general. So we think with 1.5% to 2% of the market share in the domestic market and more or less the same internationally, that it's mostly about getting the word out and really telling people about the benefits of the Wand. On the other side, education, right? So to move the low end users to the high-end users. Typically, we find that the high-end users are spending about $2,500 to $3,000 per year with us on disposables. We need to get the others moving in that direction. And just by the nature of the name of the unit, the STA, the single tooth anesthesia. What we've learned is many people are not using it for all the other injection types. And I think as most of the people know on this call, the Wand can do all of the injection types that a dentist needs during the course of operating their clinic. So we really need to do a better job of educating the low- and mid-tier users to make sure that they understand, and it's clear that the Wand can be used for many more procedures than just single tooth. I don't know if that covers what you asked me, Anthony, but let me know. Anthony Vendetti: Yes. No, that's great. So there's an active effort to try to increase the utilization of the Wand within the current installed base as well as getting the word out. And like you said, there's a huge opportunity because you don't have a lot of penetration at this time, even though it's the vast majority of your business. On the Medical side, maybe I know you decided to refocus on the current clinics that are using it and building that base for broader commercialization. Can you tell us where the company is with that refocused effort and then the plan for broader commercialization? Is that something that's occurring in this quarter? Or is that more of a 2026 goal? Eric Hines: No, another good question, Anthony. And let me just want to one more thing on the dental. So Jason brought to me 11 objectives that he has for the Dental business moving forward from a sales perspective. So along with the education and so forth, we've got objectives to go after some of the dental schools. We've got the DSOs that are part of that mix. We've got the digital marketing to existing customers. We've got lists from our own distributors that we're now starting to go through and have discussions with those folks. So it's a kind of a multitiered program on the dental side that attacks 10 or 11 different objectives, including DSOs. But to answer your question on CompuFlo, and as I stated in the last conference call, what I felt when I stepped into this role is that we had a lot of things going in a lot of different directions. And really, the plan now is to focus our energy on a handful of states, a handful of jurisdictions but more importantly, to put the right structure in place to support the physicians once they start using CompuFlo. And even more importantly, is to collect the data in a very meticulous way so that we can share that to the Medicare folks from a reimbursement perspective. We also plan to attack the commercial side of that equation as well. So in parallel to Medicare, we also plan to look at, at least one, if not a couple of the commercial payers to see if we can get some traction in those areas as well. And then while we're doing all of that, we will start to tackle maybe one other jurisdiction. But again, the plan is to try to stay as focused as possible. And I'm kind of holding the reins back until we do the proper review of the sort of the business case or the value proposition for pain management because if you recall, we sort of started down the path of labor and delivery and then pivoted over to pain management. And I want to make sure that we've got a clear message for the pain management clinics because it's a slightly different value proposition than it is for labor and delivery, where fluoroscopy is not used. Anthony Vendetti: Okay. Great. And just to be clear, right, so the focus is on the jurisdictions in Texas, Florida and New Jersey, correct? Eric Hines: Correct. Novitas and First Coast are the 2 MACs that are supporting those 3 jurisdictions. Anthony Vendetti: And just -- maybe it's too early to say, but just a little bit on the timing of -- you said you're going to collect that data and work with Medicare and make sure about reimbursement. But is that a 6- to 12-month process? Or what's at this point in terms of your vision of when broader commercialization will start? Do you have any clarity on that at this point? Eric Hines: Yes. I mean the broad adoption is challenging, but we plan on sort of restarting the program here in the next handful of weeks. We're doing a lot of due diligence behind the scenes with people who have a lot of experience in that world and we're gearing up to be ready to sort of reroll out CompuFlo -- the more data we collect early, the quicker we can get to a commercial -- larger commercial rollout. So again, we just need to be -- I don't have a problem of having people want to use it. The bigger problem is making sure that the people that do start using it get the proper information back to Medicare. Operator: Our next question is coming from Bruce Jackson with The Benchmark Company. Bruce Jackson: I wanted to touch on the tariffs just real quick. Last quarter, you said that from a supply chain perspective, you're pretty well set. You have inventory in the states and for the international accounts, could ship out of China. Has there been any change to that during this quarter? And then secondly, with the international customers, are they -- have they changed their purchase behavior because of the current situation? Eric Hines: It's a good question. Thanks, Bruce. So as far as the tariffs, we're really not seeing much of an impact at all. We, as you mentioned, have the ability to ship out of China internationally, so to avoid that and plenty of supply here in North America to handle our business here. So we're not really seeing a whole lot of impact. As far as changing behavior, we'd like to see more customers initiating sale -- orders coming out of China. It's been a little bit lighter than we wanted it to be. So we're considering potentially having a bonded warehouse in the U.S. if the tariffs continue to persist so that we don't -- so that we can ship out of the U.S. and/or China. But we're not really seeing a tremendous impact from the tariffs. Bruce Jackson: Okay. Okay. Great. And then in terms of the United States marketing effort, any thoughts on the sales force or the composition of the sales force? Do you have, for example, reimbursement specialists on staff? Tell us a little bit about how you're structuring the sales force, thinking about the sales force right now. Eric Hines: Another good question. The -- as far as reimbursement, we really -- we've tried in the past for reimbursement on the Dental side unsuccessfully. We've talked a little bit about trying to get a pediatric code based on the use case there in pediatrics. So we go back and forth as far as looking to attack the reimbursement market on the Dental side because there's obviously a lot of cost in doing that, and it could be difficult. As far as the sales organization, we plan on continuing to ramp that up. We've got a handful of people doing it here locally. So we're anxious to add horsepower to the Dental team, and we've got a handful of programs that could expand our sales footprint pretty dramatically in the North American market. And I think there'll be more to be said about that in the coming weeks. Bruce Jackson: Okay. And then last question for me. With your sales, is there a seasonality pattern where the fourth quarter is generally a strong quarter for you? And as we're looking at the model, should we be thinking about an uptick in revenue for the fourth quarter? Eric Hines: That's funny you asked about. I used to be in the software business, and we always had the hockey stick in Q4. It was always -- we shoved all the business into Q4 and then it was a light Q1, a heavy Q2, a light Q3 and then a massive Q4. Here, it seems to be quite a bit different. It's very steady. I think we were $2.4 million, $2.2 million, $2.4 million. And we expect a similar quarter in Q4. So no real huge inflection in Q4. It's a pretty steady business, which is wonderful. But we'd love to see it tick up, and we expect a similar quarter as we've had in the past or no big, huge hockey stick. Operator: Our next question is coming from John Corp, who is a private investor. Unknown Attendee: Nice to hear your presentation this morning. I am a long-term shareholder of Milestone Scientific, I would say, at least 15 years. Permit me, if you will, to give you the perspective of a long-term shareholder, and I might say a suffering shareholder because my hopes have been dashed repeatedly for the turn of events that might allow increasing revenues and positive cash flow and positive earnings for Milestone. I don't think you would have taken this job unless you believed as I do in the product. My dentist uses STA, has used it with me and it's a wonderful product. It was just terrific to get an injection like I received with the STA product. I try to attend every quarterly call. I started off by talking to Leonard Osser years ago, and he was enthused about your products as am I. But when Milestone received FDA approval and my hopes really got up, that was the beginning of a down slide that really took me by surprise. Since that time, the balance sheet has been ravaged. And I thought at one time, I really know where Milestone was going. And now I'm kind of at sea, I don't know where Milestone is going. I don't know what the challenges or pushback have been. You know, I don't know. I don't know how many pain clinics are using this. I don't know what their feedback is from the clinicians or the doctors. Could you help me with that perspective on where we are and where you -- what do you think the possibilities are for Milestone Scientific? And where those dramatic possibilities may be. The CompuFlo, obviously, but what is going on that we went from 10 salesmen to no salesmen to when your predecessor ended, we're inching along with trying to get 100 cases authorized for payment? It seems to me the cart may have been before the horse on this, but I don't know. Maybe you could help clarify what I don't know and give me some hope for the future of Milestone from your perspective. Eric Hines: Thanks, John. So welcome to the club, right? So I've been a shareholder since 2018, pretty significant investment in the company. And so I've been following it like you have, not quite so long as you have. So you've definitely got a lot more history than me. And I appreciate you continuing to support Milestone and for your patience and hopefully, for the future perseverance of the organization. But to answer your question, again, what I've observed in the few months that I've been here is, first and foremost, we have fantastic technology, right? So the STA, as you mentioned, the dynamic pressure sensing capabilities that also applied to the CompuFlo unit. Our technology is what it is, right? That hasn't changed. I think what has happened in the Milestone historically is that -- and I've seen this in other organizations that I've invested in is that it was probably a research-oriented company with a lot of inventions and a lot of patents and a lot of IP, but where it fell short, at least in the past from what I can see is it really didn't have true sales leadership that was driving the execution and the discipline required to scale and grow business in a proper way, right? And so when they rolled out CompuFlo and so forth, they had a little bit of a shotgun approach and got a lot of excitement going and a lot of use of the product, but they really didn't have a structure in place to maintain that business, and it's sort of all started to sort of fall apart, right? And so what we're doing is stepping back just a little bit, not a lot, and we're taking a much more focused approach with a very targeted group of customers and with support on the Medicare reimbursement front, so that we can do a proper rollout that can scale. And again, I think that's really it. The technology is great. The sales execution has been poor and the structure in place to support a scalable, sustainable business was just not put in place. And so your expression of the cart before the horse, I'm requiring that we build an ROI, a plan, a strategy before we jump into the market. And when you jump into the medical market, it is extremely sophisticated, it's extremely political. There's lots of moving parts. And if you're not prepared, you can get yourself into a tough unsustainable situation. So I'd just ask that you be patient. I know that you've been here 15 years, and again, we appreciate your support. But we're going to do this the right way this time. Operator: Our next question is coming from Elliot Sparrow, who is an investor. Unknown Attendee: Eric, congratulations on a great quarter, best one in a long time. And I hope the trend continues. My question is along the same lines as what you've just been answering to Anthony Vendetti and now John. I'm curious why we had many, many successful trials and demos over the years with fantastic feedback from those people. How come they never translate into sales? And then b, again, as you've been trying to explain what is going to be different this time around? Eric Hines: Yes. I think one of the big changes, and it's sort of -- I guess, a little bit surprised if the question doesn't get asked, right? So we've got Dr. Demesmin, who is an early adopter, right? So he's been wonderful. He continues to use the product and he's surrounded by a lot of customers in New Jersey that are still using the product. But we've also added some high-caliber talented people, Shanth Thiyagalingam and now Dr. Sayed who have been advising us at least a little bit here over the course of the past handful of weeks. But we expect that with them on Board, helping us navigate this complex environment is going to be done in a much more focused way. And so again, not to hit on the old team who is trying their best and working very hard, but again, it's a very complicated process to go from a category 3 to category 1 and it's a very difficult process and requires a lot of data to be generated in order to get the proper reimbursement code number. So the doctors want to use your solution so that they can make money. So again, I think to sort of reiterate, we are stepping back. We're taking advice from many doctors, engaging that community and the engaging companies who have tremendous experience in that community to do it the right way so that we can start off very focused, get the data we need, get the reimbursement where we need it and then seek a larger commercial rollout over a handful of weeks or months. But that's really just it. It's -- sometimes the thought is you just go out there and start selling like crazy, and you hope that it will latch on. But what I'm finding out is in this world, it doesn't work. You have to have data, you have to have structure, you have to have all those things in place. And I think with the Board that we now have in place, we plan on leaning on them to help us navigate that complex infrastructure, namely Medicare. Unknown Attendee: Okay. Great. Fantastic. My second question is totally different, and that is just about how are we set for capital and cash? And I know we've saved $0.5 million this year, but how much longer are we good for? Or are we going to need capital? That's it for me. Eric Hines: Thanks, Elliot, for your second question. So the initial focus for me stepping into the company was to get control of the cost, right? And so we've done a decent job of that. We still have more opportunities to work on that. As far as the front end of the equation, I'm sort of turning the jets a little bit to the sales focus. So like I said, I've been holding back a very strong horse by the name of Jason Papes, who's sitting here with us. And the plan is to turn the sales jets on full steam ahead here very, very shortly. But the company is -- from a cash perspective, has got plenty of cash to keep going for several quarters. And so we always are looking at opportunities to improve that if we need to. But right now, the company is in good shape. Unknown Attendee: Thank you very much, Eric, and I hope we have more good news from you in the short term. Operator: As we have no further questions in queue at this time, I'd like to turn it back over to management for any closing remarks. Eric Hines: No, I just appreciate folks joining the call. I appreciate the shareholders being part of this community and sticking with us. I share most of the sentiments that all of you do, part of the reason that I joined the company. And I can't say enough about how good I feel about having -- I hear from a lot of the different shareholders. And what I will leave you with is that everything I do every single day is about driving shareholder value. So for me, it's all about anything that I can do, and I tell everyone on the team, we need to turn into a sales-focused organization. So anything you do, whether it's product management, whether it's R&D, customer service and so forth, always be thinking about how that can benefit sales, how that can benefit our customers, and finally, how it can benefit our shareholders. So thank you very much, and thank you, David, for setting up the call. And we look forward to speaking with you all at the end of Q4. Good luck to all of us. Operator: Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the South Bow Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Martha Wilmot, Director of Investor Relations. Please go ahead. Martha Wilmot: Thank you, Marvin, and welcome, everyone, to South Bow's Third Quarter 2025 Earnings Call. With me today are Bevin Wirzba, President and Chief Executive Officer; Van Dafoe, Senior Vice President and Chief Financial Officer; and Richard Prior, Senior Vice President and Chief Operating Officer. Before I turn it over to Bevin, I'd like to remind listeners that today's remarks will include forward-looking information and statements, which are subject to the risks and uncertainties addressed in our public disclosure documents, available under South Bow's SEDAR+ profile and in South Bow's filings with the SEC. Today's discussion will also include non-GAAP financial measures and ratios, which may not be comparable to measures presented by other entities. With that, I'll turn it over to Bevin. Bevin Wirzba: Thanks, Martha, and good morning, everyone. We appreciate you joining us today. South Bow's third quarter financial results once again demonstrated the resilience of our business with our stable earnings profile, allowing us to meaningfully deliver on our capital allocation priorities in our first year as an independent company. We have paid a sustainable dividend to our shareholders, funded our first growth project at Blackrod and strengthened our financial position. We are also nearing the exit of all transition services with TC Energy, which we expect to finalize by the end of 2025, almost a full year ahead of schedule. We have become more efficient in the process and are realizing cost savings that drive a more competitive tool for our customers and a stronger bottom line for our shareholders. The team has successfully managed several priorities while establishing South Bow as a stand-alone entity. And I'm pleased, maybe even a little relieved, if I'm honest, to say that we are now fully focused on our future strategic priorities of growing our business and enhancing our overall competitiveness while ensuring safe operations, financial strength and capital discipline. Regarding our growth initiatives, I visited our Blackrod site last week, and I am incredibly proud of the team's success in executing this important project, set to be delivered on schedule, within budget and with an exceptional safety record. I am confident that we will continue to demonstrate this type of project execution excellence as we mature our growth portfolio with organic and inorganic opportunities. By adding more revenue lines through growth, we will become more competitive across our existing systems. As we look to the future and the role of South Bow will play in serving our customers, we are encouraged by the dialogue taking place in Canada and the United States about advancing energy solutions. These conversations not only underscore the strength of the supply basin and the demand centers we serve, but also highlight the resilience of our customers' businesses. South Bow's assets are strategically positioned to serve their needs and we are focused on being the first choice for our customers. As we evaluate opportunities to leverage our pre-invested corridors, it will be important to establish appropriate risk and return frameworks, and carefully consider our investment requirements, which include minimizing shareholder capital exposure, adhering to our capital allocation priorities and seeking permitting durability. On safe operations and asset integrity, we have made significant progress in our remedial actions following the Milepost 171 incident. The work our team is completing increases our confidence in the integrity of our system. As we work towards returning Keystone to baseline operations and closing out the requirements of PHMSA's corrective action order. Richard will provide further details on this shortly. Finally, we have laid out a clear set of priorities for our team as we focus our attention on our second year. These priorities include maintaining safe operations, maturing and executing on our growth portfolio, continuing to enhance our competitiveness and the ongoing demonstration of discipline in our capital allocation and shareholder returns. I will now ask Van and Richard to touch on the financial and operational expectations that come with these priorities. Richard? Richard Prior: Thanks, Bevin, and good morning. I first want to speak to the progress we've made on our remedial actions at Milepost 171, while we await PHMSA's publication of the root cause analysis. The findings from the third-party metallurgical lab report determined that the pipe and welds conform to industry standards for design, materials and mechanical properties, and our own records confirm the pipeline was operating within its design pressure at the time of the incident. Through the remedial work we've completed to date, we do not see evidence of a systemic issue, and we're confident we will address the system's long-term safety through actions we've already taken or through planned enhancements to our integrity programs. To that end, since April, we've completed 6 in-line inspection runs that place a focus on the long-seam pipe integrity. Preliminary inspection results show no notable concerns, reinforcing our confidence in the integrity and reliability of our system. We have also completed 37 integrity digs with no injurious issues to report. Our investigative work will be ongoing through the end of this year and into 2026. In parallel, we are advancing important work with our in-line inspection technology providers to address and resolve tool limitations and apply the latest and advanced technologies across our system to increase our ability to prevent future incidents. This work is being incorporated into our remedial work plan, which we will submit to PHMSA for approval. I anticipate that the Keystone pressure restrictions will eventually be lifted in a phased manner. We're proactively sharing with PHMSA the results of all investigative work being performed with the goal to safely return Keystone to baseline operations in 2026 ahead of when market differentials are expected to widen and demand for uncapacity -- uncommitted capacity increases. Switching gears to the Blackrod project. In October, we achieved overall project mechanical completion and placed the 25-kilometer natural gas lateral into service. These are both significant milestones, and I want to extend a sincere thank you to the team for the tremendous effort in safely executing this project. Facility commissioning work is underway, and we remain on schedule and within budget to place the project into service early in 2026. Lastly, in October, all parties withdrew from the legal proceedings related to the variable toll disputes filed with the Canadian and U.S. courts and regulators. These proceedings had been active for nearly 6 years. And with the matter behind us, the team has now focused -- has turned its focus to new business opportunities to jointly create value for our customers at South Bow. And a reminder that as part of the separation agreement with TC Energy, South Bow was indemnified for this matter in addition to other matters that existed prior to the spin up to a liability cap of USD 22 million. I will now pass it over to Van to discuss South Bow's financial performance and outlook. P. Van Dafoe: Thanks, Richard. I'll start with our strong third quarter performance, which included delivering normalized EBITDA of $250 million. As expected, the marketing losses that we crystallized early in the year were largely offset by normalized EBITDA associated with higher maintenance capital expenditures in the period. Distributable cash flow of $236 million benefited from a current tax recovery of $71 million resulting from changes in U.S. tax legislation and successful optimization efforts from our tax team. To reflect these tax wins, we are revising our outlook for distributable cash flow to approximately $700 million for 2025 and our effective tax rate to range between 20% and 21%. We are reaffirming normalized EBITDA guidance for 2025 of $1.01 billion. Turning to 2026. Our outlook is supported by our highly contracted cash flows and the structural demand for our services. We are forecasting normalized EBITDA of $1.03 billion within a range of 2%. The key drivers of the increase from 2025 include; for marketing, we're expecting normalized EBITDA will be approximately $25 million higher, reflecting the recovery from losses recorded in 2025. For intra-Alberta and other, we expect normalized EBITDA will be approximately $10 million higher, reflecting Blackrod cash flows ramping up in the second half of 2026. And for Keystone, we expect normalized EBITDA to be approximately $15 million lower primarily due to reduced planned maintenance capital expenditures following an active integrity program in 2025. Distributable cash flow is forecast to be approximately $655 million within a range of 2%. As we consider the potential outcomes for the year, I'll note that normalized EBITDA and distributable cash flow will be influenced by pressure restrictions and price differentials. To exceed our baseline expectations, pressure restrictions will need to be lifted early in the year and price differentials would need to widen. On the other hand, the low end of our guidance range reflects a scenario in which pressure restrictions have remained in place throughout the year and pricing differentials have tightened beyond current levels. Our capital program next year includes approximately $25 million of maintenance capital, reflecting a less active plan and approximately $10 million of growth capital to complete the Blackrod Connection project. We plan to update our outlook for growth capital once we have sanctioned our next development project. Lastly, our Board of Directors has approved a quarterly dividend of $0.50 per share payable on January 15 to shareholders of record on December 31. The dividend remains an important component of our total return proposition. With that, I'll hand it back to Bevin for closing remarks. Bevin Wirzba: Thanks, Van. After another solid quarter of financial and operational results and through the hard work and effort of the team in establishing South Bow, we have strongly positioned our business for longer-term growth and success. Our priorities for South Bow's second year are clear. We will maintain safe operations and continue progressing towards returning Keystone to baseline operations, mature and execute our growth portfolio of organic and inorganic opportunities, continue to optimize our workflows and increase our competitiveness and maintain discipline with our capital allocation and shareholder returns. We look forward to sharing more on this next week at our first ever Investor Day. With that, I'll now ask the operator to open the line for questions. Operator: [Operator Instructions] And our first question comes from the line of Sam Burwell of Jefferies. George Burwell: So we got these latest list of major projects, I believe yesterday in the proposed crude pipeline that Alberta [indiscernible] was not on that, but I understand that you're providing some engineering and permitting support. So I'm just curious for an update on that. And then there were also some press reports, I mean, this is going back a little bit further about Keystone XL, a reboot of that being talked about in trade discussions between the U.S. and Canada. So with respect to that, just curious about what sort of existing infrastructure you guys might be able to leverage to expand crude egress capacity over kind of the medium and longer term? Bevin Wirzba: Yes. Thank you, Sam. It's Bevin here. I mean, first off, one of our key capital allocation priorities is to leverage our pre-invested corridors that we have both in Alberta, the pre-invested capital that we made for the former Keystone XL project and then pre-invested capital along our system in the United States. So we're always evaluating ways of leveraging that pre-spend for other solutions. Directly to your question on the West Coast project. Yes, we are providing some advisory support. Many members of our team have a long history in developing significant capital projects. And so we're lending some of that expertise to the provinces initiative there, but it goes no further than that. With respect to trade negotiations, to be honest, Sam, that's way above our pay grade. We're obviously watching and encouraged by the ongoing dialogue between Canada and the U.S., but I can't really speak any more detail to what's going on behind closed doors that we're not a part of. So thank you. George Burwell: Yes, of course, totally respect that. And then the commentary around marketing and tight crude spreads that certainly makes sense and squares with commentary from some of your peers. Just curious if you have a view looking out a little bit further when you think that spreads can widen out, inventories in Alberta can normalize and then we might start to see some contribution from spot volumes once presumably the egress has been lifted? Bevin Wirzba: Yes. Our views have remained very consistent on that front. We anticipated with our -- with the TMX pipeline coming on that, that would relieve some of the egress issues that we had over the last number of years. But we're very encouraged by the supply growth that has been occurring by our customers. If you just listen to the last week of quarters from our customers here up in Canada, you'll have noted that they are all very encouraged by potential growth in their organizations. And so our outlook has us seeing conditions being a lot more favorable in effectively late '26, early '27, where we see that, that supply growth will exceed what currently exists for egress, making our systems likely to see more walk-up and spot needs. Operator: Our next question comes from the line of Maurice Choy of RBC Capital Markets. Maurice Choy: Can I just double-click on the tax optimization and the U.S. legislation changes. Can you share a little bit more about what these were? And if these benefits reflect in the guidance for DCF for this and next year would actually translate to benefits also beyond 2026? Or do you envision returning back to, I guess, the prior cash tax run rate level? P. Van Dafoe: Yes, Maurice, it's Van here. Thanks for the question. The tax wins that we got were a couple of things. One is the one big beautiful bill in the U.S. that allows us to deduct additional interest. We have reached the cap on interest deduction. So that was extended. So that would be as long as that legislation stays, then we would continue to benefit from that. The second piece was around tax optimization, and we identified some tax pools that we were able to accelerate. And so those tax pools were on our balance sheet, and they were there. We just accelerated them. So we'll get that benefit in 2025 and 2026. And then in 2027, we'll go back to more of a regular cadence. So it's really just a flip between current tax and our deferred tax. Maurice Choy: Understood. And if I could finish with a question on the transition agreements. I think you previously mentioned that this transition will help improve your processes to be more efficient and realize cost savings for your customers through a more competitive toll, both of which I think you reconfirmed today in your prepared remarks. But you also mentioned that this could benefit the bottom line for shareholders. So are you able to quantify what that is and whether this is within the 2% to 3% EBITDA CAGR objective? Bevin Wirzba: Yes, Maurice, it's Bevin. So our objective of getting off of the TSAs as quick as possible in our first year is that it was -- you're not able to really optimize many of the processes within the company until you're legitimately on your new systems. And a simple example of that would be supply chain and procurement on how you issue and pay invoices. And we delivered Blackrod very successfully, but it came with a very kind of clunky procurement system that we needed to use. So we're now as one -- just one example, being able to optimize that and the delivery. I did point out in my remarks is that we believe that we can accrete those savings and those optimizations through to our variable toll. But there are some of those cost savings that do then flow through as well down to EBITDA. We have not included any optimization efforts into our 2% to 3% outlook with respect to EBITDA going forward. Those elements, we're still targeting to improve. We made good headway and at our year-end results. I hope to provide a good summary of what we found in our first year. But just for clarity, Maurice, we did not include that optimization into our EBITDA outlook guidance. Operator: Our next question comes from the line of Jeremy Tonet of JPMorgan Securities. Unknown Analyst: This is Ely on for Jeremy. I wanted to circle back to the organic growth opportunity set. I know opening remarks mentioned the upcoming development project. Just hoping to get some more color on what types of projects you guys are looking at, which side of the border and maybe just whether Blackrod kind of represents the template for growth projects as you see it? Bevin Wirzba: Thank you, Ely. I think we're obviously going to have that as a subject area for our Investor Day next week. But consistent to what we've said previously, we've been listening to our customers and trying to understand what kind of services they're looking for, for their businesses to be competitive. We were able to provide a great solution for IPC on Blackrod. And we're in a number of conversations, both in Canada and in the United States. And so we've seen probably the -- when we launched this business and made the announcement that the spin was occurring in mid-2023, I would say, since that time, the environment actually has become a little bit more constructive in both Canada and the United States. And so we're -- we've been maturing those growth opportunities. And that's one of our key priorities for 2026 is to mature and execute on the next organic and inorganic opportunities. Unknown Analyst: Looking forward to the Investor Day. And then just for the second question, I think you guys had a helpful slide showing 2026 guidance drivers. But just hoping to get some more context on how the kind of Milepost 171 remediation plan fits into potentially reducing that DRA and providing some upside next year. What does that process look like? And when might we expect a little bit of color there and maybe framing how that fits into the guide? Bevin Wirzba: So, Ely, I'll start and then pass it over to Richard on the plans for this year. When you looked -- when we provided the guidance around the range, I just want to remind everyone that 90% of our EBITDA comes in every year through our contracted period. So we have a great solid base to start from. And we've been working very diligently around getting our system capacity back up. But at a very high level, what has allowed us to deliver all our contracts and deliver our base business is our system operating performance, our SOF has really hit it out of the park. And our teams have done a great job allowing our systems to be available for the volumes that we're moving today. But I'll pass it to Richard to just talk about our mitigation plans and the work that's left to do here as part of the Milepost 171. Richard Prior: Sure, yes. And I touched on in my comments, some of the work that we've completed to date. So we're implementing a comprehensive remediation program that's system-wide. We've completed so far 6 in-line inspection runs and 37 integrity digs. We'll continue that work through this year and into next year. And then what we'll end up doing is filing a -- all of this work as it's ongoing, but we'll file a remedial work plan with PHMSA and eventually work with the regulator around lifting the pressure restrictions. Our goal is for that to happen sometime in 2026, it's hard to point to a precise timing for it. But as we work through the year, we'll -- I think we'll start to see pressure restrictions removed in increments, and that will allow us more access to uncommitted volumes, which we think will ramp up through the year. P. Van Dafoe: And Ely, it's Van here. I think that even if pressure restrictions are lifted, with those tighter differentials, you won't see a ton of EBITDA from those spot volumes. So that's just another thing to point out. Operator: Our next question comes from the line of Praneeth Satish of Wells Fargo. Praneeth Satish: So recognizing you're going to talk about your projects more at the Analyst Day. But as it stands today, do you think a placeholder assumption for CapEx in 2026 would be kind of in that $165 million range that you're spending in '25? Or do you think at this point based on the nature of the discussions that you're having in the pipeline that, that spend won't really hit in '26, and therefore, CapEx is likely to go down significantly in '26, even if you announce new projects. Just trying to get a better sense of what to assume for CapEx and what to assume for free cash flow next year? Bevin Wirzba: Thank you, Praneeth. So we -- in our capital table, we only put capital that we have sanctioned. And so you'll note that we don't have anything sanctioned at present, but we're working towards maturing those projects forward. With what Van commented on in our tax optimization, we've created a bit more capacity with respect to free cash flow and just to be able to put towards capital. I would say that right now, we've consistently said that we need to invest roughly on average $100 million plus or minus every year in order to deliver our 2% to 3% EBITDA growth CAGR. And I would use that as probably a good proxy over the next few years. If we do find something that's larger or more material, then we would love to finance that on a different basis. But I think for your modeling efforts, remaining kind of consistent to what we originally guided right out of the gate would be the best approach. Praneeth Satish: Got it. That's helpful. And maybe following up on one of those modeling assumptions. So I'm just trying to square the moving pieces here with the variable toll settlements and what the future P&L impact could look like at this point. I guess the way I read it is you've got maybe $33 million of remaining payments that SOBO would make over the next 6 years. But then you'd receive $19 million over the next 2 years and all of this, I think, is excluded from EBITDA. I just want to kind of double check that? P. Van Dafoe: Yes, it's Van here. All that would be normalized out of our EBITDA. So that wouldn't be included. If you're talking about GAAP and cash, then yes, yes, you're correct. Operator: I'm showing no further questions at this time. I'd now like to turn it back to Bevin for closing remarks. Bevin Wirzba: Well, thank you all for joining us today. We appreciate your continued interest in South Bow and look forward to connecting with you next week at our Investor Day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning. My name is Sylvie, and I would like to welcome everyone to the Bridgemarq Real Estate Services Inc. 2025 Third Quarter Results Conference Call. This call is being recorded. [Operator Instructions] I would now like to introduce Mr. Spencer Enright, Chief Executive Officer of Bridgemarq Real Estate Services Inc. Mr. Enright, you may begin the conference. Spencer Enright: Thank you, operator. Good morning, everyone, and thanks for joining us on the call today. I'm joined by our Chief Financial Officer, Wallace Wang. I will begin with a brief overview of our company's third quarter results. Wallace will then discuss our financial results in more detail, and I'll conclude by providing some remarks on organizational highlights, company updates and market developments. Following our remarks, Wallace and I will be happy to take your questions. I want to remind you that some of the remarks expressed during this call may contain forward-looking statements. You should not place reliance on these forward-looking statements because they involve known and unknown risks and uncertainties that may cause the actual results and performance of the company to differ materially from the anticipated future results expressed or implied by such forward-looking statements. I encourage everyone to review the cautionary language found in our news release and on all our regulatory filings. These can be found on our website and on SEDAR plus. So we continue to build on the strong momentum established in the first half of 2025, an encouraging sign given broader economic challenges and ongoing geopolitical certainty including U.S. trade tensions that continue to affect the Canadian economy. Despite ongoing uncertainty in both the housing market and the wider economic environment, we have continued to successfully attract and retain high-performing agents across our brands. Our comprehensive suite of tools, training services and technology offerings, which are all tailored specifically to the needs of Canadian REALTORS, have been a key differentiator over our competitors, helping us remain competitive and deliver exceptional value to our network. Revenue for the first 9 months of the year was $309 million compared to $249 million in 2024. As a reminder, last year's results reflect the addition of the brokerage businesses, which were acquired on March 31, 2024. At its meeting yesterday, our Board of Directors approved a dividend of $0.1125 per share, payable on December 31st to shareholders of record on November 28. This indicates an annualized dividend of $1.35 per share, which is consistent with 2024. And with that, I'll turn the call over to Wallace for a closer look at our third quarter financial performance. Wallace Wang: Great. Thank you, Spencer, and good morning, everyone. Revenue in the third quarter was $123 million, slightly lower than the $127 million reported in the third quarter of 2024. Franchise fees increased for the quarter and the first 9 months of the year, driven by fee increases implemented at the beginning of 2025 as well as an increase in the number of REALTORS in our network. There are currently 21,617 REALTORS in our network, an increase of 3% since the end of last year. By contract, the total number of CREA REALTORS has decreased by 2% since the end of last year. In the third quarter, the company generated a net loss of $1.7 million compared to a net loss of $10.8 million in 2024. The reduced loss in the quarter is partially driven by the valuation of the exchangeable units remaining unchanged in the quarter compared to a loss of $10.8 million in the third quarter of 2024. Our adjusted net earnings, which considers our operating earnings before certain noncash, nonoperating adjustments and payments to holders of exchangeable units amounted to $1.0 million in the third quarter. Cash provided by operating activities amounted to $1.3 million in the third quarter of 2025 compared to $2.7 million last year. The company generated $1.5 million in free cash flow in Q3, down from the $5.3 million generated in the third quarter of 2024. This is primarily driven by increased capital expenditures during the quarter. The Canadian residential real estate market grew in the third quarter of 2025, closing at approximately $84 billion, an increase of 5% compared to the same period in 2024, driven by a modest 1% increase in the average selling price and a 4% increase in sales volume. This is largely driven by the province of Quebec, where the residential real estate market recorded a 20% increase in transactional dollar volume during the third quarter of 2025. Compared to the previous year, closing at $12 billion. This reflects a 10% increase in unit sales and a 9% increase in the average selling price. The greater Toronto market and the Greater Vancouver market recorded a decline in the average home prices compared to last year. The number of units sold during the quarter increased in both markets. As a reminder, market data is generally reported on a firm deal basis, whereas the company recognizes revenue when the transactions are closed. Spencer will now provide additional insights into the market and an update on our operations. Spencer Enright: Thanks, Wallace. So buyer activity throughout 2025 has remained below typical levels, particularly in Canada's two most expensive markets, Toronto and Vancouver. As has been the trend since spring, buyer demand in many areas of the country has been lower than historical norms, influenced by many factors, including housing affordability, employment, immigration and overall consumer confidence. For buyers in a position to transact at this time, however, improved affordability in the Greater Toronto and Greater Vancouver in market is presenting an opportunity. With inventory continuing to rise, prices edging lower and lending rates declining, affordability is gradually improving, creating more favorable conditions for those ready to make a move at this time. Quebec's real estate markets continued to demonstrate strength and resilience, joining major centers in the Prairies and Atlantic Canada in posting increases in prices amid tighter supply conditions this year. The Bank of Canada reduced its target for the overnight lending rate by 25 basis points in each in September and October. And the overnight rate now, it's at 2.25%. In September, Canada's consumer price index increased 2.4% year-over-year, up from the 1.9% recorded in August, which remains within the bank's inflation target range. On its own, the reduction to the Bank of Canada's key lending rate, along with indications of the rate remaining stable for some time, should drive a much needed measure of added stability for Canadians, who are contemplating a real estate purchase in the near term. Now I'll give you a few updates on the company's operations. A key competitive strength of our business is the ability to provide a broad range of real estate solutions for both agents and consumers. Our strong portfolio of brands, including Royal LePage, Via Capitale and Proprio Direct, sets the standard of service excellence across all of Canada. We continue to proactively innovate and improve our suite of services to our agents. We are currently embedding AI functionality throughout our service platforms with particular attention to tools that enhance lead generation and client engagement. At the same time, we have revamped our aid and training and coaching programs to equip our network of agents with AI knowledge and insights to improve their productivity and realize greater results in the marketplace. During the third quarter, we launched a new fall digital advertising campaign called Agents of a Different Stripe aimed at driving consumer brand awareness for Royal LePage. During its first 4 weeks, the campaign earned over 24 million impressions across Canada via video and static advertisements. Proprio Direct introduced a new CRM platform designed to enhance the client experience and streamlined business operations, helping our agents within that banner, deliver a higher level of service. And also in the third quarter, Via Capitale hosted its 2025 Via Capitale Congress to support skills development and training for real estate professionals. We remain focused on introducing new initiatives and training programs that enhance efficiency and help agents grow their businesses. During the quarter, agents operating under our corporately owned Royal LePage Real Estate Services and Johnson & Daniel Luxury brand benefited from the launch of a new Deal Hub, creating -- created to streamline compliance and deal processing across all of our brokerage operations. By continuing to invest in initiatives that enhance agent productivity through education and the strategic use of artificial intelligence, we are strengthening our leading brand, creating new opportunities for growth and delivering greater value to our shareholders. Overall, I am pleased with the market share growth we have achieved so far this year, and I'm excited to continue that momentum as we close out the year. With that, I will turn the call back to our operator and open up the call to any questions. Operator: [Operator Instructions] First, we will hear from Jeff Fenwick at Cormark Securities. Jeff Fenwick: I wanted to start off just talking about the REALTOR network. It looks like you've had some success sort of progressively growing it this year. The industry itself has seen some contraction. What are you seeing in terms of opportunities for recruiting right now, a bit of a better environment for you to maybe pick off some talented people that might want to come into your network, or how are you thinking about that? Spencer Enright: Yes, Jeff, this is an excellent year for us from a recruiting standpoint. We've had success both in securing new franchises as well as in recruiting individual agents with not just within our owned brokerage operations, but also within our franchise network of brokers. And that's been across both the Royal LePage brand, which operates nationally in all 10 provinces as well as our Via Capitale brand, which is exclusive to the Quebec province. What I found is, over the years, when -- and what we've seen sometimes as a trend is in years where the market is extremely difficult, and especially when you see Toronto and Vancouver with fewer home sale transactions, competition for listings is that much more fierce than it normally is, which is extremely fierce on a regular date. And agents want and need support for that. The ability to find and secure new business for them is even more difficult when there's less business to go around. And there's what we like to term a flight to quality, where there's a lot of new conversations with agents that maybe have been successful in the past with other brands, other competitors and are struggling now, and they're looking to partners like us for new solutions. And is there a way that they can regain that momentum for themselves or really build it in their career in a way that they're not getting today from others or that they've been getting before. And so we're having great conversations all across the country with ages as well as with broker owners. We've had really good success in growing our network this year. We've got a really robust pipeline that we continue to work on. And so I'm very excited for what we've got moving forward as well as what we've seen so far this year. Jeff Fenwick: That's helpful color. And then, I guess, another aspect business you've been investing in, it sounds like, is just operationally becoming a bit more efficient and using tools like AI. So are there opportunities here to sort of help boost the margins and, I guess, also make your REALTORS more productive at the end of the day? Like how is -- what's the current outlook there? Spencer Enright: Yes, there's lots of opportunity there, and we're doing everything we can in two key focus areas. One is with agents themselves, helping them take advantage of large language models and other tools that they have already available to themselves. We provide through our Google Suite partnership access to tools to all of our agents in our network. And so they need to be as productive as possible. There's opportunities to improve their productivity, their sales effectiveness. And so we're working on that through training programs as well as other educational forums for them to learn even from each other, not just from us. And then within our own operation, we're using it in many ways to build a more efficient model and a more effective model. One area that we're focused on right now across our brokerage business is making sure that we've got the highest standards of compliance and regulatory standpoint, which is always well for us, but across all of our brokerage durations, which they are in multiple cities, multiple provinces, there's an opportunity to use AI to our advantage in building the right way of ensuring that every transaction we do, every film sale and purchase is fully compliant with all of the regulations required. Jeff Fenwick: Okay. And then just wondering if within that, there was some spend in the quarter. I noticed the CapEx number, hopefully, it was $3 million, which is a bit higher than typical. So was there some investments going on in the business in the quarter? Wallace Wang: No. So that's primarily driven by the increase in the Asian count. So you can think of it as sometimes when we convert larger franchisees to our network, we pay a per agent fee upfront. And that's primarily to help the franchisees kind of offset the conversion cost, right? So they'll need to convert their signs and some of the other costs, and we obviously size these investments upfront based on the ROI of the capital that we're going to invest to make sure that over the lifetime of the contract, we generate attractive ROI. Jeff Fenwick: Okay. Great. And then just in terms of looking forward, I guess, you do have some capacity now with your balance sheet to look to continue to make those sorts of growth investments. At the same time, I know you're sort of juggling an environment that's a bit softer, and you've -- you're deferring some of your dividend payments to Brookfield. So what's the thinking in terms of feeling comfortable about continuing to make those growth investments right now? Spencer Enright: Yes. We feel really confident about it. I think when you take a look at the way we grow our business, in addition to the organic growth that you see with our franchisees growing or our brokerage growing, one agent at a time, there's franchising opportunities. We've got a strong pipeline. And as well as mentioned, sometimes there's a bit of a capital outlay for conversion. But like I said, we're having great conversations ongoing with new potential partners with us, whether they're in a franchise capacity or in the -- in part of our own brokerage capacity as agent teams, large teams. And so there might be a bit of CapEx investment to bring some of that in. As Wallace mentioned, we focus on the long-term and growing our agent count now under 10-year contracts with franchises is that long-term play where we build on top of the existing royalty streams that we have, the existing franchise fee stream. And so there's lots of opportunities to continue to do that. Exactly when those take place is not necessarily streamlined quarter-by-quarter because in terms of a franchisee moving from one brand to another, at the -- that happens at the end of a contract, whether that's with someone that's on a 5-year or some other time frame. So you can't necessarily predict that, that all happen in one quarter or another or that it will be consistent quarter-to-quarter or year-over-year. But that's been our bread and butter in terms of one of the small-scale M&A growth path that we've pursued in the past, and we expect to do more on that. Operator: At this time, I will turn it over to check on web questions. Wallace Wang: Right, there are currently no questions on the webcast. Spencer Enright: All right. Well, thanks, everybody. I'd like to thank everyone once again for joining us on today's call. We look forward to speaking with you again after we release our Q4 results in March. Operator: Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.
