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Operator: Good morning, and welcome to InRetail Peru's Third Quarter 2025 Conference Call. [Operator Instructions] And please note that this call is being recorded. [Operator Instructions] Before we begin, I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Joining us today from InRetail Perú are Mr. Juan Carlos Vallejo, Chief Executive Officer; Mr. Marcelo Ramos, Chief Financial Officer; and Mrs. Andrea Fabbri, Investor Relations Officer. They will be discussing the quarterly report distributed by the company yesterday. If you have not yet received a copy of the earnings report, please visit www.inretail.pe on the Investors section, where there is also a webcast presentation to accompany the discussion during this call. If you need any assistance, please contact the Investor Relations team of InRetail Perú. Please be advised that forward-looking statements may be made during this conference call, and they do not account for economic circumstances, industry conditions, the company's performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note on the forward-looking statements, please refer to the quarterly report, which was issued yesterday. At this point, I would like to turn the call over to Mr. Juan Carlos Vallejo, Chief Executive Officer of InRetail Perú for his opening remarks. Mr. Vallejo, please go ahead, sir. Juan Blanco: Thank you, Mega. Good morning, everyone. I'm Juan Carlos Vallejo. Thank you for joining InRetail's third quarter earnings call. Today, we will discuss the main highlights of InRetail's third quarter results for 2025. Joining me today are Marcelo Ramos, our Chief Financial Officer; Andrea Fabbri, our Investor Relations Officer. I will start with a brief executive summary, and then Marcelo and Andrea will walk you through our earnings presentation. During this quarter, the Peruvian economy continued experiencing a stable economic momentum, benefiting from the low inflation and a strong exchange rate. In spite of the latest presidential transition, country risk and volatility remained low, reinforcing Peru's position as one of the most stable economies in the region. In terms of consumption, this quarter was affected by the high comparison basis in 2024, given the pension funds and compensation time accounts withdrawals, which created a temporary increase in demand, particularly in the month of July. Although general economic conditions are gradually more favorable, consumption is experiencing only a caution recovery given the international context and the pre-election period. In this quarter, we moved forward with determination in the execution of our strategic priorities, advancing in our expansion projects in reinforcing the value proposition of our different formats and in the transformation of our logistics operations, further consolidating our leading multi-format platforms. In general, our businesses continue to show resiliency with the challenging comparison basis mentioned before, posting on a consolidated basis, a positive growth in revenues of 3.5% and a slight decline in adjusted EBITDA of 0.7%. Our Food Retail segment had a moderate growth in revenues of 5.4%. Growth was mainly driven by Mass and to a lesser extent by Makro. Plaza Vea, on the other hand, was the most affected by extraordinary withdrawal mentioned before and by the general slowdown in the supermarket channel. Our Pharma segment had a low growth in revenues of 0.8%, combining a steady growth in our pharmacy unit with an anticipated decline in our distribution unit in Perú, impacted by an important change in its business model that prioritize cash flow generation over top line growth. Finally, as expected, our Shopping Malls segment was still affected by the extraordinary impact related to the incident in the Real Plaza Trujillo Mall. However, this impact had a lesser effect on the financial results of our segment in terms of adjusted EBITDA compared to the prior quarters. Revenues and adjusted EBITDA declined 5% and 12.8%, respectively. Based on the impacts already recognized and on the information we have today in terms of the guidance for InRetail, we remain in line with the guidance given in the prior earnings call of mid-single-digit growth in consolidated revenues and low single-digit growth in consolidated adjusted EBITDA for 2025. Finally, I would also like to highlight that on October of this year, we successfully issued approximately $500 million of senior unsecured notes at InRetail Shopping Malls in 2 bond tranches. The spreads were the lowest ever achieved by InRetail Shopping Malls. These new issuances extend relevant debt maturity beyond 2030. With that, let me pass the word to Marcelo. And as always, we look forward to answering your questions by the end of this call. Marcelo Ramos: Thank you, Juan Carlos. Good morning, everyone. Thank you for joining us on this call. Today, we will review the main highlights of InRetail's third quarter results for 2025. Now please turn to Page 4. As anticipated in our previous earnings call, Q3 '25 had an overall challenging comparison basis given the pension fund and compensation time account withdrawals, which created a temporary increase in consumption during the initial weeks of the quarter. Even in this context, InRetail delivered revenue growth across most segments, resulting in a mid-single-digit growth in consolidated revenues of 3.5%. This growth results from a moderate growth in our Food Retail segment and a slight growth in our Pharma segment. Our Shopping Mall segment, to the contrary, registered a decline in revenues, mainly explained by the closing of the Real Plaza Mall in Trujillo. In terms of adjusted EBITDA, we recorded a slight decline of 0.7% compared to Q3 '24, explained by the decrease in gross margin, the increase in operational expenses from the new stores opened and remaining extraordinary impacts arising from the incident in the Real Plaza Trujillo Mall, affecting mostly our Shopping Malls segment. As it relates to net income, we registered a 12.7% decrease in the quarter, explained by the decline in adjusted EBITDA and the increase in net financial expenses despite a higher net FX gain. In summary, in spite of the challenging comparison basis, our Food Retail and Pharma segments showed the resiliency, while our Shopping Malls segment experienced lingering impacts related to the incident earlier this year. As evidenced by our financial results, these impacts are dissipating towards the end of the year. Overall, based on the information we have to date, we remain in line with the guidance given in the prior earnings call of mid-single-digit growth in consolidated revenues and a slight positive growth in consolidated adjusted EBITDA for 2025. Now please turn to Page 5 to review a financial and operational snapshot of our consolidated figures. In terms of contribution by segment, these have remained similar to recent quarters. Our Food Retail segment continues to gain more participation in revenues relative to the last 12 months, while our Pharma segment has gained a share in adjusted EBITDA. Now please turn to Page 7 to give you a brief update on our continued ESG progress during this quarter. First of all, we're extremely proud that our Food Retail segment obtained its fourth carbon footprint star from MINAM in recognition of its progress in reducing emissions. On the social front, our flagship program, Bueno por Dentro, donated more than 4 million food rations equivalent to PEN 17 million. On the environmental front, we managed to save over PEN 1 million in our Food Retail stores by implementing best practices in energy management and recycled over 3,000 tons of waste. Additionally, thanks to Perú Pasiónó, we generated over PEN 10 million of SME sales through all our channels. Finally, during the third quarter, we released our annual sustainability report with additional and valuable information about our sustainability strategy and projects, which is available on our website for your review. Now we will discuss the results by segment. Please turn to Page 9 to review our third quarter results for our Food Retail segment. Our Food Retail segment registered a top line growth of 5.4% in Q3 '25 with a same-store sales growth of 1.5% despite the temporary closure of stores, including the Plaza Vea store in the Mall in Trujillo and the high comparison basis mentioned before. Growth in revenues were mainly driven by strong growth in our Mass format with a same-store sales growth of around 15% and a moderate growth in our Makro format with a same-store sales growth of about 2%. Our Plaza Vea format, on the other hand, posted a low single-digit decline in same-store sales affected by the short-term boost in disposable income from the