Operator: Good morning, and welcome to the ImmuCell Corporation Reports Third Quarter ended September 30, 2025, Unaudited Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead. Joe Diaz: Thank you, Rocco. Good morning, and welcome to everyone. As Rocco indicated, my name is Joe Diaz with Lytham Partners. We're the Investor Relations consulting firm for ImmuCell. I want to thank all of you for joining us today to discuss the unaudited financial results for the third quarter ended September 30, 2025. Listeners are cautioned that statements made by management during the course of this call include forward-looking statements, which include any statements that refers to the future events or expected future results or predictions about steps the company plans to take in the future. These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results, outcomes or events to differ materially from those discussed today. Additional information regarding forward-looking statements and the risks and uncertainties that could impact future results, outcomes or events is available under the cautionary note regarding forward-looking statements better known as the safe harbor statement provided with the Form 10-Q and the press release that the company filed last night, along with the company's other periodic filings with the SEC. Information discussed on today's call speaks only as of today, Friday, November 14, 2025. The company undertakes no obligation to update any information discussed on today's call. Please note that references to certain non-GAAP financial measures may be made during today's call. The company included definitions of these terms as well as reconciliations of these figures to the most comparable GAAP financial measures in last night's press release in order to better assist you in understanding its financial performance. With that said, let me turn the call over to Michael Brigham, Special Adviser to the CEO of ImmuCell Corporation for opening remarks. Michael? Michael Brigham: Thanks, Joe, and good morning, everyone. This is an exciting time at ImmuCell. Lots of good change going on. Our financial performance over the first 9 months of 2025 has greatly improved compared to prior year, a turnaround, which was made possible in part by increasing our production output while improving gross margins. We are now in a great position as a company with a stock distribution channel and an energized commercial team. Our CEO and CFO will be commenting on the financial results in greater detail in just a moment. On another topic of change, we are amidst 2 very positive management transitions right now at ImmuCell. First, as most of you know by now, we added Timothy Fiori, our CFO, to the team back in April. Secondly, back in June, we announced the CEO succession plan. This effort was completed successfully effective November 1, 2025, with the hiring of Olivier Te Boekhorst as our new President and CEO. I'd like to welcome Olivier to the company. Olivier brings over 25 years of leadership and results-focused execution experience in animal health to ImmuCell. Before joining ImmuCell, he served as an operating partner of ARCHIMED, a global health care investment firm, where he focused on Animal Health Investments and served as Chairman and Chief Executive Officer of a portfolio company. Prior to that, Mr. Te Boekhorst was at IDEXX for 18 years, IDEXX is a main-based NASDAQ listed company with more than $4 billion in revenue, where Olivier lead strategy and M&A activities from 2004 to 2008 and then served as a Corporate Officer, Senior Vice President and General Manager of several business units from 2008 to 2021, including their livestock and dairy antibiotic residue testing businesses. He has a track record of driving growth and operational excellence in the livestock industry. And as I step away in January after 36 years with ImmuCell, I am very confident that we are in good hands with Olivier and Tim. At this point, I will turn the call over to Olivier for a few comments. Olivier? P. F. Te Boekhorst: Thanks, Michael. I am very excited to be here, and I want to thank you for your support during my onboarding. I appreciate the warm welcome and the investment from employees in my onboarding process over the last 2 weeks as I'm starting to learn the business. In conversations with the team, I've been asked why I joined ImmuCell. And one of the reasons for my excitement to join at this juncture is the importance of the work here. Fundamentally, ImmuCell keeps cats alive and healthy. We don't just make and sell doses of First Defense. We provide protection to newmored animals that cannot protect themselves. Farmers trust us because our technology works and they count on us to help them do their jobs better. And I tell the team that starts with the care and the effort we all put in every day. It is impressive to see the passion, dedication and pride of our staff in Maine and in the field as we support the larger mission of reducing the use of antibiotics in the food supply chain and ensuring the availability of safe, healthy and affordable dairy and beef products. I look forward to the next weeks of my onboarding process as I plan to spend a good deal of time in the field meeting customers, colostrum suppliers, distributor partners, key opinion leaders and the commercial team. I'm a customer-focused leader, and I intend to bring customer perspectives to everything we do at ImmuCell. ImmuCell is poised to do great things, and I'm very excited to be a part of that. The company aims to deliver a strong value proposition for farmers and our financial and operational performance so far in 2025 reflects that. Execution across our supply chain will be laser-focused on quality and product availability from vaccine production, colostrum sourcing, liquid processing, formulation, packaging and shipping of final products, our team is rebuilding confidence in the market and our ability to consistently meet customers' needs. I look forward to working, to regain customers, to capture share and to expand the use of scours preventatives. It's an exciting time to be at ImmuCell as we explore new market opportunities more aggressively. Now turning to our revenue for the quarter. We had an 8% decrease in total product sales during the third quarter of 2025 compared to the third quarter of the prior year. This is in line with previous comments we made about the effect of restocking our distribution channels earlier this year. I'm encouraged that domestic sales were up 2% during the third quarter compared to the third quarter of 2024, and domestic sales were up 9.5% during the third quarter compared to the second quarter of 2025. So we are seeing positive momentum in the U.S. market that represented about 86% of our sales during the trailing 12-month period ended in September 30, 2025. International sales, largely to Canada, were down during the third quarter of 2025 compared to the third quarter of 2024 due to timing of shipments and allocations of our short supply while we're managing our order backlog. This did create the 8% decrease in total sales during the third quarter that I just mentioned, but I do not believe this represents significant deterioration of underlying customer demand. It is worth noting that international sales during the 9-month period ended September 30, 2025, were 15% higher than the same period of the prior year. Longer-term growth trends are also meaningful. When we compare our trailing 12-month sales ending September 30, 2025, to the same period ending September 30, 2022, that is the period before we ran into significant supply issues, the 3-year compound annual growth rate is 11%. Okay. Turning to net income. We delivered net income of $1.8 million during the 9 months ended September 30, 2025, compared to a net loss of $2.7 million during the 9 months ended September 30, 2024, which is a $4.5 million swing in the right direction, driven by a significant improvement in gross margins that Tim will discuss in detail. We are focused on production capacity and quality, and one way to measure that is the approximate level of revenue we can now support. During the 9 months ended September 30, 2025, we demonstrated that we can produce at an annual rate that is very close to our capacity expansion goal of $30 million per year. Our priority now is on operational excellence and execution while we review our next capacity expansion opportunities. At this point, I'm going to turn the call over to Timothy Fiori, our Chief Financial Officer, for a deeper review of the third quarter financial highlights. Tim was my finance leader at IDEXX for 15 years, and it is a pleasure to team up with him again here at ImmuCell. Tim? Timothy Fiori: Thanks, Olivier. I'm happy to be working with you again. To start, I'd like to focus on improvements we've seen regarding the year-to-date net income and earnings per share as compared to prior year. Net income during the 9-month period ended September 30, 2025, increased by $4.5 million over the net loss during the 9-month period ended September 30, 2024. This significant improvement was driven by higher sales with increased gross margins and a 7.4% or $543,000 reduction in operating expenses. Basic net income per share during the 9-month period ended September 30, 2025, was approximately $0.20 per share in contrast to a net loss of $0.34 per share during the same period of the prior year. As Olivier mentioned in his comments, product sales during the third quarter of 2025 decreased by 8% or $505,000 compared to the third quarter of 2024. Product sales during the 9-month period ended September 30, 2025, increased by 7% or $1.3 million over the 9-month period ended September 30, 2024. Product sales during the trailing 12-month period ended September 30, 2025, increased by 16% or $3.9 million over the trailing 12-month period ended September 30, 2024. During the first half of the year, we effectively eliminated our backlog of orders and rebuilt inventory and distribution. Refilling the distribution pipeline after an extended backlog provided a temporary boost to sales. Overall, I'm pleased that we are out of the prior order backlog situation. As we can see in the Q3 results, backlog dynamics have created difficult conditions for year-over-year sales comparisons. During the Q2 call, we anticipated that we may experience a softening in sales during the second half of 2025, and that has happened as predicted in Q3. We believe that difficult comparisons may persist due to the backlog fulfillment in prior periods for the next several quarters. We should lap this backlog dynamic in the second half of 2026, given that we effectively exited the backlog situation as of June 30, 2025. You can see prior year backlog information by quarter in our most recent 10-K and in the 10-Q that we just filed. We have realized gross margin improvements in 2025 as compared to the prior year. Gross margin as a percentage of product sales increased to 43% during the third quarter of 2025 compared to just 26% during the third quarter of 2024. Gross margin increased to 43% during the 9-month period ended September 30, 2025, compared to just 27% during the 9-month period ended September 30, 2024. Gross margin increased to 41% during the 12-month period ended September 30, 2025, compared to just 27% during the trailing 12-month period ended September 30, 2024. Future success will require continued achievement of strong production yields, coupled with strong sales growth. We have several opportunities to drive growth from the existing products, including regaining customers that we may have lost during the short supply in years past. We also have several new product offerings in our functional feed product line. I'd like to talk for a moment about adjusted EBITDA because the impact of noncash depreciation expense on our bottom line is significant. To be clear, adjusted EBITDA includes an add-back of stock-based compensation expense, which is another noncash expense that's included in net income as calculated in accordance with GAAP. We created adjusted EBITDA of $751,000, $4.4 million and $5.8 million during the 3-month, 9-month and trailing 12-month periods ended September 30, 2025, respectively. These strong results compare favorably to adjusted EBITDA of $196,000, $35,000 and negative $175,000 during the 3-month, 9-month and trailing 12-month periods ended September 30, 2024, respectively. These strong results helped us increase cash to $3.9 million as of September 30, 2025, from $3.8 million as of December 31, 2024, while investing about $2.7 million in inventory build as we approach peak selling season. We will continue to closely monitor and manage cash as we balance long-term investment with near-term operational needs. With that, I will turn the call back to Olivier for some closing remarks. Olivier? P. F. Te Boekhorst: Thanks, Tim. We are very focused on the commercial opportunity that we have with the First Defense suite of solutions, including the new products within the functional feed line that were launched in June. There is tremendous runway for First Defense, and we are excited to come out of a supply-constrained environment to execute growth initiatives. The energy in the commercial team is palpable. We are also very focused on operational excellence to ensure consistent supply of quality product. The year-over-year improvement in adjusted EBITDA that Tim just touched on are the results of this focus with increased sales at better gross margin and lower operating expenses. As we discussed before, we are awaiting FDA approval for our Re-Tain product, which addresses an important market need for effective treatment of subclinical mastitis. We believe that treating subclinically infected cows with Re-Tain could enhance best practices in the industry with an alternative to traditional antibiotics that are also used in human medicine. While we wait for FDA approval, we have started investigational product use studies to collect market feedback about product performance in the field in collaboration with Michigan State University. These studies are well underway, and the data we gather from this work will inform us of our best strategies for Re-Tain in 2026. This disciplined approach is intended to support a successful market entry. Our top priority at ImmuCell will be on solid execution across the organization. And I'm very pleased that we can leverage the foundation that Michael and the team have rebuilt and that we can now set our sights on defining and executing our strategy for long-term growth. With that said, we will be happy to take your questions. Let's have the operator open up the lines. Operator: [Operator Instructions] And our first question today comes from Frank Gasca, private investor. Frank Gasca: First of all, and I want to thank Mike for his service, for the years that he put in at ImmuCell, and we go back quite a way, it's about 25 years. So I wish him well in his upcoming retirement as I enjoy mine. As far as my questions, I'm going to take a somewhat more critical turn. I don't see the clean slate that you referred to. I see more -- in regards to First Defense, what has changed? It went from an expansion of capacity. We even committed capital, and now we're uncommitted to that expansion. I think you touch some of the causes of that. But what I'm looking for is what active and steps are you taking to increase that growth that was somewhat anticipated even years ago. P. F. Te Boekhorst: Thank you, Frank, for your question. And let me maybe just start with -- what we mentioned is we are now at a level of capacity that we set out for ourselves when we started the capacity expansion project a few years ago. And while we had a contamination event, we have now arrived at a place where we are actually in a better shape than we even were when we started that capacity expansion project because we have put all kinds of quality measures in place to ensure that we can manufacture at a predictable level. So that is an improvement in our capability. What I'm very excited to report after my first few calls with the commercial team is that after years of managing short supply, they are now able to go win new customers, talk to customers about increasing the use of First Defense if they're already using it. And this is a very different approach that the commercial team can now engage with, and they are very excited. I will be visiting the field next week with -- visiting with customers. And hopefully, we'll be able to report back to you firsthand what that excitement at both the customer and the sales team level is. So we're very pleased to be where we are. There is more to do but it does look quite positive from where I'm sitting. Thank you for your question. Operator: [Operator Instructions] Our next question comes from George Melas with MKH Management. George Melas: Thanks. First of all, I sort of want to reiterate what the previous caller said. Michael, thank you very much for your service and we appreciate it working with you. And I just want to say thank you very much. Olivier, welcome to the team. It's very exciting to have you. My question is a bit about the inventory. The WIP continues to grow. I mean a lot of it is the frozen colostrum, which is, I think we report is $3.3 million. But the finished good inventory right now stands at $2 million, which is the highest it's been, I think, in probably 6, 7 or maybe ever or at least from my model in at least 6 years. I'm trying to see and -- trying to see how you plan to balance sort of production with sort of cash generation or cash management. P. F. Te Boekhorst: Well, first, George, thank you very much for your welcome. I'm going to turn it over to Tim to address the inventory question. Timothy Fiori: George, good to talk with you. Yes, we definitely have seen inventory levels come up a lot. Of course, we started the year with really practically nothing, and now we have a more desirable level, frankly, of inventory and especially as we approach the peak selling season that's coming up in the -- around the first quarter. I meet with the team weekly with sales and the production team personally, and we have a good communication between the 2, and we do a planning process to seek those desired inventory levels. So we're paying a lot of attention to that. And I think we're in much better shape now than in the past couple of years for sure. On the colostrum side, we want to have a considerable amount of colostrum. And I think you're right that we need to carefully manage that and make sure that it doesn't become too much. And that is also on that regular review list of things that we're very focused on. But it is our key ingredient. And you're totally right that, when you look at WIP, that colostrum is a large component of that. P. F. Te Boekhorst: And George, if I could just add, I've worked with Tim for 15 years as my finance leader at IDEXX, as I mentioned earlier in the call, where we managed about $300 million business together. And Tim brings a very disciplined, rigorous process-focused approach to both operational and financial execution. And so I'm very excited to see that in place here and to continue working with him and also to partner with Bobbi Brockmann, our Vice President of Sales and Marketing, who has a very similar approach to commercial execution. And I'm bringing this up because I think that's the way forward for ImmuCell is to build on what Michael has built for us and now to really focus on disciplined day-to-day execution of our plans. Thank you for your question. Joe Diaz: Okay. This is Joe Diaz again, your moderator. I did want to have one question asked before we close the call out. The margin improvement in Q3 was very good. What do you attribute that to? Timothy Fiori: Thanks, Joe. Yes, the largest drivers of gross margin, as we see it, are the improved manufacturing performance as the primary one, but also the price increase. If you look around Page 37 of the recent 10-Q, we talked about our composite price increase in 2025 of around 6%. So those are both definitely important factors in gross margin improvement. And just the volume of sales, so you end up with that scale that's helping in manufacturing and with fixed cost spreading it out over a larger amount of volume is always a big part of that as well. Joe Diaz: Okay. That concludes our Q&A session. I want to thank everyone for participating in today's call. We look forward to talking with you again to review the results of the year ending December 31, 2025, during the week of February 23, 2026. Have a great day. Thank you for being with us today. Operator: Thank you. That concludes today's conference call. You may now disconnect your lines, and have a wonderful day.
Steve Wadey: Thank you, Stephen, and good morning, everybody, and welcome to our half year results for FY '26. Whilst we continue to operate in challenging market conditions, we have taken decisive action to improve our short-term performance and drive long-term growth, creating value for shareholders. And thanks to the dedication and hard work of our highly skilled employees, we've continued to support our customers' operational needs, delivering mission-critical technologies and services. Today, we'll take you through our half 1 results and the actions we've taken to address both near-term challenges and strengthen our market positioning for the long term. A great example is shown here, which illustrates the successful completion of the synthetic trials we undertook with BAE Systems to demonstrate how drones can operate alongside combat aircraft like Typhoon. This was a significant milestone in developing critical sovereign capabilities needed to defend the U.K.'s national interests. Let me start with our key messages for today. First, in tough near-term market conditions that have delayed orders in the U.K., we have delivered robust operational performance and our restructuring program in the U.S. is on track. Secondly, our mission-critical capabilities remain highly relevant to our customers' needs in a growing defense market and combined with our significant order book and substantial pipeline, provide very good visibility for long-term growth. Thirdly, despite near-term headwinds in our home markets, we have focus and visibility to maintain our full year guidance, and we continue to deploy capital with discipline. In summary, we are delivering the actions to improve business performance in the short term and are well positioned to capitalize on increasing defense spending so that we deliver compelling value creation for shareholders. Our agenda this morning expands on these messages. I'll start by giving you our half year in review. Martin will provide a commentary on our financial results. I'll then come back and give you an overview of our strategic outlook. Finally, we'll open up for questions. So to our review of the half year performance. In response to the market backdrop, we have taken proactive and disciplined portfolio actions, achieving good progress on our U.S. restructuring program as well as rightsizing other areas of the business. The improvement actions are delivering benefits and building resilience that will improve both short- and long-term performance. Overall, our first half financial performance was robust in tough near-term markets. We saw this particularly in the U.K., where we experienced delays to orders on our engineering services and R&D framework contracts, in part due to our customers prioritizing major equipment programs. This reduced our underlying book-to-bill to less than 1, excluding the LTPA contract award. We achieved 2 strategic milestones that strengthen our company for the long term. In May, we secured the GBP 1.5 billion extension to transform the LTPA for future warfare through to 2033. As a result, we closed the half with a significant order backlog and substantial pipeline, providing very good visibility for long-term growth. And in September, we announced the strengthening of the EDP contract to accelerate defense productivity by expanding the partnership and augmenting our high-value engineering skills with artificial intelligence. Together, these strategic milestones show how we are playing our part in delivering on the ambitions of the U.K. government's strategic defense review. As normal, we delivered a healthy cash conversion, enabling investment in the business and increased shareholder returns through our progressive dividend and multiyear share buyback program. Looking forward, we have approximately 90% of revenue under contract for this year, which is the same as last year. Whilst market headwinds continue, we're focused on execution and have visibility to deliver our full year forecast. Martin will take you through a bridge of this later in the presentation. I now want to address our half 1 performance and the progress we are making in each of our segments. Starting with EMEA Services. Due to market conditions in the U.K. and ongoing defense budget pressures in the Australian market, we delivered flat revenue with good margin. In the U.K., we grew 2% as a result of delayed orders on our framework contracts. And in Australia, our revenue was lower, predominantly due to the loss of the Land Systems work package under the MSP framework. In response to these dynamics, we took some resizing actions to build resilience whilst protecting core skills for the future. Our performance was underpinned by successful program execution across our long-term contracts. On the EDP contract, delivery performance was strong with 98% of all milestones delivered on or ahead of schedule. In September, we announced changes to the LTPA that will make it easier and cheaper for SMEs and new entrants to use our test and evaluation capabilities across the U.K. The launch of our T&E Innovation Gateway will help drive greater defense innovation and support wider economic growth across the U.K. Notable new contracts in the half include the strategic win GBP 25 million to deliver collective training for the Royal Navy to improve war fighting readiness at pace. This 5-year contract will see us deliver an immersive virtual training environment that realistically simulates the threats and missions that Navy personnel can expect to undertake in the future. Whilst near-term trading conditions remain tough, we have a clear pipeline of orders to win and deliver in the second half. Turning to Global Solutions. During the first half of the year, we've been focused on executing our plan to address the market challenges and operational issues that we highlighted in May. We've made good progress on the U.S. restructuring program. Key actions completed include the disposal of the U.S. Fed IT business, significant headcount resizing and cost base reduction as well as an improved control of labor rates and inventory. This progress puts us on a stronger foundation to move forward. As we forecast, revenue declined with lower margin compared to the prior year. Half of the decline was due to a lower volume of non-U.S. product sales versus a strong prior year comparator and the other half was in the U.S., principally due to the impact of DOGE on our Fed IT business that we have now disposed of and our planned resizing actions. As the U.S. market changed, we repositioned the business to build resilience and be better aligned to national security priorities. Our strategy is now focused on 4 capabilities where we have differentiated long-term incumbent positions and see good growth potential. These 4 areas are space & missile defense, maritime systems, advanced sensors and persistent surveillance. During the half, we secured $290 million of funded orders with a U.S. book-to-bill of 1.5x. Whilst we continue to focus on improving operational performance and winning longer-term programs, this strong book-to-bill underpins our second half forecast for Global Solutions. To summarize, we're making good progress. Whilst we finished the half with a smaller U.S. business, it is more aligned to national priorities and is well positioned to deliver long-term growth. I'll now hand over to Martin to take us through our financial results. Martin Cooper: Thanks, Steve, and good morning, everyone. As usual, I'll start with the financial highlights before moving on to the key financial metrics at a group level and details on our 2 reporting segments. I'll finish with capital allocation and guidance. And for reference, the U.S. dollar rate for the half averaged $1.34 compared to $1.29 last year, which has provided a headwind to the reported values. So turning to the results for the half. Order intake for the half was GBP 2.4 billion, which drove a closing order backlog of GBP 4.8 billion, both reported records for the group. Revenue was 3% down on an organic basis at GBP 900 million, resulting in a book-to-bill of 0.9x, reflecting the sale of our Fed IT business and trading conditions in H1, which impacted contract awards. Underlying profit was down GBP 10 million versus H1 last year at GBP 96 million, but margin at 10.7% was ahead of our half year expectations and underpins our full year target of around 11%. Underlying basic earnings per share of 14.2p were in line with last half as the lower profit was offset by the enduring benefit of the enhanced level of share buyback. Turning profit into cash remains strong at 85%, which again underpins our full year guide of around 90%. The strong operating cash performance, combined with the sale of our U.S. Fed IT business has enabled effective and value-accretive capital deployment. This has enabled us to not only reduce net debt half-on-half, but also to significantly enhance shareholder returns, which totaled GBP 101 million as we made excellent progress on our ongoing 2-year share buyback program and paid the final dividend. And return on capital employed remained strong at 21.1%. Moving to the key group financials and starting with orders. The book-to-bill of 0.9x, as Steve raised, resulted from delays in contract awards in the U.K. impacting EMEA Services. And within Global Solutions, the year-on-year impact on the federal IT market was particularly stark in the order flow in the business we have now disposed of. Whilst book-to-bill was down, total orders at GBP 2.4 billion was a record when incorporating the 5-year LTPA award. This meant we closed the half with an order backlog of GBP 4.8 billion, which does include GBP 0.4 billion of U.S. unfunded backlog, providing good visibility for future growth of core long-term business frameworks. Revenue at GBP 900 million is down 3% on a like-for-like basis when adjusting for FX and the sale of the Fed IT business. EMEA was lower on reduced volumes in Australia, where we lost a competitive land systems work package. And as Steve mentioned, despite being impacted by delays in orders, the U.K. business did grow 2% half-on-half. Global Solutions declined due to U.S. short-cycle revenues, of which a significant part was in the business now disposed of. In addition, our restructuring activities have resulted in us exiting some business lines as we focus on 4 major areas for long-term profitable growth. Within Global Solutions, our products business was lower against a high year-on-year comparative, but demand and outlook remains robust, and we expect a better second half. Recognizing the step-up required in H2 to deliver our revenue guidance, we have detailed on the chart the drivers that bridge us from half year to our year-end assumption of circa 3% organic growth -- like-for-like growth. So taking each in turn. Revenue cover at the half stood at 89%, in line with last year's assumed outturn at this stage, and that includes the core frameworks of EDP and LTPA, established positions on the likes of Naval Combat Systems and MSCA, Maritime training following the MCAST win and in the U.S., the TARS Persistence Surveillance contract and the work we do with the Space Development Agency. Secondly, our Period 7 order flow has added a further 2% to the cover and includes the mission-critical Typhoon support uplift. Thirdly, we have around 7% of orders, which are extensions of current positions or where we are close to finalizing the awards. Examples include the DragonFire laser weapons contract and target sales with predominantly repeat customers. Finally, we have a good visibility on a pipeline of further awards that we assume we shall win and deliver in year to cover the remaining around 2%. Whilst there are clearly market headwinds prevailing in the U.S., U.K. and Australia, we currently have good visibility and are hence maintaining our full year guidance. Moving to operating profit, which was down GBP 10.6 million against last year, reflecting lower revenue and the impact of the group's restructuring activities. Margin at 10.7% was ahead of expectations at the half with good consistent program execution against our backlog, especially in EMEA Services. In May, I talked about rebuilding margin from 9.6% to around 11%, and we are on track through driving strong program execution, cost base efficiency actions and the portfolio actions in the U.S. As usual, we have detailed the table reconciling underlying operating profit from segments to statutory profit. The income from RDEC and intangible amortization are standard reconciling items and predictable. The other 2 major reconciling items reflect the actions being taken to improve the long-term performance of the business. Firstly, our digital investment has increased in the half, driven by a major rollout to over 60% of the business. As a reminder, this is part of a wide -- of a program to enable growth strategy and wider business efficiency. Secondly, we have booked a further GBP 22.6 million of restructuring costs, driven by the portfolio work in the U.S., coupled with the rightsizing activity in Australia and ongoing efficiency activity in the U.K. To complete profit, the sale of the Fed IT business led to a GBP 0.5 million profit on disposal. Now turning to the segmental split of the group performance, starting with EMEA Services, which had a good operational half in difficult near-term market conditions. Orders increased to GBP 2.2 billion. Excluding LTPA, the book-to-bill was down to 0.8x with delays in contract awards in the U.K. and Australia driving the shortfall, albeit as mentioned in the revenue bridge, some of those orders have come through since period end. Revenue was broadly stable with the U.K. defense delivering growth, but this was offset by order delays and lower revenue in Australia with the loss of the land MSP work package. Program performance and cost control was good, ensuring consistent margins at 11.5% and funded backlog is now at a record high GBP 3.9 billion, which supports second half delivery and longer-term visibility. Next, Global Solutions, which posted orders of GBP 247 million at a book-to-bill of 1.3x, including annual funding on our core U.S. franchise contracts of Tethered Aerostat Radar System, Strategic Capabilities Office and Space Development Agency. These contracts also saw good on-contract growth. Securing these orders in the half helps to derisk second half revenue given the ongoing government shutdown. Orders were down half-on-half due to restructuring of the U.S. portfolio and timing of targets and product awards. These dynamics impacted revenue, which was 16% lower at GBP 192 million. And as covered in the bridge, the book-to-bill gives us a foundation to drive the required second half performance. Margin was down half-on-half at 7.4%, but up from last year as we work through the U.S. restructuring actions and was in line with our expectations at this stage. Moving to cash, where operating cash flow continued to be good at GBP 128 million and was in line with last year, delivering a high conversion ratio of 85%. Capital expenditure was GBP 36 million, of which GBP 21 million related to the LTPA. And in line with guidance, we would expect higher spend in the second half with a total for the year around GBP 100 million. To complete the cash analysis, the movement in net debt from year-end is shown here. We generated GBP 63 million of free cash flow. And with the proceeds from the Fed IT sale, that allowed us to deliver a significant step-up in shareholder returns at GBP 101 million as we accelerated the pace of the buyback program and grew the dividend 7%, in line with our progressive policy. Net debt, therefore, closed at GBP 180 million at a leverage ratio of 0.6x, up from year-end, but a GBP 10 million lower net debt than last half year. Turning to capital allocation, which is unchanged. The business is delivering good consistent cash flow and the focus and priority is driving sustainable organic growth at good margins whilst investing in the business. We maintain a rigorous approach to the deployment of our capital, scrutinizing organic investments against shareholder returns and ensuring we have a balanced and value-accretive deployment of capital. During H1, we've demonstrated our disciplined capital allocation policy by investing in our organic growth through CapEx, research and development, digital and major competitive bids. We provided a 7% progressive dividend, completed the sale of our noncore Fed IT business in the U.S. and used the funds from the sale to accelerate our share buyback program. We have a strong balance sheet, which gives us flexibility to drive organic growth and provides optionality for value-accretive capital deployment in excess of the GBP 200 million share buyback already announced. So pulling all that together and moving to guidance, which is unchanged. For the revenue bridge, we still expect to deliver a circa 3% organic growth on a like-for-like basis when adjusting for the sale of the Fed IT business and the higher exchange rate versus original guidance. Margin, we expect to be around 11% and with the buyback progressing at pace, EPS growth of 15% to 20%. Cash, we expect to be around the 90% conversion level and leverage around 0.5x at year-end. As usual, to help with your models, we've included additional technical guidance in the backup slides. This has been a robust half against a difficult market backdrop. And with the action taken and in train, have the visibility to deliver this full year guidance. I'd like to thank all our teams for delivering critical capabilities to our customers and for this half year result. With that, back to you, Steve. Steve Wadey: Great. Thank you, Martin. So to our strategic outlook. Let me start by explaining why we are a differentiated company, highly relevant to the increasing threat with strong fundamental growth drivers structurally aligned to the increasing defense spend. The threat environment has changed the market dynamics. We are in a new era of defense. Our customers have committed to long-term spending increases as we have seen across NATO and are driving major procurement reforms as they seek to rapidly scale existing capabilities and create new disruptive capabilities to overmatch the threat at wartime pace. We are not standing still. Our mission-critical capabilities shown here on the right are highly relevant and are directly aligned to our customers' priorities. We are a horizontal integrator, developing new technologies, testing new platforms and delivering frontline mission support. We play an essential and vital role in helping our customers accelerate capabilities into service and increase war fighting readiness to counter the threat. As the market is changing, we have adjusted our strategy to increase focus in 3 areas: firstly, partnering more closely with our customers to help them build greater resilience, rapidly modernize and deliver innovation at pace; secondly, continuing to pursue focused growth in each of our key domestic markets; and thirdly, leveraging our capabilities to expand and grow into European NATO markets. Let me take each of those in turn. We are increasing our competitive advantage through greater partnering and innovation with our customers and industry to deliver operational advantage and drive growth. We are a strategic partner to the U.K. government and the fourth largest defense supplier to the U.K. MOD. Our capabilities are aligned to the ambitions of the Strategic Defense Review, and we have increasing opportunities to leverage our expertise in partnership with the government into major export programs, such as our engineering services and mission data capabilities into the recent win of Typhoon into Türkiye. On Monday this week, Luke Pollard, the Minister for Defense, Readiness and Industry, visited us in Farnborough and has welcomed our commitment to proactively transform the way that mission-critical engineering services are provided to the U.K.'s armed forces that I mentioned earlier. This includes our investment in new digital and AI technologies to augment our high-value engineering skills, significantly increasing U.K. productivity and innovation. To stay ahead for the long term, we remain focused on investing capital into our people, technology and capabilities. We achieved a major milestone in the half with the successful transition of U.K. and Australian employees onto our new digital workplace to improve our ways of working and business efficiency. And investing in cutting-edge defense technology continues to be a key driver for our future growth. Our long-term R&D created the laser technology that is critical to the growing DragonFire laser weapon program. Investing in the business is core to our strategy to ensure we have a differentiated portfolio and are well positioned to capitalize on increasing defense spending and drive organic growth. The longer-term opportunity in our domestic markets remains significant, and our mission-critical capabilities are focused on areas of priority for our customers, which are robust and set to grow. In EMEA Services, we have deep expertise that we are leveraging on next-generation technologies, capabilities and programs. This includes the launch of our DroneWorks initiative to help SMEs access our expertise and facilities to accelerate drone development for rapid deployment. And we are delighted with a recent significant competitive win to further develop our disruptive laser technology for next-generation laser weapons beyond DragonFire. In Global Solutions, we now have a U.S. business with much greater focus on the 4 differentiated capabilities that I described earlier. As a result, we have delivered significant on-contract growth across our large multiyear contracts that Martin described, SCO, TARS and SDA. And we see significant growth potential for space and missile defense, where our capabilities are highly aligned to multiple U.S. space programs. From a wider product perspective, we are continuing to invest in our maritime, targets, sensors and secure navigation capabilities where we have differentiated offerings to drive organic growth. Our portfolio is now focused and structurally aligned to national security priorities of our domestic customers, underpinning our long-term perspective. We're also increasing our focus to position the business and drive organic growth in adjacent markets by leveraging our core capabilities across the AUKUS nations and into European NATO and allies. We are collaborating with our customers across the AUKUS nations to develop new opportunities. Examples include sharing laser technology from the U.K. into Australia, leveraging our R&D expertise. We're also sharing our engineering services experience to help shape the future of the EDP and MSP contracts, and we are applying our world-leading maritime T&E capabilities in the U.K. to support the T&E opportunity for the AUKUS submarine program in Australia. Over recent years, we have made good progress with European NATO and allies, where we have differentiated capabilities. We've grown the use of our unique U.K. test and training capabilities from nations such as Germany, Italy, Spain and most recently, Japan. We're also increasing our export focus and a key opportunity progressing well is the export of our electronic warfare and mission data expertise into Belgium. And whilst Poland remains an upside opportunity, we're actively shaping further persistent surveillance opportunities in Eastern Europe and the Middle East beyond our U.S. program. We're also well positioned to capitalize on NATO's increasing defense spending, and we see our addressable market growing. With a focused approach to our international expansion, we are creating value across the company to drive further organic growth. Having secured the LTPA extension, we have a significant order backlog of GBP 4.8 billion, providing a firm foundation for the company. This backlog, combined with our qualified pipeline of GBP 11 billion, provides good long-term visibility at 8x our FY '25 revenue. We have built this visibility by focusing on our customers' needs, partnering with industry and winning larger, longer-term programs. On the left, I'm showing our major domestic programs where we have strong incumbent positions that build up to approximately 70% of our annual revenue. This solid base in our domestic markets gives us a platform to deliver on-contract growth and win new programs in our pipeline. This solid base also gives the platform to leverage our capabilities to expand internationally, shown here on the right, including opportunities to leverage both our services and product capabilities into European NATO markets. Whilst we may not win all of these, our pipeline is robust and prudent with many additional growth opportunities beyond the GBP 11 billion shown here. Overall, our significant backlog, combined with our healthy pipeline, gives us very good long-term revenue visibility and underpins our confidence in creating long-term value for shareholders. So in summary, we've taken the necessary actions in tough near-term market conditions, strengthening our portfolio to improve our performance. The fundamentals of the business remain strong, and our mission-critical capabilities continue to be highly aligned to our customers' needs in a growing defense market. Combined with our backlog and pipeline, this gives us very good visibility for long-term growth. Whilst near-term headwinds continue, we're focused on execution and have visibility to maintain our full year guidance. 10 years ago, we launched our growth strategy. As you can see from the chart on the right, this year is a transition year. Having taken decisive action and significantly grown our backlog, we have a strong platform to capitalize on increasing defense spending. This gives us confidence to drive sustained long-term growth and deliver compelling value creation for shareholders. Martin and I'd be happy to take your questions. Steve Wadey: Okay. Rich, first question. Richard Paige: It's Richard Paige from Deutsche Numis. Could you just give a bit more detail about what's going on in Australia, please, and circumstances there? And on -- second one on U.K. Intelligence, again, sort of dig between there because it feels as though you're reasonably confident that there hasn't been a significant deterioration in trading in that business. And then thirdly, just on exceptionals and digital innovation. If you could just outline thoughts for the full year on both of those numbers and particularly digital innovation, how long they -- how long that persists as an exceptional charge, please? Steve Wadey: Okay. Maybe, Martin, I'll start on Australia. Maybe we do exceptionals, and I'll finish off with U.K. Intel. Okay. So I mean, I think on Australia, I think it's a tough market. In some ways, the Australian market has been very similar to some of the dynamics that we've seen here in the U.K. It's absolutely not unique to us. As you heard in my presentation, right at the start of the year, we had a loss of a competitive work package. Whilst we're not the prime through the team that we're on under the MSP program, that has resulted in lower revenue for us. But I think we need to put that in perspective, Rich, Australia now about 6% of the group. And I think what's been important is that in understanding that market dynamic, whilst we've taken the resizing actions, we've also taken actions to strengthen the portfolio and focus on the programs that are going to give us long-term underpinning growth looking forward. Those key areas, if you are interested in those, there are really 4 big drivers that we're focused on for the future in Australia. The customer is going through an exercise in the coming calendar year, so 2026, looking at what program will replace MSP. It's called future MSP. We expect there to be an RFI and RFP for that, and we're in a market shaping phase. I mentioned sharing experience between the U.K. and Australia customers to secure a prime role and position ourselves for the next phase of engineering services. Secondly, we're continuing and we're delivering really well on our threat representation business through the acquired Air Affairs business. That's under our JATTS contract. We expect a renewal of that contract imminently, and that provides long-term underpinning growth. Thirdly, you have heard me talk about lasers. We have quite a lot of progress on lasers. I'm sure we might get some questions on this in the U.K. in a moment. It's really a strong long-term growth driver, but there's a lot of collaboration between our customers and our teams looking at next-generation lasers in Australia, where we're very, very well positioned. And the final driver that I mentioned in my presentation is related to the AUKUS submarine program, again, where we expect over the next 1 to 2 years, a significant program opportunity on providing the range capability or the test and evaluation capability for both the AUKUS submarine program as well as surface fleet. So yes, it's been a tough year. It's not unique to us. There are plenty of businesses, as you know, having to take resizing actions and improve business efficiency we have. But we need to put it in perspective, and we've got some really good solid positions to grow going forward. Do you want to do exceptionals? Martin Cooper: Yes. Thanks, Rich. I mean I think on -- as I covered in my script, then we've had a pretty significant rollout in the first half across a lot of our workforce on one major work stream within that package. So it was GBP 12 million -- just over GBP 12 million in the half. I'd expect the second half to be a little bit less, but a few models, I'd model about GBP 22 million for the year, and then we'd expect it to start to step down next year and then finally complete in FY '28 for us. Richard Paige: [indiscernible] Martin Cooper: Clearly not by the nature of exceptionals, but I mean, you'll notice just to cover the restructuring point, I mean, I think you -- that could be split into 2 major halves, one around sort of roughly 50-50 around headcount impact and headcount reductions. And then as I mentioned, again, as a reflection of some of the work streams we've either exited or really rationalized down in the U.S., then there were around GBP 10 million plus of further write-downs in the U.S. that went through that line. So you should think a bit of headcount reduction and then sort of final balance sheet cleanups. But obviously, we wouldn't expect anything else material in the second half on either line. Steve Wadey: And I think on U.K. Intelligence, I mean, you'll know U.K. Intelligence had a tough year last year. So this year has very much been a transition year for U.K. Intelligence. And I describe the wider context of the U.K. market has been tough, and we've seen a delay to orders, particularly around the R&D, DSTL areas and engineering services. But I think that UKI is positioned well for this year. It actually did relatively well on its orders in the first half and has got a very good pipeline to deliver a much stronger second half performance that we are planning on. And included in that, the business is also well positioned. You would have seen me mention a couple of export-related orders, particularly in the EW emission data area where certainly in the next, let's call it, 1 year, we would expect some of those export-related orders to positively contribute to the rebuild and next phase of growth for U.K. Intelligence. George Mcwhirter: George Mcwhirter from Berenberg. Maybe coming back to Australia again. Just in terms of the competitive land systems package that you mentioned that you lost, can you just talk about the size of that contract, please? And what lessons you can take from that loss? And the second question is on the U.S. What proportion of the business would you say is shorter cycle now that you've disposed of the federal IT services business? And have you seen any impact from the government shutdown? Steve Wadey: You need to start on the Australia side. I'm happy to talk about lessons. Martin Cooper: Right, George. So certainly, the value of package of work was about AUD 50 million. Most of that was reflected in our guidance at the start of the year. We had hoped to perhaps pick up a little bit of subcontract work, but that's not really materialized. So around $50 million impact, but it was baked into the guidance in essence at the start of the year. Steve Wadey: And I think lessons, George, I think, is similar to what we've discussed before and certainly, I'm seeing that is our focus in the U.K., which is really understanding the pressures and the drivers on our customers, all of our markets, our customers, whilst defense is a high priority, they're all trying to get more for less out of their budgets. So therefore, really thinking through innovative proposals and being focused on areas where we can differentiate and be more competitive is absolutely key. There are many examples I could talk about in the U.K. where we're doing that. And the 4 areas that I mentioned in answer to Rich's question is really about how we become more competitive and more innovative to differentiate and then build those longer, larger sustainable positions going forward. Start on the U.S. of short cycle? Martin Cooper: Yes, I mean I think, George, to sort of turned it around a little bit, the 4 major sort of work streams we're focusing on now that Steve outlined reflects more than 80% of the revenue work that we now do in the U.S. And I think as you remember, as we went into this year, we didn't include really any material values on the likes of robots and sort of short-cycle book-to-bill work. And so the coverage that we've got through the half year book-to-bill relies very little on short-cycle impact at all, and that's where it is. Now you'll all know that in the U.S., you do also have annual contracting. So you could describe that as short cycle in some instances as to where it is. But a lot of that real sort of what you would have traditionally called as short-cycle volatility was stripped out at the start of the year and is not in our bridge for full year as we look forward. And I think in respect of the government shutdown, the reflection that we had a very strong book-to-bill in the first half in most of those big contract awards on the likes of TARS, SCO, SDA, the forward-funded contracts came in, in September, which drove the strong book-to-bill, which has given us that cover now like all defense contractors and all contractors. If there's another government shutdown in January again and/or these things get protracted, then obviously, there could be impacts further down the line or for further orders. But in the short run, then we're fine. Steve Wadey: And I think more broadly, I think, as I said in the presentation, we're really pleased with the progress that we're making. I mean the U.S. restructuring program is on track. The disposal of the Fed IT business was a key milestone. As you heard, we've taken some significant cost out and headcount out to resize the business in line with the market that we see. Hence, my comment about we have now got a smaller business. But as Martin has just said, that smaller business is really well positioned because we've now focused on these 4 revenue streams where we have long-term positions, and we can see that growth potential, which reduces the exposure to that short-cycle volatility that you are pointing out. And as Martin says, the book-to-bill of 1.5x gives us the ability this year to drive through that performance then really focus on these growth drivers for the long term. Hopefully -- does that answer your question, George? Great. Joel Spungin: It's Joel Spungin from Investec. Steve, one for you, sort of a big picture question, and I've got a couple for Martin as well. But I was wondering if you could talk maybe just sort of thinking out beyond FY '26 as we look into fiscal '27, '28. You go back and QinetiQ used to grow roughly double nominal sort of defense budget growth for a long time in terms of organic growth. Is that still something you think is achievable even in a world where nominal defense budgets in the West are rising at an unprecedented rate, i.e., could this business get back to being a high single, even low double-digit organic growth business? Steve Wadey: Yes. I think this is a good question. And I think there are a number of things to say. I think, first of all, we're very confident we've taken the right actions. We've taken the right actions to deal with the dynamics as we came into this year. And that ultimately, hence, your question, puts us on the right trajectory to return to higher rates of growth. And we have an exceptionally strong backlog and exceptionally strong pipeline. You've seen that there with 8x FY '25 revenue cover. And therefore, I think your question is a question of timing. And actually, how do we really make sure that we control the things that we can control. And what we've shared with you today is that we are