pension fund and time deposit withdrawals on the comparison basis, impacting the supermarket channel in general. In terms of categories, our food categories experienced a low same-store sales growth with a modest growth in fresh food and a slower growth in dry food. On the other hand, our nonfood categories registered a slight decline in same-store sales. Revenues were also favored by the contribution of the new stores opened in the last 12 months, including 325 net new Mass stores and 1 new Makro store. During Q3 '25, we opened 53 net new Mass stores, reaching a total of 1,467 hard discount stores. Next week, we will inaugurate our 1,500 store. Our gross profit increased 3.7% with a gross margin of 23.4%, below Q3 '24 due to the change in format mix. Our emerging format account for approximately 50% of our Food Retail revenues with Mass already represented more than 20%. In terms of adjusted EBITDA, Food Retail's adjusted EBITDA grew 2.3% in Q3 '25 with a reduction in margin of 28 basis points. This reduction is mainly explained by the decrease in gross margin and by the incremental expenses from new stores opened, the new minimum wage and the increase in logistic expenses associated with additional warehouse space rented for 8 new dedicated distribution centers for Mass and with a greater presence of our hard discount stores in provinces. Overall, despite the challenging comparison basis, we showed progress in our multi-format strategy, refining our formats and their value propositions. As already mentioned and in line with our strategy, the change in format mix, the progress made in our organic expansion plans and the investments made in our logistic platform involve incremental investments and expenses that affect our short-term results. However, we are confident that they are essential to building a solid and sustainable foundation for strong and profitable growth starting next year. Now please turn to Page 10 to review our third quarter results for our Pharma segment. Our Pharma segment posted an increase in revenues of 0.8% in Q3 '25, combining a positive growth in revenues of 1.9% in our Pharmacies unit with a decline in revenues in our distribution unit. Same-store sales growth for our Pharmacies unit reached 1.2%. Pharma categories were favored by the winter season, driving demand for cold, flu and respiratory-related products. Non-pharma categories posted a slight positive same-store sales growth. And during the quarter, we continue to see growth in consumer-related categories, in particular, personal care, driven by the successful execution of our category diversification strategy. During Q3 '25, we continued innovating with our formats, looking to increase productivity per store. We implemented certain modifications in some of our Mifarma Beauty stores to enhance the experience and increase focus on personal care and beauty care categories. This new format aims to exploit niche categories with high growth potential where our market penetration is still low. Additionally, in our pharmacies unit, we progressed with our expansion plan, opening 48 net new pharmacies. And in the last 12 months, we've opened 87 net pharmacies. In relation to our distribution unit, we posted a decrease in revenues of around 3%, combining a slight growth in Ecuador with a decline in Perú. As mentioned before, our distribution business in Perú is going through an important change in its business model that started late last year, prioritizing cash flow generation and return on invested capital, implementing stricter collection terms and focusing on our main channels, aligned to our core competencies in the Pharma segment. Although these changes have resulted in a drop in revenues, they have also created substantial efficiencies in working capital and in operating expenses. We expect these trends to persist in the near term as we continue to simplify structures, streamline processes and focus on our core categories and competitive capabilities. In terms of gross margin, we registered a gross margin of 32.5%, below Q3 '24, mostly explained by the lower gross margin in our Pharmacies unit, given the high comparison basis of last year, which included an extraordinary reversal of provisions related to shrinkage costs. Gross margin was also affected by the decline in margins in our distribution unit. These effects were partially offset by the higher participation of our pharmacies unit in the revenues mix. Our Pharma segment recorded an adjusted EBITDA growth of 1.1%, driven by the growth in revenues and operational efficiencies despite the lower gross margin. Overall, our Pharma segment continues to deliver a positive growth, supported by the steady performance in our Pharmacies unit despite the changes in business model in our distribution unit in Perú, maintaining profitability and enhancing cash flow generation in the segment. Please turn to Page 11 to review our third quarter results for our Shopping Malls segment. As anticipated in our previous earnings call, the financial results in Q3 '25 for our Shopping Malls segment still experienced some impact arising from the incident in the Real Plaza Trujillo Mall, although to a lesser extent compared to prior quarters. Our Shopping Malls segment registered a decline in revenues of 5%, impacted by the income loss from the continued closure of the mall in Trujillo and by the extraordinary discounts granted to tenants of the mall. Additionally, revenues were hindered by the decrease in variable rent in several tenants from the high comparison basis in Q3 '24. These effects were partially offset by the improvement in performance in other malls. Our tenants registered a negative same-store sales of 2.3% during the quarter, impacted by the high comparison basis mentioned before. Our gross margin was 65.6% this quarter, lower than Q3 '24, mainly explained by higher marketing and maintenance costs due to the phasing in the incurrence of these expenses in addition to the higher rental costs. In terms of adjusted EBITDA, we reached PEN 109 million, a drop of 12.8%. This decline is mainly explained by the extraordinary impact arising from the incident earlier this year, the lower gross margin and the increase in other operating costs. As anticipated, the impacts from the incident are gradually easing towards year-end as evidenced by the lower decline in adjusted EBITDA compared to prior quarters. Now please turn to Page 12. During Q3 '25, we advanced in our organic expansion strategy, opening new Mass stores and new pharmacies together with the expansion of our Real Plaza in Primavera mall. In terms of same-store sales, Q3 '25 presented a more challenging consumption environment driven by a more demanding comparison basis, particularly during July, resulting in lower same-store sales growth across our segments. Now please turn to Page 14 to review our consolidated net income results. InRetail registered a net income of PEN 241 million in Q3 '25, a 12.7% decrease compared to Q3 '24. As mentioned before, the decrease in net income is explained by the decline in adjusted EBITDA and the increase in net financial expenses despite the higher net FX gain. The increase in net financial expenses comes from the larger IFRS 16 related financial expenses associated with the opening of Mass and pharmacy stores and from higher financial debt interest rates related to the liability management strategies executed over the last 12 months in all segments. Now I will pass the word to Andrea, who will discuss our CapEx, cash flow generation and consolidated financial debt. Andrea Fabbri: Thank you, Marcelo. Now please turn to Page 15. During Q3 '25, we invested PEN 230 million in CapEx for our 3 business segments. This was mainly invested in the expansion of our physical network in maintenance of our existing network and in our new Pharma Distribution Center. In our Food Retail segment, CapEx in Q3 '25 was mainly invested in the opening of 57 new Mass stores, 53 net, in the implementation of 2 new Plaza Vea stores in provinces and in scheduled maintenance of existing stores. In terms of openings, we expect to open around 300 Mass stores and 2 Plaza Vea stores in 2025. In our Pharma segment, CapEx was largely invested in the construction of our new distribution center in the opening of 51 new stores, 48 net and in scheduled maintenance of our existing network. We expect to close 2025 with around 100 stores open. Finally, in our Shopping Malls segment, CapEx this quarter was invested in scheduled expansion projects in existing malls, mainly in Piura and in Primavera, the latter inaugurated in August and in new power center in Tarapoto. The remaining CapEx was invested in maintenance of our malls, mainly related to extraordinary investments made of further preventive and corrective measures. In terms of cash balance, we ended the third quarter with approximately PEN 1.5 billion of cash, in line with the end of last year's cash balance despite the higher CapEx investment and the decrease in adjusted EBITDA during 2025. Now please turn to Page 16 to discuss our consolidated financial debt. As of September 2025, InRetail had a consolidated net debt of PEN 5,859 million, with a net debt to adjusted EBITDA ratio of 2x, below the comparable quarter of 2024 despite the decrease in adjusted EBITDA during 2025. The decrease in total net debt compared to Q3 '24 is mainly explained by the higher cash position despite the scheduled amortization and by the appreciation of the local currency, which affects our dollar-denominated bonds related to our international bond issuances. The short-term position of our consolidated debt stood at PEN 798 million, significantly below the prior quarter as we completed the refinancing of our structural medium-term loan during Q3 '25 in our Food Retail, Pharma and Shopping Mall segments. As of September 2025, we have successfully refinanced more than PEN 2 billion in our 3 business segments over the last year. Now I will pass the word back to Marcelo to review our debt by segment. Marcelo Ramos: Thank you, Andrea. Please turn to Page 17. Our Food Retail segment ended the third quarter with a net debt of PEN 2.875 billion below the previous quarter and below Q3 '24. Net debt to adjusted EBITDA stood at 2.6x, in line with the comparable quarter of 2024. InRetail Pharma ended the third quarter with a net debt of PEN 1.518 billion and a net debt to adjusted EBITDA ratio of 1 from a continued increase in cash flow generation given the execution of the strategies mentioned before, despite the higher CapEx. InRetail Consumer ended the third quarter with a net debt to adjusted EBITDA ratio of 1.6, below the previous quarter. We expect to close 2025 with a net leverage ratio slightly below 2024. Finally, InRetail Shopping Malls ended the third quarter with a net debt of PEN 1.477 billion, resulting in a net debt to adjusted EBITDA ratio of 3.4x, affected by the decline in adjusted EBITDA and the pickup in CapEx related to our expansion projects and to preventive maintenance investments. Nevertheless, our Shopping Malls segment remains with a very solid liquidity position and a very comfortable outlook with respect to our limits set by our bond intention. We anticipate our Shopping Malls segment to end 2025 with a slightly higher leverage ratio compared to Q3 2025. Now please turn to Page 19 to give you a brief summary of an extraordinary post-quarter event. On October 9, we successfully issued approximately $500 million of 7-year senior unsecured notes at InRetail Shopping Malls, combining one U.S. dollar tranche of $375 million and one PEN tranche of PEN 428 million at attractive coupons of 5.65% and 7.125%, respectively. The implied spreads were the lowest ever achieved by InRetail Shopping Malls. The proceeds were mainly used to refinance all outstanding 2028 notes, extended material debt obligations for Shopping Malls to 2030 and beyond. The dollar tranche reached an order book oversubscription of around 3x at peak, evidencing investor confidence and trust in the credit given its high predictability, strong liquidity position and resilient nature. As we have done in previous issuances, we executed different hedging structure until maturity to partially hedge the U.S. dollar-denominated principal debt and coupon payments. With that, we cover our presentation, and now we will be glad to answer any questions you may have. Operator: [Operator Instructions] The first question comes from Alonso Aramburú with BTG. Alonso Aramburú: I wanted to ask first on Trujillo, whether you have any updates on the potential reopening of the shopping center? And if you can comment on potential new projects in the shopping center business in 2026? And second, if you could also give us some color as to how sales and consumption has evolved after the close of the quarter in October and November. Marcelo Ramos: Thank you, Alonso, for the questions. Can you repeat -- sorry, the third question? We couldn't hear you very well for the third question. Alonso Aramburú: Yes. No, it was -- the first one was on Trujillo. The second one was on the trends after the quarter, what you're seeing in sales in October and early November. Marcelo Ramos: Okay. Perfect. Thank you. So look, as it relates to the opening of the mall in Trujillo, as we mentioned before, we continue to work closely with the authorities. However, the final decision lies beyond our control, and it's dependent on local authorities, to be honest. Despite our efforts at this point, sadly, we don't have a precise visibility regarding the opening of the mall. We believe it's highly unlikely or nearly impossible that the mall is going to be opened this year. Having said that, as you guys know, in 2024, Real Plaza Trujillo accounted only for 6% of total revenues and adjusted EBITDA. And over the next year and next year, the natural growth of the business will more than offset the income and EBITDA loss from the closure of the mall. And as we mentioned in the call as well, most of the impacts regarding the incident have been recognized to date. And in terms of adjusted EBITDA, the impacts are essentially progressively dissipating. Then the second question on the new projects, I believe, was regarding the -- in Shopping Malls. What we have is this year, we opened not in the third quarter, but we opened in the fourth quarter, a new power center in Tarapoto that was opened a couple of weeks ago. We have a couple of important expansion projects, one of which is already opened in Primavera, the other one in Piura. And as it relates for next year, we have a big expansion project as well in Lurín for the existing mall and one power center as well in provinces that should be opened by the end of the year. And then the third question, as it relates to trends. So important to mention again, Alonso, that if you look at the third quarter results, the effect on the same-store sales and the performance had to do basically with a very negative July, and that's essentially given the high comparison basis that we had in 2024. Beyond July, if we looked at August and September, there was a progressive improvement in same-store sales, all of the businesses with positive same-store sales in August and in September. And October has been pretty similar to what we saw in September. I mean, we have Food Retail at same-store sales of around 2%. Pharma is actually performing slightly better. Same-store sales closer to 4% as opposed to the 1% and the 2% that we saw in the quarter. Still though, as I mentioned in the call, on a consolidated basis in Pharma, if we add the distribution business, distribution business in Perú is still suffering from a decline in revenues given this change in the business model. Operator: [Operator Instructions] Our next question comes from Giovanni Vescovi with JPMorgan. Giovanni Vescovi: From our end, we just wanted to know what are you thinking about the competition in the Food Retail as a whole. Marcelo Ramos: Thank you, Giovanni, for the question. So competition in Food Retail, as you know, we compete against Falabella Tottus and Cencosud. Well, Falabella has 2 formats, Tottus and Bodega and Cencosud with Wong and Metro and a new format, which is a modified version of Metro called Metro [indiscernible]. What we're seeing essentially in terms of organic expansion, still not much going on there, to be honest. I think we've been the player with investing more in organic expansion locally. We've seen though over the last few months, more aggressiveness in the supermarket channel, in particular, as it relates to competitive pricing and promotion and a lot of wholesale revenues from competition, focusing more on wholesale revenues, of course, affecting margins. But that's pretty much it as it relates to these 2 players. As you guys know as well, and it's been out in the media as well, there's another competitor in hard discount called [ 3A ], which recently announced that they opened their store #200. Look, as we've said before, we believe that the opportunity in hard discount in Perú is huge, correct? The informality in the country in food retail is still at 70%, 75% or the traditional trade represents 77% to 75%. So we believe there's huge opportunities, huge space, not only for us, but for an additional player as well. Operator: At this time, we will take the webcast questions. Unknown Executive: The first question, for Food Retail and Pharma, looking ahead to 2026, how do you see the impact of no longer having pension fund withdrawals in 2026, considering that SSS this