in control of everything that we can. But there are some market dynamics that will determine partly the answer to your question about how quickly we will return to that from a timing perspective. But we're absolutely doing all the things that we can. And then if you go further into that question and say, well, what are the drivers though? But what are the drivers that could -- that become the bridge from this year into that multiyear phase of returning to that higher level of growth. And it is worth just mentioning them because I think that it will help everybody understand how the company returns to those higher growth rates. So the first one absolutely is in our core strength of test and evaluation. The long-term partnering agreement on a multiyear basis is absolutely going to be a contributor to our growth. The modernization work of bringing in hypersonics directed energy, autonomous systems, the increasing in tasking that we expect to see through our test and evaluation Innovation Gateway, the DroneWorks initiative that I mentioned. And I didn't mention it in the presentation, but we've just won a contract to expand quite considerably the capacity of the ETPS training school, which is going to be considerable increasing capacity both for our domestic and international customers. So that's a really important growth driver. The second is actually, and we've talked about this as our strategy for several years, how do we leverage our test capability into training. Note the strategic win of the MCAST contract. It's GBP 25 million. You might say, well, that's not big, but it's a strategic win as we move into training, and that training is absolutely complementing our test capabilities, and there are quite a considerable number of incremental opportunities above MCAST in a short-term period that will add to growth. The thirdly is U.S. I've mentioned this a few times actually in answers. I think we're really well positioned around space and missile defense. Our capabilities with the SDA. We have SATCOM capabilities, and we also have broader sensors capabilities. Space is a very large growing opportunity in the U.S., and we're well positioned in that and alignment with programs that you all know such as Golden Dome, we're positioning to win a role on that. And separate to that, I think it's in our unfunded order bridge. We did actually win an option, a ceiling option with the Space Development Agency worth up to $95 million to provide additional support to them in this coming year. So that's the third growth driver. Fourth one is around advanced weapons. You go back a year, we talked about -- in fact, it was May, wasn't it? We talked about the 2-year renewal on the weapons sector research framework. That is really starting over this next multiyear period to bring benefit, particularly in the directed energy area, both radar frequency as well as lasers. Martin mentioned the importance of DragonFire. And I just mentioned, we've had another win in next-generation laser technology. And then finally, the focus on Europe and 2 particular areas I would highlight. The framework contract that we signed now 2 years ago with NATO to allow access to our T&E ranges continues to bring and be attractive to nations like Germany, Italy, Spain, Netherlands. And the second area I mentioned in response to Rich's question is our greater focus on export. And we're in a really mature partnering position with HMG and looking at exports together. I mentioned 2 examples around our EW emission data capability with Belgium and with Türkiye opportunity on Typhoon, and those will contribute. So those 5 areas, I think, answer your question is the bridge from this year to those higher rates of growth. Clearly, not everything there is under our control. So it's a matter of timing. But certainly, over that few year period that you've mentioned, I would expect us to really get back into much higher growth rate. So hopefully, that answers your question. Joel Spungin: Can I -- sorry, just a couple of quick ones, Martin, I'm a bit more dull. The -- sorry, I lost you a bit on the guidance, the GBP 22 million. Is that the digital investment that you expect for the full year? Or is that the... Martin Cooper: Yes. So the total cost of digital investment, I expect to be around the GBP 22 million. Joel Spungin: Right. And you're not at the moment, expecting any more restructuring charges? Martin Cooper: Correct. Joel Spungin: Right. Okay. And then sorry, very final one. Fed IT, I was just wondering if you could say how much did Fed IT contribute to revenue and profit in the half? Martin Cooper: Yes. So in revenue in the half, it was about -- you should have modeled around GBP 10 million to GBP 11 million, so around $13 million to $14 million. And it does have a second half weighting, which is why when you're adjusting your models, you'd expect more like $20-plus million in the second half, which is why we want obviously the adjustment in the full year guide. It is fairly low margin. We will get to you, sir. Sash Tusa: Sash Tusa from Agency Partners. Just a very quick one first. I think that you slightly implied that there have been some delays to target orders in the first half. If I understood that right, is that something that has subsequently occurred or that you sort of expect to occur in the second half? Steve Wadey: So do that one first. Yes. So you are right, there has been a slight slowdown. Nothing particular in the market other than a general slowdown. But as Martin showed in our bridge, targets are part of a pickup that we expect in the second half. It is worth saying that we did achieve some initial target sales in the U.S., relatively small in the half, but we did. And we expect to be focused on additional task orders through the ATS-3 contract that we signed 12 months ago in that second half bridge. Sash Tusa: And then just a sort of broader question about U.S. space and Golden Dome and so forth. I mean clearly, you've seen an awful lot of hopes for procurement reform over your careers. And it's possibly quite jaundiced about sort of claims that politicians make for that. But Secretary Hegseth does seem to want to go faster and break a lot of things. And he doesn't seem to be particularly in favor of what he calls legacy contractors, which might be a category that you fall into. How do you make yourself relevant to new defense technology companies whose business model seems to be extravagant claims on PowerPoint, build stuff, it blows up, moves on as opposed to a rather more measured approach in terms of test and evaluation. Steve Wadey: How long have you got? You make a number of points. I mean, first of all, you touched on space and SDA. We have an excellent relationship with the SDA. We're the largest contractor working in with them. And therefore, we partner very closely with them, and we help them deliver their programs at pace. So by being relevant, by deeply partnering and helping them achieve, to your point, their programs faster, that's how you position well. And I think SDA contract was an example of significant on-contract growth in the half. That comes down to good performance and good partnering. And please note what I mentioned about the option that we've had added to that contract for the next few years, which could build even greater on [indiscernible]. So I think the core in that is being close to your customers, understanding the drivers. I think more generally, I think all of our markets are looking for reform. I don't think that's specific in the U.S. And I think that is a nature of what is being driven by the threat. And therefore, all of our governments, whilst they want to spend more money, that money is going to take time to come. And therefore, they want to get more from their money quickly, and that means doing things differently. And I come back to how well positioned we are. And if you look at our 4 capabilities, creating new technologies that create disruptive military capabilities to overmatch the threat quickly. Lasers, the case in point is really good. Focused on engineering services. I mentioned, I think, twice the importance of proactively investing in how do we augment our high-value skills with artificial intelligence. That's not about replacing our people. That's about doing what we do faster and at greater scale to help them drive efficiencies and scale their capabilities. So I think these are the dynamics, Sash, and I could go on further that by being really relevant and partnering, but coming up with different ways of working to support them on their reform, that's how you grow in difficult markets and position yourself well for the long term. I think that's the fundamental ethos. We have 2 more questions behind you. Benjamin Pfannes-Varrow: Ben Varrow, RBC. On the -- maybe kicking off with the second half growth, I think you've addressed it in the slides there, but just maybe on EMEA Services, looking at the second half, I think you need to grow around high single digit. Is the message from the slide there that those prospective orders coming in are pretty much derisked, so you're not concerned there of meeting those numbers. Is that the general takeaway? Steve Wadey: I'll do that one. Maybe I can start generally. I mean we've sort of talked about the market being difficult. And clearly, we've had delays, Ben. But we've got really good focus on execution and what the bridge that Martin showed is the visibility. If you're referring to the 7%, there are really 3 main drivers for that. The first is around EDP-related task orders. Secondly is around laser-related programs. That's not just DragonFire. It also includes the win that I've just mentioned on next-generation lasers because that was post AP7. In fact, it was last night. And then thirdly, targets. They are the 3 biggest drivers in there. And what really we're showing is in that 7%, they're really specific and identified, and therefore, they are high confidence. And we also have a pipeline of further awards that go beyond that and hence, the way that Martin presented it. Benjamin Pfannes-Varrow: Two more. In terms of maybe asking Joel's question slightly differently, over the next couple of years, you've spoken you can get back to that sort of high single digit, low double digit. Is there anything to be mindful of that's working against you or prevents you from getting there over the next couple of years to keep in mind? Steve Wadey: Well, I guess the most straightforward is the things that aren't in our control. So the market dynamics are partly the timing that I mentioned to the answer to Joel's question, but are we doing all the proactive thinking of investing, changing what we're offering, engaging with our customers. We're absolutely all over that. So we're doing everything in terms of the actions on short-term performance and positioning us to shape and win these proposals. So I think it's the things that aren't in our control, which is actually just the flow of orders really. But no, I think we're very well positioned, hence, the answer to Joel's question. Benjamin Pfannes-Varrow: Last one on the sort of upcoming U.K. defense investment plan, thoughts or expectations what could come out there? Steve Wadey: Yes. I mean we've been through a lot in the U.K. market this year. We had a strategic defense review in June, defense industrial strategy in September, defense reform initiative, July, was it? And then we've got the defense investment plan let's say, before Christmas, wherever it's going to be. So we've been through a lot. And I think that getting through, in some ways, the last big block of this reset and renewal of defense in the U.K. will be good. I think it will bring clarity. It will bring confidence. And I think what we expect from it is with that clarity, I think there will be a lot of focus on innovation and R&D and building different capabilities. Clearly, we're well positioned for that. And then more fundamentally, I think it will be calling even more so for initiatives of innovative capabilities to do more for less. And hence, some of the proactive changes that we've been making around the future of EDP and the AI-related investments. So I think clarity and confidence is going to be good. We'll welcome that. And then we really expect innovation and bringing proactive proposals to be part of the implementation and then sort of build that position as support to our government going forward. David Richard Farrell: David Farrell from Jefferies. Two questions for me. Just going back to the exceptionals and the digital platform. Could you just remind us what capabilities that will give you as an organization? What exactly are you doing? What efficiencies does it drive? Steve Wadey: So if we go back a couple of years maybe to when this whole project was launched, I think we talked very openly that the company infrastructure had been built really on the back of a legacy IT infrastructure from the U.K. government. And it went back 20 years. Hence, why this was a fundamental discrete investment project to fundamentally build a digital platform and set of applications for the company globally. And really, that project has been in 3 phases. The first phase was to put a fundamentally different secure network in place across the company using state-of-the-art digital technologies. That is done and complete. Secondly, the next phase was then effectively migrating our people onto the new devices. As both Martin and I have said in our presentations, that is largely complete. And now we're on the sort of the final phase, which is really now all about migration of apps and then new tools, whether that's engineering tools or a project that's very close to Martin's heart, which is around the business system finance tools. So hence, this was that multiyear discrete project to really bring the company digital infrastructure into state-of-the-art capability. And I think it's going very well. And I think both of us use slightly different language. This will change the way that we work. It will allow us to share information, share technology, drive collaboration and also build greater business efficiency into the way that we operate. Feel free to add. Martin Cooper: Yes. I mean I think, David, I think -- I mean, this actually enables us to bid into some contracts as well and be prime lead in some areas Steve mentioned Australia and other areas by having these advanced and better systems that will enable us to actually bid and hopefully win more work going forward as well. I would also make the point that we meant there, and you might be about to touch on margin anyway. But I mean, I think anyone who's been through these digital rollout programs, it is quite disruptive to organizations. And you'll remember at the start of the year, we were a little bit cautious, more cautious on margin just around that operational impact, and there has been some impact and that continue there will be for the rest of the year whilst we're going through that. But as Steve says, we're getting on with it and it will have long-term efficiency benefits as well. David Richard Farrell: I see my second question was about growth. I've really touched on the Polish TARS opportunity. But can you just kind of detail how that works? Who selects the winner? Is it the U.S. government? Is it the Polish government? Has the U.S. government shutdown in any way delayed the award of that project? Steve Wadey: Yes. I mean the first thing is a reminder to ground us all, Poland is not in our base plan, and it is not in our forecast. So just to be really clear on that. In terms of the process, it's an FMS sale from the U.S. government to Poland. Therefore, the decision-making is with the U.S. government. But clearly, they will have dialogue and exchange with the Polish government. And to your point, partly related to shutdown, I mean, there is no public announcement so that remains, as I would think about it more as an upside opportunity. But I think more important to that, you mentioned the phrase TARS, is really thinking about our TARS capability, which if everybody is not familiar, this is where we are running a really significant national program along the Southern U.S. border, providing persistent surveillance between U.S. and Mexico. That is another contract. There are 2, in fact, one called TARS, one called [ TAS ]. And both of those also have delivered good on-contract growth over recent years. And from our perspective, we're really positioning to grow that capability as one of our 4 priority streams, and we're positioning to grow that both domestically in the U.S. We expect further on-contract growth to come this year, and we also expect to grow it internationally, and we're actively shaping a number of opportunities in different countries around the world, both in Eastern Europe and Middle East. Unknown Analyst: It's [ Francois ] from Barclays. Just coming back to the digital investments you've been doing. You mentioned the fact that you can increase your win rates because of that investment on the line. So -- which is obviously good for growth. But just in terms of margin, is this investment going to generate any margin benefits down the line? Or is it just a function of making your business better positioned to win new contracts and fund growth? And then secondly, going back to the U.S. business with those 4 key areas you outlined before. Can you discuss the medium-term growth profile for the business there, compare that with the rest of the group? And then how should we think about the margin in the U.S. in the medium to long term? That would be very helpful. Martin Cooper: I'll start with the digital. I mean, just to be clear, I mean, this is -- as Steve says, this is around also building good long-term business resilience, and you'll all be very aware of, obviously, heightened cyber threats and other things. So this is predominantly around, obviously, having the right systems to be effective for our employees and other things. It does give us the opportunity in some parts of the world where we don't have the current capabilities to be able to bid into things, but this is predominantly an efficiency thing, but also we do need to clearly continue to invest in the business. So I wouldn't want you to think this is going to make a huge step-up in margin going forward as we work through this program, but it should definitely help efficiency drive as we go there. Perhaps in the U.S., just on margins, and then I'll hand over to Steve around growth. I mean, clearly, all the actions we're taking are about designed to drive margin up in the long term. I referenced a couple of areas where we actually also actively took ourselves out of some contracts in the first half because they were lower margin and were noncore to us and things. But I think you should think about this business in the long run as more of the sort of high single-digit margin business in line with sort of peers, so sort of in the 7% to 9% would be the margin, and that would then, therefore, push Global Solutions more up into around the 10% level, as I think we've outlined in the past, but that's the kind of benchmark that we're pushing that business through these actions. Steve Wadey: Yes. And rather -- on the U.S., I mean, rather than giving growth rates and comparisons because as we know, we'll be giving an update on our growth in May. Maybe what I can talk about is the growth drivers. I've sort of talked about a few of them. So just to go back over. So space and missile defense is an absolute growth driver where we are positioned. And I use the phrase multiple space programs. It's worth just touching on. So clearly, we have the SDA program. We also have a SATCOM related engineering services program. And I've just briefly touched on Golden Dome, where we can see some of our engineering services and our sensors capability relevant for that. So we have a series of capabilities, and we're well positioned in our customer relationships to see good growth coming from that program. Second one, Maritime Systems. We know if we look back in time, the company has been very well positioned in its relationship with General Atomics and the U.S. Navy as part of the electromagnetic launch and recovery system on the Ford-class carriers. The Ford-class carrier is a long-term franchise program for us, and we see good opportunity, particularly coming in the next year and bringing further growth on the carrier program. Many of you will remember about 3 years ago, we said we would take those capabilities and position into the submarine program. We initially won some business on to the Virginia-class carriers. That has expanded on to 2 or 3 subsystems. And in the last 12 months, we're very pleased that our track record of performance in Maritime Systems has led to us winning business on the Columbia-class submarine. So we have strong performance with the carriers moving on to Virginia. We've now moved on to Colombia, and we see that -- we see steady but good long-term growth coming on a multiyear basis and then moving into surface fleet programs as well. So that's the second driver. Third one is around Advanced Sensors. This is from our prior MTEQ capability where we have some really good advanced R&D and next-generation sensors. What might be a small win in the half was winning a Phase 0 contract on a program called FALCONS. This is the next generation of really long-range IR sensor for the U.S. Army. It's potentially a very large program of record in the U.S. We've got a very novel and clever design, and we're delivering that Phase 0 program and looking at key strategic partnerships of how we will position ourselves to win. That's a multiyear opportunity. And the last really is the broader franchise opportunity that I discussed around persistent surveillance, which is TARS, [ TAS ] and the domestic growth that we expect on that and then our focus on the wider international expansion. Those really are a bit more color in the growth of those 4 areas. Any more questions? Any questions online from anyone? Operator: There are no questions coming through from our conference call. I'd like to turn the conference back to Steve Wadey for any additional or closing remarks. Please go ahead. Steve Wadey: There's one more opportunity in the room. Okay. Well, thank you very much for your time. We'll both be hanging around if anybody in the room would like to follow up with any additional questions. Thank you.
Operator: Good morning, and welcome to the Neo Performance Materials Third Quarter 2025 Earnings Conference Call. For opening remarks and introduction, let me turn the call over to Karen Murray, General Counsel for Neo. Please go ahead. Karen Murray: Thank you, operator, and good day, everyone. Today's call is being recorded, and a replay will be available starting tomorrow in the Investor Center on our website at neomaterials.com. Our call will be accompanied by a live webcast presentation. If you are joining us online, the slides will advance automatically as we progress through the discussion. You can also download a copy of the presentation from our website. On today's call are Rahim Suleman, Neo's President and Chief Executive Officer; and Jonathan Baksh, Neo's Chief Financial Officer. Please note that some of the information you will hear during today's presentation and discussion will consist of forward-looking statements, including, without limitation, those regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, income and expense measures, cash returns, operational changes and future business outlook, including potential expansion plans and agreements. Actual results or trends could differ materially from those discussed today. For more information, please refer to the risk factors discussed in Neo's most recent financial filings, which are available on SEDAR+ and on our website. Neo assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. Financial amounts presented today will be in U.S. dollars. Non-IFRS financial measures will be used during this conference call and the information regarding reconciliation to the IFRS measures is set out in the financial statements and MD&A. I will now turn the call over to Rahim. Rahim Suleman: Good morning, everyone, and thank you for joining us today. Let's move to Slide 4. The third quarter was another strong period for Neo, marked by continuing to execute our growth strategy in global rare earth magnetics, momentum across the business and end markets and solid financial results. We are advancing our strategic growth plans as an integrated rare earth magnetics and critical materials company. Our product platforms and technologies continue to benefit from megatrends in electrification, robotics, AI and clean energy. And the industry is accelerating its need for critical materials from both robust and localized supply chains. It's important to note that for Neo, we are well prepared to grow into this generational opportunity in rare earth magnetics. Neo, of course, has been in the rare earth magnetic space for 30 years and already has an integrated supply chain with rare earth separation in Europe for decades. Thanks to our operational history, we are extremely well positioned to capture more opportunities with the focus in critical materials to serve our long-standing customers as they need to be served. Moving to Slide 5. Our new European Permanent Magnet facility held its grand opening in September, a major milestone for Neo and indeed, all of the critical materials space in Europe. The event drew senior government officials from the European Commission and customers from major automotive and technology OEMs from across Europe and North America. Our successful grand opening of this European magnet plant is a tangible demonstration of how industrial policy, customer commitment and private investment can converge to create a resilient and regionalized supply chain. Our partnerships with government and industry stakeholders in Europe underscore the strategic value of this project. It's not just a plant. It's the cornerstone of a European magnet ecosystem designed to support the transition to electrification, clean energy and digital technologies. The early feedback from customers has been exceptional, with OEMs recognizing that Neo's European presence provides the reliability, transparency and ESG assurances, all increasingly required in critical material supply chains. This facility is designed as a scalable platform. Phase 1a establishes 2,000 metric tons of annual capacity, supporting both pilot production and initial customer programs for traction motors and eDrive systems. The next step, Phase 1b is already being planned and will expand the site to approximately 5,000 tonnes. Given overwhelming customer demand, Neo will also expand its product offerings and magnetic solutions toward additional applications, including accessory drive systems, wind turbines, robotics, drones and automation. This endeavor will be one of the new largest integrated magnet facilities in the Western Hemisphere. Importantly, this growth can be achieved within the existing site footprint, providing an efficient pathway to scale as customer commitments, responsible launch time lines and policy incentives align. At the grand opening, Neo also showcased our European rare earth separation business, highlighting the integrated nature of Neo's existing business. We are in the process of installing a heavy rare earth separation line in Europe as well, building on the vast infrastructure, skills, technology and operational history that we already have. We expect to start separating heavy rare earth at small scale later in 2016 -- 2026. Moving to Slide 6. Equally important this quarter was the signing of our expanded strategic partnership with Bosch, one of the world's most respected automotive technology leaders. This memorandum of understanding extends a long-standing relationship and formalizes collaboration on the supply of advanced rare earth magnetics for Bosch's next-generation e-motor platforms and other applications. The agreement provides a multiyear framework for magnet supply from our new European facility and underscores Bosch's confidence in Neo's technical capabilities, execution record and alignment with their commitment to resilient localized supply chains. This MOU represents a pivotal commercial milestone and a clear validation of our strategy of investing in Europe. It directly connects Neo's new magnet capacity with another leading Tier 1 supplier. The multiyear nature of this agreement shows Bosch's desire to secure long-term capacity while reflecting one of the key mantras at Neo, it is about working together and managing responsible launch curves. In addition to Bosch and our first awarded customer Schaeffler, Neo continues to advance qualification programs and contract discussions with additional automotive, industrial and renewable energy customers. These engagements are translating into providing long-term demand visibility and supporting our path to scale. I think what should be of particular interest to our shareholders and partners is the nature of Neo's awards and Neo's customers. These are firm awards for real multiyear programs with difficult technical specifications and for which we have already delivered samples. These programs are with some of the most advanced and largest motor manufacturers in the world. After all, to a magnet maker, the motor manufacturer, which is sometimes an OEM and sometimes a Tier 1 is the customer and Neo and Magnequench has served motor manufacturers for decades. These are our customers. They know us well, and we will continue to grow with them. Shifting gears to Slide 7. We are making meaningful progress in simplifying our portfolio and focusing our capital allocation on the highest value segments. In 2025, we have continued to deliver steady EBITDA expansion driven by operational efficiencies, improved product mix and a disciplined approach to cost management. In our 2 largest manufacturing facilities, including the environmental catalyst facility we opened in 2024, we are seeing significant conversion cost savings with the introduction of new automation and advanced data analytic techniques applied to our established manufacturing processes. We have also made advances in sustainability. Neo's rare metals business continues to expand its recovery and recycling capabilities, including gallium and hafnium supporting both environmental and economic goals. These capabilities not only reduce waste but also strengthen our supply chain security. From a liquidity standpoint, our balance sheet gives us the flexibility to advance Phase Ib of the European magnet expansion, invest in next-generation processing technologies and pursue additional opportunities that enhance our downstream value-add capabilities. And as this Slide 8 illustrates Neo continues to be a pure-play beneficiary of the global shifts reshaping supply chains for critical materials. This is the convergence of 3 powerful forces. The macro demand for electrification, robotics, AI and clean energy technologies, public policy tailwinds and customers driving regionalization and our own unique asset base, technical experience and years of operational excellence. Neo is positioned at the center of these 3 key success factors. Our differentiated platform enables us to meet customers' needs across geographies and technologies from magnetics to catalysts to rare metal recycling. These markets are supported by enduring macro trends rather than short-term cycles, which gives us the confidence in the durability of our growth plans. Our teams have done a remarkable job executing on complex projects across multiple geographies, maintaining safety, cost discipline and a long-term focus on profitability. I would like to thank them for their hard work and dedication. And with that, I will now turn the call over to Jonathan for the financial review. Jonathan Baksh: Thank you, Rahim, and good morning, everyone. Moving to Slide 10. For the third quarter, Neo generated $122 million in revenue and $19 million in adjusted EBITDA, reflecting a resilient demand and strong execution across all 3 business segments. Year-to-date adjusted EBITDA stands at $55 million, up 27% compared to the same period last year. Given the solid results so far this year, we have raised our full year 2025 guidance to a range of $67 million to $71 million up from $64 million to $68 million when we last reported in August. Growth this quarter was driven primarily by increased magnet volumes up about 20% year-over-year, combined with solid contribution from emission catalyst and rare metals recycled. Our margin profile remains resilient despite market volatility, reflecting the benefits of operational efficiency, pass-through pricing and previous portfolio actions to divest highly volatile assets. With that said, during the quarter, we experienced some benefit from customers pulling demand forward, along with favorable movements in rare earth prices. While we continue to use pass-through pricing mechanisms in our customer contracts, short-term margin impacts from price fluctuations may still occur. These dynamics underscore the importance of our disciplined approach to managing volatility and maintaining predictable performance. Moving to Slide 11. I'll touch briefly on performance by segment. Magnequench delivered strong profitability and volume growth in the third quarter with volumes up 21% year-over-year and adjusted EBITDA rising 27% to $8.1 million. Year-to-date adjusted EBITDA reached $22.4 million, up 20% from last year, supported by higher volumes, operational efficiency and disciplined cost management. Growth reflected solid underlying demand and customer restocking activity amid evolving supply chain and geopolitical conditions. Bonded magnet shipments reached a record quarterly high up 38% year-over-year, driven by demand in automotive, AI data centers and energy-efficient applications while bonded powder volumes increased 18%, reflecting continued market share gains and healthy downstream demand. Moving to Slide 12, the Chemicals & Oxides segment delivered another strong quarter with adjusted EBITDA up 213% year-over-year and 358% year-to-date, reaching $4.1 million and $16.4 million, respectively. These results are reflective of higher rare earth prices, portfolio transformation and continued operational discipline. Following the sale of the Chinese separation assets and the relocation of the emission control catalyst operation, the business is now focused on higher-margin growth areas, including emission catalyst and wastewater treatment solutions. Demand remains robust with emission catalyst volumes up 20% in the quarter and wastewater treatment volumes up 42%, driven by global sustainability and environmental regulations. The segment also continues to strengthen its European capabilities, operating one of the region's few noncaptive separation facilities and advancing a new heavy rare earth separation pilot line, which remains on track and on budget as construction nears completion. Products continue to benefit from tighter environmental standards globally, particularly in Asia and Europe. Moving to Slide 13. The Rare Metals segment delivered resilient financial performance with adjusted EBITDA of $11.5 million for the quarter and $30.9 million year-to-date, down 30% and 10%, respectively, from last year reflecting the anticipated normalization of hafnium prices after record highs in 2024. Despite this, end market demand remained strong across aerospace, industrial gas turbine and semiconductor applications supported by continued global investment in advanced manufacturing and clean energy technologies. While hafnium margins declined 41% year-over-year as pricing stabilized, the gallium business performed well, benefiting from solid performance and regulatory tailwinds. Neo also remains one of the only gallium recyclers in North America, a key competitive advantage that supports long-term growth and market resilience. Across all 3 businesses, our teams have executed extremely well in balancing near-term profitability with long-term growth priorities. Moving to Slide 14 and turning to the balance sheet. Neo's financial position remains very strong. We ended the quarter with a net debt position of approximately $28 million and total liquidity exceeding $110 million, including credit facilities and government grants. Importantly, this includes a healthy gross cash balance of $61 million, reinforcing our strong financial position. Our disciplined approach to working capital and low leverage gives us the financial flexibility to fund ongoing growth projects and weather any near-term macro volatility. We also continue to prioritize shareholder returns. During the quarter, we maintained our regular dividend and NCIB while continuing to invest in growth capital projects. As we move into the final quarter of the year, we expect to maintain steady momentum across our core platforms. Reflecting this confidence, we have raised our 2025 adjusted EBITDA guidance to a range of $67 million to $71 million underscoring our ability to deliver strong financial performance. And as we move into 2026, our priorities continue to center on operational efficiency and capital discipline. With that, I'll turn the call back to Rahim for closing remarks. Rahim Suleman: Thank you, Jonathan. And moving to Slide 16. As we approach the end of 2025, Neo is in a strong position, strategically, operationally and financially. We are executing on a long-term strategy to grow our industry-leading permanent magnet business, enabling supply chain diversity and robustness and supporting the global energy transition and technology advancements in multiple arenas. Our focus remains on operational excellence, delivering reliable, high-quality critical material solutions to our customers, investing in innovation and maintaining financial discipline. With our strong balance sheet, solid customer demand and a pipeline of long-term strategic growth projects, Neo is well positioned to deliver profitable growth and long-term value for our shareholders. Thank you for joining us today, and we will now open the call for questions. Operator: [Operator Instructions] Our first question comes from Daniel Harriman with Sidoti. Daniel Harriman: Congratulations on the great quarter. I'll start off with 2, and then I'll get back into the queue. But starting off with Narva now online after the grand opening and export controls continuing to tighten, I'm wondering if you're hearing from interest from customers if they are explicitly requiring localized magnet supply? And if so, how do you think that's going to change the volume or quality of the programs you've been invited into. And then secondly, just with Magnequench and magnet volumes seemed exceptional in the quarter. Once again, I'm curious if you could kind of break down how much of that strength feels structural from traction motors, data center cooling and industrial automation versus maybe just short-term restocking from your customers. But I really appreciate it, guys. Rahim Suleman: Sure, thanks for both questions. So in terms of the first question with respect to the grand opening and the continued export controls, I think you're right in terms of we are seeing increased customer interest. Although I kind of break it into 2 pieces. I think there was already significant customer interest when we began the planning for this facility, and we did the groundbreaking of this facility, call that 2, 3 years ago, I think the customers already knew that they had a concentration risk issue that was important to them. I think with the restrictions that were put in place in early April, it absolutely ramped up that level of tension, that level of urgency and those requirements. Those requirements remain today. The grand opening facilitated more customers, more potential customers coming and asking for more agreements and more opportunities. So the MOU that we have with Bosch raised more customers to come to the door to ask for similar type of contracts for alternative type of opportunities. But for us, the issue is never actually about customer demand. There is absolutely plenty of customer demand and our customers know our capabilities, and they trust us and they work with us. It's really just about time to launch. I think we're pretty darn confident in the sales funnel. We're pretty darn confident in our operational and technology capabilities, but we are also darn confident in understanding how a plant of this size gets launched and what a responsible way to do that is. So from a demand perspective, there's really no issue. It is figuring out what the right launch curves is and how you bring each customer on board with all of the related PPAP documentation and kind of control mechanisms that we have. When you are an automotive supplier or another supplier on mass production levels. You put a lot of controls in place around your production process for every part. And every part that we win, remember, every platform, at least the traction motor platforms that we're winning, these are $50 million to $100 million cumulative revenue programs. When you launch them, you better be good, you better be right, you better have your costs in place, and that's the way that we approach that. With respect to the Magnequench volumes, your second question extremely high quarter for Magnequench volumes, extremely impressive for us. And I think you pointed it out correctly. It's actually both. It is demand across virtually all of the applications, but we do think some of that is a response to geopolitical environments. The question that is in front of everyone will really be, is this resetting people's inventories pipelines so that people feel more comfortable on how much inventory they're holding? Or was this a temporary -- like is this a pull forward that will get reversed in a future quarter? I think it's more likely that the pipelines are being filled and that customers want to hold more inventory through the system. So -- but I think we'll see if that means that some of these volumes unwind or volumes just return to normal or if there's kind of continued pipeline growth, but I think that the volume number of Magnequench was kind of above our forecast and expectations of what the normal business looks like. But the normal business continues to grow, traction motor business continues to grow even in the existing Magnequench segment, AI data centers continue to grow. So I think all of those elements of the business are performing extremely well. And I think that they'll continue to perform extremely well. Operator: And the next question comes from Nick Boychuk with Cormark Securities. Nicholas Boychuk: Coming back to the Bosch partnership, and you mentioned that other partners are coming to you looking for similar deals. Can you give any update on how those negotiations are going? Expectations with Bosch to convert that into a formal order and your appetite to sign similar type contracts with other partners? Rahim Suleman: Yes. So when you say negotiations per se, really not negotiations in the traditional form. They're more -- everybody talks about what partnership means and the supply chain all needs to be partners, this, that and everything else. I'd say it's one of the first times in my career that I feel that this is a partnership-based conversation that we're having dialogues with our customers and for others that are coming to the door, and we're talking about, look, these are the reasonable launch windows we have available at this point. And this is what the development time line for any particular product would be and people are really understanding in terms of how do they fit into that development type pipeline and how do they fit into the launch curves. I would say the factor here at play is not negotiating over price or negotiating over specifications or this, that or anything else. The factor here is saying, okay, in order for us all to be successful on this path, they require both a level of urgency, better level of reliability. And we require a level of cost certainty. So margin confidence as well as not putting other customers in jeopardy. And I think both sides appreciate the openness of our dialogue. So the opportunities are there, and we'll pivot our pace depending on how launches go and depending on what types of programs. We're having conversations with customers on look, certain types of programs that have certain compositions are probably faster for us to also go through a development cycle for than compositions that are different. So we just kind of make choices with the customer, but we do it in a fairly transparent and open environment because everybody wants everyone to be successful here. Nicholas Boychuk: So just to clarify then, that in these development partnership conversations you're having, you're able to directly express the margin or the pricing that you need in order to justify investments and they're comfortable with that type of a negotiation or? Rahim Suleman: Yes. Look, we're not talking about specific prices at this point. Like when we talk about specific pricing those things, we have a sample developed, the composition established, the product flow established and all of those types of things. They understand that there is a difference between the Chinese cost and cost and manufacturing elsewhere in the world. I think we're fortunate and our manufacturing location is actually quite cost effective. I think our customers appreciate that, that cost effectiveness matters. But it doesn't mean that it's the same price or the same cost is producing it in Southeast Asia. So Therefore, there is an open dialogue on the costs are not the same. It's not hostage pricing. It's dialogue around costs are not the same, margin expectations are not the same, new capital in place and return on capital expectations are not the same but let's work together to figure out how we solve the ultimate challenge, which is a diversified supply base. So they're very good conversations. There -- it's less about price negotiation more than it is about understanding what the requirements are and what that path to success looks like. Nicholas Boychuk: And what impact if any is that having on your thoughts around developing out Phase 1b? Is this potentially pulling that forward, giving you a little bit more certainty to make that investment maybe sooner? Rahim Suleman: Yes. I think it's about certainty and comfort on making the investment. I think that the investment will proceed on a time line that makes sense for the operation to -- it's not just about winning the programs, but each program has its own launch curve, too, right? So it's about finding the right time that matches all the various launch curves that we have of the programs that we have of those that we're onboarding and when that capacity will be required. Again, the factor is managing the launch curves and then just planning so that we're not spending capital unnecessarily and that we're just finding the right time line for it. So certainly, huge visibility into demand. I guess if you were to -- I'd say it this way, when we started this project 3 years ago, and we evaluated financial risk, customer risk, technical risk, operationally, we evaluated a whole series of criteria for us to move forward on these. And then we had levels of confidence on each of those that ultimately led to the business decision to move forward with this. If you look at one of those criterias, which was customer acceptance, it's more than 100% now. If we were to look at what our criteria was our score on customer acceptance would be greater than 100%, but we still have to get through the time to launch. Operator: [Operator Instructions] The next question comes from Ian Gillies with Stifel. Ian Gillies: Could you talk a little bit more about the heavy rare separation expansion plans in Estonia, maybe a bit around ultimately how large you would like that to be, if possible, what you intend to produce? Do you expect it to be a material financial contributor and the like? Rahim Suleman: Sure. So what I'd say is on heavy rare earth separation, we also follow the same methodology of step by step. So what we are producing here is a mini production line. It's not a lab. We've done lab stuff all through our career. We have our Singapore lab that's been doing heavy rare earth related stuff for 30 years. We have one of the most advanced earth magnetic labs in Estonia already, obviously, and all the infrastructure attached to it. So this line is not lab line. It is -- but it is a mini production line. And the purpose of building the mini production line at first is to roll it out and see some of the dynamics to be able to separate for a while and get real-life experience on some of the time lines and some of the chemistry and some of the purity levels that we're going to get. It will then lead to subsequent decisions on how do we integrate that with the existing light rare earth line and there's various points in time that one can make choices around how one would integrate it or whether one would build an expansion into the light rare earth line as well and whether one would do that on a parallel basis or an integrated basis. So there's lots of decisions and planning and engineering that we would still do again, and I would say that because we have the history, the knowledge and the technical expertise to make what I say is the best decisions, right, to make the right decisions, not to just run forward with whatever one thinks is the right thing to do. We have the ability to play out different options and model different options and see how all of that comes together. So to get it back to your question, the scale remains small. We haven't said specifically what the scale of the product will be. It depends largely on the feed that we're receiving. So we have some heavy rare earths in our existing sets of feed, but not enough. So we'll be working through stockpiles while we're also receiving material from our feed for our existing feedstocks. We need more feedstocks of heavy rare earth generally in the world. In terms of the availability of NDPR, like separate it into the 2 pieces, do we need more feedstock to support separation? Or do we need more feedstock to support magnets. Magnets can buy feedstock from other people like raw material as well and they do. So there isn't -- this isn't an issue that is tied to our ability to make magnets. This is just an opportunity that tie to our rare separation business of scaling that business to be larger. So we'll scale the heavy rare earth line in due course when we have better visibility to more rare earth feed, but we wanted to get this mini production line in place. A, it does provide some rare earth to Magnequench, not enough, but more particularly -- and it's never intended to be enough. We always want Magnequench to be multi-sourced. So we'll always partner with Lynas and MP and others in the industry for sourcing for Magnequench. We've been partnering with them and Lynas in particular for a decade. So we'll continue to do that, but like there's no dialogue on us not continuing to partner with others in the rare earth industry and wanting supply. It really doesn't matter how much we build in our Silmet separation business, our philosophy will always be to be dual sourced or multisourced in those environments. In terms of the actual economics, I think you have to wait to answer that question until we actually have a better view on what the largest and most likely form of next feedstock will be, what the exact heavy composition will be. In terms of what we will separate, I appreciate this getting to be a long answer now. In terms of what we will separate this is always to start by separating Dy and Tb because of the imminent need in magnetics for more Dy and Tb, but the reality is because we've been doing heavy rare separation for 30 years, we have customers around the world for all of the various different heavy rare earth elements. We have one of the largest global technical sales forces in rare earths. So we'll have opportunity to separate other materials as well, working with our customers to satisfy their demands. But we haven't made those decisions as yet. So as I said, we approach it on a step-by-step basis. Sorry for the long answer. Ian Gillies: Understood. No, thoroughness is always appreciated. Similarly, around capital projects, one of the things that came up during the Estonia tour and the investor presentation, was a potential expansion of Korat in Thailand? Is that a formal project yet? Or is it a thought on the back of a napkin, like where would you define that potential opportunity at this point in time? Because it also seems like some promising. Rahim Suleman: Yes. It's certainly not a thought on a napkin, but it's also not yet and I think it's -- times are going to be measured in weeks here, not months or quarters where it will become an official project, which is to say I extensively believe it's already official project within the Magnequench planning team, but it still has to be reviewed and go through the appropriate approval process. So I'm very confident in the growth rate of magnets in general, very confident in having more capacity. So probably what's really the focus of the review process that are coming are things around capital efficiency more than opportunity. So it's likely going to happen, but it has to go to the right proof of processes and have the right metrics attached to it before we say yes or no. Ian Gillies: Are you willing to disclose how much you think that debottlenecking could improve production by that facility? Rahim Suleman: Probably not yet. And I think what we would be doing in Thailand would be partially debottlenecking, but frankly, it would actually be adding gross capacity because there's just more business. And it would be the types of capacity and the types of programs that we would be focused on within the review process. But it would be like primarily volume and product related style capacity more than trying to solve an existing problem. Conversion costs and everything else are separate projects. There is capital that goes into conversion cost improvements, and it has its on return on capital metrics that we measure. Those things kind of continue in everyday life. Expansion capital goes through a different review process. Ian Gillies: Understood. Listening to your remarks on Phase 1b of the Estonia expansion or Phase 2, however we choose to frame that. It sounded certainly a bit more optimistic even than a few months ago. A question I get often is why isn't the decision being accelerated from early '27? Like are you putting any thought to pulling that decision forward given what you're seeing? Rahim Suleman: Yes, I think so. But I mean, like I said, I think that there's a number of different decision criteria that go into whether we would pull that forward. The decision -- the limiting factor, as I said, is not customer interest, it's not demand. That is crystal clear that, that is not the limiting factor in our decision-making process. Our decision-making process, it's so much -- frankly, it's not even about an if, it's merely about when. And the when is merely tied to capital efficiency and ensuring the greatest returns on shareholder capital. It's like it's -- we haven't committed to it, so it's odd for me to say it's not an if decision. It obviously isn't if decision. It still need to see proper economics. We still need to go to the board. We still need to do a number of things. But from a customer demand perspective and from what we know about our ability to make the magnets and ability to understand pricing and have customers like all of those things are well established for us by now. So again, the decision on -- I'll say, the decision is primarily one related to timing, and that's really just about capital efficiency and the greatest return on capital to shareholders. Ian Gillies: Last one I'll ask. At this juncture, given your conversations with whether it be the EU or specific European governments, like do you get any sense yet as to whether any sort of similar pricing arrangements could happen in Europe similar to what's happened with the DoD in the United States? Rahim Suleman: So I'll break the question into 2, which is to say, unfortunately, we're not going to comment on specific conversations that we're having with various governments around the world. So we won't provide any specifics on those dialogues. But in terms of the general concept around price floors or price supports or this, that or everything else, let's bear in mind that for Magnequench, which is the magnet-making portion of this kind of supply chain and probably the most important element of the dialogue for us, the raw material is on pass-through. So it's less of an economic consideration for Neo in terms of Magnequench. It just affects the viability to the customers' side of things and provide certainty to a customer in terms of pricing, and I think those things are valid and -- but there's pros and cons to both. In terms of the separation side of the business, I think it does have a bigger impact to the separation side of the business, but we're not a mining company, so it doesn't have that level of impact. So a couple of different dynamics to put into the mix. But as I said, we won't comment specifically on government conversations. Ian Gillies: Fair enough. I had to try. Rahim Suleman: Absolutely. But we are everybody's favorite phone call these days. Operator: Thank you. And I'm showing no further questions at this time. Ladies and gentlemen, thank you all for joining us. This now concludes today's conference call. You may now disconnect.