quarter was under pressure without the withdrawals, especially in sales at Plaza Vea and Pharmacies. Is there any way to mitigate this effect? Marcelo Ramos: Thank you for the question. So I believe the question was whether we believe we can mitigate the effect of the eighth withdrawal that we have in this year or next year. Look, and to be pretty clear, so far, we haven't seen, honestly, in 2025, any material change in consumption related to the pension fund withdrawals. Based on the information we have, honestly, we don't necessarily expect the same effect in this withdrawal compared to the previous ones. Our understanding is that the rate of withdrawal is actually below prior years. And as you guys know, those that can actually withdraw or still have funds in their pensions are typically the higher socioeconomic level population, which don't necessarily consume more because they withdraw their funds. The reality is that subsequent pension funds have and will have lower marginal effect on consumption. We might see some improvement in demand probably in December of this year and earlier next year. But as I said, we don't necessarily anticipate a material change. And so we don't believe that 2026 should be materially affected in terms of a comparison basis to 2025 related to the pension funds. Unknown Executive: Next question. Looking at the net debt levels of Pharma, they are quite low. Do you think that the division could pay more dividends going forward? Marcelo Ramos: Thank you for the question. So the way we look at leverage and allocation of capital, essentially, we divide our leverage and credit in -- even though it's all under InRetail in 2 worlds, the real estate world, which is where the Shopping Mall segment is and then the consumer world. So the way we manage leverage, it's more at the consumer level than independently on each operating entity. And the way we've done that is essentially utilizing cash flows and using cash allocation between both Pharma and the supermarket segments. Given that it combines a high capital-intensive business, which is the supermarket, the Food Retail segment with a very low capital requirement business, which is the Pharma segment. So essentially, in next year and so forth, yes, of course, the Pharma business should pay more dividends, which should be utilized for the growth of the consumer world in particular. Unknown Executive: At this time, I'm showing no further questions. I would like to turn the call over to the operator. Operator: There appears to be no further questions. At this time, I would like to turn the floor back over to Mr. Vallejo for any closing remarks. You maybe muted. Juan Blanco: Sorry, thank you. Overall, as we mentioned, the third quarter was a challenging quarter given the high comparison basis in 2024, particularly affecting the beginning of the period. In this context, our companies continue to show resiliency. We progressed with our expansion plans and with the execution of initiatives that are laying the foundation for growth next year. With this, we are finalizing the third quarter earnings call. If you have any follow-up questions, please do not hesitate to contact any of us. Thank you very much for your participation. Operator: This concludes today's conference call. You may disconnect.
Jarle Dragvik: Good morning, and welcome to HydrogenPro's third quarter presentation. As usual, I'm accompanied by my excellent CFO, Martin Holtet, who will present the financial results. I will take you through the highlights and our recent developments, market updates and our partnership strategy. For those of you who do not know us yet, HydrogenPro is an OEM company, focusing on core technology, which is well suited for renewable energy sources. Our products are pressurized alkaline electrolyzers and a gas separation unit skid. Addressing market for decarbonization of selected large-scale industry segments, which are already using gray hydrogen or where decarbonization is hard to achieve through electrification. HydrogenPro is delivering to 2 of the largest projects in the world. Right now, a 220-megawatt project, which is starting up these days and 100-megawatt project, which we have delivered, all the main components, and now we are producing our third-generation electrodes in our new factory in Denmark. Few other electrolyzer OEMs are delivering to projects of the same scale. Of the recent highlights, our revenue last quarter ended at NOK 35 million. with a gross margin that improved to 55%. We continue our strong focus on technology improvement and expanding our electrode testing and development. The previous announced partnership with Thermax is on a good track. And also our work to establish a foothold in the Middle East is making very good progress. And last but not least, I'm very happy to announce the embarkment of a new Head of Sales and Commercial. Martin, please. Martin Holtet: Thank you, Jarle. Then I will walk you through the Q3 financials. So in the quarter, revenues came in at NOK 35 million, and those revenues are mainly related to deliveries on the ACES project. On top of that, deliveries of electrodes to the SALCOS project also then commenced in the quarter. Gross margin came in at 55% versus 22% in the second quarter. If you recall, in the second quarter, the gross margin was negatively impacted by some cost provisions on the SALCOS project in particular. So we could say that it's -- now we're back more to normalized levels. Personnel expenses was up NOK 4 million, and that increase is due to that we have made severance payments, which is then related to the reduced activities at our factory in Tianjin. The number of FTEs is considerably lower with a lower payroll now going forward. Other operating expenses increased by NOK 9 million in the quarter compared to the second quarter. And the main driver behind that is, first and foremost, project deliveries, where we then accrue more costs when we make a delivery, which is then -- also then sort of accounted for as -- in our financials with revenues and costs simultaneously. In addition to that, we had also some lower level of grants, which means we have then a reduction in the deduction of expenses compared to the second quarter. So the EBITDA came then in at minus NOK 45 million in the quarter. Then let's look into the development in the liquidity position in the quarter. The cash balance at the start of the first quarter was at NOK 107 million, and it ended at NOK 121 million. So the changes in the cash position were as follows: we had an EBITDA then of minus NOK 45 million, changes in net working capital of minus NOK 3 million. NOK 6 million was spent on investments, mainly in the production line in Denmark. So on the production line in Denmark, we have a total budget of NOK 60 million, where we, as of end of September, have spent NOK 42 million. And that line now is fully operational and -- meaning that the remaining investments, which we are now taking, will be then related to further improvements on the line. Financing of NOK 68 million, mainly reflects LONGi's equity investment that was settled in July this year. And last here, the backlog then decreased from NOK 284 million to NOK 252 million, a function of revenue recognition in the quarter and no order intake. On the cost side, so at the start of the year, we set a target to reduce our cost base with NOK 40 million of annual costs or call it roughly 20% of our cost base when we do not include project-related costs. We have now completed that cost program. The number of employees in the quarter were reduced from 147 at the end of the second quarter to 89 at the end of the third quarter, and that is mainly then due to a reduction of the staff in China. So please be aware that the cost program that excludes all project-related expenses, and it's important for us to keep now some competence -- the core competence in the organization in order to deliver on projects. One of our competitive advantages is to maintain a low cost base. And we will, of course, assess further measures going forward in line with the market activity. But our business model with strong partnerships enable us to have a global reach, win contracts on a global scale, but at the same time, remain a lean organization with a low cost base. So with that, I'll give the word to Jarle to give an update on the market. Jarle Dragvik: We have to ascertain that the year has been more challenging than what we saw at this time last year. It's a slower growth than most expected. Only 30% of green hydrogen projects has advanced -- have advanced. However, some completions and feasibilities we do see going forward to FEED and into approvals. But again, 90% of the 2023 and 2024 CODs projects are delayed with more than a year. But