Operator: Good morning or good afternoon. Welcome to Swiss Re's 9 Months 2025 Results Conference Call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to Andreas Berger, Group CEO. Please go ahead. Alexander Andreas Berger: Thank you very much, and good morning or good afternoon to all of you. I appreciate that you're taking the time today to listen to us and also to engage into a hopefully very vivid Q&A. Before our Group CFO, Anders Malmstrom, walks you through the details of our 9 months results, I'd like to start with some brief remarks as usual. After another strong quarter with a profit of USD 1.4 billion, we're pleased to report a net income of USD 4 billion for the first 9 months of 2025, corresponding to an annualized return on equity of 22.5%. This puts us very well on track for our full year net income target of more than USD 4.4 billion. We benefited from exceptionally strong P&C results in the third quarter, helped by a low burden of large claims. These amounted to around USD 200 million in the quarter, well below expectations across P&C Re and Corporate Solutions. The result of the second consecutive benign large-loss quarter is that both our P&C units are tracking well ahead of their respective targets. This is the principal reason why we're in such a good position at this point in the year. You've heard me stress our two key priorities, and they are unchanged. Firstly, deliver on the more than USD 4.4 billion group net income targets; and secondly, increase the group's overall resilience to improve long-term delivery. Now on resilience. This journey started with a complete turnaround of Corporate Solutions and the implementation of a new reserving philosophy, which we subsequently extended to P&C Re, 2 years ago. We also successfully addressed P&C Re's in-force U.S. liability reserves last year. This year, we've been focused on further improving the resilience of the third business unit, Life & Health Re. After 3 quarters, Life & Health Re net income stands at USD 1.1 billion, which is actually a quite solid result and a very important contribution to the group's earnings. But Life & Health Res' result has been too noisy. As mentioned at our half year results, we continue to focus on reducing volatility in smaller portfolios, where experience has lagged expectations, thereby producing negative variances to our expected results. These negative variances are unacceptable, even as our largest portfolios, including U.S. mortality, performed in line with expectations. In the third quarter, we, therefore, decided to partially accelerate efforts to strengthen the resilience of the in-force book based on detailed reviews of underperforming portfolios. Some of these are still ongoing and will be completed at the end of this year. We have full confidence in reaching the group's net income target of more than USD 4.4 billion over the year. But given where Life & Health Re stands after 3 quarters and given our focus on resilience, we feel it is prudent to flag that in a base case, we are likely to fall short of the USD 1.6 billion Life & Health Re full year target. We will do what's required to get this business to produce results closer to expectations. At this point, and I emphasize, we do not expect significantly outsized impacts from Life & Health Re in the fourth quarter relative to Q3. So you heard me emphasizing that. We will update you on this on December 5 at our Management Dialogue Event, and we're looking forward to that. Let me also briefly touch on new business CSM generation across our segments. We remain focused on disciplined underwriting as profitability continues to be our priority. To reemphasize again, we don't have a top line target. New business generation remained resilient with a new business CSM of USD 3.9 billion for the first 9 months, slightly down from last year's USD 4.2 billion. The decline versus last year, partially reflects the more challenging pricing environment that we're facing in some lines of business in the P&C business, but also in Corporate Solutions. It also reflects our continued focus on portfolio quality, including the setting of prudent initial loss assumptions. Overall, we're still satisfied with the margins we're able to generate across the businesses. Importantly, we continue to maintain discipline on terms and conditions and attachment points. I look forward to presenting further details on our group priorities at the upcoming Management Dialogue Event on December 5. On that date, we'll also announce our financial targets for 2026. I'll be joined by our Group CFO, Anders Malmstrom, to provide an update on key topics across our businesses followed by then an extended Q&A session. I think with that, I'm happy to hand over to Anders to give you more flavor. Anders Malmstrom: Thank you, Andreas. And again, good afternoon or good morning to everyone on the call. I will make a few remarks on the results we released this morning before we go to the Q&A session. Andreas has taken you through the highlights of our overall strong results for the first 9 months of the year. Let me add a few further details. On revenues, the group's Insurance revenue amounted to USD 32 billion in the first 9 months, down from USD 33.7 billion last year. The USD 1.7 billion decline has a few major drivers, most of which were already highlighted in the first half of the year. At Q2 2025, we had indicated that group revenues in the second half would be around USD 1.5 billion higher than in the first half. In line with this guidance, Q3 revenues were around USD 600 million higher than the average quarterly revenue in the first half of the year, reflecting the increased claims seasonality. While Q4 is also projected to be higher than Q1 and Q2, we now expect revenues in the second half to be slightly below the USD 1.5 billion previous estimate, primarily due to our continued focus on portfolio quality in P&C Re. As you have heard from us by now, we do not manage for top line. Let me move on to the Insurance Service result of our businesses. In P&C Re, you will continue to notice a decline in the CSM release versus last year's period. The USD 2.1 billion release in the first 9 months is down from last year's $2.7 billion. This decrease is driven by the earn-through of prudent initial loss picks, including impact of new business uncertainty allowance and slightly lower margins. Experience variance and other, which captures all variances relative to initial reserving assumptions, contributed positively by USD 549 million in the first 9 months, including $447 million in the third quarter alone. This quarter's positive experience was mainly attributable to large nat cat losses that came in $678 million below expectations, bringing year-to-date favorable nat cat experience to USD 900 million. In addition, P&C Re benefited from a one-off risk adjustment release in the third quarter in the amount of USD 170 million. Against this very favorable backdrop in the third quarter, we selectively added to both current and prior year reserves. Year-to-date, we have added around USD 300 million to our current year reserves in P&C Re. Nominal prior year reserve releases stand at around $150 million for 9 months, which means we added around USD 100 million in the third quarter. Please note that no further actions have been necessary on the U.S. liability portfolio we strengthened, a year ago. On the back of all the pieces I just described, P&C Re reported a very strong combined ratio of 71.3% in the third quarter, resulting in 77.6% for the first 9 months, well below the 85% target we have for the year. Moving on to Corporate Solutions. The 9-month CSM release of USD 668 million is above last year's $628 million, driven by higher in-force margins. Experience, variance and other was positive at USD 111 million. This reflects favorable large loss experience and a positive prior year reserve result, partially offset by an allowance for potential late claims reporting. Large nat cat claims of USD 60 million came in below expectations for the first 9 months, while large man-made claims of $282 million were slightly above, partially offsetting the favorable nat cat experience. Corporate Solutions continues its track record with a 9-month combined ratio of 87.1%, below our target of less than 91% for the full year. Finally, on Life & Health Reinsurance, as Andreas mentioned, we decided to partially accelerate our efforts to strengthen the resilience of the in-force book, following detailed reviews of underperforming portfolios. This resulted in negative assumption updates hitting the P&L in the amount of around USD 400 million for the first 9-months, [ there ] was USD 250 million in the third quarter. The large majority of the third quarter's impact related to selected Health business in the EMEA and ANZ regions. The fact that this hits P&L mostly reflects the onerous nature of these portfolios under IFRS, and this makes it particularly important that we strengthen them sufficiently. We have also seen negative claims and volume developments of approximately USD 250 million year-to-date, primarily in the third quarter. Q3 was mostly driven by the Americas region, which had a relatively poor quarter in terms of experience, driven by volatile large claims. Importantly, over year-to-date claims experience in our largest -- overall year-to-date claims experience in our largest portfolios, which includes the U.S. Mortality, which was strengthened before our transition to IFRS, continues to perform in line with expectations over the first 9-months. Despite all of the actions and impact, Life & Health Re has produced a net income of USD 1.1 billion in the first 9 months with $280 million achieved in the third quarter. While some of these assumptions reviews also affected our CSM balance in addition to the P&L, our CSM overall remained unchanged at USD 17.4 billion compared to year-end 2024, supported by attractive and prudently priced new bases and favorable FX impact. A few words on investments before concluding with SST. We benefited from a strong investment result, with a return on investment of 4.1% ahead of last year's 3.9%, supported by strong recurring income standing at USD 3.0 billion in the first 9-months. We estimate the group's SST ratio at 268% as of 1 of October 2025, 11 points higher from where we started the year. That's where I will leave it for now, and I'm happy to hand over to Thomas to kick off the Q&A. Thomas Bohun: Thanks, Andreas. Thank you, Andres. Hi to you from my side as well. [Operator Instructions]. With that, operator, could we start with the first question, please? Operator: The first question comes from Kamran Hossain from JPMorgan. Kamran Hossain: A couple of questions. The first one was just on the Life side. I think the commentary you've given around like quantum in Q4 versus Q3 is helpful. I just wanted to clarify a few things. So when you say it's not going to be a much larger quantum than Q3, I'm just trying to understand whether you mean the $250 million you flagged or the $450 million negative experience in Q3 stand-alone? Because there's quite a difference between the two numbers. So any kind of clarification on kind of what that comment kind of meant slightly more precisely? And the second question is in terms of like portfolios left to review, can you maybe talk through kind of the proportion you've got left to review, like what proportion is of kind of Life reserves? How meaningful is this? I'm hoping you're going to say a low number, but I just kind of wanted to hear what you say on that. Alexander Andreas Berger: Thanks, Kamran, maybe I should give Anders the first words on the size, and then I might jump in to give you a bit of background then. Anders Malmstrom: So, Kamran just on the -- when we talk about outsized or not outsized impact in Q4, we basically mean the $250 million impact that we saw in Q3. That's what kind of puts it in a box. So it's not much left. There's a few portfolios that we have to go through. We need to finalize that. And yes, by the end of the year, we should be done. Alexander Andreas Berger: Yes. And maybe just to give you the perspective, the bigger picture. So we have three phases that we looked at, and that's exactly why we come to that small number in comparison. So Phase 1 was introduction of IFRS. That's where we addressed the large portfolios, in particular, critical illness in China and U.S. mortality. Then we had, as a second phase, midsized portfolios, that also have been digested. And now we were turning the attention to the remaining smaller portfolios that are distributed across the regions and also lines of businesses. So what we needed to do, is really to address the individual noise in those many small portfolios, they are actually quite modest, but we needed to address the accumulation of this noise. And that's exactly why we took this view now, and that's the background to the question that, or the answer that Anders gave you. On the details of the regions, I think we will give you more details in the management update on the 5 of December. Operator: The next question comes from Andrew Baker, Goldman Sachs. Andrew Baker: First one, just on the Insurance revenues. So I hear what you're saying on you don't manage the top line. But are you able to give a bit more detail on which areas of the business has led for the, I guess, change -- slight change in view in the second half. Obviously, you previously said it was sort of $1.5 billion, you're expecting it to be higher than the first and now it seems like slightly below that. So just any more color there would be really helpful. And then secondly, are you able just to confirm how much of the uncertainty allowance you've added so far this year and what you expect this to be by the end of the year? Alexander Andreas Berger: Okay. Maybe I'll take the first one on the revenues. So maybe just to give you a bit of context again, and I think maybe it's a bit repetition from the first half. But overall, when I talk about $1.7 billion year-over-year lower, $1.5 billion, I think we already told you. First of all, it's the pruning actions on the P&C Re side, which is about $0.5 billion. It's the termination of an external retro transaction on the Life & Health Re side, which is $400 million, it's a nonrenewal of the Irish MedEx business, which is about $400 million, and it's then the sale of the P&C EMEA IptiQ, which is about $200 million. So that explains basically the majority of that. So overall, the remaining piece is then really coming from the P&C side, where we have this NDIC feature that we talked about, the netting of the commission with the -- that we didn't do before that and then just continued management of the business itself. So I think that explains it. I think that should be clear now. Anders Malmstrom: On the uncertainty note, I think this is a prudency measure. We're not quantifying it. Operator: The next question comes from Shanti Kang, Bank of America. Shanti Kang: So it was just mainly on the Life & Health side. So I understand that the L&H miss today won't derail the group net result target. But I think it does raise a couple of questions about the run rate into 2026. So I'm just curious whether or not the adjustments today will adjust the forward view on the run rate of the Life & Health book, i.e., if that's like a structural concern today that we should be thinking about? And then just given the fact over last 6 quarters, we've had a number of assumption updates. I get that you're saying you'll complete that in the full year, this year. But do we need to take some more caution on our assumptions for those into the next year, i.e., can we get a bit more comfortable as you think about there being no more updates or repeats in the future? Alexander Andreas Berger: Maybe let me do the intro and hand over then to Anders. Maybe just to clarify, we could have let the noise continue, that is another option. But -- and then we could have made our targets also in Life & Health. That's the one option. But again, we want all our business units to look healthy across all portfolios. We want all business units to play their role that they play in the portfolio of Swiss Re Group. We'd like to see the diversification benefits come through over time and consistently. Life & Health is decorated to P&C. That's the strength of our portfolio. Within the P&C, CorSo is not so correlated to the P&C Re business because we buy external reinsurance. So we think we've got a pretty clean setup at group level with all 3 business units. That's why we want all units to play their role and also to have a healthy portfolio to play optimal role. Anders Malmstrom: So maybe just to add to what Andreas said, I mean, I think it's really critical that we get that through. And that's the last phase of -- we started with large portfolios and now we're doing the small ones. But then this is done. We're going to give an update on the target and the expected run rate for the next year's -- at the management dialogue. And that's where you can also then expect a bit more details how this will perform going forward. Operator: The next question comes from Ivan Bokhmat from Barclays. Ivan Bokhmat: My first question would be on Life & Health as well. Maybe you could talk in a bit more detail about the underlying reasons for deterioration in those Health portfolios. Maybe there are any common drivers in these markets that developed negatively and what would make them unique compared to the better performing ones? Just to see if there's some trends that we can monitor from our side. And my second question, I mean, Anders, considering you suggested that the Q4 adjustment will be smaller than $250 million and your run rate is still quite comfortably getting you above $4.4 billion. I was just wondering if you consider taking any additional steps to add prudence in Q4 beyond the run rate that you have shown so far? And maybe if you could just highlight a bit more color on the movements in reserves that you have done year-to-date by portfolios. Anders Malmstrom: Okay. So let me start on the Health side. And this is -- I mean, all the actions are really driven on Health portfolios in EMEA and then APAC. And I think one that I can actually highlight is Australia. You might have seen also the press release that we put out, that in Australia, we're actually pausing new business because the environment is just not sustainable, and this is a market issue. This is not a Swiss issue. This is a market issue. That's really driven by the environment that we have higher claims than what we expected, and that's why we paused that business. So that's -- I would say that's the core. We give you more details then at the management dialogue also on the other portfolios, but that's a key element here. And we're not afraid of actually stopping or pausing a new business, if that's necessary because it's not sustainable in the market. I think overall, when you look at the reserve development, I mean, I can reiterate what Andreas just said in the beginning, I think we have two main objectives. One is to meet our financial targets and the other one is to then strengthen the resilience. We've done that already, I think, year-to-date, you can see that clearly. P&C, we talked about. Life & Health, we also -- and P&C, we also used the benefit of having a risk adjustment release in Q3 of $170 million. We immediately kind of re-purposed in that because we also had a very positive development coming from the nat cat. So all that together helped us to put more resilience in the balance sheet. It has nothing to do with the U.S. Casualty. It's completely different to that, but we took the opportunity now, very strong nat cat results, risk adjustment release to strengthen the balance sheet that I mentioned in my opening remarks. Operator: The next question comes from Iain Pearce, BNP Paribas. Iain Pearce: They're all on new business CSM. So when I look at the new business CSM for the non-Life divisions, if I just look at Q3 stand-alone, they're down by 30% to 35%. I'm just wondering if you could run through why there's been such a big move? I know it's not a massive quarter for P&C Re, but for CorSo, it seemingly is quite a big quarter on new business CSM. So why are they down so much in Q3 standalone? And same for the Life business, where clearly, ex-MedEx, it still looked like the new business CSM would be down quite a lot. So just trying to understand that as well. Any comments would be really useful. Alexander Andreas Berger: Just quickly before Anders answers this MedEx that was mentioned here, not Life & Health, that's actually the CorSo MedEx business in Ireland where the minus $400 million was stated. Anders Malmstrom: Yes. So I think CorSo is clear. I think Andreas mentioned it. It's really the MedEx business. On the Life & Health, you -- I mean, it can be a bit lumpy here because Life & Health, obviously, it also depends on the transactions. We didn't have transaction in Q3. So year-over-year, we were slightly down. Actually, compared to Q2, we're up. So I think overall, I think I'm actually pretty pleased with the Life & Health CSM despite having not had transactions. Obviously, when you have transactions, you have additional CSM. And then on the P&C side, I would say it's mainly driven by the property prices that are coming down that we see. I think other than that, we're pretty comfortable with the new business that's coming through. Alexander Andreas Berger: Yes. And let me make a general statement again on this top line growth aspect versus profitability bottom line view, and the reason why we don't put out growth targets because and I repeat myself again, in our industry, there's no problem to grow. If you want to grow, you can grow. And we learned our lessons, by the way, ourselves also in Swiss Re. The importance here to manage volatility and to manage cycles. And this is critical. Our customers, the [indiscernible], but also the corporates and the public entities, they rely on us being resilient even in stressful market cycles and market environments. And that's why we put the emphasis really on the healthy portfolio and also on growing the bottom line, which is that forces us also to find attractive growth pools where we can then go after. So that's the general statement I wanted to make. Operator: The next question comes from James Shuck from Citi. James Shuck: I'm probably going to go over a couple of areas again, if you don't mind. So on Life & Health Re, I think on the call last time, Anders, I was kind of asking you about the outlook for the experience, variances and loss components, which have been negative previously. And obviously, we've got the same thing coming through just now. You previously indicated you expect those to trend to zero. I presume that the actions you're taking today means that, that trend should actually accelerate. So really kind of just getting an insight into that kind of glide path to getting to zero. So should we expect 2026 to be a clean slate in terms of the experience, variance? And I kind of think linked to that, it's kind of the CSM amortization rate is much higher than the 8%, and I think when I asked previously, you suggested that it would come down. It wasn't clear to me why it would come down. And obviously, you've guided 8%, it's running around 10%. So just keen to get an outlook for the amortization, please. And then secondly, it was also actually on the P&C new business CSM, which is obviously down very sharply in the third quarter, as Iain highlighted. I understand what you're saying about not having top line targets. And -- but on the other hand, margins are very good and should be able to deploy capital incrementally. So if I look at your target capital over time in recent years, you haven't actually managed to deploy any incremental capital over the last kind of 2 or 3 years, and I'm kind of wanting to get an insight, particularly on that P&C Re new business CSM, in terms of the outlook there? And I appreciate you might return to this at the Management Dialogues Day, but I think it's an important point to try and get this feel for, are you still able to grow your earnings through a soft cycle? Anders Malmstrom: Yes, sure. So maybe, James, I'll start on the Life & Health side. I think you're absolutely right. I mean the whole objective of what we're doing here is to reduce the experience variance, and it should come to zero. I mean you will always see normal volatility. That's clear over the quarters, but the volatility for the full year should be close to zero, if not actually positive. That's where we're going to go in the long run. So that's why we took these actions. The other reason also, I think when we looked at this portfolio, all assumption changes here went through the -- because it's onerous business. It's even more important that you take these actions upfront because you don't want to have that noise in the P&L. I think that's really the driver. On the CSM release and the CSM amortization, I think we mentioned a couple of times now that we're running higher than the guidance we gave you. I think this is something that we will address at the Management Dialogue. We give you full guidance where we're going to expect that coming forward because we need to make sure that the guidance is what we see, and we saw a higher release than what we guided you to. On the P&C new business CSM, that's down year-to-date. I mean maybe another -- just -- I think you mentioned this before, your colleague mentioned before, we obviously talked now about the smaller portion that was renewed in Q3. That -- because until Q2, the CSM was actually in line with the previous year. Now you see it coming down from a small portion that got renewed, mentioned, of course, it was driven by the prices, also driven by the casualty pruning that we still continue -- that we say continue on a relative basis. I think Casualty overall, I think we're fine now with the market positioning. I mean, look, the outlook, I think we will see. We're very comfortable with the margins that we're writing. Andreas mentioned that before. We're still in a good position, but we manage to margin, and we just don't manage to volumes. And actually, in our view, that's why CSM is a good measure. That's why we're also explaining it to you that way because it talks about value. It doesn't talk about volume, it talks about value. But obviously, it reflects, if you have business mix changes in the business where you basically move to the more profitable ones, and that's exactly what we did. I don't know, Andreas? Alexander Andreas Berger: Yes. And I mean I can maybe just report out quickly from the discussions I have on the renewal side. We're just in the midst of the negotiations. So I don't have any indication to panic. We're still in very healthy territory, and I'm very careful to say, to guide you here because we're in the midst of the discussions. But you can already sense that I'm not pessimistic here about the outcome of the renewal. It's very constructive. And in cases, even, I would say, for me, quite optimistic. So let's see. The teams are working hard. Operator: The next question comes from Vinit Malhotra, Mediobanca. Vinit Malhotra: I mean some of these topics have been addressed. So I will just have maybe one theoretical question really. The fact that we've had 2 good quarters on tax means obviously, the targets are achievable easier, a bit easier. So I would say, was that one of the reasons why this Life & Health review was initiated? Or actually you were -- you would have initiated that even if 2Q and 3Q were normal cat quarters? Because in that instance, it might have been that the targets would have been a bit more difficult to reach. So I'm just curious about that. And also one question, if I can ask on Corporate Solutions, where the price cuts is a bit worse, minus 7% on just a quick check of 3Q. Could you comment on how the inflation or business mix or something else is changing to get good numbers on CorSo? Which obviously are helped by cat, but I understand even the underlying is good. So could you explain a little bit about the margin management at CorSo with minus 7% pricing? Anders Malmstrom: Just maybe quickly on the first one. Yes, of course, I mean, we are doing quite well at group level. And that helped us to take the decision on the Life & Health actions, and this is very clear. And by the way, we're consistent with all the meetings that we had before the call, in the last quarters or months where we continuously were telling that resilience of the group is really one of our two priorities. And should we be in a position to do that and still make our group target, why wouldn't we do this? So I'll bring this what you call theoretical question to a very concrete action now. On CorSo, I think CorSo, like all other companies in that sector have produced very good numbers. They're in a very healthy margin space. If you see slight reductions on rates, that's the same as in reinsurance, we're still very, very healthy in the longterm pricing adequacy as we call it. So I'm not nervous about this. Now the -- what's the focus of CorSo? CorSo doesn't want to play in this very commoditized space where the pricing pressure is really increasing due to increased competition. CorSo wants to play their advantages in the differentiation, international programs and alternative risk transfer. And I think this is a sweet spot because some of the very large corporates take premium out of the market, and manage it via their captives. And there, they need support through alternative risk transfer tools and solutions. The same actually also you can see also in the reinsurance market. The very large players think of taking business, reinsurance premium out of the market and try to find structured solutions, maybe some access to alternative capital solutions, et cetera. And again, here, we are best positioned to give not only advice but also solutions and those also generate revenues. So overall, for us, not a situation to be nervous in, but we're observing, obviously, and we're growing in areas predominantly where they're not correlated with the lines of business that have a stronger decline in rates. Operator: The next question comes from Will Hardcastle from UBS. William Hardcastle: The first one is just coming back to something we discussed a bit, but just trying to verify that $250 million of our outsized comment a bit relative to that. Are you saying there's not much chance that it could escalate further from this $250 million already done or another $250 million? And just to be clear on it, have you moved up on an actuarial margin basis? Or this is still best estimate still? Coming back to the $1.5 billion higher revenue 2H on 1H. FX hasn't really changed too much, and I guess you knew the parameter deviation already. Of the reduced number that you're thinking about now, how much of that's been a bigger NDIC impact and therefore, maybe a combined ratio offset? Or is it purely organic growth driven? Anders Malmstrom: Okay. So just to confirm on what we said -- what we meant is that for Q4 because we continue to clean up the Life & Health, the smaller Life & Health portfolios. You should not expect an impact that is bigger than the impact we saw in Q3. So to your question, to be very precise, this would be on top of the $250 million that we see. It's not more than $250 million in Q4, that's in a way, what I would expect. Now we haven't done it. We're not fully done. So we're going to give you the final update at the Management Dialogue. That's where you should then see much more details, but that's kind of the direction of travel that we're telling you as a floor. On the revenue side, yes, I think once we have the final run rate now, I think we're fully on this new -- with the full adoption of the NDIC methodology that we introduced last year. So you should then see based on that, a smaller revenue just for the same business on a relative basis, which has marginal impact on combined ratio. That's absolutely correct. Operator: The next question comes from Ben Cohen from RBC. Benjamin Cohen: I had two questions, please. Firstly, on the Life & Health side, could you talk a bit more about the areas in where you did see new business CSM growth? I think you flagged U.S. Mortality and Health and Longevity in EMEA. And specifically, I guess, the reasons why you feel confident to kind of grow those business lines, perhaps particularly with regards to Longevity? And my second question was in CorSo and P&C, I think on a 9-month view, the expense ratios rose reasonably materially year-over-year. Were there some one-off features in there? Do you need to do more to address costs because of the top line pressures that you're seeing? Anders Malmstrom: Okay. So maybe I start on the Life & Health side with the new business CSM growth areas. I think you will continue to see new business CSM growth on Mortality, the classical mortality that we write, that's still a big driver. We have a lot of contracts there and there's new business coming in there, which is good. Longevity is, I would say, a new area that for us became quite important, and we saw some traction there during the year. It's something that will develop. I would love to be more in the U.S. on the Longevity side. I think the problem there is just I think people need to start to realize that they actually have an issue because the local RBC framework in the U.S. doesn't really reflect that and you don't have a longevity chart. But I think the discussion we already have with clients is that this is a topic that will come over the next few years. And then still Asia is a growth driver where we will see CSM growth and particularly also on the Health side, after we have fixed all of the issues on the in-force. Alexander Andreas Berger: So maybe on your expense ratio, the increase of expense ratio is not business driven, and the reason why in Q3, we've got 3% year-on-year increase, that's mainly due to restructuring costs. We have restructured parts of the businesses. For instance, in CorSo, we have decided to exit the Aviation business and concentrate the underwriting on the Reinsurance side. So there were costs attached to that, the restructuring costs. Then we have a slight increase in volume-driven commissions. That's due to shift of some of the businesses, in particular, when you go into businesses that are more volume or facility-driven, those have -- and also specialty lines, those have elevated commission levels and then also slightly the lower insurance revenue. I think that I would look at it. Now we don't look at a quarterly basis for the expense management side because overall, we see a very positive trajectory by reducing actually the expenses because the actions that we took now are coming through and we see it in earning [indiscernible] and also. So I actually applaud then CorSo to address these things in a situation where CorSo was really performing very, very well. So that's the moment when we need to address those things. So you will expect the expense ratio going down. So remember, we put out the number bigger than $300 million cost savings target overall, and we are very, very well on track to achieve this. So even alone this year, we are exceeding the $100 million. So we're well on track to achieve this by 2027. Benjamin Cohen: And we will provide details on that management... Alexander Andreas Berger: Yes, absolutely. Operator: There are no more questions from the phone. Thomas Bohun: There seems to be maybe one more. Alexander Andreas Berger: We actually lost him. So he probably decided not to ask the question anymore. Thomas Bohun: Thank you very much for all the questions and your interest. Should there be any questions outstanding, as always, please do not hesitate to contact the IR team. With that, thank you for attending the call, and have a good weekend. Alexander Andreas Berger: Thank you. Operator: Thank you all for your participation. You may now disconnect.