we can also see that the delays are getting shorter year-by-year, as we're coming up to 2025 and 2026. As said, we must ascertain that growth is slower than expected. But according to Global Hydrogen Review, the underlying growth is showing strong progress. The installed capacity grew with as much as 145% from 2024 to 2025. Much of the growth is driven by China, but we also see significant growth in other parts of the world, among others, HydrogenPro's project in Utah, United States. Another positive trend is the number of countries developing a hydrogen strategy is growing, which again supports continued growth in project development. So despite a slower growth than expected, a solid progress shows strong underlying fundamentals. Well, this is a busy slide, and I do not intend to go through this in detail, but it is available for the interested reader on our website. The table as such, is not exhaustive, but it is a snapshot of some selected regulations in markets which are in focus for HydrogenPro. And what we see is that more and more of regulations are introduced as well as adaptations of existing regulations like in Europe, where not all regulations have worked according to its intent, but now being adjusted or amended. IEA just issued its annual World Energy Outlook for 2025. Here, they expect the green hydrogen production to increase 70x during the next 10 years. Their forecast is based on adopted policies, proposed measures backed by a market and infrastructure support. The train might be rolling slower than previously expected, but it is for sure rolling. The stated policies are charting the path to a large potential of green hydrogen. And I am very pleased to now introduce Michael Caspersen as new CCO in HydrogenPro. Michael has a strong background, both technically and commercially. He comes from Boston Consulting Group, where he has led several projects along the hydrogen value chain. In addition to several years in Siemens, where he had a key role in starting up and commercializing their electrolyzer business. Michael holds a PhD in hydrogen technology and will, with his background and experience, bring great value to HydrogenPro's management team. His extensive technical and commercial experience will be instrumental in delivering our future growth. Erik Bolstad will continue assuming the role as Director of Partnerships and Key Account according to our strategy. The commissioning of the ACES project is progressing well. All trains have been through the initial start-up. A train here means 2 electrolyzer connected to one gas separation unit. And the electrolyzers are doing their job as the project goes into next phase of operation. On the SALCOS project, we are now delivering the Generation 3 electrodes from our new production line in Denmark. I was recently a few weeks back in India, and I met with several potential customers. And we are now building up a pipeline by submitting firm quotations to project owners, having won in India's hydrogen auctions. Also on the technology side, we are supporting Thermax in developing their gas separation assembly station, and we are progressing well on the Indian market rollout. Based on our strategy, we are also progressing on establishing a foothold in the Middle East. We see that Middle East, together with India, having the lowest cost for producing green hydrogen and are expected to have the lowest cost in 2030. On the way of getting a foothold, we are working together with selected partners and governments where we are building a good relations. As an example, we have appointed now Sheikh Rashid Al Maktoum's Sustainability Adviser, Claudia Pinto, as also adviser to HydrogenPro. The market is driving more and more in the direction of customers requesting total EPC and a complete solutions from power in one end of the plant to direct compressed gas in the other end. This is much driven by strong industrial project developers. HydrogenPro is focusing on core hydrogen equipment. But the customers, they are also occupied with hydrogen equipment and its performance, but then bundled in a total EPC. And together with partners, we fulfill the scope demand, meeting all customers' selection criteria. The electrode coating line in Aarhus is in full operation, producing electrodes for Salzgitter project. We have expanded our testing and development capacity and are now testing electrodes in various conditions, new enhanced materials and longtime effects, and it gives results. As we are developing new and even better coatings combined with technology and design for reducing shunt currents, we are testing out and proving better results with lower energy consumption for producing hydrogen. The goal is to get the power consumption with as little kilowatt hour per cubic meter produced hydrogen with as high current density as possible. The red line in the graph, which is already a very good compared to general market, but as you can see, with a shape which is common for electrolyzers. The bottom green line shows the results of our latest development, which we will now continue to develop for commercialization. The technology strategy and roadmap is to continue to reduce power consumption, commercialize the 30-barg solution, lower the cost by reducing weight of the electrolyzer and optimize the hydrogen production train with increased current density. We have a clear and detailed plan for development and maintaining a forefront position technologically. During the year, projects in our pipeline have been postponed and with further delays. But the pipeline projects, they are being very robust with high-quality company and owners. In Europe, there is a strong traction together with ANDRITZ and JHK with projects ranging from 20 to 200 megawatts. They have been moved from 2025 FID, but now to 2026. Based on funding and regulatory compliance, we believe to see these materialize during next year. And also India, we are now seeing a buildup of a strong pipeline, which we expect some to FID in 2026. 2025 has been a slow year, but based on the pipeline projects, we are remaining optimistic for 2026. And with that, I thank you and invite Martin also for the Q&A session. Unknown Executive: Here comes some questions from the audience. The first one, why does Mr. Espeseth sell so much of his shares and stocks? Jarle Dragvik: We have no influence or saying on shareholders buying or selling shares. Obviously, we welcome every shareholder who is buying shares and are equally saddened with those selling, but there are several motivations for selling and buying shares. And obviously, we're also dependent on the volatility in the shares. To the explicit of Mr. Espeseth, that question has to be asked to him. But we know that, for instance, in Norway, we are burdened with what you call -- [ fortune ] tax, what we call it? Martin Holtet: Wealth tax. Jarle Dragvik: Wealth tax, thank you, which can be one reason, but this would be speculation from our side. I don't know his personal situation. Unknown Executive: What deliveries remain to ACES project, excluding the service agreement? And do you expect any deliveries to the project in Q4? Jarle Dragvik: Martin? Martin Holtet: No. So with regards to deliveries, of course, we are doing now some on-site work still. But as Jarle explained earlier today, the project is now soon to start up. And of course, then there will be sort of the -- call it, the final handover of the project to our clients from our side. But with regards to equipment, everything is delivered from our side. Unknown Executive: And is it possible to disclose how much of the order backlog that consists of the service agreement with ACES project? Martin Holtet: Yes. So we do not provide sort of a breakdown of the backlog on projects. But I think we have previously indicated some sizes of that. And the majority -- the far majority of the backlog is related then to the service agreement on the ACES project, while the -- call it, the other remaining part of the backlog is related now to the outstanding deliveries on or remaining deliveries on the SALCOS order, which is then the electrodes now being produced in Denmark. Unknown Executive: There are several questions regarding the LONGi partnership. So how is the partnership progressing? Jarle Dragvik: The partnership is progressing very well. We are in good discussions and planning of consolidation of the manufacturing capacity in China. We also have discussions on technology side and share of experience and also developing cooperation in other areas, but things like this does take time, but we have an excellent cooperation with LONGi. Unknown Executive: And one question is with all the future optimism and growth prospects you see, why are the insiders not buying stocks to show a