Operator: Greetings, and welcome to the TechPrecision Corporation Fiscal Year 2026 Second Quarter Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Brett Maas with Hayden IR. Sir, the floor is yours. Brett Maas: Thank you. On the call today is Alex Shen, Chief Executive Officer; and Phil Podgorski, Chief Financial Officer. Before we begin, I'd like to remind our listeners that management's remarks may contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of risks and uncertainties in the company's financial filings with the SEC. In addition, projections as to the company's future performance represents management's estimates as of today, November 13, 2025. TechPrecision assumes no obligation to revise or update these forward-looking statements. With that out of the way, I'd like to turn the call over to Alex Shen, Chief Executive Officer, to provide opening remarks. Alex, please continue. Alexander Shen: Thank you, Brett. Good afternoon to everyone, and thank you for joining us. Please excuse my raspy voice, a little bit of cold here. Fiscal 2026 second quarter consolidated revenue was $9.1 million or 2% higher when compared to $8.9 million in the fiscal year 2025 second quarter. Consolidated gross profit totaled $2.5 million or $1.4 million higher when compared to the second quarter of fiscal year 2025. At both Ranor and Stadco segments, favorable customer mix has resulted in improved margins. Fiscal year 2026 second quarter Ranor revenue was $4.4 million, with operating profit of $1.6 million. Second quarter Stadco revenue was $4.8 million, with operating loss of $0.5 million compared to the same period a year ago. Stadco had an $873,000 improvement in operating income. For second quarter, operating income was $0.9 million, and favorable customer mix enabled 3 drivers. One, better throughput at Stadco, resulting in higher revenue; two, lower provision for losses from specific first article costs; and three, lower provision for losses from onetime one-off contracts. We remain highly focused on aggressive daily cash management, a critical piece of risk mitigation. We continue to manage and control expenses, capital expenditures, customer advances, progress billings and final invoicing at shipment. Our tactical execution focus and success enables us to continuously resecure strategic customer confidence at both segments. At our Ranor segment, sustained delivery and installation of new equipment continues as we specifically execute the $21 million plus of completely funded grant money from our U.S. Navy-related customers. Customer confidence remains high at both Stadco and Ranor. Our customers have expressed their strong confidence as we continue to maintain on-time delivery of quality components. This delivery performance is leading both Stadco and Ranor to new quoting opportunities in air defense and submarine defense sectors with the same customers that already know and trust our capabilities. Both subsidiaries are continuing to experience meaningful new capture of business awards from these same customers, adding to our already strong $48 million backlog. We expect to deliver this $48 million backlog over the course of the next 1 to 3 fiscal years with gross margin expansion. Now I'd like to turn the call over to our Chief Financial Officer, Phil Podgorski, to continue with the review of our second quarter and 6 months ended fiscal year 2026 results. Phil? Phillip Podgorski: Thank you, Alex. As Alex just mentioned, for our fiscal 2026 second quarter, consolidated revenue increased by 2% to $9.1 million compared to $8.9 million in the same period a year ago as we continue to focus on building our strong recurring revenue customer base. Consolidated cost of revenue decreased by 16% or $1.3 million as throughput and customer mix improved at both segments. Consolidated gross profit increased by $1.4 million in Q2 fiscal 2026 to $2.5 million, resulting in double-digit year-over-year consolidated gross margin improvement of 16 percentage points. Consolidated SG&A increased slightly by 1% to $1.5 million in the fiscal 2026 second quarter due to increased office -- general office expenses, but partially offset by a decrease in outside advisory and consulting costs. Fiscal 2026 second quarter interest was higher due primarily to interest rates -- our interest cost rates related to higher borrowing under the revolving loan. Net income was $0.8 million for the quarter, with $0.08 per share on a basic and fully diluted basis. For the 6 months ended September 30, 2025, consolidated revenue was $16.5 million or 3% lower when compared to the same period a year ago. Consolidated cost of revenue was $13 million or $2.7 million lower than the same period a year ago, again due to favorable customer mix and productivity gains at both Ranor and Stadco. As noted, favorable customer mix and productivity gains increased gross profit by $2.2 million or 14 percentage points year-over-year. SG&A decreased by 2% as lower outside advisory and consulting costs more than offset the increase in general office costs. As a result, operating income increased by 126% to $0.5 million. Interest costs increased by 3%, again on higher borrowings under our revolver loan, resulting in net income of $0.2 million or $0.02 per share on a basic and fully diluted basis. Moving on to our financial position. We continue to actively manage our cash flow, as Alex had mentioned. Net cash flow -- net cash provided by operating and investing activities totaled $0.2 million for the first 6 months in fiscal 2026. Net cash used in financing activities totaled $0.2 million, primarily to pay down principal under our revolver and term loans. Our debt was $7.3 million on September 30, 2025, compared to $7.4 million on March 31, 2025. Our cash balance on September 30, 2025, was $220,000 compared to $195,000 on March 31, 2025. Now let's take a little deeper dive into the segments for fiscal 2026 Q2. For Ranor, second quarter revenue was down year-over-year by $0.4 million. However, overall strong margin growth was evident across all projects, resulting in improved margin drop-through of 7 percentage points and contributing $2.2 million in gross profit for the quarter. Stadco Q2 fiscal 2026 revenue increased by $0.6 million compared to the same period last year as we continue to focus on repeat work. Stadco experienced Q2 year-over-year revenue -- year-over-year gross profit margin improvement of 9 percentage points or $800,000. The Stadco improved gross profit versus prior year is primarily the result of improved contract pricing, customer mix and improved production efficiencies. While this is an improvement, the company continues to face headwind on legacy contracts and underpriced onetime contracts. As Alex mentioned, we continue to actively work with our customers on these contracts towards recovery and new pricing. With that, I'll turn the call back over to Alex. Alexander Shen: For those on the call who may not be very familiar with our company, TechPrecision is a custom manufacturer of precision large-scale fabricated components and precision large-scale machined metal components. The components that we manufacture are customer-designed. We sell to customers in 2 main industry sectors, defense and precision industrial markets, predominantly defense. We do most of our work in industries that are highly sensitive to confidentiality, which preclude us from speaking publicly about many things that a company not operating in TechPrecision's specific environment might discuss. Please understand there are real limits as to what I can discuss, and sometimes, those limits do change. TechPrecision is proud and honored to serve the United States defense industry, specifically, naval submarine manufacturing through both our Ranor and Stadco subsidiaries and military aircraft manufacturing through our Stadco subsidiary. We aim to secure and maintain enduring partnerships with our customers. Overall, at both the Ranor and the Stadco subsidiaries, we continue to see meaningful opportunities in our defense sector, as evidenced by the strength -- by the continued strength of our backlog. We are encouraged by the prospects for growing our revenue and increasing profitability in future quarters. In summary, we had a profitable consolidated quarter. We are showing progress and have more work to do with our Stadco subsidiary to get it into the black. We filed on time, and we are targeting to build and sustain this trend. We want to build this trend. Operator, please open the line for Q&A. Operator: [Operator Instructions] We have a question from Ross Taylor with ARS Investments. Ross Taylor: First, I didn't think I'd ever live to see the day you guys actually reported inside the time horizon. So congratulations, really fantastic turnaround on that. What percentage of your Stadco business is still needing to be reworked to become profitable or needs to -- is one-off contracts that you need to run out to become profitable overall? Alexander Shen: I don't know about the percentage, but I think the -- let me parse that question and split it into three chunks. As far as the one-offs, I think those will need to continue. As far as the -- well, I say they continue. They will need to continue, but the ones that are experiencing losses and loss reserves have been dealt with very vigorously in the last quarter that we're reporting on. So that's really good. As far as another piece of it that was causing loss reserves was basically our first article activity. That doesn't mean just the first unit. It means the whole first article activity for our repeating part numbers. So it might be the first one, the second and third one, or it might be the first 10. It depends on the situation. But first article activity, until we can get to a stable, repeatable, sustainable cadence and expectation of manufacturing throughput, those have also been rather vigorously dealt with in the quarter we are reporting on. How much is left? Well, it will be imperative to continue to capture new business with new part numbers. So the first article activity needs to be watched carefully. The risks need to be mitigated. The customer collaboration, we will increase that to the point where we deal with the first article loss reserves. We want to deal with them more effectively. I don't know that we can deal with them as effectively as we did in the reporting quarter that we're reporting on now. But certainly, we've set ourselves a target. We're not going to keep missing these targets. We're going to work towards the target, hit the target. And I'm here to build a trend together with Phil Podgorski. Ross Taylor: Okay. So you said there are three aspects. So you have the one-offs, and you basically -- those are either run through or you -- future one-off contracts, we should expect to be able to be profitable. You've got the first articles, which obviously -- first articles always tend to carry -- they have issues or risks with them, so they tend to carry lower margins that you believe. Is the problem there more -- did you see it more as a -- was it a design issue? Was it the customer changing the designs? Was it underbidding? What did you sense the issue was in those first articles? Alexander Shen: So as I pulled out my playbook of analyses and tried to get these things down to what's the one big thing, it turns out that because we are really concentrating on rather complex, highly complex items and critical items that are critical to the war fighters, it's really dependent on the situation, Ross. I'm not trying to be funny about this. I'm just trying to tell you the truth. The -- it's a case-by-case basis on each part that we're attempting to build. So it's not one thing. It's a number of one things. So when you've got a lot of people touching it and when you have a lot of different people on the customer side also touching it, the number of touches increases the chances of something not going quite right on the handoff back and forth. That certainly happens quite a lot more when it's first article time. Neither side have been working with each other on this particular part number before. So even if we build a second one, it's not going to repeat the same way that we did the first one. It's much more complicated than to try to generalize and tell you that I've identified the main culprit or the first -- top three culprits. They tend to take turns. We need a little bit more experience with these things to understand how to deal with them in aggregate. But the execution and detail, the nuts and bolts are really important for us to grasp each detail. And it helps me quite a bit when I'm on-site and dealing with these things in person, as well as through my subordinates. Ross Taylor: Is this an issue both at Ranor and Stadco? Or is it more concentrated at Stadco? Alexander Shen: I think the first article problems -- so characterizing Ranor being mostly NAVSEA, Electric Boat, Newport News, Virginia class submarine and Columbia class submarine specification-driven. So the overall and overreaching specification sets our Virginia class and Columbia class. At Stadco, it's a little bit more than one set of specifications or two sets of specifications. So the idea is to focus ourselves and make sure we go back to the same customers because we've already proven ourselves at both Ranor and Stadco to these same customers. That we know their specifications, we know how to manufacture and really sustain our on-time delivery, delivering quality parts to their specifications. So as we continue that focus, that's going to lead us towards full recovery in the black at Stadco consistently. Am I making sense? Ross Taylor: Yes, you are. Having spent some time in the defense industry, some of this stuff actually is things I remember and I'm familiar with. If the Korean -- South Koreans turn the Philadelphia Shipyard into a submarine manufacturing facility initially for their boats, which are somewhat different than our boats, but there would be a probably likely overlap in many systems and components, is that an opportunity for you? And is it something that you would have the ability to service out of your current industrial base? Alexander Shen: I'd love to be able to answer that question, and it falls into the area where I can't speak. Can you rephrase or something? Ross Taylor: Do you see the -- at the shifting of the Philadelphia -- former Philadelphia Naval Shipyard to a submarine manufacturer to be an economic opportunity for you? Alexander Shen: We will look at every single opportunity, yes. Ross Taylor: And I would assume that there are things that go into submarines, generally Western submarines that you produce that in this country would -- you would produce in -- since what, 90% or so of your business is, effectively, you are the sole source. I would assume that a lot of that stuff would still end up in allies' boats as well as U.S. boats? Alexander Shen: You've got great assumptions, Ross. I don't mean that in a funny way. I am aligned with your assumption and that way of thinking. Ross Taylor: We went out of the helicopter this time. Can you walk through -- Phil, can you walk through the -- how you guys handle the grants that you've gotten from the federal government and the characteristics of those grants and what restrictions, if any, exists with them? Alexander Shen: Maybe we can answer this jointly. So the restrictions as far as what parts we may use the equipment for, the Navy parts that they're meant for have priority. And if there are none, then we do have the ability to use these assets for non-Navy parts that weren't designated. Ross Taylor: Or other Navy parts? Alexander Shen: Or anybody's parts. Ross Taylor: Anyone's part. And how does it sit on the balance sheet? Alexander Shen: That's a Phil question. Phillip Podgorski: So certainly, when we receive the cash, we certainly have an obligation to protect that, so we do segregate. We do have liabilities also that are established upon receipt of that cash, whether it's to the supplier or to a vendor that we're working with to secure that equipment. Likewise, as we onboard those assets onto our balance sheet, we do have -- depending on what the agreement is with our customer -- I mean, our supplier, we then, at that stage, will create a offsetting liability and depreciate over the useful life of that equipment. So we have assets and liabilities set up to handle each unique agreement that we have. Ross Taylor: Okay. And are any of the liabilities basically future performance or future services delivered that they give you this money and you are required to provide them something or you get paid for everything you build with this new equipment? Phillip Podgorski: We have paid for everything that we build, right, with this equipment. And there is a -- I can tell you on one contract, for example -- sorry, one funding -- that we do have a 10-year agreement with that, whereby we need to continue to perform for that period of time. Ross Taylor: Okay. And one last one for me is you've talked about the ability to garner new business. You're in an industry where a number of suppliers have struggled to either meet quality or timing and things of this nature. Have you -- what kind of new business have you seen? Are you seeing -- are you thinking things on -- by part number? Outside of TPCS, a lot of us think of it as programs. Are you getting involved in any new programs, particularly out of the Ranor operation? Alexander Shen: We are in the giant program mix of Virginia class and Columbia class submarines. There are programs within those two classes of submarines that we are on. Ross Taylor: Is there an opportunity for you in the larger undersea unmanned vehicles? Alexander Shen: Those are different sets of specifications. Ross Taylor: So at this point, no, but if they were to develop things such as -- there's talk that they want to build something that sits on the bottom of the Taiwan Strait, then when the Chinese decided to invade that, they automatically launch missiles. I think of you guys as being involved in that aspect of U.S. submarines. Would that be an opportunity for you guys if we were to go that direction? Alexander Shen: I think at this point, we are -- we have a lot of opportunity with the same customers and the same design shipyard. So if our customers lead us to that type of opportunity, we're absolutely ready to take a look. We just need to make sure that whatever first article activity we choose, it's going to be something that we can mitigate the risk and stay resilient with good backup plans and good planning for advanced countermeasures to counteract the learning that we tend to do as a community on new first article parts and new first article programs. Ross Taylor: It was -- it just strikes me as it would seem that with things like longitude doors and things that there might be a technological capability overlap that as we develop more war fighting unmanned underwater vessels that your skill set would become more in demand. I'll pass it to others. I've taken up a fair amount of people's time. And congratulations for getting back on time. One thing I would love to see that I'm going to leave you with, insiders actually buying stock instead of selling stock would be a nice change of pace. Phillip Podgorski: Duly noted. Operator: Ladies and gentlemen, we have no further questions in the queue at this time, so this will conclude our question-and-answer session. I would now like to turn the call back over to management for any closing remarks they may have. Alexander Shen: Thank you, everyone. Have a great day. Operator: Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings. Welcome to Moving iMage Technologies, First Quarter 2026 Earnings Call. [Operator Instructions] Please note the conference is being recorded. At this time, I'll turn the conference over to Chris Eddie with Investor Relations. Thank you. You may now begin, Chris. Christopher Eddy: Thank you, operator, and good morning to all of you joining today's call. Moving iMage Technologies CEO, Phil Rafnson, will make some opening remarks, followed by a business update from President and COO, Francois Godfrey; and then CFO, Will Greene, will conclude with some financial highlights, after which we will open the call to investor questions. Today's conference is being recorded, and an audio replay and written transcript will be posted to the Investors section of the Moving iMage website in the next few days. As a reminder, except for historical information, the matters discussed in this presentation are forward-looking statements that involve several risks and uncertainties. Words like believe, expect and anticipate mean that these are our best estimates as of this writing, but there can be no assurances that expected or anticipated results or events will take place. Actual future results could differ materially from those statements. Further information on the company's risk factors is contained in the company's quarterly and annual reports filed with the SEC. I will now turn the call over to Moving iMage CEO, Phil Rafnson. Philip Rafnson: Thanks, Chris, and thank you all for your interest in Moving iMage Technologies. Our quarter 1 performance was bolstered by the acceleration of some projects we had expected later in the year and by solid operational execution, both in terms of margin and operating costs. The combination of higher revenue, increased gross margin and lower operating expenses enabled us to achieve our goal for profitability for the quarter while also bolstering our working capital position. I'm very proud of the operational progress our team has made that enabled us to achieve profitability results. This progress will benefit MIT as we move forward. However, our ability to achieve profitability in any given quarter remains a function of the timing of customer projects as well as normal seasonality of our business. Visibility into longer-term customer spending plans remains limited despite the substantial scope of industry-wide cinema technology upgrades still to be completed. We believe a major factor in supporting laser projection and audio upgrade investments is the health of the exhibition industry. To that end, domestic box office receipts for the third quarter of the calendar year were approximately $2.4 billion, nearly matching the year ago period. And we are now entering the all-important holiday box office season that offers the potential for improvement given a strong film lineup and steady improving attendance trends. Our strategy within our target markets has been to continue building on our value proposition with new products and capabilities. We believe our recent acquisition of DCS Cinema Loudspeaker line represents an exciting step in executing this strategy. Overall, I believe MIT is making good progress in enhancing our operational and financial performance while also taking steps to expand our capabilities. Through these initiatives, we are improving our ability to support our customers in navigating their cinema technology requirements from design and engineering to equipment supply, installation and system commissioning. Now I'll turn the call over to Francois Godfrey, our President and COO. Francois Godfrey: Thanks, Phil, and good morning, everyone. I'll start by echoing Phil's comments on our team's solid start to fiscal year 2026. Our Q1 revenue exceeded our expectations on the top line as certain projects were accelerated by customers into the period. In addition, our bottom line benefited from the meticulous project execution for which MIT is known, enabling us to achieve an operating income of $350,000. We are particularly gratified by achieving profitability in the first quarter as this resulted from many quarters of work in reducing our overhead, cost structure and building our project pipeline focused on higher-margin opportunities. Given our size, the seasonality of our industry and the variability of project sizes, their timing and revenue mix, we continue to expect operating losses in the future until we are able to scale our business to consistent profitability. To reach that important goal, we continue to advance a range of internal and external initiatives designed to build our revenue base. On the project side, our team continues to engage in a variety of new build and technology refresh discussions with exhibitors and other specialty entertainment venues. These projects range from individual auditorium upgrades to full site refresh or new build initiatives incorporating state-of-the-art laser projection technology, coupled with immersive audio technologies. As we have often said, the timing of these opportunities remains fluid as they are largely dependent on our customers' capital cycles and strategic decision-making. Accordingly, this makes it difficult for us to predict project timing, particularly on a quarterly basis. Fortunately, the scope of legacy equipment in the market is quite considerable. Our ongoing engagement with new and existing customers confirms that there remains a very substantial base of potential work over the next few years. So we continue to believe that it's not a question of if a broad base of upgrades will take place. It's more of a question of when and at what pace. In this environment, we have turned management attention towards the things we can control, which include our cost structure, margin profile and our product and services offering, where we have made good progress. An exciting recent development from these efforts was our purchase of the DCS Loudspeaker line from QSC. DCS is a proven and highly regarded line of premium cinema loudspeakers with a global customer footprint recognized as a de facto standard across cinema, post-production, studio and screening room environments. Like MIT, DCS has an over 20-year reputation for quality, reliability and service, making it a perfect fit with our cinema audio solutions. We believe DCS can become an important part of our growth strategy. The purchase was completed on October 31, and we are now working to integrate the operations and build out our go-to-market strategy, including a couple of select hires to help drive the business. The DCS assets included all intellectual property, customer lists and finished inventory. We purchased for $1.5 million in cash from our $5.5 million in net cash at the close of our first quarter. We feel the acquisition terms should enable DCS to be accretive to our bottom line, and we see real potential to return our full investment in as little as 2 or 3 years. Now it's up to us to go and execute on that potential. We expect it to take a few quarters to integrate the business and get it fully up to speed with MIT. Now let me backtrack and touch on a few reasons why we are very excited about DCS. First, it immediately expands our addressable market, product portfolio, competitive position and brand recognition within the cinema industry. The DCS product line is known, respected, and deployed in auditoriums around the world. The acquisition elevates MIT's visibility while enhancing our audio capabilities and complements the LEA amplifier offering to create a stronger cinema audio offering for a wide range of auditoriums and venues. Second, it builds on our expertise and global distribution relationship with LEA Amplifiers, another hallmark cinema brand, creating an even more compelling audio offering. Third, it provides us access to the exciting base of DCS customers, some of whom are new to MIT and positions us for future opportunities. Fourth, it opens MIT to a range of new overseas markets, particularly in Europe, the Middle East and Asia, where we have had little or no exposure, while also providing potential for cross-selling opportunities for other products as we grow. So far, the feedback from customers and industry partners has been very supportive. We already begun discussions with potential international distribution partners and have received opening orders from both domestic and international customers while we onboard the inventory. Turning back to the overall business. We continue to progress our efforts to trim cost as reflected in our first quarter results. At the same time, we have focused effort on business development that seeks to forge new relationships as well as build on existing accounts. Looking ahead, we remain optimistic regarding the exhibition industry outlook as Hollywood content continues to build after the strike and other impacts. Domestic box office trends continue to improve and should be supported by a stronger and more consistent release calendar on the horizon. Assuming continued progress at the box office, we believe exhibitors will have improved access to capital to pursue deferred cinema technology upgrades and new theaters. The potential for more available capital, combined with continued aging of legacy cinema systems should provide increasing opportunities for MIT. Keeping our solutions front and center in the industry, our business development team will attend CineAsia in Thailand next month from December 8 to 11, and participate in 2 events early next year, the ICTA Seminar Series in Los Angeles in January and the Dine-in Cinema Summit in Austin in February 2026. All are ideal forums to showcase our new DCS line and our other capabilities with key customers and technology partners. To sum up, our team delivered strong Q1 performance, both operationally and strategically, and we remain focused on these disciplines that enabled that success. The DCS Cinema Loudspeaker line is an important and complementary addition to our suite of offerings that elevates our value proposition and should support long-term growth. Our pipeline of project dialogues remains active. Our partnerships are strong, and our focus on innovation and execution continues to differentiate MIT in the marketplace. We are grateful for your investment and support and look forward to updating shareholders as we move forward. Now I'll turn the call over to Will Greene, our CFO, to address some financial highlights. William Greene: Thanks, Francois. We published our financial statements in the press release this morning and expect to file our Form 10-Q by the close of business today. I will touch on select financial results and gladly answer any questions during the Q&A session. MIT's Q1 '26 revenue rose 6.2% to $5.6 million, reflecting the benefit of delivery of a custom cinema project and other client work. Our Q1 '26 gross profit rose 22% to $1.7 million, supported by higher revenue and an improved gross margin of 30% compared to 26.1% in Q1 '25 primarily due to a favorable mix of products and execution efficiency. MIT reduced operating expense by 8% to $1.32 million in Q1 '26 compared to $1.44 million during Q1 '25 due to reductions in compensation, headcount, rent and travel costs. As noted in our Form 10-K for the fiscal year ended June 2025, we streamlined our organization from 32 to 25 full-time employees. We expect continued benefits from this leaner operating model as we move forward, offset to some degree by selected new hires for the DCS operations. Q1 '26 operating income improved to $350,000 versus an operating loss of $68,000 in the same period last year. The improvement reflects revenue growth, a focus on higher-margin opportunities and ongoing expense management initiatives. Similarly, Q1 '26 net income improved to $509,000 or $0.05 per share compared to a net loss of $25,000 or breakeven per share in Q1 last year. Q1 '26 net income included a $128,000 noncash gain from payables extinguishment that more than offset a decrease in net interest income, largely due to lower interest rates. Our Q1 '25 results underscore MIT's potential to achieve profitability and positive cash flow on higher revenues with the benefit of our cost and margin disciplines. Turning to our balance sheet. Working capital rose 12% to $4.8 million at the close of Q1 '26, keeping us in a solid position to fund our business compared to year-end ' 25 working capital of $4.3 million, but below year ago working capital of $5.1 million. MIT continues to have no long-term debt. We closed Q1 '26 with net cash of $5.5 million or approximately $0.55 per common share compared to net cash of $5.2 million in Q1 '25 and net cash of $5.7 million at the close of fiscal year 2025. Our solid cash position enabled us to complete the purchase of the DCS Loudspeaker assets for $1.5 million in cash on October 31, at roughly 1/3 of the way through our fiscal second quarter. Turning to our revenue outlook. MIT anticipates Q2 '26 revenue of approximately $3.4 million, reflecting the impact of the holiday season on cinema exhibitors capital spending and our current window of customer projects and decision-making. As you may know, the exhibition industry seeks to maximize its potential box office potential during the holiday season and as a result, cinema technology and other upgrades are generally limited in scope to prevent any disruption. Reflecting the slower pace of business and the expected revenue mix, we also expect our Q2 '26 gross margin percentage to return to a more historical lower level. We continue to believe that MIT is well positioned to navigate the opportunities and challenges of our industry to pursue growth, profitability and stakeholder value. Our operating structure improvements, business development efforts, the recent acquisition of the DCS loudspeaker line and the long-term scope of that opportunity are key factors supporting our confidence in achieving those strategic goals. With that overview, operator, we are ready to begin the Q&A session. Operator: [Operator Instructions] First question is from the line of Neal Fagan, a private investor. Neal Fagan: First of all, great quarter. It's really, I guess, the word from me is exciting to see that even a modest revenue level of $5.5 million gives you strong GAAP profitability. I was curious just to learn a little bit more about the DCS speaker line. Did I understand that you think you can recoup the purchase cost with revenue over the next 2 to 3 years? Is that the metric you were using? Philip Rafnson: I can take this one. Yes, that is the intent that we modeled out as we're trying to bring the -- that line toward where it used to be. Neal Fagan: Okay. Well, that wording is interesting because here's kind of where I'm wanting to understand this. It was a very small purchase price, $1.5 million. And from your prepared remarks, it sounds like this is a line of speakers that is embedded in a lot of the large displayers, a lot of the medium-sized displayers. Is this a case of where the DCS line in you guys' opinion has enormous potential that wasn't being realized by the previous owners for whatever reasons. Are you guys feeling like you can take this to a much higher level than what was being done when you acquired it? Philip Rafnson: Correct. It's -- this line is well respected around the world, and it has extreme potential and market acceptance. Neal Fagan: Okay. And you talked about how it's a good go-to-market compatibility product with the LEA power amplifiers. So I'm thinking of it, we have DCS, which is an established name and has customers around the world. We have LEA, which is just trying to get into the cinema industry through you guys. I mean, are you feeling like going to market with both is going to potentially accelerate the acceptance and adoption of the LEA power amplifiers? Philip Rafnson: There are synergies there, and so that would be the intent. Neal Fagan: Okay. And when you acquired -- when you got the rights for the -- for LEA, you gave us metrics about the average selling price per power amplifier and the number of power amplifiers that would be used in a typical single-screen cinema. Can you give us a few numbers around the DCS speakers like a typical theater, a single-screen room, what's the revenue opportunity if it was outfitted with new DCS speakers? Philip Rafnson: I don't have those figures in front of me at this time. Neal Fagan: Okay. And final question for me is, you guys have highlighted several times in the announcement pursuing international markets and opportunities. You called out Middle East and Europe. When do you think that you might, in one of these calls, kind of go into more of the detail about the status, how we're approaching that and kind of a game plan, is that something we might hear about soon? Philip Rafnson: Once we finish the process of onboarding the business, we'll have a clear picture. Operator: [Operator Instructions] At this time, this now concludes our question-and-answer session, and this will also conclude today's conference. Ladies and gentlemen, thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.
Annie Bersagel: Good morning, and welcome to the presentation of Orkla's third quarter results. My name is Annie Bersagel and I'm the Head of Investor Relations and Communications. Our President and CEO, Nils Selte, will begin with a summary of the highlights from the quarter. After that, our CFO, Arve Regland, will go into a deeper dive in the financials. Nils will come back with some concluding remarks before we go over to the Q&A. So just a reminder, we have a video Q&A with analysts first. And after that, we will take all of the questions that come through via the web. So you're welcome to submit your questions via the web at any time. So with that, I think I will now leave the floor to you, Nils. Nils Selte: Thank you, Annie, and good morning, everyone. This quarter, we continued to execute on our active ownership model and capital allocation strategy. The focus is on improving our core business in the portfolio companies and investing in opportunities that drive long-term value. To start with a highlight this quarter. In Q3, Orkla delivered 4.4% organic growth across our portfolio companies. Of this volume mix contributed positively with 1.3%. Underlying EBIT adjusted growth grew by 1.1%. This quarter, we see a mixed development across the portfolio companies. Adjusted earnings per share was NOK 1.85, a 9% increase year-on-year. And the IPO, Orkla India. I said at the Capital Markets Day in November 2023 that we were initiating IPO readiness study. Last week, we reached a major milestone with the IPO of Orkla India. It is the result of a year of steady work, and I'm proud of the persistence shown by our team in India and at headquarters to reach this point. Since we bought MTR Foods back in 2007, we have had an amazing journey starting with strong local brands and strong local management team. Orkla India acquired Eastern -- in Eastern in 2021, and have steadily grown the company to what it is today. Let me be clear, this is not -- this IPO is not an exit for Orkla. Orkla will remain committed -- a committed major owner of the company. As a listed company, Orkla India now has its own currency and the flexibility that comes with it, a tool that will support growth over time. The proceeds from the sale of Orkla India provides additional financial contribution alongside Orkla's robust cash flow from operation. To optimize the capital structure and return excess capital to shareholders in line with our capital allocation policy, we have decided to initiate a NOK 4 billion share buyback program. The program will begin on November 17, 2025, and conclude by the end of December 2026 at the latest. Moving on to organic growth development for the consolidated Portfolio companies here shown over the past 2 years. Nearly all of the Portfolio companies contributed to growth in this quarter. Orkla Food Ingredients and Orkla India had the largest positive contribution to volume mix. Orkla Snack, also a larger positive contributor to price growth due to extraordinary cocoa price situations. Turning to a breakdown of the Portfolio companies' performance. We see a more flattish development in the results this quarter compared to a strong quarter last year. With our continued focus on long-term value creation, we see positive underlying development in several of the companies. Profitability varied across our Portfolio companies, and Arve will present a more detailed picture of the individual companies, but a couple of developments deserve mentioned. Jotun continued to deliver strong results during this quarter with double-digit underlying EBIT growth in local currencies, while maintaining the high margin levels. Orkla Food Ingredients delivered lower EBIT growth compared to past quarters. This led to a weaker development in the Bakery segment, in addition to volume growth, in lower-margin categories in plant-based. The positive growth in the Sweet segment continued. Excluding the impact from Cocoa, Orkla Snacks continued to have a positive underlying development. Moving on the 12 month -- the trail rolling months, EBIT adjusted margin for the consolidated portfolio companies held at 10.3% in the third quarter, a 0.3% improvement year-on-year. This improvement was broad-based with corresponding margin improvement in 7 of the 9 consolidated Portfolio companies. In terms of input cost, the development remains polarized. We continue to expect raw materials prices in sum to stabilize in 2025, excluding cocoa. Beyond 2025, we expect a continued polarized cost development across sourcing categories and for the Portfolio companies with an overall neutral cost outlook despite inflationary market sentiment. At our Capital Markets Day, we laid out our 3-year financial targets for the consolidated Portfolio companies. At the same time, I said that improving the performance of our existing portfolio will create the most value in the short term. I'm impressed by the progress of our Portfolio companies so far delivering EBIT adjusted to compound annual growth rate of 11.8%, margin expansion of 1.3 percent points and an improvement in return on capital employed by 2 percentage points. All in line with our financial target for this strategy period. At the same time, a lot of work remains. We will be fully focused on delivering on each of these goals in 2026, concentrating particularly on continued organic growth, cost management and capital discipline, achieving our 2024-2026 target is central to delivering top-tier long-term shareholder return, which is our overarching mission. I'll now hand over to Arve to walk through the quarter in more details. Thank you so far. Arve Regland: Thank you, Nils, and good morning. Let's start with the income statement highlights for the third quarter. Operating revenue was NOK 17.9 billion, up 4% year-over-year, and EBIT adjusted was NOK 2 million, up 2%. Lower cost in Orkla ASA and the business service companies contributed positively. Other expenses was NOK 401 million in the quarter, and the main element was a write-down of NOK 240 million of trademarks in Orkla Health and a write-down of NOK 130 million in the European Pizza Company equal to the remaining goodwill in New York Pizza's German operations. Profit from associates, which is mainly Jotun, was NOK 603 million, up 10% year-over-year and then landed at profit before tax at NOK 2 billion. And the improvement compared to last year is mainly due to the substantial impairment charges last year. And as Nils mentioned, adjusted EPS at NOK 1.85 per share, up 9%. Year-to-date cash flow from operations was NOK 4.8 billion. We are around NOK 400 million below record last year for 2 reasons. Some working capital buildup due to higher trade receivables and inventory, and increased net replacement investments primarily related to Orkla Foods, Orkla Food Ingredients and Orkla Snacks. These include replacement project at various factories, ERP projects and new long-term leases. Dividend from Jotun is unchanged versus last year at NOK 948 million, and we received the second installment in the third quarter. Turning to capital allocation bridge, and I will comment on specific development in the quarter. Expansion CapEx is around NOK 400 million year-to-date, of which NOK 250 million in the third quarter. And the increase in the quarter is related to -- mainly to increased production capacity in Orkla Snacks and Orkla Food Ingredients. Purchase of companies increased with roughly NOK 100 million and is related mainly to bolt-on acquisition in Orkla Food Ingredients. We maintain a robust balance sheet with a net debt at NOK 17.7 billion, equal to 1.7x EBITDA and 1.3x excluding Orkla Food Ingredients. Moving to some more details on the Portfolio of companies. And as usual, we'll start with Jotun. And please note that the figures and graphs relate to Jotun is the end of August year-to-date as Jotun do not publish Q3 results. However, I will discuss some highlights from the quarter. Operating revenue declined 2% in the quarter, excluding negative currency translation effects, the sales growth was plus 4%. This follows a continuing trend, revenue growth driven by higher volumes as well as increased premium sales in the decorative segment. EBITA increased by 6% over the quarter and 12% excluding the currency effects related to a stronger Norwegian krona. Both higher sales volumes and gross margin from lower raw material cost contributed positively. Jotun had financial gains related to currency hedging in the quarter, but the amount is still much smaller than the negative impact to EBITA related to the stronger NOK. We guided that we expect to report 2025 results on par with last year. We continue to expect currency headwinds to negatively impact growth year-over-year in the fourth quarter. That said, given the strong underlying operational development year-to-date, Jotun's contribution to Orkla results for 2025 tracks ahead of our outlook. Orkla Foods had organic growth of 0.8%. It was a temporary negative volume mix impact in Q3 due to ERP modernization in the Czech Republic. And the go-live process created challenges for our main warehouse resulting in lost sales. Adjusted for this, volume mix growth was slightly positive for Orkla Foods in total. Orkla Foods Norway had a negative volume mix but with a significant improvement compared to the second quarter. Market share in growth categories increased in line with the strategy communicated at the Capital Markets update. Underlying EBIT growth was 2.4% and came primarily from increased sales. Input costs increased during the quarter and Orkla Foods expects higher prices for beef, dairy, marine and berries to continue into next year. Orkla Snacks had organic growth of 7.5%, driven entirely by price. The Chocolate segment was the main driver of the price growth as well as a drag on volumes. Organic growth in the Snacks category was flat in the quarter, while biscuit contributed positively. Underlying EBIT declined 8.4% year-over-year reflecting impact of higher cocoa prices. BUBS launched in the U.S. in September through a production and distribution agreement with Mount Franklin Foods. The BUBS U.S. launch was promising, but was not material in Orkla Snacks P&L for the quarter. We expect limited EBIT effect from BUBS in the coming quarters as we continue to invest in A&P and SG&A to support the rollout. Orkla Home & Personal Care had organic growth of 0.9%, driven by continued volume mix growth in Norway and Sweden. And this was partly offset by lower volume mix in contract manufacturing and Finland. Underlying EBIT growth was 7.6% year-over-year, primarily cost-driven. Organic growth in Orkla Food Ingredients was 8.3% with 3.9% from volume mix. The plant-based cluster drove the volume mix growth but on lower margin products with limited impact on EBIT growth. There was a volume mix decline in Bakery across business units impacted by softening consumer sentiment and intensified competition. Underlying EBIT growth at 1.6% for the quarter was impacted by continued improvement from sweet ingredients, offset by a loss of volume in Bakery as well as lower margins in plant-based, as mentioned. Organic growth in Orkla Health was 2.5%, with volume mix growth of 1.6%. The main positive contributors were Wound Care and Food Supplements in Europe. The growth was offset by continued weak development in both Oral Care and Functional Personal Care categories for B2B customers. Underlying EBIT decline was driven by contribution margin pressure, increased SG&A costs and higher advertising spend in food supplements. The new Orkla Health CEO, Mats Palmquist, joined in mid-August, and initiatives are launched to reduce complexity and improve growth. And we will find the right opportunity in 2026 to present an update on Orkla Health to the Capital Markets. Orkla India reported quarterly results yesterday, so I will only name a few points here. And please note that Orkla India reports to the Indian Stock Exchanges in local currency according to Indian Accounting Standards with the financial year starting April 1. The quarterly numbers we report are according to IFRS, given in NOK and presented on a calendar year basis. Organic operating revenue growth was 4.3%, with positive volume growth and a decline from price. Underlying EBIT declined by 1.8% due to higher advertising costs related to early festive season. Transition expenses associated with recent sales tax reform in India and also Orkla India recorded financial incentives from the government of India in the same quarter last year. Excluding the impact of government grants, underlying EBIT adjusted growth was 6.2%. Organic growth in the European Pizza Company was 2.2% in the quarter with consumer sales growth in the Netherlands, Finland and Poland. Underlying EBIT increased with 7%, driven by consumer sales growth and cost control. And lastly, Orkla House Care had a top line organic growth in the quarter, while the development was flat in the Health and Sports Nutrition Group. But there were substantially improved profitability in both companies compared to the same quarter last year. With that, I'll hand it back to you, Nils, for the closing remarks. Nils Selte: Thank you, Arve. Having now entered the second half of our statutory period 2024 to 2026, I'm pleased with the progress we have made across the 3 strategic pillars presented at our Capital Markets Day. Driving organic value in our existing portfolio, simplifying the portfolio structure and executing value-adding structural transactions. As we enter the last part of the strategy period, we remain committed to delivering on these 3. At the same time, we have initiated development for our next strategy plan, which will guide Orkla through 2030. This work is being carried out in close collaboration with our Board and grounded on the same principles of focus, discipline and long-term value creation. We look forward to presenting the next strategy plan to the market towards the end of 2026. In closing, I want to thank our employees across Orkla and our Portfolio companies for their hard work and our owners for continued support. We entered Q4 with determination to finish the year strong and with confidence in the path ahead. We have more work to do, but we are pleased with the direction. Thank you for your attention. Arve and I are now happy to take your questions. Annie Bersagel: Welcome back. We are now ready to begin our Q&A. [Operator Instructions] So our first question is from Hakon Nelson from Kepler Cheuvreux. Hakon Nelson: I have 2 from me. The first is about Jotun, they delivered a very solid quarter. Could you elaborate on the key drivers by the solid volume growth and margins? And whether do you see this level of performance as sustainable into 2026? And the second is regarding the transformation and exit portfolio. How should we think about the remaining assets in terms of timing? And are there business outside the current transformer exit classification that you could consider opening for a strategic review or potential sale if the right conditions arise? Nils Selte: Let's start with the Jotun question. I think as we describe the result and the good performance of Jotun is very much due to the higher volume and also improved gross margin. I think also we have said that we guide now ahead of what we guided for the total year 2024. So we are -- I think we will be a bit above what we guided early this year. We don't want, at this stage, guide for 2026, but I guess we will get back to that on the Q4 presentation. So can you repeat -- so when it comes to transform or exit portfolio, we have 2 companies left we have never guided on structural deals. So I think we will stick to that policy and not guide on any structural deals. And that goes for the whole portfolio to say so. Annie Bersagel: Our next question is from Ole Martin Westgaard from DNB Carnegie. Ole Westgaard: I'll start with a quick 1 on Foods. You highlighted delivery issues in the Czech Republic in this quarter. Just to be clear, are these issues now resolved? Or is this -- will this also impact Q4? Arve Regland: They are resolved. So that's -- this is also a Q3 incident in relation to implementation of the ERP system, which had -- we had some problems in the main warehouse related to that, but that's resolved at the end of Q3. So it shouldn't be impacting Q4. Ole Westgaard: Yes. And on Snacks, can you be specific on how much snack or sort of chocolate demand was down in Q3? And when do you expect this to stabilize or has it stabilized now? Arve Regland: It has stabilized, but we don't give any clear guidance on exact numbers. But as we have said earlier, we have at least a 10% volume decline on -- due to chocolate price increases. But it's stabilizing, but it's still obviously affecting the numbers year-over-year, as you can see in the report. Ole Westgaard: Yes. And then on the write-downs. I understand this is -- majority of this is related to Nutrilett. What is the remaining book value of Nutrilett on your balance sheet as of now? Arve Regland: There's nothing left on Nutrilett, but it's also several trademarks in Orkla Health that was written down in the quarters. Nutrilett was 1 of them, but they are also consolidated a few other trademarks into Sana-Sol as a new main brand for some of the trademarks or it's a combination of several trademarks that's written down, which then in total was the number, as I presented. Ole Westgaard: Yes. And then last 1 on Foods and Snacks. Can you comment on how you see your market share development in this quarter and how the competition is from private label? And I'll join back in the queue. Nils Selte: I think, in general, we see that we are flattish, more flattish when -- if you look at the prioritized categories within Foods, we see that we are taking market shares. Otherwise, in the other categories in Foods, we are more or less flat. Also that goes for -- but it's a few variation between the different categories in Snack, but all in all, it's more a flattish development this quarter. Annie Bersagel: And it looks like the next question we have is from Petter Nyström in ABG Sundar Collier. Petter Nystrøm: So just a very quick question for me. And that is, could you share some insight on how you see raw material prices developing into 2026 versus 2025? Nils Selte: As I talked about that briefly in my presentation earlier this morning, and I think this -- we are expecting flat development, including cocoa prices going into 2026. And that's the picture we see as of today. A bit fragmented, there are a big variation between the different categories, and it might see the different Portfolio companies differently. But in general. Annie Bersagel: I see Hakon Fuglu has a hand up, if you have another question. Hakon Fuglu: This is the first. But yes, I have a couple of ones, and I'll take them 1 by 1. In the second quarter, you talked about inventory rebalancing within Food for a couple of your clients. Did we have any impact on that this quarter as well? Arve Regland: That was a very limited impact this quarter. Hakon Fuglu: Okay. And looking at your headquarter costs, they continue to decline sequentially also in this quarter. Are we sort of reaching a sort of more normalized level in this quarter? Nils Selte: We don't want necessarily to guide on the headquarter cost. But I think this quarter, we see a reduction in FTEs in the IT part of the Orkla IT AS, and we also see a reduction in number of FTEs in the headquarter, as well as a reduction in bonus cost due to the share price development in this quarter. But we don't want to guide for going forward. Hakon Fuglu: And final 1 from me. Talking about your hero brands. Elevating those brands, now you're going to sort of help and what sort of the expected impact for the other Portfolio companies there? And are you seeing any impact from the ambitions that you launched on the CMU? Nils Selte: Implementing new ways of actually running our portfolio of different brands takes a lot of time, and it takes also time before it gets effect into your performance as well. So I think all the companies are now implementing this new way of thinking. And we presented the Snack and Food, how they are working on the Capital Markets Update in May this year. So this is work going on. We see progress as we have said that in prioritized categories in Food over the last few quarters. And I think that's a good sign on that this will work and this is working, but it takes time before it hits into the P&L to say so. Annie Bersagel: And I see our next question is from Ole Martin Westgaard in DNB Carnegie. Ole Westgaard: Another question for me. When it comes to your marketing spend in this quarter, how is that year-on-year? And what was the underlying margin improvement adjusted marketing spend? Arve Regland: Yes. We haven't given a clear number of that, but it's fairly flattish compared to the last year. Ole Westgaard: Yes. And then just on BUBS. You -- can you say a bit more on how you see the performance of BUBS in Q3 relative to your expectations? How has it changed any perception of how you view the attractiveness of the U.S. market? Arve Regland: No. In U.S., it's still early days. So as we also stated in the report, it's a promising launch in the U.S. Limited, however, limited impact to the numbers in the third quarter given that we launched at the end of the quarter. And we are also now very keen to support that rollout, meaning that we're going to support the sales with SG&A resources and also A&P. So on the back of that, it's promising, but I wouldn't expect a huge impact to the P&L in the coming quarters due to the efforts that we put behind the rollout. Nils Selte: We will in that for the long term in the U.S. market when it comes to BUBS. Annie Bersagel: That seems to be the last video question. So we're going to turn it over to questions from the web. It looks like we've had a couple coming from Marcela Klang, Handelsbanken. The first question from Marcela is on the strategy. Can you give an indication of the continued strategy plan that you will present towards in 2026? What areas are you contemplating on targeting real estate, M&A? Nils Selte: I think that's way too early. I said this is a process that we just started with the Board. It's ongoing discussions, and we have made a plan on how to make a good strategy for the future heading towards 2030. We also, in this process, will dive into the Portfolio companies, and the Portfolio companies will make their own full potential plans and strategy plans, and we need to see the totality before we can give any guidance to the market. And we would wrap in the end of 2026 with a new Capital Markets Day to tell about our strategy for 2030. Annie Bersagel: And the last question from Marcela here is, do you expect the NOK 4 billion share buyback program to be spread across Q1, Q2, Q3, Q4 2026 evenly or more in the first half? Arve Regland: The share back program will be run according to the MAR regulations meaning that we will buy a volume not affecting the share price, meaning up to 25% of the volume in the recent periods. So that it will take the time it will take. And we're not going to give a clear guidance on how many months it will take, but obviously, it will take some time to accumulate that volume in the market. Annie Bersagel: And that appears to be the final question on the web. So before we conclude, let me just remind you that we will report results for the fourth quarter on February 12. So with that, thank you for joining, and please enjoy your day.
Operator: Good morning, ladies and gentlemen. Welcome to Syn's video conference about the third quarter results. This conference is being recorded, and you will be able to access the replay on our website, ri.syn.com.br. The slide deck will also be available for download. [Operator Instructions] And right after the presentation, we are going to have a Q&A session. We will provide further instructions then. I would like to provide that the information that will be informed are related on the information that are responsible or available right now. However, since future results may differ substantially from the results presented and herein due to the various important factors, among other factors, investors, shareholders and stakeholders need to take into account that there are other circumstances responsible for the decisions other than the information contained in this presentation. Here, we have Thiago Muramatsu, the Director at Syn; and Hector, the Investors Liaison Director. Now I'd like to give the word to Thiago Muramatsu for the presentation. Thiago, please go ahead. Thiago Muramatsu: Welcome, everyone. Thank you very much for joining on this call to talk about our results. We are going to start talking about some of our achievements from the third quarter. So let's start with capital reduction that we had for this quarter. It was announced at the end of the month of July, a little bit before we had the second quarter results, we had a total of BRL 330 million reduction, which is about BRL 2.16 per share on the date of September 18. We are also moving on with the Shopping D transaction where we are selling our participation along with XP Malls. The sale of our entire stake represents a total of BRL 8.9 million, and we expect to finalize this transaction in the next coming weeks. Finally, as we mentioned at the beginning of the year, we also closed the sale of Brasílio Machado. We have already received the first 5 installments. There is a final one to be received at the end of this year where we are going to close the entire deal. Now a little bit about our operational performance. Let's start with shopping malls. In this quarter compared to the third quarter of last year, we had an increase of physical occupation of about 1%. Throughout this last year, we started with new rentals and exchanged 7% of our total number of stores focused on food, entertainment and services. We also reduced our share in clothing stores focused on those 3 main factors. When it comes to financial occupation, we also had a slight increase, but we continue at about 95%, which we consider to be a healthy occupation. Now a little bit about our sales. When we talk about sales evolution, we can see that we had an increase of 5.5% with BRL 55 million coming from same-store sales, BRL 44 million from new locations or new stores and 18% from kiosks and events. So when we consider the total sales in percentages throughout the 9 months of this year, we can see an increase of 4.2%, and the same-store rent with an increase of 5.6%. Despite the fact that we had these increments of 5.6% compared to 4.2% in sales, we were able to keep our turnover that represents very healthy levels as well. And the majority of this increase or this growth of BRL 18 million was considered also with this growth in portfolio compared about 50% compared to last year. Now about corporate buildings, we maintained basically the same level of physical occupation compared to the same period of last year. And when we look at 82.7% against 91.6%, we had the vacancy of Brasílio Machado, which was a building that we have sold. So when we take that into account, we go from 91% to 93.8% as well as in financial occupation going from 91% to 92.6%. Lastly but not least, talking about our warehouses, the CLD. As we have been seeing over the last quarters, we have already delivered Phases 1 and 2. Both of them are 100% rented, already occupied. We expect to deliver the Phase 3 on December this year. When it comes to the Phase 4, we expect to deliver that fourth phase on the first semester of 2026, but we have this expectation of being able to deliver the last phase already in the first quarter of 2026. We are already having some conversations about occupation. We already have a proposal for the rental of part of this warehouse of about 30%. And in terms of location, we are talking about 10% compared to the last value of Phases 1 and 3 -- I'm sorry, Phases 2 and 3. Now I would like to talk -- to give the floor to Hector to talk about financial results. Hector Bruno de Carvalho Leitao: Well, on the first phase, we can see the performance of our properties compared to the same period of last year. And in the first quarter, we had a very robust growth of 13.7%. And throughout the 9 months, 11.8%, both for shopping malls and offices. The main driver or leverage of those results are in revenue for malls. We had this increase of 10%; and offices, 11%. This is basically due to the fact that we had an increase of revenue of same stores. As Thiago has mentioned, there were some store exchanges with the best portfolio as well as best profitability. There's another factor for shopping malls, though, which has to do with media and kiosk, events and other merchandise campaigns that have been growing at about 20% rate, which is something that has been providing great results for us. For offices, the results are basically focused on reviews -- or I'm sorry, revisions where we are focused on 3 main buildings, 2 at JK Triple A as well as Leblon in Rio de Janeiro. This growth is above the inflation rate. And also for the last 9 months, we can see the same impact where we grew 11.8%, total 13% in malls getting to BRL 48 million, and 8.7% in offices, bringing us to 17% or BRL 5 million in the year. On the next slide, we can see 2 very important indicators. The adjusted EBITDA. In the third quarter, we can see a growth that is cohesive to the ROI, 15.5%. Our EBITDA of BRL 20.8 million. Looking specifically at the 9 last months, we can see that 5 months of this portfolio happened 5 months before the transactions that we have closed. So there is this decrease of 36.8%. So BRL 95.6 million of last year compared to BRL 60.4 million this year. However, when we look at the adjusted FFO, we can see that there is this growth of about 120% in the first quarter where we had this BRL 20 million FFO adjusted to sales effect, and specifically for the 9 months of 2024. In this, we had BRL 35 million last year and this year, 45.6% (sic) [ BRL 45.6 million ] showing a growth of 30%, showing that specifically for the fourth quarter on, we have already distributed BRL 960 million. So even considering that we have this return for shareholders, and we still have an FFO that is consistently better than the same period of last year. In this slide, we can see the evolution of our net debt. From one quarter to the other, we basically maintained the same level of gross debt. In terms of cash, we have closed at BRL 231 million, and this drop is due to the reduction of capital that we have had at the end of this quarter. So with that, we closed with a total debt of BRL 271 million, which is about 3x our adjusted EBITDA, which is still considered to be a quite healthy level of that, and very important pay for our investors and shareholders as well. So when it comes to our indebtedness or amortization schedule, we can see the profile of our debt, which is mainly focused on IPCA, which led us to reduce our average cost with a very important spread compared to the CDI of 85% over the CDI. And I think now we can go to the Q&A session. Operator: [Operator Instructions] The first question is by [ Reinaldo Veríssimo ]. Unknown Analyst: Congratulations for the results. How do you intend to reduce your gross debt until 2028? Do you have any plans to expand the ABL beyond the CLD warehouse? Thiago Muramatsu: Reinaldo, well, about our leveraging. Yes, we have increased our leveraging rate because we had some extra cash. So specifically for this 3% of gross debt that Hector mentioned, it is already considering this reduction, and it goes hand in hand with our practices keeping the gross debt level. That is due to the fact that our debt is focused on IPCA, which is a great cost. About the next coming years, this leverage is going to happen due to the expansion of our portfolio. This is the picture of the last 12 months, but over the course of the year and the coming years, we expect that due to the evolution of our portfolio results, we can reduce this leverage rate until we get to lower levels that may be even allow for us to leverage our company. This deleverage result is coming again from the results of our assets. And when it comes to the expansion of ADL, specifically for CLD, unfortunately, we don't have any more room on that land. So as soon as we finish the last phases, we get to the limit of its constructed area. But of course, we are still analyzing new developments or maybe some new acquirements or expansions, okay? Operator: [Operator Instructions] So with that, we would like to close the Q&A session. We would like to give it back to Thiago Muramatsu so he can give his closing remarks. Thiago Muramatsu: Okay. So once again, I would like to thank you all for your presence. We had a very positive quarter, and we are at your disposal to clarify any other questions. Thank you very much. Operator: So with that, we will close our video conference. Thank you very much and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to Twist Biosciences 2025 Fourth Quarter Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the call over to Angela Bitting, Senior Vice President of Corporate Affairs. Please go ahead. Angela Bitting: Thank you, operator. Good morning, everyone. I would like to thank you for joining us for Twist Bioscience conference call to review our fiscal 2025 fourth quarter and full year financial results and business progress. We issued our financial results press release before the market, and it is available at our website at www.twistbioscience.com. With me on the call today are Dr. Emily Leproust, CEO and Co-Founder of Twist; Adam Laponis, CFO of Twist; and Dr. Patrick Finn, President and COO of Twist. Today, we will discuss our business progress, financial and operational performance as well as growth opportunities. We will then open the call for questions. We ask that you limit your questions to one and then requeue as a courtesy to others on the call. This call is being recorded. The audio portion will be archived in the Investors section of our website and will be available for 2 weeks. During today's presentation, we will make forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in our press release we issued earlier today as well as more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements, except as required by law. We'll also discuss adjusted EBITDA, a financial measure that does not conform with generally accepted accounting principles. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, a reconciliation between GAAP and non-GAAP financial measures will be included in our earnings documents, which can be found on the Investors section of our website. With that, I will now turn the call over to our CEO and Co-Founder, Dr. Emily Leproust. Emily Leproust: Thank you, Angela, and good morning, everyone. Today, our team delivered a record quarter with $99 million in revenue, exceeding our guidance. This represents an increase of 17% year-over-year and our 11th quarter of consecutive growth. For the year, we reported $376.6 million in revenue, growth of 20% over fiscal 2024. Gross margin for the quarter came in at 51.3%. For the year, gross margin was 50.7% compared to 42.6% for fiscal 2024, demonstrating the leverage of fixed costs with higher volume and reflecting our focus over the last 2 years on continuous margin improvement. I'd like to underscore that over the course of fiscal 2025, we grew our business 20%, leveraging our proprietary silicon chip-based technology platform to deliver high-quality products and services rapidly to our growing customer base. Importantly, through the addition of new products and solutions, we expanded our market share with an eye towards addressing new serviceable market in the year ahead. Our commitment to commercial excellence continues to ensure we meet and exceed our customers' expectations. Today, with our differentiated manufacturing technology, our innovative R&D for the continuous introduction of new products, our base of more than 3,800 customers across multiple industries, our hundreds of SKUs having a wide range of diverse applications and an increasing market share in multiple markets, we're operating with incredible execution and financial discipline. And with adjusted EBITDA breakeven within our reach by the end of fiscal 2026, this year, we focus on setting the stage for future growth acceleration. Turning to our results. SynBio revenue came in at $39.5 million, up 17% year-over-year. Our growth in SynBio continues to be led by the Express portfolio, which remains best-in-class in terms of price, turnaround time and scalability. Two years after launch, our customers have come to depend on the rapid turnaround time, high quality and exceptional experience they receive from Twist as their new normal and what they expect regularly. We have decreased the turnaround time for gene fragments, clono genes, high-throughput DNA preps and high-throughput IgG proteins, and we now run assays and provide antibody characterization data as part of our offering for many customers. One area of substantial growth for SynBio and Biopharma offerings came from customers choosing Twist to power their therapeutics discovery initiatives, both traditional drug discovery and AI-enabled discovery because our platform delivers precision, scale and speed at enabling economics. While traditional discovery continues to be a focus of many customers, the rapid expansion of AI-enabled drug discovery creates powerful new opportunities and amplifies the value of our technology. Recently, this AI-driven discovery fueled significant growth for Twist. In fiscal 2025, orders from customers working on AI discovery projects grew more than $25 million versus fiscal 2024. These projects primarily fall into the SynBio and Biopharma bucket today and a customer pursuing AI-enabled discovery delivered our single largest purchase order to date. And the emergence of dozens of new organizations across pharma, biotech and big tech, pursuing new discovery approaches expands the market opportunity for SynBio and Biopharma groups today. Rapidly, as we have moved further up the value chain from fragment to genes to prep to protein to delivering characterization data and beyond, the strategic connection between our SynBio and Biopharma groups tightens. More customers now leverage both products and services to accelerate discovery and identify breakthrough therapeutics. This growing convergence highlights the power of our integrated platforms and reinforces Twist's unique position to serve the full spectrum of innovation and discovery with more products and services to facilitate this growing opportunity coming in the months ahead. Over the last several years, our product introductions are focused on pharma and biotech customers pursuing therapeutic discovery as well as academic research. As we analyze the future market opportunities, we believe this continues to be the right areas of focus for additional tools and services. Moving forward, we have a robust road map and planned product introductions to augment our portfolio that we believe will continue to drive revenue growth in 2026 and in the future. Turning to NGS. We reported revenues of $53 million, growth of 16% year-over-year, driven largely by continued commercial success from our diagnostic customers' clinical assays. Our NGS products are an integral component within many commercial diagnostic workflows. Recall that we provide tools for customers offering tests for therapy selection, liquid biopsy, comprehensive genomic profiling, rare disease, noninvasive parental testing and progression genetics. In addition, we continue to support minimal residual disease customers with several of these groups targeting commercial launch in late 2026 and planning commercial scaling into 2027. And we are beginning to see conversion of the microarray to FlexPrep sequencing workflow. Introduced about a year ago, we believe this product provides significant potential growth opportunities, both for population genetics and AgBio applications. During the quarter, we had 2 significant population genetic wins with the funnel growing in serviceable opportunity for the $500 million market that uses SNP microarray technology today. Customers in both segments run millions of samples. So once converted, the business is bulky. We have maintained our sequencing agnostic strategy throughout our NGS product portfolio with all sequencing platforms. While the majority of our customer continues to use the Illumina platform, and we have an active OEM agreement with Illumina, we also see growing interest in other platforms. To this end, we announced an advancement of our agreement with Element Biosciences last month that enables us to gain exclusive access to Element's new Trinity Freestyle workflow, facilitating the use of Twist, a full lineup of library prep for the IVT system. Together, Element and Twist shortens the workflow from sample to sequencer from more than 20 hours down to 5 hours, a true time savings. In addition, we are powering the gene by gene population genetics test that runs on the Illumina Genomics sequencing platform. This complements our work with PacBio, Oxford Nanopore and others. We continue to see traction building for RNA-Seq workflows, having customers who offer diagnostic tests as well as labs offering clinical services with growth expected across all areas of our NGS portfolio in 2026. Looking at Biopharma Services, we reported $6.4 million in revenue, an increase of 22% year-over-year. Importantly, orders of approximately $11.5 million for the fourth quarter of fiscal '25 reflect a large order that spans both SynBio and Biopharma from a key account that we do not expect to repeat every quarter. More customers now partner with Twist across the full design, build, test and learn cycle for developability assays and characterization data. This trend continues to grow, especially among AI-driven drug discovery companies. Many of these customers operate without a wet lab and rely on Twist to execute the critical experiments that bring their designs to life. We help them move fast, generate robust data and advance programs with great confidence. We see much more integration between our SynBio and Biopharma businesses as customers increasingly use both our products and services to power their discovery pipelines. To capture this opportunity, we aligned our sales organizations to deepen collaboration and fully leverage the synergies between the two. We also received valuable feedback from investors that our SynBio and Biopharma names for revenue grouping [indiscernible]. Reflecting on this progress and feedback, we will combine SynBio and Biopharma revenue for reporting going forward under the term DNA synthesis and protein solutions, indicating synthesis and manufacturing of sequences for DNA, RNA, protein and data for customers going through design, build, test, learn cycle. DNA synthesis and protein solutions more accurately represents our customer base, and we intend to provide additional insight into industry groupings that better reflects how we serve a broad range of customers. Our NGS tools will now be called NGS applications as its products and services facilitate DNA reading, sequencing workflows. Beginning in the first quarter of fiscal '26, we will be breaking out industry groupings into therapeutics, diagnostic, industry and applied markets as well as academics and government. In addition, something that is underappreciated about Twist is a number of organizations that buy products from Twist and then resell them under a different brand name. As such, we will also share global supply partner revenue encompassing distributor and OEM partners as part of our industry breakdown. These new groupings enhance transparency and better align with how our business operates, providing investor insight into our strong growth engine. I would now like to turn the call over to Paddy for commentary on our growth initiatives for 2026. Patrick Finn: Thanks, Emily. As we close fiscal 2025, it's remarkable what we have achieved in the last year, and I'm even more excited about what is to come. While my comments during earnings throughout the last year focused on margin initiatives, we have now crossed the important threshold of 50% margin, almost 20 margin points increase over the last 2 years. We expect to continue to remain above 50% margin moving forward. And this year, my remarks will focus on our growth plans. Today, I'd like to talk about a remarkable and differentiated product introduction for our NGS product line aimed at empowering our customers in an area of increasing importance for cancer diagnosis, monitoring and treatment. I'm pleased to share that we're in the final stages of optimizing an express product for minimal residual disease, or MRD, which we expect to introduce commercially in early calendar 2026. As you know, MRD for therapy selection, cancer monitoring and early treatment of recurrence offers tremendous promise. We already work with many MRD customers providing library prep and target enrichment panels for tumor-informed and tumor-naive panels as well as whole genome sequencing approaches. And we continue to hear from customers developing tumor-informed assays that they gain better sensitivity and specificity using hundreds or thousands of sequences specific to a patient's tumor. The data presented at recent medical meetings back up these beliefs. Importantly, recent studies also show that physicians desire, the capability to sequence the cancers present and have a test in hand for a patient with cancer within a 4-week window. While we currently manufacture enrichment panels within about 5 business days, we hear the desire for delivery of a tumor-informed panel as fast as 12 hours. Using our proprietary DNA synthesis platform, we developed a process to do just that, manufacture and ship an individualized panel as fast as 12 hours after receiving the sequence data. Our MRD Express solution provides the speed and simplicity of a tumor-naive test while maintaining the precision and sensitivity of a tumor-informed assay, something not possible using any other method of DNA synthesis. Taking a step back and looking at the broader implications, we all know family and friends and maybe many of you personally impacted by a cancer diagnosis. In the midst of the storm, turnaround time is critically important, both to determine treatment and create a personalized panel to monitor recurrence of disease. At Twist, we believe it's our responsibility to respond rapidly, potentially offering a path to enable reduced treatment time or pursue therapy at an earlier stage of disease. This higher calling motivates all of our Twisters to go above and beyond for our customers to play a role in transforming cancer into a manageable chronic condition. On the business side, we believe Twist MRD Express has the ability to support our customers in changing the diagnostic and treatment paradigm, lowering the operational barrier of entry for personalized MRD. We enable this shift through our synthesis platform along with automation, delivering personalized panels in a time line equivalent to tumor-naive workflow. We believe our connection to the customer, our ability to turn a customized panel in as few as 12 hours, all underpinned by our proprietary platform will enable increasing availability of tumor-informed cancer assays. On top of this, we have the capacity today to serve these markets, future-proofing customer supply chain constraints and vulnerabilities. With that, I'll turn the call over to Adam to discuss our financials. Adam Laponis: Thank you, Paddy. Revenue for the fourth quarter increased to $99 million, growth of 17% year-over-year and approximately 3% sequentially. For fiscal 2025, revenue increased to $376.6 million, growth of 20% year-over-year. Gross margin came in at 51.3% for the fourth quarter of fiscal 2025, with the margin for full year of 50.7%, an increase of 8 margin points versus fiscal 2024, with approximately 90% of revenue growth in FY '25 dropping to the gross margin line, supported by our continuous process improvement efforts. Taking a deeper dive into revenue. SynBio revenue increased to $39.5 million, growth of 17% year-over-year. For the full year, SynBio revenue increased to $145 million compared to $123.5 million in fiscal 2024, an increase of 17%. NGS revenue for the fourth quarter grew approximately $53 million compared to $45.5 million in the fourth quarter of fiscal 2024, an increase of 16% year-over-year. For the quarter, revenue from our top 10 NGS customers accounted for approximately 39% of NGS revenue. For fiscal 2025, NGS revenue increased to $208.1 million, growth of 23% year-over-year. We served 588 NGS customers in the quarter with 159 having adopted our products. For Biopharma, revenue was $6.4 million for the quarter, growth of 22% over the same period of fiscal '24, with orders of $11.5 million. We had 84 active programs as of the end of September 2025, and we started 47 new programs during the quarter. Compared to last quarter, these programs are more substantive as we see a shift to AI discovery-driven projects. For fiscal 2025, revenue was $23.5 million, growth of 15%. Looking geographically. Americas revenue increased to approximately $57.3 million in the fourth quarter compared to $52.7 million in the same period of fiscal 2024, growth of 9% year-over-year. For the fiscal year, the Americas accounted for 60% of revenue. EMEA revenue rose to $34.6 million in the fourth quarter versus $25.5 million in the same period of fiscal 2024, exceptional growth of 35% year-over-year. For the fiscal year, EMEA represented 33% of revenue. APAC revenue increased to $7.2 million in the fourth quarter compared to $6.5 million in the same period of fiscal '24, an increase of 9% year-over-year. APAC accounted for 7% of our revenue in fiscal 2025. China continues to be a relatively small portion of our revenue at approximately 1% of total revenue for fiscal 2025. Moving down the P&L. Operating expenses, excluding cost of revenues for the fourth quarter were $80.8 million compared with $74.3 million in the same period of 2024. Operating expenses, excluding cost of revenues for fiscal 2025 were $327.3 million, which marks our third consecutive year of relatively flat operating expenses, excluding cost of revenues. Looking at our progress and our path to profitability. For the fourth quarter of fiscal 2025, adjusted EBITDA was a loss of approximately $7.8 million, an improvement of $9.2 million versus the fourth quarter of fiscal '24. For fiscal '25, adjusted EBITDA was a loss of approximately $46.9 million, an improvement of approximately $46.6 million versus fiscal 2024. Cash flow from operating activities continues to improve, and we are driving to breakeven. For the 12 months ended September 30, 2025, net cash used in operating activities was $47.6 million compared to $64.1 million for the equivalent 12-month period in 2024. Capital expenditures in fiscal 2025 were $28 million, reflecting our investment in growth for fiscal 2026 and beyond. We ended the fiscal year with cash, cash equivalents and short-term investments of approximately $232.4 million. As Emily mentioned, beginning next quarter, we will provide new revenue by industry for the following categories that increased clarity around our key customer groups and transparency on how we are progressing as follows: Therapeutics customers, which include both large pharma and early-stage biotech, diagnostics customers who use our products to deliver a clinical report for a patient; industrial and applied customers, including agricultural bio; academic research and government customers; global supply partners, which will include distributor and OEM partners servicing customers across a variety of industries. We believe these new categories will provide added color and metrics for investors to track our progress in reaching different end markets and customer segments. We do intend to share a retrospective view on the new industry group performance in our fiscal first quarter reporting. Turning to guidance for fiscal 2026. We expect total revenues of $425 million to $435 million, growth of approximately 13% to 15.5% year-over-year. For our DNA Synthesis and Protein Solutions Group, we expect revenue of $194 million to $199 million, growth of 15% to 18% over fiscal 2025, reflecting strong demand from our AI discovery customers. For our NGS Applications Group, we expect revenue of $231 million to $236 million, growth of 11% to 13.5% over fiscal 2025. We see a path back to 20% growth year-over-year by Q4 as we expect a large diagnostic customer will begin ramping their commercial volume in the second quarter. As added color, our NGS forecast assumes approximately 1 to 2 points of growth for MRD in fiscal '26, with the ramp for this particular product group coming in late '26 into '27. We expect gross margin to be above 52% for fiscal 2026, and we expect to exit fiscal '26 with our fourth quarter achieving adjusted EBITDA breakeven. For the first quarter of fiscal 2026, we expect revenue of $100 million to $101 million, growth of 13% to 14% compared to the first quarter of fiscal 2025. Our guidance includes the expectation that our Q1 revenue will be impacted by a large cancer diagnostics customer who is transitioning their assay from research to commercial with a reacceleration of purchasing in the second quarter of fiscal 2026. We also see significant revenue from the record AI drug discovery order such that our 2 product groups will be relatively equivalent to the first quarter. With that, I'll turn the call back to Emily. Emily Leproust: Thank you, Adam. Our team executed exceptionally well throughout 2025, delivering strong results and building the foundation for what comes next. At Twist, we often say for a strong finish, we go again. We see substantial opportunity ahead across all our markets. Staying close to our customers continues to be our greatest competitive advantage. It allows us to anticipate emerging needs and identify the next set of products that would move the needle for growth. Like our customers, we have an ambedance of ideas and a disciplined approach to prioritization. Over the past 2 years, we deliberately focused on gross margin expansion and with gross margins now above 50%, we have successfully positioned the business for continued profitable growth. As we reallocate R&D resources towards growth, we're investing in innovation that we believe will drive sustained top line acceleration. Our road map remains robust and well sequenced to deliver growth over the next several years. Looking forward, we expect balanced growth across our DNA synthesis and Protein Solutions and NGS applications with some normal quarterly variation. We're advancing new products that support customers leveraging AI and drug discovery as well as those using traditional therapeutics development methods. Fiscal 2026 is about translating our margin strength into durable revenue growth. We know where we need to go, and we are already on our way. With that, let's open the call for questions. Operator? Operator: [Operator Instructions] One moment for our first question and it comes from Catherine Schulte with Baird. Catherine Ramsey: Maybe first on gross margins. Guidance for the fiscal year implies, I think, low 60s incremental margins off of '25. So it would be in that 75% to 80% range if we did it off of '24. But I think the expectation was you'd flow more of the '25 upside through. So I guess the question is, is this pricing driven? Do you have some manufacturing investments that you're making? And when do we get back to the kind of 75% to 80% incrementals? Adam Laponis: Catherine, this is Adam. Thanks for the question. Very much encouraged by the progress of the team over the last 2 years. The 20% growth in gross margin has been extraordinary. While we expect to continue to see the 75% to 80% on average, we are lapping some tough comps, particularly given what we saw in Q3 of this year. For the last quarter, we dropped, I think it was over 80% of gross revenue growth dropped to the gross margin line. And generally, I'd expect that to continue to hold in the future. And if you look at that 2-year metric, it absolutely will, but there will be some noise. And I'd say it is more around the specific customer mix that we see in any given quarter that drives it more than anything else. But we expect it to continue to expand. That said, we will continue to focus on revenue growth as well as gross margin and optimize for the gross profit. Catherine Ramsey: Okay. Great. And then for NGS, I think that guide came in a little bit below Street for fiscal '26. Can you just talk through the drivers there and maybe get a little more granular on the expectations for that customer ramping that moving into production. And I think the guide implies 11% to 13% or 14% growth for NGS. How should we think about long-term growth for that business? Is this kind of the new baseline that we should be thinking about? Adam Laponis: I'm happy to take that one. In terms of growth for NGS, we're very excited about the prospects. We mentioned it on the call last quarter that we have a customer transitioning from their verification and validation that there would be an air pocket in Q4, and that would continue through Q1. We expect that, that customer will ramp as well as other customers. A couple of points of commentary and color that we provided. We expect to be back to 20% growth by fourth quarter in the NGS business as well as we expect to continue to see growth from MRD and other new product introductions. And we've assumed about 1% to 2% of overall growth from the MRD business products in 2026. Operator: Our next question comes from the line of Puneet Souda with Leerink Partners. Puneet Souda: Wondering if you can provide a view into -- in SynBio and with the new segmenting, can you elaborate a bit on the Biopharma order? What -- obviously, that's driven by AI, but just trying to understand how sustainable this is? How much of a momentum? What are you hearing from the customer development teams? How meaningful the AI contribution could be in fiscal year '26? Patrick Finn: Puneet, thanks for the question. We've been talking for a few quarters about strategically how important the biopharma business is and the close ties to the SynBio product offering. And I think you're starting to see real validation of that with the order described in our comments today. It leverages everything that we're good at. Our knowledge from a single gene all the way through to discovery. But what we're seeing with the AI potential is -- it's our throughput and scale that really enables and supports that offering. So we continue to be very optimistic in that space and see a fantastic lineup of the total Twist offering all the way through from one gene all the way through to full discovery that basically puts us in a good spot for our future opportunities. Operator: One moment for our next question. It comes from Brendan Smith with TD Cowen. Brendan Smith: I also wanted to ask just a little bit more about guidance into next year. Maybe just quickly for -- I know you're not guiding to GMs in Q1, but can you give us a sense of how you're thinking about gross margin sequentially from Q4 and then over the course of next year to really get to that 52% plus on the full year 2026? And then maybe just quickly on the NGS portfolio, anything that you're hearing specifically from customers really that's kind of driving some of your assumptions to get to maybe the upper versus lower bound of the guide there? Adam Laponis: Brendan, happy to take the question. In terms of gross margin in the guide, we do see improvements throughout the year. I'd say it is going to parallel with revenue growth being the primary driver of our gross margin expansion as we are continuing to see our efforts from continuous process improvements play out, but we're also continuing to invest in new capabilities across the business to drive our new product initiatives and growth. And as mentioned in the call, a lot of focus on the AI drug discovery and capabilities to support those customers. In terms of the exit point and also where to go from here, we are -- we do see a path to continued gross margin expansion, not just in 2026, but well into 2027 and beyond. But again, optimizing for that gross profit dollar, not necessarily just the gross margin now that we're above 50% and not looking backwards. Operator: Our next question comes from Vijay Kumar with Evercore ISI. Vijay Kumar: I had a 2-part question on NGS. NGS, I think your Q1 guidance, it looks like it's going to be down sequentially, maybe revenues up mid-singles. And I understand that Q4 had the customer transition impact, right? So why would Q1 growth be below Q4? Is there some additional timing elements on Q1 NGS? And sort of related on the MRD Express, did I hear you correctly that sensitivity on a tumor-naive assay would be as good as tumor informed? And is there any data that you highlighted? What kind of interest are you seeing in this product? Adam Laponis: All right. Well, maybe I can start with the NGS guidance, and I'll let Paddy talk to the MRD element of it here. In terms of the NGS guidance, Vijay, thank you for the question on this. We gave the update back in Q3's call that we had a customer transitioning from commercial -- from validation to commercial ramp, and that impacted Q1, and it's going to continue to impact Q4, and we expect to see a sequential growth from that point forward for the NGS business starting in Q2. So we will continue to see that air pocket continue in Q1. And then in Q2 and beyond, we'll see the sequential growth such that by the time we get to Q4, we're expecting to be back at 20% year-over-year growth in the NGS business. I'll let Paddy talk to the MRD portion of the question first. Patrick Finn: Vijay, thanks for the question. I think when we look at recent medical conferences, I think you're seeing that the tumor-informed approach is leading to increased sensitivity in the assay. And that's got us excited about potential with the clinical endpoint for the patients that are going through a tough time. So we see sensitivity enhancements from tumor informed. And again, our scale and speed, we think, is really going to help enable the segment of the market that's focused on that approach. Operator: And it's from the line of Subbu Nambi with Guggenheim. Subhalaxmi Nambi: Paddy, just a follow-up on that MRD. MRD Express is an exciting launch next year. Could you speak to who the end user is? It almost sounded in your description like Twist is executing the MRD assay for the physician or delivering the panel to a hospital to run in-house? Or is it the same customer as your NGS diagnostics? Patrick Finn: Subbu, a great question, and thank you for the opportunity to clarify. Twist's role in the community is an enabler, okay? We don't run the test. We supply our customers and our partners to enable them to drive their assays to the clinic. So again, our role will be to supply and enable them. Subhalaxmi Nambi: Perfect. So how will you approach pricing for the MRD Express? What are the expected margins here? And I'll hop back in the queue. Patrick Finn: Yes, a good question. So pricing has not been set at this point. It will go from our basic principle, Subbu, which is we're here to enable our customers at scale to truly drive their product to market. And we think with this product, in particular, truly the impact of MRD to health care. We've listened closely to the customer base. I think we understand the value to this market segment of speed and this 12-hour turnaround time. And I think our operating scale and quite frankly, derisking any vulnerabilities in supply chain is good value, and we'll share that value with our customers as we go forward and enable them to drive best-in-class differentiated assays out to the market. Operator: One moment for our next question. that comes from Matthew Larew with William Blair. Matthew Larew: You reiterated the expectation to hit EBITDA breakeven in the fiscal fourth quarter. But obviously, the year is starting a little bit lower on the top line. Given growth is contingent on the expectation of an NGS customer ramp and MRD contribution, how much breathing room do you expect to have in the fiscal fourth quarter? And I guess how air tight are you going to hold yourselves to hitting that mark? I guess that's the first question. And the second is, Adam, just what does the guide include in terms of the macro picture, given we've seen perhaps some recent positive updates relative to your pharma and biotech customers and perhaps there may be some more certainty for your academic customers coming over the next few weeks or months? Adam Laponis: Thanks, Matt. And I say I never want to predict the macro environment. So we always will be on the -- on the side of caution and assuming things don't improve from where we are today. So we've got -- we've obviously left ourselves assumption that the environment stays relatively stable. And in terms of the growth opportunities, we do assume that acceleration of the commercial customer -- the customer ramping its commercial product today. We also have only assumed 1 to 2 points of growth for the year from our MRD products. We know that, that ramp is going to come. We're extremely excited about it. The difficulty is always in timing that. We want to make sure we're on the right side of that timing, but we are extremely excited for that ramp and the opportunity it brings to the business, not just in '26, but in many years to come. Operator: Our next question comes from the line of Doug Schenkel with Wolfe Research. Douglas Schenkel: I got a few questions. So thanks for, I guess, getting us in. So first, on SynBio, you had an academic promotion that removed the Express Gene pricing premium for academic customers in response to funding pressure. Is that promotion still in place? And if so, how much longer do you plan on running it? And then building off of that, how should we be thinking about price per gene '26 versus '25? So that's the first topic. The second is there's obviously been a lot of focus on Q1 guidance specific to NGS and the sequential step down. As you have pointed out to others, you have repeatedly noted over the course of the last several