commitment? Jarle Dragvik: Well, there are several reasons. First of all, there are some programs of options that has been running. Some has now, what do you call it, been running out in time... Unknown Executive: Expired? Jarle Dragvik: Expired. Thank you. And also, we are often confronted with positions of being an insider position. A small company like HydrogenPro with -- being negotiations with customers, future orders, it could be other strategic discussions, are limiting the windows for buying shares. Unknown Executive: And what would you highlight as the main explanations for the delays in FIDs in Europe? Jarle Dragvik: It's several, and I think we have touched upon it in also previous presentations -- previous quarters, but unclarity in regulations is clearly one major reason. Another reason is that it does take time to build the value chain. So the offtake side, which, again, also dependent on the regulation side has also caused delayed. And then we have had behind us, as we know, a period with high inflation and cost increase, increases in energy prices, which has made a lot of the project owners having to recalculate their investment projections and calculations. And all this together basically has caused much of the delays. Unknown Executive: And how are the contract values allocated between you and Thermax for potential orders in India under your current partnership? And would your electrolyzers carry the same pricing and margin profile as in other markets? Jarle Dragvik: Yes. Good question. Well, in terms of the revenue profile, I think we can say that it's a bit similar profile as you would see with our partner, ANDRITZ in Europe, where Thermax will take the full EPC and basically sell the total plant more or less in a turnkey setting. We will then sell our part of the equipment to Thermax. Now India is a very price competitive market, no question about it. We have yet to finalize, obviously, final contracts with customers in India, although we are in good discussions. But until then, we will see. But I think we have to be realistic to also see that India is competitive. Unknown Executive: And do you -- do the recent project awards in this market represent kind of early signs of recovery or green shoots in your opinion? Jarle Dragvik: Well, recent -- there has been some -- I don't know if the question refers to some of the announcements here in Norway. It's very small projects, although giving a positive sign that project owners are taking the steps toward FID. We see also same kind of movements on larger projects in some place of Europe and also other parts of the world that we have mentioned. So I think we see that project owners are getting more confident and ready to take FID. Unknown Executive: One big news is the recruitment of CCO. So what does this indicate about HydrogenPro's ability to attract strong competence? Jarle Dragvik: I think if you look at the recent recruitment, but also not just that, if you look at the recruitment we have done over the last 1 or 2 years, see that it's very high quality and good competence that we have been able to attract. And I'm very proud that a company like HydrogenPro is able to attract competence several people with PhD and also Masters, but also on the engineering side, commissioning engineers, et cetera, that we have attracted over the year shows that we are attractive. I think it also shows that a lot of people are still looking into -- going into sustainable energy and the green sector and wanting to make a better world and therefore, coming to companies like HydrogenPro. Unknown Executive: And some detailed questions about the projects. So how many projects with LONGi and the Thermax are in FID, if you are able to disclose? Jarle Dragvik: No, we do not disclose details of our pipeline. We will announce projects that's being awarded in due course. Unknown Executive: Okay. Jarle Dragvik: Thank you very much. Unknown Executive: Thank you. Martin Holtet: Thank you.
Operator: Hello, ladies and gentlemen. Thank you for standing by for RLX Technology, Inc.'s Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam. Sam Tsang: Thank you very much. Hello, everyone, and welcome to RLX Technologies Fourth Quarter 2025 Earnings Conference Call. The company's financial and operational results were released throughPR News Wire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relxtech.com. Participants on today's Chief Executive Officer; Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu; and me Sam Tsang, Head of Capital Markets. Before we continue, please note that today's discussion will contain forward-looking information made under the safe harbor provisions of the U.S. Private Securities Litigation Reform of 1995. These statements difficultly contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could can actual results to differ materially from those projected are anticipated, many of which are creators beyond our control. The company, it's affiliate, advisers and representatives do not undertake any obligation to update its forward-looking information except as required under the applicable law. Please note that RLX Technologies' earnings press release and this conference call will include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. RLX press release contains a reconciliation of the unaudited non-GAAP financial measures to the unaudited GAAP financial measures. For today's call, management will use English as the main language. We will also provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode and Chinese interpretation is for convenience purposes only. In case of any discrepancy, management statement in the original language will prevail. I will now turn the call over to Ms. Kate Wang. Please go ahead. Wang Ying: Thank you, Sam, and thank you all for joining today's call. This quarter, we once again delivered robust results in a challenging global environment. Our net revenue surged 49% year-over-year to RMB 1,129 million, with non-GAAP operating profit reaching RMB 188 million. This performance underscores the strength of our industry-leading portfolio and our excellent execution across international markets bolstered by a gradual recovery in Mainland China. It also validates the scalability of our globalization strategy and the outstanding technological innovation that secures our leadership in the e-vapor sector. Turning to Mainland China. Regulatory enforcement strengthened markedly, yield positive shifts in market dynamics. For intent, enhanced customers inspections have curtailed illegal returns of exported products, channeling customers back to legitimate brands from noncompliant alternatives during this quarter's modest Mainland China revenue recovery. That said, the persistence of an unregulated listed e-vapor market remains a significant headwind distorting competition and restraining volume recovery. Our revenue from Mainland China stands at RMB 320 million this quarter or approximately 13% of Q2 2021 level, illustrating the scale of ongoing challenges. True market order can only be achieved through consistent enforcement action particularly against illegal online sales. As a leading compliant player, we continue to advocate for strict enforcement and remain committed to providing adult smokers in China with a superior, diversified portfolio of quality tobacco alternatives. We are also advocating for regulatory adjustments around tobacco flavor formulation. This could align public policy with consumer preferences, helping to foster a more transparent orderly market. Internationally, our strategy continues to gain momentum with 70% to 80% of our revenues now derived from international markets. Amid various headwinds, including the big puff effect, disciplined execution, quality products and vape legal insights continue to drive success. Our new Asia Pacific franchise retail model exemplifies the strategic and execution excellence. By uniting independent vape stores under a cohesive brand to enhance retail execution, amplify visibility, and elevate user experience, we generated meaningful same-store sales growth. Furthermore, our robust R&D capabilities remain a core differentiators in international markets, enabling rapid innovation and local market adoption. Notably, our recent East Asia product launch that industry benchmarks of disposable e-vapor products for design excellence, spurring category growth and exceptional demand. Our expansion into adjacent categories with the [indiscernible] of our modern oral product further strengthen our portfolio and pipeline, unleashing growth potential as we capture demand from previously untapped user segment. Beyond APAC, Europe remains a critical growth market distinguished by regulatory maturity and involve user base. Our strategic equity investment in a leading European EV firm enhances our market intelligence and positions us to capitalize on future opportunities effectively. In the United Kingdom, where the government implemented a ban on this portable e-vapor product in June 2025, we demonstrated strong business adaptability. Through our proactive strategy to make migrate consumers to reusable and sustainable product format reinforced by robust retail execution and strategic category management. We not only safeguarded our market position but also sustain top line strength amid a sharp industry contraction. In summary, this quarter's results reflect our borrowing strength, resilience and leading innovation made a complex macro environment. We are building more than financial value. We are cultivating a global brand with quality and sustainable leadership. Looking forward, we remain confident in our ability to shape the smokeless industry and deliver lasting value to our stakeholders. Now I will hand it over to Chao for a detailed review of our financial performance. Chao Lu: Thank you, Kate, and hello, everyone. Before we dive into the financial details, please note that all figures I present today are denominated in RMB, unless otherwise stated. We are pleased to report another strong quarter marked by robust revenue growth and improved profitability. In quarter 3 of 2025, our strategic emphasis on international markets continue to drive exceptional results. Net revenues reached RMB 1.1 billion, reflecting impressive increases of 49% year-over-year and 28% quarter-over-quarter. Importantly, we reinforced our market leadership in core regions while proactively capturing organic growth and strategic investment opportunities. Selected Asian markets delivered strong organic growth fueled by successful product innovation and introductions, and effective local execution. Additionally, our investment in a premier European e-vapor industry, e-vapor company contributed significantly this quarter. Having consolidated this entity's financials since June, a full 3-month performance is now reflected in our results. Meanwhile, a mild recovery in Mainland China market provided a positive backdrop during this period. Let's turn to profitability. We further strengthened our profitability this quarter, a testament to our disciplined execution and operational excellence. Our gross profit margin expanded by 4 percentage points year-over-year and 3.7 percentage points quarter-over-quarter. This improvement was driven by the consolidation of our equity investment in the European market, favorable shift in geographic revenue mix and margin enhancements in all key international regions. Additionally, we achieved our eighth consecutive quarter of positive non-GAAP operating profit, reaching RMB 188 million. Our non-GAAP operating profit margin expanded by 6 percentage points year-over-year, reflecting both enhanced operating leverage and rigorous cost management. Looking ahead, we remain committed to driving further profitability improvements as we scale globally by relentlessly prioritizing operating efficiency and maintaining a lean organizational structure. Moving on to financial flexibility. We maintained our strong cash position supported by solid financial fundamentals and disciplined capital allocation. Our cash flow generated from operating activities surged in quarter 3, rising to RMB 358 million from RMB 157 million in the same period last year. This performance reflects our efficient working capital management, characterized by a healthy negative cash conversion cycle with inventory turnover days at 25, receivable turnover days at 11, and payable turnover days at 53. As of September 30, 2025, our total financial assets, including cash and cash equivalents, restricted cash, short-term bank deposits net, short-term investments net, long-term bank deposits net, and long-term investment securities net, stood at RMB 15.4 billion, approximately USD 2.2 billion. This strong liquidity position provides ample flexibility to pursue strategic investments that accelerate our global expansion and fuel innovation while also enabling us to enhance shareholder value through disciplined capital deployment and a sustainable return. That brings me to shareholder returns, which I believe is something that you are focused on. With a consistent disciplined capital allocation approach, we have returned nearly all of our non-GAAP net profit to shareholders through strategic share repurchases and dividends over the past 4 years. As of September 30, 2025, we have repurchased approximately USD 330 million in ordinary shares represented by ADS. For this quarter, we are declaring a cash dividend of $0.1 per ordinary share or ADS. Furthermore, since our IPO, including the cash dividend announced today, we have returned over USD 500 million to shareholders through repurchases and dividends. Our capital framework is purpose-built to support durable profit growth while maximizing long-term returns for shareholders, balancing reinvestment in strategic growth with responsible financial stewardship. In closing, this quarter's results are a clear testament to our outstanding execution and distinctive competitive advantages across global markets. We are not just navigating challenges, we are transforming them into opportunities through innovation and tailored local strategy. As we unlock new growth avenues, we remain focused on delivering sustainable value that benefits all stakeholders today and into the future. Thank you for your attention. We now welcome your questions. Operator, please proceed. Operator: [Operator Instructions] For the benefit of all participants on the call, if you will ask your question to management in Chinese, please immediately repeat your question in English. The first question today comes from Lydia Ping with Citi. Lydia Ling: Congratulations on the results. So I have 2 questions. And the first one is like as we now enter close to the year-end. So based on current progression in your international expansion. So could you actually share revenue outlook for 2026 for the company and also the industry? And also, could you also give us some breakdown for the international business, like how is organic growth in the third quarter? And for your invested European e-vapor business, so how did it perform in the third quarter? So this is my first question. And the second question is given that the e-vapor industry has matured, so what areas are prioritized in the R&D to sustain your growth and differentiation? Sam Tsang: Thank you, Lydia, for your questions. For the first question, let me address in 3 parts. Regarding 2026 revenue outlook, we are committed to expanding our brand footprint selectively across international markets, contingent on regulatory clarity and market readiness. Although the time remains fluid, we will maintain our disciplined strategic approach. We will share detailed plans as we finalize them in coming quarters. Regarding our third quarter 2025 international growth, our international revenue grew steadily and outpaced industry averages, driven by robust organic growth in the Asia Pacific region. This reflects the strength of our tailored product innovation and route-to-market strategy, enabling us to deepen market penetration and consumer loyalty. And finally, regarding our European investment performance, our invested e-vapor company in Europe has maintained operational stability despite recent regulatory challenges, including the U.K. disposable product ban. We are optimistic about our synergies and anticipate scaling this company as we advance market integration. Regarding your second question about product innovation and differentiation, amid a maturing industry landscape, we have sharpened our focus on meaningful product evolution that delivers value. Our R&D initiatives emphasize enhancing core user experiences, particularly in flavor of authenticy, device ergonomics and aesthetic design. We have optimized product performance through technological refinements and strengthen regional market responsiveness via localized flavor portfolio. This strategy culminated in a breakthrough product launched in East Asia this quarter, distinguished by innovative design and user appeal. We believe this R&D approach is foundational for sustained differentiation and long-term success. Thank you for your questions. Operator: The next question comes from Guo Yun with CITIC. Yun Guo: Thanks management. This is Yun Go from CITIC and congratulations to the results. My question is about the channel innovation in the select Asian market. Can the management elaborate more? Sam Tsang: Sure, definitely. Our channel innovation centers on transforming vape store experiences. Independent vape store dominates