months, a pacing dynamic within NGS. Is the guidance simply a function of that? Or is there any change in underlying trends or demand? The third topic, which I think is a pretty important one, and I'm not sure this is the right forum. And if it's not, we can certainly come back to this at our conference next week. But I believe one of the challenges that investors have with Twist is defining the market opportunity. In the newly named DNA synthesis segment, what is the size of the market opportunity and how penetrated are you? And on the NGS side, specific to MRD and MCED, what is the market size? How penetrated are you? And what is average Twist revenue per assay? I think that would make this -- those are questions that I think if people have the answers to, it would help with modeling and frankly, help people basically develop some more conviction in the long-term growth trajectory of the business. Emily Leproust: Thanks, Doug. Great question. This is Emily Leproust. And good job squeezing 3 questions in one. So maybe briefly on SynBio, you're correct that we had an academic promotion where we got customers express for the price that stand out. That has been widely successful. We're in the new year and the price has not changed. It is just working for us commercially. And you can see in the number of genes that the growth in genes from -- in Q4 was really strong, thanks to that. So we are not announcing whether or not it will close. But as long as it's working, we'll keep doing it and it is working. As far as the Q1 guide, yes, it's purely a pacing dynamic in Q1. There's a lot of excitement and we are winning on many fronts. Of course, we've been very, very strong in liquid biopsy. And the MRD bespoke that we're enabling now with adding 12- to 24-hour express delivery. I think that will be a long-term catalyst. Our FlexPrep launch is starting to work well for the AgBio market and the population generic market. So that's another source of long-term strength. We've worked really hard to integrate into a number of sequencers. The workflow of Twist and the Element AVITI really shortens the time between the sample and being on the sequencer. And since you're doing all the washes after the capture on the sequencer, you can be on the sequencer in as low as 5 hours. So there's lots of good things that are happening in NGS. And we definitely don't see a lower demand. It's just that it's the law of big numbers. It's a big customer that has an air pocket. And we've signaled some very good growth coming back in Q4 for NGS. And then the last question around defining market. we totally hear you. Now is not the right forum, but I think we're looking at ways to help our investor base be as excited as we are about the market. We're very far from penetration and we have differentiated product. And so to us, that means that we have a lot of growth coming. It is true that we are a tools company. Right now, diagnostic company have a moment. They deserve it. They worked on their business models. Their reimbursement is really good. And so yes, in comparison right now, maybe our growth compared to diagnostic companies is a little bit lower. But compared to tools company, I think we are -- I don't want to sound arrogant, but I think we are doing really, really well against our competitors. I don't want to say that we're wiping the floor with them, but we're doing really well. And we hear you on finding a metric, like you said, the average test revenue per patient in NGS. We're looking at metrics. Part of the issue, as you may appreciate, is some of the test, people pay more than average and some of the tests, people pay less than average. And that depends on the test complexity. If you have a test that uses 3 million oligos, well, you're going to have to pay more than if you're using 50,000 oligos. The problem is if we have a price per test that's public every quarter, we may have half our customers being really unhappy, even though the value we provide is fair. So thinking about it and not the forum, but we understand that we want to articulate our market sizing better to help our investors. Operator: Our next question comes from the line of Luke Sergott with Barclays. Unknown Analyst: This is Sam on for Luke. Could you talk a little bit about the new DNA Synthesis and Protein Solutions segment and the rough split between Biopharma and synthetic genes in the '26 guide. The combined segment guide came in above Street expectations. And I'm just wondering where that's coming from and if it's driven by that large AI program. Emily Leproust: Thanks for the question. I think the impetus was twofold. One, there was, I think, some confusion with our customer base around SynBio and maybe an under appreciation of how much we are doing in therapeutic discovery and development. So that's number one. Number two, more and more as our sales team go to talk to customers, there was in practice, very little separation from someone who buys a piece of DNA, so DNA synthesis or someone who wants the protein or the characterization. And so as it's one continuous workflow, some customers stop at fragrance, some stop at genes, some stop at protein, some want the full characterization. It just makes sense to put them together. And as far as the numbers, yes, maybe we're getting a little bit ahead of what people thought. I think it's just a reflection of this business is doing quite well. And there are a lot of synergies between the DNA synthesis piece and the protein piece. A few years ago, some people were asking us, why don't you spin-off Biopharma? And we knew that it had strategic benefit. And we are seeing it now. It's not a 1 plus 1 equals 2. It's a 1 plus 1 equals 3. As far as your question around where is the growth coming? Is it coming from DNA and protein. Frankly, the reason we're putting it together is because we -- one, we don't know; and two, it kind of doesn't matter. What's important is that, that growth is there and we meet customers where they are. And customers may change from quarter-to-quarter. Some quarters, they buy the DNA and some quarters, they buy the protein, and we meet them where they are, and we provide great value. Our products are differentiated. We win no matter where they want to be, and we are looking forward to capturing that growth. Operator: Our next question comes from the line of Mac Etoch with Stephens. Steven Etoch: Maybe just a few quick ones from me. Just given this 1 to 2 points of growth from MRD, is it possible to frame up the proportion of MRD revenues in fiscal 2025? And I'll stop there and follow up in a second. Adam Laponis: Mac, great to hear you and happy to share. What we've said in the past is our MRD business is relatively small. It's a lot of small numbers, and we are growing significantly faster than the overall business. Kind of applying that rule, it's a relatively small percentage of our overall NGS business in 2025, but it is growing much faster than the overall NGS business, and we expect that trend to continue, not just in 2026, but well beyond. Operator: Our next question is from Puneet Souda with Leerink Partners. Puneet Souda: Thanks for the follow-up again. I appreciate you providing a lot of input. But I just want to boil down to a key question. What is the real NGS underlying growth ex this large customer in the first quarter and the fiscal year '26? Adam Laponis: Puneet, if you step back a bit and look at where we were in 2025, the overall growth of NGS being around 23% neutralizing for the growth from the one customer, it would be closer to 20%. And if you go into 2026, I'd say the same general dynamic applies as well. Operator: And we have a question from the line of Vijay Kumar with Evercore ISI. Vijay Kumar: Adam. Sorry, on this Q1 NGS question. The -- is the customer headwind -- I know you had the customer headwind in the back half, right? Is that worsening in Q1? Is that what's driving the NGS assumption? And because we already had the headwind in Q4, right? Like why would it worsen sequentially? Adam Laponis: Vijay, you're asking the right question. The air pocket from Q4 is continuing into Q1, but then it will significantly reverse as we expect the ramp to begin starting in Q2 of 2026. Operator: And ladies and gentlemen, this concludes our Q&A session. I will pass it back to Emily Leproust for final comments. Emily Leproust: Thank you for your questions and for your continued support. With our strong execution in 2025 and a clear path to profitable growth in 2026, we remain focused on delivering differentiated products and services for our customers and sustained value for our shareholders. Thank you. Operator: And this concludes our conference. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Bavarian Nordic Third Quarterly Report for the 9-month period ended 30th of September 2025 Conference Call on Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Paul Chaplin, CEO. Please go ahead. Paul Chaplin: Thank you, and hello, and welcome, everyone, to Bavarian Nordic's Q3 results. Before I start, I just want to make sure you've seen our forward-looking statements on Slide 2. On Slide 3, on today's call, you have myself, Paul Chaplin, and I will walk through the key highlights of the first 9 months and talk a little bit about the excellent progress that we've been -- that we've made. And then I'll hand over to Henrik Juuel, the CFO, who will walk you through the commercial performance and the financials. So if you go to Slide 4, it really has been a fantastic first 9 months of the year. We've recorded close to DKK 4.8 billion in total revenues, which is a 32% increase compared to this time last year, which is a fantastic result and one that is really due to a strong performance across the whole portfolio, both Travel Health and Public Preparedness, and that has resulted in an EBITDA margin of 31%. We've had probably the strongest quarter for our Travel Health business, which is an endorsement of our strategy. And as I'm sure we have many new investors on today's call, I want to just take a few minutes walking you through the graph on the bottom right-hand corner of Slide 4. This shows the financial performance over the last 5 years. And before 2020, Bavarian Nordic was really an R&D-focused company. We had our government business, which we now call public preparedness, and I'll talk more about that. But essentially, we were a loss-making company coming to our shareholders frequently for capital raises. In 2020, we took the bold step on our growth journey to commercialize the business, and we bought 2 assets our rabies and tick-borne encephalitis vaccines, which started our commercial journey. And despite COVID, which obviously had an impact on travel, on travel vaccines, we were able to grow that business. And in '22, we sold more doses of rabies and TBE than any other previous owner. And that's exactly the strategy that we implemented. We thought that we could purchase what I call unloved assets that weren't performing well in previous owners' hands. And with our dedication and focus, we could turn them around. And that's exactly what we've done with rabies and TBE, and that actually are the golden jewels that are really driving the performance for travel health that we have today. In '23, we also added 3 more assets from another company, which complemented our Travel Health portfolio. And one of those was a chikungunya vaccine in Phase III, which is now approved as Vimkunya, which we're launching this year and is also adding not only to the performance in the first 9 months of this year, but is a key driver for the future growth. On top of this, we also had our Public Preparedness business, and I'll talk more about that in the coming slides. But basically, what we've seen over the last 5 years is a complete transformation of Bavarian Nordic from a loss-making R&D-focused company to a profitable vaccine company that is having a huge impact on the global stage in terms of public health. Before I move on, I also want to take note, and I'll leave more of the details in terms of the guidance to Henrik later. But we have refined our guidance today. And I just want to address one comment that I've already read that this is a lowering of our guidance. This is actually not the fact because at the beginning of the year, when we provided the guidance, we had a range for both revenue and EBITDA. This is related to our public preparedness business. And I'll come back to why there's a range, but essentially, this is government contract business where you either get a contract or you don't. And therefore, we had a range. We refined that range during the year. And today, we are recognizing that with 1.5 months left, we have secured -- we have the business that we've secured, which is DKK 3.1 billion which means together with Travel Health and other income, we're at the DKK 6 billion range. While that's at the lower end of the guidance, it is still within guidance. And I would say DKK 3.1 billion in terms of Public Preparedness, I have to remind you, is DKK 1 billion above our annual -- normal annual base business of DKK 1.5 billion to DKK 2 billion. So it's an exceptional year in terms of Public Preparedness, and we are still standing by our revised and high increased guidance for Travel Health of DKK 2.75 billion. So a very strong first 9 months, and I want to actually take this opportunity to thank all the employees for a tremendous effort. It's really down to their focus and dedication that time and time again, I'm allowed to talk on a quarterly basis of our strong financial performance. If we go to Slide 5. On Travel Health, as I said, it's probably the strongest quarter since we've built up this portfolio. We've seen a 23% increase in sales compared to this time last year. And our 2 flagships, rabies and TBE, as I said, these were purchased back in 2020. We've really turned them around. Rabies has gone from strength to strength. We've seen both an improvement in the growth in the market, but also in terms of market share. In the U.S., we've seen a 4% improvement in market share compared to this time last year. And in Germany, we're really seeing a strong growth, a 53% growth in the first 9 months of this year compared to last, which is an outstanding performance. On TBE, again, we have stopped the decline in market share in key markets like Germany since we bought these assets, and we're actually beginning to now see an improvement in market share, particularly in Germany. So we're incredibly happy with the performance that we're seeing in terms of Travel Health, and we believe there is future growth in the months and years to come. If you go to Slide 6. Within our portfolio of Travel Health, we have a vaccine against chikungunya. And chikungunya is a mosquito-transmitted disease. And until very recently, there were no vaccines or treatments available. The vaccine -- our vaccine was part of an acquisition that we acquired in '23 and was approved earlier this year. And subsequently, we've launched our chikungunya vaccine Vimkunya in 10 different countries. So we have had an aggressive launch plan, and we've stuck to that schedule. And we're beginning to see an uptake in the sales of the vaccine, which is great to see. And we're on target to meet the DKK 75 million in the first launch year, which is a very strong performance in our first launch year. We filed for further approvals in Canada and with Swissmedic in Switzerland, and we expect those approvals to be coming next year. And we've already begun some of the post-marketing commitments for expanding the label, and we have a pediatric study and an efficacy study all in progress, which, as I said, are commitments that we've made to the different regulators in the U.S. and Europe. So chikungunya or Vimkunya really represents a future growth potential. Yes, we have to educate and prepare the market, but we believe that this market has the potential to grow to $500 million annually within the next few years, and that's for travel alone. So a great future business opportunity. We turn to the next slide on Public Preparedness. And I want to spend a little bit of time talking about Public Preparedness and what it actually is and why it is different to Travel Health. And the best way of walking you through that is to talk about the revenue graph that's again on the bottom right-hand corner of this slide. And Public Preparedness is actually one vaccine. It's based on a vaccine against smallpox. Smallpox is a disease that has been eradicated. But unfortunately, there is concerns by many governments that smallpox could either reemerge through deliberate release in a bioterrorism attack. It is also closely related to another emerging disease called mpox, formerly known as monkeypox. And we've had a long-standing collaboration with the U.S. government in the development of our vaccine, which is now approved in many countries around the world. And if you look at the graph at the bottom right-hand corner, in 2020, we really had 2 customers, one major customer, which is the U.S. government, where we've secured more than DKK 2 billion in both development and acquisitions over the number -- over the years and Canada. So we had 2 customers. This changed in '22 when there was the first outbreak of mpox. And here, we really saw, and you can see a spike in activity in '22 and '23, where we supplied more than 15 million doses of our smallpox mpox vaccine. And coming through that first outbreak, we were left with more customers. So we now have the EU, both HERA, which is a new organization, but also other funding mechanisms in the EU, such as rescEU. We had other EU nations like France. So going from 2 customers to a handful of customers. At that point, we said our base business moving forward would be DKK 1.5 billion to DKK 2 billion annually, but we would see these spikes from time to time in revenue due to either future outbreaks of mpox or one-off large orders from different governments. Then in '24, we also had another outbreak or a larger sustained outbreak of mpox in Africa, and that also led to a continued spike, which has flowed over into '25. So in this year, we are guiding to secure DKK 3.1 billion in revenue, which is, as I said, about DKK 1 billion higher than our base business of DKK 1.5 billion to DKK 2 billion. So with Public Preparedness, it is not as easy to guide accurately in terms of growth or the future revenues simply because it's all down to government contracts. Some government contracts can take many years to negotiate. And unfortunately, I've been involved in government contracts, which we thought were coming through that fell down at the very last minute. So it is a little bit more unpredictable than a traditional vaccine sales like with Travel Health. But as I've said, we have since '22, been guiding with a base business of DKK 1.5 billion to DKK 2 billion. But obviously, since '22, we've been recording revenues much higher due to the 2 spikes that I've explained. In terms of where we are, we are obviously secured contracts of DKK 3.1 billion already this year. We're well on our road to securing. In terms of the first 9 months this year, we've exceeded the DKK 2 billion already in the first 9 months, and we're well on track to secure the guidance for the rest of the year. We have secured contracts for next year for a total of DKK 1.1 billion. So we're well on our way to securing our base business of DKK 1.5 billion to DKK 2 billion moving forward. We have ongoing clinical studies that are funded through a collaboration with CEPI, both in a pediatric study, which will hopefully support a label extension to include children in addition to the adolescents and adults that we already have. So if we move on to Slide 8, just to talk a little bit about the pipeline. One area is what we call MVA cell line. This is actually a trial that was initiated a few weeks ago, and this is moving away from the egg-based production that we currently have to a proprietary cell line that we've developed. The trial that has started is comparing the safety and immunogenicity of the vaccine produced in the different processes. And this is really an initiative that we've taken, which will greatly improve our manufacturing capacity so that not only can we deal with an mpox outbreak as we have since '22, but we would, with partnerships, also be able to deal with a much larger global outbreak either of mpox, [indiscernible], even smallpox. And it also makes us much more robust for any competition that may come later down the road. Other activities in the pipeline relate to chikungunya. These are post-marketing commitments that we have with the regulators, pediatric study, expanding the label and also an efficacy study and other activities are either funded through DoD or early stage such as Lyme and EBV, which is still preclinical. And with that, I will hand over the presentation to Henrik Juuel. Henrik Juuel: Thank you very much, Paul. So on Slide #9, just a few more words on the commercial performance for the period. So we delivered for the 3 quarters in Q3 here, we delivered close to DKK 1.8 billion, and that corresponded to an overall revenue growth of 32%. So very significant growth, supported by both our business mix, 50% growth on our Public Preparedness business and 22% on our Travel Health business. If we take the Public Preparedness business, Paul already alluded in detail to this one here. And so that has really been about, first of all, securing orders and executing on these orders this year. So targeting the DKK 3.1 billion for the full year. So strong growth on that front for first 9 months as well compared to prior year. On Travel Health, it is really our Rabies and our TBE business that has been driving the strong growth we have seen both for the quarter but also for 9 months, 22% overall growth, 23% from our Rabies business, 18% from Encepur And I think for both products, I think we can say here, it's driven by both strong market growth, but also strong brand performance and actually market share gains for both products. So very strong performance. Vimkunya, our new vaccine against chikungunya as we launched earlier this year. We are so far very pleased with the performance. We have in a very short time managed to launch in 10 countries, after the Q3 in the Nordic countries, Italy and Spain as well. So we have in record time, I would say, we have actually made quite a wide launch possible. From the start of the year, we guided on Vimkunya DKK 50 million to DKK 100 million, and we are now refining that to the midpoint. That's DKK 75 million, and we have so far delivered DKK 42 million after 9 months. So going very well and in accordance with our expectations. Vivotif, our typhoid vaccine, we are -- on a 9-month basis, we are seeing a positive growth. We have been struggling somewhat with this product, but we are finally starting to see positive growth, and it's being driven by initiatives taken to gain market share. Unfortunately, the typhoid market has been down by approximately 7% these 9 months compared to prior year, but we have actually year-to-date managed to compensate for that market decline by gaining market shares. Third-party products at the end, these are the main driver of that one is our Japanese Encephalitis product that we have a partnership with Valneva that comes to an end by the end of this year and our partnership on hepatitis B vaccine, HEPLISAV-B with Dynavax comes to an end as agreed April next year. So all in all, very strong growth on both parts of our business, 32% for the quarter and actually the same for the full 9 months. So performance that we are very pleased with. On the next slide, we are looking at the full P&L, where we start with the revenue we just talked about DKK 1.8 billion for the quarter. We have a gross margin of 50%, which is significantly up compared to the same quarter last year. This is driven by volume, obviously, the higher volume, the more busy we are in the production area, the more efficient we can be and the easier it is to absorb all the costs to the products being manufactured. But it's also explained by what we call other production costs, which is typically cost -- it could be cost of idle capacity. It could be cost of scrap. It could be caused by less efficient yield coming out of manufacturing. So we have been successful in all these parameters. And therefore, we are seeing a gross margin of the 50% versus 43% last year. R&D cost varies a little from quarter-to-quarter. You will see that we are actually spending less than last year, both for the quarter and for the 9 months. This is mainly due to timing of some of the committed studies we have on chikungunya that is progressing. And on SG&A, you see quite a substantial increase. It's mainly or very largely explained by the launch efforts we are putting behind Vimkunya, the chikungunya vaccine and also by Bavarian Nordic entering into new markets. We have, during the last 12 months, established ourselves a commercial presence in a number of countries, including Canada, it's U.K. and it's France, which, of course, will give us further opportunities to drive growth going forward. If you look further down the P&L, that gives an EBIT of DKK 1.2 billion nearly. Then we have included in that one other operating income of DKK 810 million, which comes from the sale of the priority review voucher that was recognized in the third quarter. Further below, you can see the EBITDA margin, excluding the other operating income, that is DKK 515 million, which corresponds to an EBITDA margin before special items of 29%. So on a 9-month basis, that takes us to an EBITDA, excluding other operating income of nearly DKK 1.5 billion or an EBITDA margin of 31%. So again, strong performance, all in line with what we have communicated previously and in line with our expectations. On the next slide, a quick overview of the cash flow and balance sheet. We saw positive cash flow from operating activities for the 9 months, driven, of course, by the positive profit that the business delivered, but also impacted by the proceeds or the income we earned from the sale of the priority review voucher. Cash flow from investment activities, here, we recognized actually the last milestones that we paid to Emergent BioSolutions and GSK for the acquisitions we did previously. They were recognized here, not all of them paid yet, though. And then finally, cash flow from financing activities is the sum of the share buyback we did previously in the year and then employee warrant exercise that was executed as well. So all in all, a net positive cash flow for the period of DKK 500 million approximately which obviously improves our cash position, which you can see on the table to the right. We do today have a cash position of close to DKK 3 billion. I have to say here, though, that our accounts payable are somewhat inflated at the moment as we still owe DKK 70 million to GSK, and we also owe royalties on the voucher we sold to NIH and taxes to be incurred in connection with the voucher. But a strong cash position of close to DKK 3 billion. Then one slide on our outlook here. As we talked about already, we have refined our outlook. We have confirmed the outlook within the range that was previously communicated. So right now, we are looking at a guidance without an interval as we are so close to the year-end. We do not operate in an interval for the Public Preparedness business any longer, but are expecting DKK 3.1 billion. We confirm the upgraded guidance that we issued in connection with Q2 for the Travel Health business. So that is now DKK 2.750 billion. And then we have some other income adding up to a total of DKK 6 billion. So a confirmation of all previous guidance, but a refinement now being so close to year-end. We are anticipating an EBITDA margin for the full year, excluding the impact from the voucher of 26% and including the voucher, it will be approximately 40%. The 26% is sensitive to how the last 2 months here pans out when it comes to the R&D projects running at the moment. And depending on how they end, there is an upside here that it could be closer to the 27%. But given the current plans, I think we are guiding 26%, and that's most likely where we will end. We have not guided for '26, obviously, but what we have stated here is that we have previously announced an order to BARDA of USD 143 million. Most of that goes into '26. We also announced recently the HERA framework agreement where there is a commitment of 1.1 million doses, where of 750,000 is impacting next year. So if we add the commitments we have so far, we right now have an order book worth DKK 1.1 billion for '26. And we will, of course, keep communicating to the market when there are material orders being added to this order book. The next slide is simply just a slide we brought to sort of round off the process that we have just been through. I don't want to read out every word here, but basically, it has been a longer process with the takeover attempt on Bavarian Nordic. And we just feel it's important to understand that the company was not for sale. We were approached with an offer, which the Board of Directors rejected to start with later in the process, there was an offer where the Board basically judged that now it is at a level where we have to ask the shareholders -- the shareholders has voted. The offer did not succeed. So that is the situation. And we, of course, we acknowledge that and we respect that decision by the shareholders, and we remain an independent listed company, and we continue to execute on the growth strategy that was in place even before this process started. I think we are very pleased to be today to be able to report these numbers here, and we are very grateful to our organization who have actually demonstrated that they have maintained a focus on the business while this process has been running. That has been extremely important to us. We have even seen in our engagement surveys that the company or the employees have really stayed engaged in the company. So thanks to the organization for that. Without that, we wouldn't have been able to deliver these fantastic results that we're seeing here today. And in order to -- to make sure that the market is well informed about the strategy that we talk about, we have called for -- and we call it an investor information meeting on December 11 during the morning. More details will be announced. It will be in Copenhagen. There will be a possibility to attend in person, but it will also be live streamed and recorded. And yes, basically, the agenda will be about give an update on the business and a recap of our growth strategy. But as I said, more details will follow. We will issue a press release once we have the details in place. So with that, I will give the word back to the operator and open up for Q&A. Operator: [Operator Instructions] we are now going to proceed with our first question. The questions come from the line of Romy O'Connor from VLK. Romy O'Connor: I have 2, if I may. The first being on your thinking about reaching the DKK 75 million for Vimkunya. I'm just wondering what steps you're now taking given that there's only 1.5 months left in the year? And also maybe a bit on the launch steps of into Canada? And then secondly, just maybe a little bit of color on the bid outcome. I was just wondering what your thinking is by future business development or M&A? And yes, what's your thinking now in terms of focus on value creation into the coming months? Paul Chaplin: Yes. Thank you for the questions. The first one related to Vimkunya and the projections of DKK 75 million. It's true there's only 1.5 months left for the year, but we only reported to the first 9 months. So we haven't reported some of the months that we've already gone. So we have launched according to plan. We are seeing good traction in a number of countries, slower in others due to some of the national recommendations, but we are confident that with the launches that we've made and the traction that we're seeing that we will be able to meet that target. I think your second question related to the bid outcome and our future growth strategy. I think it's clear, it's important to stress again that our strategy that we put in place back in 2020 was a growth strategy. It was to grow the portfolio of the assets that we purchased over a number of years to grow public preparedness, but it also included additional M&A. I think in my introduction to the presentation today, I tried to highlight the successful history that we've had of not only acquiring assets, but turning these, what I call unloved assets around and also bringing in manufacturing. It's a capability that very few others have demonstrated, and I think it's a key strength. And I think what we want to do is when the opportunity arises is to continue that M&A journey and bring more commercial assets on board. And that's a strategy that we've had in place since 2020. We've been successful at it, and we will continue to execute on it. Operator: We are now going to proceed with our next question. And the questions come from the line of Thomas Bowers from SEB. Thomas Bowers: A couple of questions. So firstly, just on shareholder returns. Can you give us any color on the current plans for any share buybacks now that we are out of this M&A process? So I think that you were talking a little bit about share buyback of excess cash. So anything that could sort of reflect the PRV sale you did here in the summer? And then second question, just on JYNNEOS. So just wondering the delta between the previous guidance range, so looking at that DKK 3.7 billion at the high end of the range. So we have around DKK 600 million delta compared to the DKK 3.1 billion guidance. So I'm just curious, normally, you only guide for something that you are sort of where you are in negotiations with governments or potential customers. So those DKK 600 million, is that something that we should expect could simply or likely move into 2026 and of course, not part of that DKK 1.1 billion? Or is there something else that we need to be aware of in terms of those -- of that delta? And then maybe just a question on Travel Health, super, super strong momentum, surprises me every time. And now looking at your guidance for '25, so you're sticking to that DKK 2.75 billion. Of course, there as you hit up with some of the [ typhoid ] vaccines. But you are now DKK 400 million short of reaching that DKK 2.75 billion. And looking at the numbers, so you're sort of implying that [indiscernible] should be flat or even slightly decreasing for the remainder of the year. So is there anything here that I'm sort of not seeing? Or are you just maybe a little bit conservative given it's normally a weak quarter, of course? And then maybe if I can squeeze in number 4 here, just on the R&D phasing, can you provide any color on the scenarios from Vimkunya? So we know that this outbreak in Thailand is pending or potentially ongoing. So is there any think that indicate that this should shift into '26? And what could be the R&D spend cost reduction range, so to say, for the '25. So you're guiding still for DKK 900 million. So I'm just understanding whether it's going to save you DKK 100 million or where we are here. Yes, I'll stick to that. I can repeat if... Paul Chaplin: Some of them. But let me take the JYNNEOS guidance. And then maybe, Henrik, I'll let you take the other one. So on JYNNEOS guidance, a few years ago, we would only really guide on Public Preparedness on contracts that we had in hand. And that reflected the fact that we had very few customers. So we didn't have the confidence a few years ago to guide broader I would say that has changed over the last number of years that we're guiding, obviously, with contracts that we know we have in hand, plus what we also think that we can secure within the next 12 months. So it's not actually only things that we're negotiating, it's things that we believe that we can secure. I mentioned in the presentation that sometimes, unfortunately, part of the unpredictability of the part of this business is that it's with governments, right? And even though you can be very -- one day, you're incredibly confident that you're going to secure a contract, there may be a change in a political leader or the government may change, and it completely stops overnight. So it is unpredictable. What I would say is where we guided is where we thought the range would be. That's why we gave a range. Already in Q2, we stressed that DKK 3.1 billion was secure, but that we thought we could secure more. You've seen that we have announced an agreement with HERA. That could have come earlier in the year potentially that could have led to more revenues this year, but it's now pushed into next year. Obviously, that doesn't account for the whole DKK 600 million that you're referring to. But I would say what the guidance reflects is that some contracts came later than we anticipated and some contracts were still unsure whether we can secure. I hope that answers that question. And then Henrik, maybe. Henrik Juuel: Yes. Let me try the other 3, Thomas. I think, first of all, on the share buyback thing, I think what we have communicated previously is that our capital allocation policy, priority #1 there is to pay back the milestone payments to GSK and Emergent. That's soon behind us. It is not yet though. We still owe EUR 70 million to GSK, which we expect to be paid early Q1. Number 2 priority, of course, is to invest in the business, and that means R&D, it also means sales and marketing to grow the top line. And then I think third priority would be to look into our M&A strategy and eventually consider returning money to the shareholders. It's very clear we are not a bank, and we are constantly evaluating that situation. So what is the current need? What do we have on the balance sheet? Is that appropriate for the plans we have? If not, then we will return money to the shareholders. At this point in time, so that as this is a continuous evaluation, I cannot give you any more update right now. But of course, we evaluate the situation constantly. On Travel Health for the fourth quarter and our outlook, we are still guiding the DKK 2.750 billion. And here, I think you need to remember that some of our travel vaccines are seasonal vaccines. We sell in all quarters, but some quarters are better than others. So typically, the fourth quarter is not the strongest quarter. So we are still targeting DKK 2.750 billion for the full year. And on the R&D phasing, we are still targeting the DKK 900 million in R&D for the full year to a large extent driven by the Vimkunya committed trials that we have to do. I'm just alluding to that, there could be some of it phased into next year. And typically with the clinical trials, I think a lot of the steps you go through there, the timing can change. So some of it could slip into next year of the R&D spend. If that happens, then, of course, it could impact our EBITDA margin positively this year. But let's see, the plan is still DKK 900 million. And we're only raising this as it's a little out of control with the exactly at what pace these trials they run. Operator: [Operator Instructions] we are now going to proceed with our next question. And the questions come from the line of Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: Just regarding chikungunya then. In terms of the U.S. launch, I was wondering how important is the MMRW publication when it comes to launching in the U.S.? And then maybe a bit niche, but in similar lines, have you thought about the potential substitute that the New England Journal of Medicine and Public Health Group have talked about replacing the MMRW? And any thoughts on that at all? Paul Chaplin: Yes. Thank you. Yes. So this is a tricky one. So yes, in the U.S., post approval from the FDA, you need an ACIP recommendation, which we're very fortunate that we have for chikungunya. And that recommendation, as you then say, is then published in the MMWR, which is a publication from CDC. And many of the distributors actually want to see the publication, even though it's recommended and it's posted on the website before they will start to purchase. And obviously, the situation where we're in is the MMWR has not been published. And it has, as we said, has slowed down the traction, I would say. The one thing I would also give as another example is that when we launched JYNNEOS in the private market in the U.S., the same situation. We had a recommendation from ACIP, but actual fact, the MMWR was only published earlier this year. And what we did in that situation was that we were able to convince the distributors that they could start to acquire the product before the publication, and that was successful. And I would say we're in that phase right now. We've convinced some already to go ahead with chikungunya, and we're still convincing others. So it has certainly slowed down the traction, but it's something that we've already had experience of with JYNNEOS. And again, one of the main arguments for that is there's always been sometimes a lengthy delay between the recommendation and the publication. And right now, it's very uncertain with ACIP and CDC what would the time will be. And as you say, that is leading to many others talking about alternatives and whatever, but we'll have to just see how that develops. Operator: [Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Thomas Bowers from SEB. Thomas Bowers: Just a quick follow-up here for me. Just on the sales and marketing cost spike you can say here in the third quarter related to mostly Vimkunya, of course. But should we see this as sort of a new baseline going forward? Or is there some one-off expenses in that Q3 S&M number that we should be aware of just to sort of have an indication on how we should model at least going forward? Henrik Juuel: I think that there's certainly an element of one-off in there because typically when you launch a new product, you will be in a launch phase that will require promotional costs for a period of time. So it's for a period of time, but such a launch can easily stretch over like, let's say, 2 years perhaps. And then you will see at least the promotional spend part of it to normalize again. But right now, I think we are spending money establishing the awareness of chikungunya and Vimkunya in particular, in the markets. It's a nonexisting market in most places we go into. So therefore, there is a need to build the awareness. But it will normalize after a couple of years where you can no longer argue you're in a launch phase. Operator: That does conclude the question-and-answer session. I will now hand back to Mr. Paul Chaplin for closing remarks. Paul Chaplin: Thank you, and thanks, everyone, for joining the call and for your interest and the questions. Thanks, and have a great day and a good weekend. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good day.
Operator: Good afternoon, ladies and gentlemen, and welcome to our conference call for discussing the results recorded by Romgaz Group in the first 9 months of 2025. After introducing the speakers, Mr. Gabriela Tranbitas, Chief Financial Officer, will make an opening speech. Thereafter, the Q&A session will take place. Please be advised that this conference is being recorded for internal purposes. On behalf of the company, the following speakers attend this conference: Ms. Gabriela Tranbitas, Chief Financial Officer; Ms. Gabriela Mares, Strategy, International Relations and European Funds Director; Mr. Ion Foidas, Production Director; Mr. Radu Moldovan, Energy Trading Director, and our Investor Relations department. Now I would like to give the floor over to Ms. Gabriela Tranbitas, who will open the conference call with an opening speech. Gabriela Tranbitas: Good afternoon, ladies and gentlemen. Thank you for joining our conference call to discuss the results recorded by Romgaz Group in the first 9 months of 2025. We published today the quarterly report and the consolidated interim financial statements for the first 9 months and the third quarter of 2025, which presents our economic and financial achievements in the period. Also, an updated presentation of the group is available on our website in the Investors section. I will start with some aspects of the gas market context in the first 9 months of 2025 compared to the same period of the previous year. Natural gas consumption in Romania advanced marginally by 2.5% to 72 terawatt hour, while gas imports recorded a significant increase of 65%, reaching a 32% weighting in the domestic consumption according to our assessment. On the Central European Gas Hub, the average reference price rose by over 30% according to data provided by the National Authority for regulation of the Mining, Oil and CO2 Geological Storage Activities. Similarly, we assessed that on the Romanian Commodities Exchange, the wholesale average price increased significantly in the first 9 months. The market is still having a weak trading liquidity as a result of the current regulation in force. Regarding the fiscal framework in the energy sector in Romania, Romgaz activities continue to be influenced mainly by government Emergency Ordinance 27 issued in March 2022 and government Emergency Ordinance No. 6 applied starting April 1, 2025. Let us remind you of the main legal provisions applicable to gas producers. Regulated gas selling price of RON 120 per megawatt hour for the gas sold households and suppliers -- of households, key producers and their suppliers for the production of thermal energy for households and to the transmission operator and distributors for maximum 75% of their technological consumption. This price level is applied until the end of March 2026. For the gas sold at regulated prices, payment of the windfall profit tax is exempted and gas royalties are computed based on these regulated prices instead of CEGH reference price. We continue this presentation by highlighting the operational and financial performance recorded by Romgaz Group in 9 months 2025. Production of natural gas reached 3.68 bcm, marginally higher by 0.1% year-on-year and overcompensating for the committed natural decline of maximum 2.5%. In Q3 alone, we succeeded to increase our gas production by 0.5% compared to the same period of 2024 to the level of 1.19 bcm. The significant performance achieved in the first 9 months was due to the steady efforts undertaken to consolidate the potential of our onshore output of which I will mention: continuous rehabilitation projects of the main mature gas reservoirs in order to maximize production and increase the recovery factor. We completed investments in production infrastructure, which allowed us to stream in production of 5 wells. We reactivated a 133 inactive wells through specific investment works with an initial daily flow of over 1.72 million cubic meters in total. Also, we finalized the 6 surface facilities, have 6 other facilities in execution, another 17 in different preparation stages, and we perform reactivation and capitalizable repairs or a total of 167 production wells. We can also mention that all these measures led to a significant 57% increase in our condensate production to the level of 39,944 [ tonnes ] in the first 9 months of 2025 due mostly to higher production in our Caragele commercial field. Regarding Caragele Deep, works are progressing with 76 Rosetti well, preparing for production testing, 54 Damianca well in execution, 78 Rosetti well in production, while 7 other wells are in different stages of drilling preparation. Compared to last year, we improved even more our strong position already held on the Romanian gas market. Our market share climbed almost 55% of total consumption in Romania and reached 80% of the consumption covered from domestically produced gas according to our assessment. We recorded total revenues from the gas sold higher by 8.3% year-on-year to RON 5.25 billion compared to RON 4.85 billion in the same period of 2024. This good result was due to gas volumes sold elevated by 12.4% year-on-year to 3.63 bcm (sic) [ 3.68 bcm ] in 9 months 2025 based on net volumes extracted from underground storages and lower deliveries to Iernut power plant. Revenues from storage services increased by 16% year-on-year to RON 432 million, with revenues from injection services 53% higher. Revenues from electricity declined by 20% year-on-year to RON 245 million as production of our old power plant has expectedly decreased to 480 gigawatt hour in 9 months 2025 still supporting the security of supply in the energy market in Romania. Overall, Romgaz Group reported total revenues of RON 6.05 billion, higher by 7% compared to RON 5.63 billion a year ago based on the strong contribution of our upstream segment. On the expenses side, we can point out that windfall profit tax decreased by 24% year-on-year to RON 597 million in the first 9 months of 2025 compared to RON 791 million last year due to higher gas deliveries at a regulated price. Gas and UGS royalties adjusted by 2% to RON 421 million. Altogether, the main taxes were lower by 16% year-on-year and representing an expense of RON 1.03 billion compared to RON 1.24 billion last year with a positive effect on our profitability. Bottom line, net profit amounted to RON 2.43 billion elevated by 7% year-on-year, representing the highest value ever recorded over this period by Romgaz Group. All profitability rates were substantial. EBITDA margin at 54.8%, EBIT rate at 46.4% and net profit rate at 40.3%. For Q3 alone, we can underline a net profit of RON 755 million elevated by 73% compared to '24 being at the highest value ever reported in Q3 as well as a highest net profit margin of 42% have reported in this quarter. On the CapEx side, Romgaz Group invested a total consolidated amount of RON 2.84 billion in 9 months 2025. Of this, RON 2.07 billion represented the investment of Romgaz Black Sea Limited and RON 732 million, the investments made by Romgaz alone mainly in exploration and production modernization. With respect to Neptun Deep, we continue to focus on permitting activities, construction works, equipment manufacturer and development drilling. Our strategic project is currently in the execution phase and progressing according to plan. As a result of the significant developments, Romgaz and OMV Petrom are on track to safely deliver the first gas from Neptun Deep in 2027 and the project remains within the budget level. Another important objective is the combined cycle gas turbine power plant in Iernut, for which the completion rate was 98% for the overall turnkey project consisting of the execution of the initial work contract and the execution of the new works contract and 90% of the less EPC contract. As publicly announced on the Bucharest Stock Exchange, Romgaz and the termination notice of the design and works contracted the contractor on September 11, 2025, and the contract ceased on October 13. Romgaz has also taken steps to execute the performance guarantees established by the contractor according to the contractual provisions. The reason for the early termination of the contract was nonexecution of the contractual obligations by the contractor, including failure to meet contractual deadlines. Romgaz has repeatedly flagged execution delays of the contractor and informed periodically the capital market on the status of the project. Following the contract early termination, Romgaz becomes a general contractor will assign the contracts of essential subcontractors, and we will directly purchase the services and products necessary for the testing and commissioning of the plant. Regarding our strategic development, we remind that Romgaz Board approved the company's decarbonization strategy for 2025-2050 on October 22. This strategy was developed in the context of European and national policies aiming to mitigate greenhouse gas emissions. The project was developed with the support of EBRD and KPMG and resulted in a strategic document outlining the company's objectives for decarbonization and transition to green energy. These net zero trajectory shall be periodically reassessed based on technological progress, availability of funding and the clarity of regulations. In line with this strategy, please recall that on September 9, Romgaz and Electrica signed a memorandum of understanding for the development of green energy production and storage capacities of up to 400 megawatts exclusively through greenfield projects. The partnership represents a step towards diversification and energy transition strategy of Romgaz. Another important event is the second issue of bonds under the EMTN Program, which was oversubscribed 7x on October 28. The new EUR 500 million bond issue has a 6-year maturity and a coupon of 4.625% per annum. The result of the second bond issue confirms Romgaz capacity to access the international capital markets and the confidence of institutional investors in the company's development strategy. At the end of this presentation, I would like to highlight the strong performance recorded by Romgaz shares on the Bucharest Stock Exchange. The share price surged over 90% this year due, among others, to the company's development potential, solid position on the market and good perspectives for the energy sector. With this, I would like to close our presentation, and thank you for your attention. Operator: [Operator Instructions] Ms. Ioana Andrei, please address your question. Ioana Andrei: Congratulations for the appealing figures. I have a couple of questions. First, if you could please disclose the volumes sold at the regulated price during this quarter. I know it was estimated around 9.5 terawatts, but please just to be sure. Second, again, regarding the Iernut power plant. It was not clear for me and from the presentation. In this point, when do you expect the first production for testing? And when do you expect the first commercial production? Third, regarding the decarbonization strategy. Can you please disclose what are your plans for the next 5 years until 2030? I'm interested about the CapEx plans related to this issue. And last, regarding the case filed against the European Commission for the pro rata contributions to the CO2 injections. I am curious what are the investment obligation of Romgaz until 2030, if you don't receive a favorable rule on this issue? And what are the CapEx plans if you do receive a positive outcome? Basically, I would like to know what is the CapEx under the both scenarios. Gabriela Tranbitas: Thank you for your questions. In Q3 alone, we sold 87.65% of our gas at regulated prices. Ioana Andrei: 87%, please? Gabriela Tranbitas: Yes, 87.65%. Ioana Andrei: Do you have a figure in terawatt? Gabriela Tranbitas: Yes, 10.14 terawatt hours. Regarding Iernut, as you know, the contract was terminated in October. The contract with the former contractor allowed for the assignment of subcontractors through Romgaz. We asked the contractor to assign this contract was to inform us what are the works still needed to be done to complete the project. Unfortunately, the contractor doesn't want to cooperate with us in this respect. So we need to find other legal ways of contracting these works. The site supervisor is working on identifying the works left to be done. So that we can start the acquisition process for the remaining works. As we are under the provisions of the public procurement law, the process of appointing the subcontractors may take some time. We estimate that after we have all the contracts in place, it will take around 9 months to complete. On the decarbonization strategy. I would like to point out that it contains the main framework of the steps to be taken to achieve the net zero target. Our initial -- the most important plan for now is to complete the Neptun Deep project. Afterwards, we will identify the projects that we will perform until 2030. We will have to check the feasibility of these projects, identify the investment plans. And after we have all this information, start implementing them. Gabriela Mares: With regard to the NZIA regulation, as you have probably heard from the press, yes, Romgaz filed against the Commission because we think that the delegated act was not fairly decided. There was no impact assessment on oil and gas producers, which are very much impacted, especially the Romanian oil and gas producers. Of course, we are doing our research in parallel, not disregarding what will happen at the European Union Court of Justice because we do not know what will happen. In the meantime, Romgaz is assessing its technical potential to make possible capacity storage. However, no investment should be taken, no matter what the outcome from the EU Court of Justice will be. Romgaz will investigate and will only invest in such projects if such project will confirm its economic and technical economic and commercial feasibility. Thank you. Ioana Andrei: So just to be sure, you don't have for the next 5 years, a plan for investments based on this? Gabriela Mares: Well, there is a plan because the plan -- actually the obligation is given to us by this NZIA regulation. And it means for Romgaz to create storage capacity of 4.12 million CO2 per year. The investment associated to this is around EUR 600 million. Before investing in such project, we have to do our analysis. And the first thing we are doing now and are currently under the process of evaluating is to assess the technical feasibility in order to use depleted gas fields for CO2 storage. This is where we are now. Analysis are, of course, going forward. And at the moment, that such project will turn out to be economic and commercial feasible. Of course, we will invest. But if not, no matter if we will win at the European Court of Justice or not, we will only invest on the basis of economic -- technical, economic and commercial feasibility. Ioana Andrei: And if I may, 1 more question regarding Azomures, can you give us an update? Gabriela Mares: Yes, we are currently in a due diligence analysis. It's approaching its end. We have 2 consultants in this process. We have a consultant for the technical, economic and environmental due diligence. And we have another consultant for the legal due diligence. The reports, we expect the first interim reports probably next week. And our plan is to evaluate them and to come with final reports and if the case may be with a binding offer by the end of the year. Operator: We received a written question from Mr. [ Adrian Maresh ]. Do you have an estimated finalization date for Iernut power plant? Gabriela Tranbitas: As already mentioned, we have to assign the contracts for the remaining works to be performed in order to commission the plant. It will take sometime. We need to first identify the works remain to be done and then start the procurement process. After we have all the contracts in place, it will take about 9 months to complete. We are working with a target of end of next year. However, achieving this target is not entirely under our control. Operator: We received 3 written questions from Mr. [ Christian Petrem. ] The first 1 would be, can you detail next steps regarding Iernut and what are your expectations for project to become operational? And the second 1 was related to Azomures and they received previously the answers. And the third question is can you outline main objectives after decarbonization strategy? Gabriela Mares: In the decarbonization strategy, the consultant analyzed a few scenarios. The first scenario was what will happen with our carbon footprint, with the company's carbon footprint if we do not invest at all, if the emissions will only drop due to the decrease of gas production until 2050. The other, of course, this was just to make the comparison on what there is to do. Then there was another scenario where we also analyzed, let's say, a minimum investment in order to decrease the emissions, envisaging, first of all, to reduce emissions from our own activity for the exploration and production activity. And then comes the third scenario, where we have tried to see what the road map will be and what projects we will need to implement in order to get the net zero target by 2050. And the outcome of this third scenario, which we are looking at as an aspirational, let's say, target, is to have to, let's say, to focus on the following type of projects. First of all, of course, we will focus on reducing the emissions from our own activities, which means Scope 1 emissions by electrifying -- by mitigating methane emissions. Secondly, then we are looking to the new technologies in order to make the green transition possible. And these type of projects include, first of all, the [ RES ] winds and solar plants. Then the second would be the CCS, which as mentioned before, is regulatory obligation. Then we are looking also at the possibility to have green hydrogen production and biomethane introduction. And if -- you can find the summary of the decarbonization strategy on our website, and there's a good presentation there where you can see the percentages of investment for each of these technologies. However, I remind you that this third scenario, the net zero scenario is for us an aspirational pathway. But each and every project is firstly analyzed to see the feasibility perspectives of -- and the potential of implementation because as we speak, what we plan in this decarbonization strategy has a degree of, let's say, uncertainty regarding regulation, financing, the evolution of technologies, which are at the very early stage right now. Depending on these evolutions, of course, the strategy will be periodically revised and reanalyzed. And in parallel, the projects also -- each and every project will be analyzed to see if it has a feasibility potential. Operator: We received written questions from Mr. [ Jorn Marios Calin ]. The first one, can you provide details on the memorandum with Electrica, implementation time? What will be the company's financial contribution? Gabriela Tranbitas: The memorandum as a framework under which we will work with Electrica to develop the greenfield projects envisaged. Electrica must first identify the project, run feasibility tests. Until now, we were not informed of any project being selected. The contribution to the projects will depend on the actual projects being presented to us and whether they are feasible for us. Operator: The next question is, can you provide news on the next project, ERP retail clients invoicing, Azomures procurement and the 40-megawatt photovoltaic park. Gabriela Tranbitas: Regarding the ERP, currently, we are developing the platform that will facilitate the relationship with the clients in this new market. Aside from this, we are also having discussion with the banks and payment processors to implement online payments that will be embedded into this platform. Also, we are running acquisition procedures for other software that will be needed in this activity for online contracting, call centers. Specifically regarding the ERP, we estimate that by the end of this year, it should be operational. However, until we actually access the market, there are still other steps to be taken. So we estimate that the first deliveries will only start in April. On Azomures, we already provided an answer. We are currently in progress with the due diligence process. And on the photovoltaic park of 40-megawatt hours, we still haven't signed the contract. The acquisition procedure was selected for review by the National Agency for Public Procurement. This is a standard procedure. They randomly select some acquisition procedures, but this review has delayed the awarding of the contract. Operator: The next question from Mr. Jorn Marios Calin. Do we envisage better results on the electricity production side after elimination of the cap in July 2025? Gabriela Tranbitas: Results on the electricity segment were fairly similar to Q2 2025. So in Q2, we had a loss of RON 93 million. In Q3, we had a loss of RON 96 million. The evolution, as I said, is pretty similar. On the liberalization of the prices of the market, we sold at free prices even before the liberalization. The mechanism for centralized acquisition at which we sold under a regulated prices of RON 400 per megawatt hour was optional in 2024 and 2025. So we didn't apply it. Operator: The next written question from Mr. Oleg Galbur. Can you please comment on the results of the Power segment in Q3 2025, which were slightly worse in comparison to Q2 2025 despite the end of the electricity price regulation. What has led to a higher loss of the segment in Q3 2025? Gabriela Tranbitas: In Q3 2025, the plant was stopped for -- due to breakage of the old plant. As such, we had to purchase from the market, the electricity that we contracted for our clients. So in order to meet the delivery obligations, we had to purchase from the market, the electricity that we can produce. Operator: The next written question from Mr. Jorn Marios Calin. Can you please tell me the value of your investment in Neptun Deep project? Gabriela Tranbitas: Do you mean the investment for the entire project, the investment in this period? Not sure. Operator: The next written question is from Mr. Oleg Galbur. What is the volume of gas assigned to be sold by Romgaz at regulated prices in Q4 2025 and Q1 2026? Gabriela Tranbitas: In Q4, we estimate we will sell 10.6 terawatt hour. And in Q1 2026, 9.67 terawatt hour. For the full project, the investment is estimated to cost EUR 4 billion, of which our share is 50%, so EUR 2 billion. Operator: If you have any other questions, please feel free to address them. We received the written question from Mr. [indiscernible] Hello, will you consider to buy electricity from the market in the future to meet clients' needs similar to Q3 2025? Gabriela Tranbitas: Normally, our current strategy is to only sell the quantities, the electricity quantity that we produce. If the plant breaks down suddenly, then of course, we will have to buy electricity from the market and meet delivery obligations. But it's not something that we want to do. Operator: We received another written question from Mr. Oleg Galbur. Were the technical issues at the Iernut power plant sold? Is the plant now up and running? Gabriela Tranbitas: Yes, currently, the plant is running. Operator: Another written question from Mr. Jorn Marios Calin. Do you intend to have other issue -- bond issues in the next 2 years? Gabriela Tranbitas: Currently, based on our existing projects, we already covered the finance needs for next year. However, if some unforeseen projects appear or depending on the situation in the market, we may issue another bond under the current EMTN Program. As you know, we already had 2 issues of EUR 1 billion out of our EUR 1.5 EMTN Program. Operator: If you have any other questions, please feel free to address them. We received the written question from Mr. Christian Petrem. The EUR 2.76 billion in decarbonization strategy includes the EUR 600 million you mentioned for CCS? Gabriela Mares: Yes. They're included. Operator: If there are no further questions, we will conclude this conference call. Thank you for your questions. If you need further information, please contact our Investor Relations team. The conference is now concluded. On behalf of Romgaz team, thank you for attending today's conference call.
Operator: Good morning. Welcome to Alithya's Second Quarter of Fiscal 2026 Results Conference Call. I would now like to turn the meeting over to Alithya's management team. Please go ahead. Unknown Executive: Thank you for joining us today for Alithya's Second Quarter Fiscal 2026 Results Conference Call. The press release, along with the MD&A containing condensed financial statements and related notes was published this morning and is now accessible on our website. The webcast presentation can also be found on our website in the Investors section. Please be advised that this call will contain forward-looking statements, which are subject to various risks and uncertainties that may cause actual results to differ materially from those anticipated. These statements include our estimates, plans, expectations and statements regarding future growth, operational results, performance and business prospects that do not solely relate to historical facts. These statements may also refer to future events, including expectations around client demand, business opportunities, leveraging our services, IP, AI and expertise to meet client needs, excelling in a competitive market, achieving our 3-year strategic plan and deploying our smart shoring capabilities. For more information, please refer to the cautionary note included in our presentation and the forward-looking statements and Risks and Uncertainties section of our MD&A, which are accessible on our website. All figures discussed on today's call are in Canadian dollars, unless otherwise stated, and we may refer to certain indicators that are non-IFRS measures. Please refer to the cautionary note included in our presentation and to the non-IFRS and other financial measures section of our MD&A for more detail. Presenting this morning are Paul Raymond, Alithya's President and Chief Executive Officer; Bernard Dockrill, Chief Operating Officer; and Pierre Turcotte, Chief Financial Officer. I will now turn the call over to Paul Raymond. Paul? Paul Raymond: Thank you, Dominic. Good morning, everyone, and thank you for joining us today. Before we begin, I want to take a moment to thank our clients for their trust and to recognize the dedication of our teams across all of Alithya. Our people's commitment to excellence continues to drive our success and deliver meaningful impacts for our clients. Alithya is not small, it is focused. Our second quarter operational results demonstrate the benefits and long-term potential of our strategy as we continue to execute our plan. Our company has transformed, and we are seeing the benefits of this approach in a challenging economic environment. So despite Q2 being our summer quarter, Alithya has continued to progress on many fronts. The first KPI that should stand out from our second quarter is our gross margins. We continue to work our way up the value chain. Our gross margin percentage is now above many large integrators in our sector. This is not luck. Our focus on higher-value services has now reached a maturity level that enables us to differentiate at a larger scale and fight above our weight. We win on the quality of our services and our delivery reputation. This brings us to the second KPI that should retain your attention. Our revenues have decreased in the past as our shift to higher-value projects has replaced some of our past commodity services. However, in Q2, despite market uncertainties and a wavering economy, it is not our global year-over-year revenue growth of 11.5% that should hold your attention, but rather our industry-leading 34.8% growth in our U.S. operations. This impressive result by most standards comes from a combination of organic growth and the rapid integration of our eVerge acquisition. We realigned our U.S. operations a few years ago with our long-term strategy. Since then, our enterprise application and transformation services have become a key differentiator and a strategic priority for clients looking to leverage enterprise-wide AI solutions. It is also showing the potential of our platform in the largest market in the world for these services, the U.S.A. When you combine this strategic focus with strong execution, you get these growth results. This realignment is the same that we are implementing across all our operations. Finally, the third KPI that should pique your interest is the continued progress of our adjusted EBITDA margins and cash flow generation. Our trailing 12 months adjusted EBITDA is now over $52 million, which is a new high watermark for Alithya. Our transformation into a high-value trusted advisory has brought us to this point at just the right time. The industry is evolving fast. AI is influencing everything we do, and our clients are looking for value creation and new ideas more than ever. Cost savings will only get you so far. We have demonstrated that we can be the trusted adviser to accompany our clients in their AI-driven digital transformation. And we know our model is scalable. You could say Alithya has arrived. Before I pass it over to Pierre, I will also mention the noncash impairment charge we took in the second quarter as part of the ongoing repositioning of our business. And with that, I'll pass it over to Pierre to provide some financial highlights for the second quarter of fiscal '26, followed by Bernard to share some operational updates. Pierre? Pierre Blanchette: Thanks. Good morning, everyone. I'm happy to join this conference call and highlight some of the company's achievements this past quarter. Our second quarter of fiscal 2026 was marked by year-over-year growth with improvement across several of our key metrics. Let's begin with a review of these numbers. In the second quarter, consolidated revenue came in at $124.3 million, up $12.8 million or 11.5% on a year-over-year basis. Looking at our continued profitability, we are reporting another quarter of year-over-year improvement on gross margin in dollars and as a percentage of revenues. Gross margin reached 34.4% in the quarter, up from 30.6% last year. This performance reflects our focus on delivering higher-value services, improving utilization rates across core geographies and leveraging efficiently our smart shoring capabilities. Let's look at our performance by region, starting with Canada. Revenues in Canada reached $55.2 million in the second quarter, down $4.4 million or 7.4% on a year-over-year basis. The decrease in revenue was due primarily to reduced revenues from government contracts and certain clients' projects reaching maturity, partially offset by revenues from the acquisition of XRM Vision, higher billing rates and a continued recovery in the banking sector. Our gross margin in Canada as a percentage of revenue increased compared to the same quarter last year, mainly due to a positive margin contribution from XRM Vision, higher hourly billing rate, a decrease in the use of subcontractors and an increase in utilization rate. On a sequential basis, gross margin as a percentage of revenue also increased. In the U.S., revenues increased by $16.3 million or 34.8% to $63.1 million. The increase is due primarily to organic growth in enterprise transformation services, higher billing rates in certain areas of the business, revenue from the eVerge acquisition and a favorable U.S. dollar exchange rate. The U.S. now represents over 50% of our revenues. Gross margin as a percentage of revenues from our U.S. operation increased compared to the same quarter last year, primarily due to increased utilization rates, increased use of our smart shoring capabilities and higher billing rates. In our international business, revenue was slightly higher versus prior year with lower gross margin as a percentage of revenue. The increase in revenue was primarily due to organic growth in enterprise transformation services. International gross margin as a percentage of revenue decreased compared to the same quarter last year, mainly due to one client project coming to maturity, which historically had a higher gross margin. When looking at the geographies we operate in, our U.S. operation continued to represent a growing share of total revenues. Combined with our ongoing expansion of Smart Shore capabilities, this has contributed to a stronger consolidated gross margin aligned with our strategic objectives. Now looking at SG&A expenses. We are continuing to focus on optimizing our cost structure to ensure greater efficiency and long-term performance. In the second quarter, SG&A amounted to $31.3 million, an increase of $4.5 million or 20.8% year-over-year. The increase in SG&A primarily reflects costs associated with the acquisition completed since the same quarter last year, increased employee compensation, professional fees and share-based compensation. This is partially offset by a decrease in the information technology and communication costs and business development costs. SG&A as a percentage of revenue increased to 25.2% in Q2 compared to 23.2% in the same quarter last year. On a sequential basis, SG&A increased by $0.7 million from $30.6 million. The increase takes into account salary increases that came into effect at the beginning of our fiscal year and expenses from our recent acquisitions. Looking at adjusted EBITDA, we are reporting $12.8 million or 10.3% of revenues in Q2, up compared to $9.3 million or 8.3% of revenues last year. The increase was due primarily to increased gross margin, partially offset by increased SG&A. As Paul mentioned, this represents an adjusted EBITDA of over $52 million on a trailing 12-month basis. Net loss for the second quarter was $31 million due to an impairment charge of $38 million. The variation includes impairment charge of $26.5 million from the Quebec portion of the Canadian cash-generating unit and $11.5 million from the industry solution cash-generating unit. This impairment became necessary for both cash-generating units as we continue to -- our repositioning to align with our long-term strategic plan, just like we did with our U.S. operation over the past few years. Our adjusted net earnings came in at $9.5 million or $0.10 per share year-over-year, representing an increase of $4.2 million. Finally, turning to our cash flow and financial position. Cash generating from operating activities in Q2 was $11.7 million, offset by noncash items of $10.6 million, resulting in a net cash from operating activity of $1.1 million in the quarter, a decrease of $1.9 million compared to the same quarter last year. As part of our capital allocation strategy, we put in place a normal course issuer bid in the quarter, which allows us to purchase shares under certain conditions determined by the TSX. As of September 30, 2025, net debt increased by $28.1 million to $122 million from $94 million as at March 31, 2025. This change is mainly driven by the acquisition of eVerge and the payment of the balance of sale. Our leverage ratio stands at 2.3x net debt over our trailing 12-month adjusted EBITDA compared to 2.4x for the first quarter. I will now let Bernard share the operational highlights. Bernard Dockrill: Thank you, Pierre, and good morning to everyone with us today. Our results truly highlight the depth of our expertise across our teams and our ability to demonstrate value for our clients amidst uncertain market conditions. In the second quarter, we delivered year-over-year double-digit revenue growth at our global operations. As Paul and Pierre highlighted, our U.S. segment grew by 34.8% year-over-year. This is a result of our focused strategy within this market as we expect it to grow faster than others. The acquisition of eVerge has accelerated this growth along with continued demand for our services. Bookings for the quarter were $9.9 million. This translates into a book-to-bill ratio of 0.73 for the quarter and 0.91 on a trailing 12-month basis. The book-to-bill ratio for the quarter is 0.80 when revenues from the 2 long-term contracts signed as part of an acquisition in the first quarter of fiscal year 2022 are excluded and 1.01 on a trailing 12-month basis. We also signed 22 new clients during the quarter, including a global leader in engineering and construction within our Oracle practice in collaboration with our recently acquired eVerge team. By combining Alithya's multipillar approach with the enhanced human capital management capabilities from eVerge, we have opened new doors, enabling us to pursue opportunities that were previously out of reach for both parties. The uncertainty in the market continues to result in longer sales cycles and many larger engagements being contracted in multiple smaller phases, which has impacted bookings in the quarter. As we look forward, we are focused on solutions that deliver the greatest value to our clients and continue to be in demand. This is reflected in our pipeline, which grew by double digits over the same quarter last year. The largest increase in our pipeline is for new business within existing clients and a larger proportion of higher-value project services. One area in which we see growth potential is our AWS-related services as organizations continue to transition from legacy systems toward cloud-based solutions. Our teams deliver high-value cloud migration and modernization projects, leveraging proven, repeatable processes. Our recent work with Beneva, a major Canadian mutual insurance and financial services company is a testament to our expertise. We deployed our cloud migration factory methodology to migrate several applications to AWS. The project was delivered on budget and ahead of schedule, achieving immediate savings and operational stability for Beneva. As Paul said, we are not small, we are focused. And that starts with our focus on being experts in the industries we serve and our commitment to stay current with the latest trends, technologies and tools so we can best support our clients. For example, for a global B2B food company, our experts and FDA regulatory requirements migrated their on-premise ERP applications to the cloud on time and under budget, solving several complex manufacturing challenges. For a global pharmaceutical manufacturer, we completed a multisite ERP implementation, leveraging our custom pharmaceutical solution and deep sector expertise to align our clients' operations with FDA and USDA validation requirements. We also enabled our client with AI-powered tools so they can harness the robust capabilities at scale. And to ensure our teams remain at the forefront of innovation, we've invested in continuous learning, including AI-related competencies, accumulating over 5,000 hours of training during the second quarter. To help our clients with most of their investments in technology, we continue to invest in our IP, proprietary frameworks to accelerate the time to value for our clients. Our diverse portfolio of IP spans multiple business applications and industries and differentiates Alithya in the market. For example, our Alithya FoodXpress accelerator, a proprietary framework designed to support rapid deployment of D365 to food and beverage manufacturers. For Roskam Foods, a leading contract manufacturer, we are leveraging this IP and our industry expertise to implement D365 for finance and supply chain. Similarly, within the health care sector, we're developing the Alithya Vital program, a strategic enabler that combines Oracle ERP, human capital management, supply chain management, advanced analytics and AI tailored for health care. Vital will empower health care systems to harness data to address challenges related to labor productivity, workforce scheduling and cost of care. Another example is our Microsoft Copilot-enabled data agents we develop for our clients operating in complex manufacturing environments, helping them overcome limitations within their existing systems by enabling fast, accurate access to detailed inventory data. Our focus continues with our partnerships among leading solution providers, including Oracle, Microsoft, AWS and Salesforce. Our track record, commitment and investment with these providers enables us to provide our clients with the right solutions for their business challenges, including the adoption of Gen AI and agents. Oracle invited Alithya among a select few Tier 1 partners to assist in building AI agents for Oracle Fusion Cloud applications. I'm proud to say that 2 of our agents, a sourcing assistant agent and a resource manager assistant agent will be available on Oracle's marketplace and will be accessible to all Fusion customers. Our commitment, expertise and ability to innovate is recognized by our partners. In October, we were named finalists in the 2025 Oracle Partner Awards in the Global Industry Solutions category for Health and Life Sciences. We earned this nomination for our work implementing workforce scheduling at Oklahoma State University Medical Center, becoming the first health care client to implement this solution. And finally, as we execute our focused growth strategy, we continue to build our global talent pool through our Smart Shore delivery centers. Following our recent acquisitions, we now have more than 13% of our workforce in our Smart Shore centers. We have access to the top talent and can scale to deliver global projects with higher margins and fewer contractors. In summary, we continue to make steady progress on all pillars of our growth strategy and remain focused on executing our plan. I will now turn it back to Paul for closing remarks. Paul Raymond: Thank you, Bernard. As you can see, it was a positive quarter for Alithya. We continue to demonstrate our ability to create value for our clients, our employees and our shareholders. Our financial position is strong, providing us with the flexibility to execute on our strategic plan. As we believe our shares are significantly undervalued, we will continue to use our cash wisely and buy back our stock when appropriate, reinforcing our confidence in Alithya's long-term value and our commitment to delivering shareholder returns. We will now open the line for questions. Joelle? Operator: [Operator Instructions] Your first question comes from Jerome Dubreuil with Desjardins. Jerome Dubreuil: The first one is on the U.S. results, very strong congrats there. I'd like to dive a bit there. Maybe if you can talk about which verticals are working best because we haven't seen resumption in discretionary spending with some of your peers. And maybe so if you can talk about the verticals and if there's significant cross-selling from past deals, too. Paul Raymond: Jerome, thanks for the question. I'll comment on the first part, and then I'll let Bernard comment on the industries. But I think what people misunderstand about our business coming back to what I said at the beginning, we're different than the other players. We are really focused on niche high-end market for solutions that are in very high demand for large organizations who want to roll out enterprise-wide AI. If you want to roll out AI at scale, you need data, you need one source of truth. Many organizations in the past years have gone through acquisitions, divestitures, consolidations and most organizations, regardless how well they run IT, have multiple different systems with different sources of data, and they're struggling to get all their data in one place to leverage AI like it should be. So rolling out an ERP platform is a great way of getting there. And you can see that these hyperscalers, Microsoft, Oracle, AWS, I mean, you name them, are putting a lot of money and adding capability to their platforms around AI. So we see huge demand for those services around what we do. And that's the bulk of what we do today. We've gradually gotten there. And of course, the U.S. being the largest market in the world and where the most investments in AI are going into, it is influencing demand for our services. In terms of the industries, I'll let Bernard comment on that because he's more familiar with the funnel and how we're doing. Bernard Dockrill: Yes. Thanks, Jerome, for the question. And first, I'll start. The U.S. had good results, a lot of it is driven by our enterprise application transformation practice and our Microsoft practices. And as you know, we focus there in the health care space on the Oracle side and in the process manufacturing, you saw a couple of examples I used around food and beverage. And these organizations are looking to take advantage of AI and other things. And to get there, they do need to modernize the back end. And so you're seeing some of that there. One of the big drivers in the quarter was our EPM practice. That's our enterprise performance management practice, where we see these are large multibillion global organizations. And they're looking to get better insights from their financial information for planning and whatnot. So that's an area where we've seen growth. And you actually hit on it as well. Over the last 18 months, we've been really focused on cross-selling and getting our teams to develop that motion to be able to bring more to our clients from other areas of the business. And that has driven some of our growth as well as we're seeing more of that, and that's going to continue to be a focus for us as we move forward. Jerome Dubreuil: That's great. Second question for me is on the bookings, a bit weaker this quarter. So we're wondering if we should be expecting some slowing down of the organic growth next quarter? Or maybe it was just some maybe onetime event like with the government business in Canada. So if you can comment on that and what this double-digit pipeline growth exactly means? Bernard Dockrill: Yes. Thanks, Jerome. Bookings, and I'll highlight what I said in the call, there's 2 things we're seeing is decisions are taking longer than they have traditionally, and that's some of the uncertainty in the market that we're seeing. But the other phenomenon we're seeing is large deals are getting broken up into smaller phases. So typically, we would have had a an 18-month booking, it will end up being a 3- or 4-month. So that impacts the booking side of the house. So we're seeing some of that in the market. The pipeline, as I mentioned, and some of this is a direct result of the cross-selling activities, where we're seeing pipeline growth of new business within our existing clients. And again, typically, that's a higher win rate business from where we've already established a relationship there. So we're seeing that there, but it is in the past quarter. And then Q2 traditionally has been a softer quarter for us in bookings just due to the fiscal years of our key partners that we work with. It is a slower quarter. They go through a restructuring typically in the summertime. So we do see some softness there in Q2. Operator: Your next question comes from Gavin Fairweather with Cormark. Gavin Fairweather: Congrats on the strong results. Maybe just to start on your macro comments about longer sales cycles and projects being kind of topped up into smaller pieces. Curious how much that applies to the U.S. as well as Canada. I think your prior commentary was that the macro environment was kind of a tale of 2 markets with the U.S. continuing to be quite strong. Curious for any differences you're seeing between the 2 main geographies in the current state. Bernard Dockrill: Yes. Thanks, Gavin. Good question. When I look at the pipeline and the growth in the pipeline, we've got growth across all geographic segments. And the same comment with the existing clients, we're seeing that in Canada as well as the U.S. on that as well as the proportion that's in more of the project services work versus the traditional consulting work that we've done in Canada. So a little more of a switch there on that. But I don't see anything unique to Canada or the U.S. I just think kind of where we are in our evolution, we're further ahead in the U.S., and we're seeing the results there earlier than we will see them in Canada. Gavin Fairweather: Appreciate that. And then maybe just on the U.S. gross margin. I know you don't specifically disclose it, but I suspect and I think you've talked about it being kind of around that 40% previously. I'm curious if you're seeing further upside opportunities there. I mean you kind of ran off all the different drivers of strong performance this quarter in terms of utilization and smart shoring and higher-value projects. Do you see an ability to drive that further? Or are we kind of topping out on U.S. gross margin? Bernard Dockrill: Yes. As I look at the U.S. across the company, there are some areas of the business that we're operating very well, but there are areas that I still see opportunity to increase utilization. And also when I look at the smart shore operations, there's areas for improvement in certain areas where I think we can do more as we look at the business and we're pursuing new business, and we're bidding on new business. we are structuring our deals with a larger portion of that being done smart shore. So that, I do believe, provides some upside there. But in other areas, we're kind of at the targets where we expect it to be. Paul Raymond: Maybe, Gavin, I'll add to what Bernard was just saying that every proposal that we put in now has an offshore component. So you've seen the steady growth of that. We're over 13% now. We've stated in the past, kind of our long midterm view is to get to 30%. So that alone is going to be improving gross margins across the board as we keep pushing that. Gavin Fairweather: That's great. Very helpful. And then maybe just lastly on Canada. We've talked about you walking away from some lower-margin work and being very deliberate about the work that you're going after, and you discussed the work that you did in the U.S. business several years ago to really kind of transform the margins higher. So maybe you can just discuss kind of your longer-term plans for the Canadian business and how you're thinking about the ability to kind of transform that to look more like the U.S. and what kind of time lines you think you can execute on that? Paul Raymond: Yes. Great. Thanks for the question. Well, if you look back at the U.S., it took us about 3 years from the start of the major shift to get to where we're at today. We're in the middle of that in Canada. It's going faster in some areas than others. But yes, the plan is that within the next couple of years, we're going to be there. That's the plan. And hopefully, all the tariff issues and free trade stuff and everything else, all the noise around it goes away between now and then, which would also help, I think. Operator: [Operator Instructions] Your next question comes from Vince Qiricchio with Barrington Research. Vincent Colicchio: Yes, Paul, you had mentioned that the Q2 tends to be a slow booking quarter. I'm curious, thus far in the current quarter, how bookings are trending? Paul Raymond: Vince, thanks for the question. I can't comment on the current quarter. But Q2, which is our summer months for us, always slower. And as Bernard was saying, there's 3 factors. One is the summer months, obviously, a lot of less people working. But despite that, we did better than last year. So year-over-year, our bookings have grown in the summer, which is a good sign. The other 2 things is if you look at our strategic partners, these hyperscalers, whether it's Microsoft, Oracle, these other guys, our bookings tend to follow their year-end. And their year-end is in a different quarter than ours. And so typically, if you look at our -- the quarters where we have the highest bookings, usually tend to align with their year-end. So if you look at where Oracle is finishing, that's usually a good quarter, where Microsoft finishes, that's usually a good quarter. So -- but I can't comment on the current bookings, sorry. Vincent Colicchio: No worries. And what are your... Paul Raymond: The funnel is strong. As Bernard is saying, the funnel is growing, so... Vincent Colicchio: Okay. And what are your thoughts on how well you're leveraging AI to generate programming efficiencies? Paul Raymond: I think we're doing well. I think there's always room for improvement. I look at our operations today, Vince, and we -- 13% for us, to about 3,000 people, so just under 400 people in our smart shore centers. If you had asked me this question 2 years ago, I thought we'd be 3x larger by now. I think we've maintained that size just because of the use of the AI tools. I think our people are much more efficient in our smart shore centers than they were 2 years ago. You also have to remember that our people in our smart shore centers aren't commodity. I mean we don't do maintenance and support and these types of things. We have Oracle experts and Microsoft experts and AI experts that support our clients around the world. So by definition, these people use these tools every day. And we're also helping Microsoft and Oracle integrate AI tools into their own platforms that we end up using after. So I think we're ahead of the curve on that. Is there room to improve? Always. There's always room to improve. So we like to stay -- we like to believe we're in front of the parade, and we want to stay there. Vincent Colicchio: And last question. In Canada, the government contract business was weak in the quarter. Do you have any expectations of a rebound there? Paul Raymond: So yes, great question, Vince. So we -- as we said in the past, we are deliberately exiting some government -- low-margin government business. And it was a conscious decision. You might say it's difficult because it impacts our revenues in Canada, as Pierre was mentioning. But by the same token, our margins are growing. So the idea is as we do that transformation is how do we focus on the higher-margin government projects, and we are winning some. We are growing our government business in areas of higher-margin projects instead of the lower-margin commodity stuff where you're only competing on price. When you compete on price, there's always somebody cheaper and you never win in the long term, and you can't invest in the new things we want to do. So we made a conscious decision there. It reduces, but we're still winning some very interesting projects. We've won several around Microsoft. We talked about XRM earlier. We've won some project management or Microsoft project type stuff with some large organizations in the government that want to improve their project management. That's a very common theme right now in government circles. And you're also looking at -- there's going to be massive investments in defense in the future. There are many announcements today, but before that trickles down into the machine, I think you're several quarters away before that impacts the business. It usually takes time to trickle down. The big announcements sound good, but they usually take quite some time to trickle down into the machine. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Koil Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, Friday, November 14, 2025. A detailed disclaimer related to Koil Energy's forward-looking statements is included in the press release issued Friday morning and filed with the SEC. It is also available on the company's site, koilenergy.com or upon request. A reconciliation of non-GAAP financial measures used in the press release and on today's call is included in the press release and on the website. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Koil Energy also undertakes no obligation to revise any of its forward-looking statements to reflect events or circumstances after the date made. At this time, I'd like to turn the call over to CEO, Erik Wiik. Erik Wiik: Good morning, ladies and gentlemen. Thank you for joining us today. I'll begin with an overview of our third quarter performance. Following my remarks, Kurt Keller, our Chief Financial Officer, will deliver a detailed analysis of our financial performance. I'll then provide an outlook for coming quarters. Finally, we'll be happy to answer any questions you may have. We increased revenue by 22% this quarter. Koil energy is growing again. During the quarter, Koil Energy generated revenues of $6.4 million, this is 22% higher than last quarter and 22% higher than Q3 last year. Both services and fixed price contract experienced significant growth. Service revenue grew 33% and fixed price contracts or product sales increased by 15% compared to Q3 last year. This was driven by an exceptional order intake over the past 4 months. Services have expanded into renewables with a significant contract handling the spooling of power cables for a wind farm project. I would like to thank our service team for successfully assisting in winning this project and receiving excellent feedback during the ongoing project execution. I would also like to share with you that we have been awarded our 2 first contracts in Brazil. These are not significant in value and have, therefore, not been announced earlier. This includes a maintenance survey on a production vessel off the coast of Brazil and a rental agreement for the 3 subsea deployment frames. These are currently being fabricated in country. I would like to thank our team in Brazil and those that are supporting this initiative from Houston. This is a big step forward in our growth strategy. Adjusted EBITDA was negative 3% of revenue or a loss of $249,000 caused by a write-off of a receivable. Payments from a client located in the U.K. have been outstanding for more than 7 months without any explanation or communication from the company, OMSI Limited. As a precaution, we have decided to write off the receivable this quarter. Koil Energy intends to collect the full amount of $569,000 and has filed a lawsuit and serve it to our customer. And with that overview, I'll now turn the call over to our Chief Financial Officer, Kurt Keller. Kurt Keller: Thank you, Erik, and good morning, everyone. As Erik mentioned, for the 3 months ended September 30, 2025, coil generated revenues of $6.4 million, a 22% increase compared to revenues of $5.2 million for the same period last year. We generated strong revenue across all product lines, but particularly in services. Gross profit for the quarter totaled $2.1 million or 32% of revenues compared to $2.1 million or 40% of revenues during the third quarter of 2024. While profitability was unchanged on a dollar basis, the margin decline reflected a higher mix of pass-through procurement costs in our Service segment. Selling, general and administrative expenses equaled $2.5 million for the quarter, up $928,000 from the prior year. Much of the increase was driven by the OMSI write-off, followed by higher legal costs tied to patents and master service agreements and by the addition of key personnel. We recorded a net loss for the third quarter of $413,000, translating to a loss of $0.03 per fully diluted share. This compares to net income of $523,000 or $0.04 per fully diluted share recorded in the third quarter of 2024. The reduction in earnings reflected an increase in bad debt expense, a project mix containing lower gross margin contracts and investment in building our Brazil operations. Turning to our balance sheet. As of September 30, 2025, Koil reported $4.9 million in working capital, including $1.9 million in cash and $5.4 million in net receivables. This compares to $5.7 million in working capital at year-end 2024 with $3.4 million in cash and $3.1 million in net receivables. The shift is primarily due to the timing of billing and collections tied to our fixed price contract milestones. We remain highly focused on cost discipline and consistent execution. Our business carries significant operating leverage, and that negatively impacted our financial results earlier in this year. However, with a solid backlog and a strong sales pipeline, we expect operating leverage to work in our favor and positively impact performance going forward. I'll now turn the call back to Erik for his closing remarks. Erik Wiik: Thank you, Kurt. Before we address any questions, I'll provide an update on order intake and our outlook for the coming quarters. In August, we announced that Koil Energy had been awarded a significant contract for the supply of control equipment for a subsea isolation valve system. At the Q2 earnings release, we also shared that we received a significant subsea tieback project in the Gulf of America and a significant cable management services project as well as a major international greenfield project with a large quantity of flying lead cables. In October, Koil Energy announced the award of another significant contract, including steel tube flying leads and associated equipment. That's 5 big projects in a short amount of time. Thanks to these successes, we now have a record high backlog, which bodes well for the future quarters. Furthermore, the bidding activities have continued to increase, leading to a historic value of submitted quotation during the third quarter. We have discussed in previous calls that the global demand for subsea equipment and services is on the rise. This is a combination of: One, continued discoveries of large reservoirs in subsea basins; two, subsea tieback opportunities to increase production of existing fields; and three, customers addressing maintenance needs on their aging subsea infrastructure. As part of this quarterly update, we have recently received positive client feedback from the U.S., Brazil and Norway, indicating that future subsea tieback activities may become significantly higher than previously anticipated. This is welcome news since Koil Energy brings unmatched expertise in subsea tieback projects. In summary, we remain highly confident in our ability to deliver on our long-term growth strategy. Recent wins have positioned us strongly for the upcoming quarters. On profit margins, we are proactively increasing project contingencies to manage cost volatility and project returns. Additionally, the strength of our backlog provides a solid base load, giving us the flexibility to strategically test and optimize price points in future bids to enhance profitability. That concludes our prepared remarks today. So I will turn the call back to the operator to take investor questions. Operator? Operator: [Operator Instructions] At this time, there are no questions. This concludes our question-and-answer session. I would like to turn the conference back over to Erik Wiik for any closing remarks. Erik Wiik: Thank you, operator. And our thanks to all of you who joined our call today. We appreciate your interest in Koil Energy and look forward to the next earnings call. This concludes our call. Thank you. Operator: This concludes the conference. Thank you for attending today's presentation. You may now disconnect.