category sales but face branding inefficiencies. Through a franchise model, we provide renovation subsidies that upgrade store enhancement under unified branding. These initiatives have engaged over 450 partners in an East Asian country this year, driving significant revenue growth while enhancing our brand presence and operational control. Thank you for your question. Operator: The next question comes from Zhuonan Xu with CICC. Zhuonan Xu: This is Zhuo from CICC. My question is about our Europe business. First, could you give us some update on the U.K. with company integration? And what is the strategy for Europe further expansion? Sam Tsang: Thanks very much. Following the June consolidation, we are in the early stages of integration, currently prioritizing preservation of brand equity and operational strength. Our strategy is to transform the U.K. operations into a multi-rand retail distribution platform, leveraging supply chain and capital advantages to enhance efficiency. We are actively leveraging local expertise to expand channel development and product localization across Europe, while remaining open to strategic investments that we accelerate geographic and portfolio diversification. Thank you for your question. Operator: The next question comes from Ling Zhour with UBS. Unknown Analyst: Congratulations management for the strong results in Q3. So my question is, what is the current expansion status of the modern oral business? And what are the subsequent promotional strategies of RLX? Sam Tsang: Sure. Thank you very much, for your question. Modern oral is the smokeless industry's fastest-growing segments, reflecting a clear market opportunity. Our ultra-thin fast absorbent products launch in INTERTEC Germany, garnered strong industry validation. We plan to roll out this category in phases starting this quarter. At this stage, our near-term revenue expectations remain prudent as we build market data and consumer adoption. Thank you very much for the question. Operator: Due to time constraints, now I would like to turn the call back over to the company for closing remarks. Sam Tsang: Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technologies Investor Relations team through the contact information provided on the website or Piacente Financial Communications. Operator: The call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the DPM Metals Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Cameron. Please go ahead. Jennifer Cameron: Thank you, and good morning. I'm Jennifer Cameron, Director, Investor Relations, and I'd like to welcome you to the DPM Third Quarter Conference Call. Joining us today are members of our senior management team, including David Rae, President and CEO; and Navin Dyal, Chief Financial Officer. Before we begin, I'd like to remind you that all forward-looking information provided during this call is subject to the forward-looking qualification, which is detailed in our news release and incorporated in full for the purposes of today's call. Certain financial measures referred to during this call are not measures recognized under IFRS and are referred to as non-GAAP measures or ratios. These measures have no standardized meanings under IFRS and may not be comparable to similar measures presented by other companies. The definitions established and calculations performed by DPM are based on management's reasonable judgment and are consistently applied. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Please refer to the non-GAAP financial measures section of our most recent MD&A for reconciliations of these non-GAAP measures. Please note that unless otherwise stated, operational and financial information communicated during this call are related to continuing operations and have generally been rounded. References to 2024 pertain to the comparable periods in 2024 and references to averages are based on midpoints of our outlook or guidance. I'll now turn the call over to David Rae. David Rae: Good morning, and thank you all for joining us. I'm proud to report that DPM delivered record financial results during the quarter, including record revenue, earnings and free cash flow, results that reflect reliable high-margin production from our portfolio and the strength of the current gold price environment. Highlights from the third quarter include solid production of 64,000 gold ounces and 7.8 million pounds of copper, continued strong margins with an all-in sustaining cost of $1,168 per ounce of gold sold compared to an average realized gold price of $3,635 an ounce. Record free cash flow generation of $148 million, which further strengthens our financial capacity to fund growth. During the quarter, we achieved a major milestone with the closing of the Adriatic acquisition, successfully bringing the high-grade Vareš operation into our portfolio and transforming our long-term production profile. I'm pleased to report that integration activities are progressing very well. From day 1, we focused on embedding DPM's health and safety practices at Vareš, including the well-being of our people, and this remains our top priority. We've also begun to transform training programs for local personnel and engaging with stakeholders, important steps as we build a strong foundation for long-term success. Looking ahead, we are advancing our priorities at Vareš, including driving the decline to the bottom of the ore body and advancing construction of the paste backfill plant. We're on target to achieve a ramp-up to an 850,000 tonne per annum rate by the end of next year. I'm also pleased to note that we're now expecting higher production at Vareš in 2026 than previously anticipated as a result of higher tonnes gold and silver grades compared to the Vareš PFS. We will provide a detailed update on our expectations for 2026, along with our 3-year outlook in February. Turning now to review our operations in more detail and starting with Chelopech. Chelopech produced 44,000 ounces of gold and 7.8 million pounds of copper with an all-in sustaining cost of $671 per ounce of gold sold. Cash costs of $63 per tonne of ore processed were on target for the quarter, reflecting Chelopech's track record of solid efficient operations, and the mine is on track to meet its 2025 guidance targets for 2025, subject to market dynamics. We continue to prioritize in-mine and brownfields exploration work to further extend mine life at Chelopech, targeting a 10-year plus reserve life. During the quarter, underground drilling was primarily focused on the Wedge Zone Deep target, which is located on the northern flank of the Chelopech mine concession, approximately 300 meters below existing mineral reserves. This newly discovered zone of high-sulphidation mineralization is presented as a zone of continuous high-grade mineralization over an interval of approximately 150 meters downhole and has been outlined in two close-spaced drill holes to date. Further drilling is in progress from multiple locations to better understand the extent of the mineralization. Production at Ada Tepe increased in the third quarter as anticipated, producing approximately 19,400 ounces of gold with an all-in sustaining cost of $1,030 per ounce of gold sold. Ada Tepe is on track to achieve its guidance for the year. Turning now to the Loma Larga project in Ecuador. I want to provide an update on recent developments and our path forward. At the end of September, we released the results of an updated feasibility study, which highlighted the potential for the project to deliver attractive returns. During the second quarter, we achieved a significant milestone with the issuance of the environmental license. This was the result of a rigorous process to ensure high Ecuadorian standards were applied to the development of the project. We're confident that our environmental management plan and robust environmental protection measures not only complied with those standards, but also reflect DPM's proven track record of responsible development and our commitment to international best practices. However, in October, we received notification from the Ministry of Environment and Energy that the environmental license for Loma Larga was revoked. We are evaluating all available options to preserve value and optionality for our shareholders, including assessing legal avenues. In line with our capital discipline, we're planning to minimize further spending on the project until this issue is resolved and have reverted back to our original guidance for 2025. We continue to focus on developing quality growth assets such as Coka Rakita. The feasibility study is advancing on schedule and on track for completion by year-end. We successfully completed all surface and underground geotechnical and hydrogeological drilling, and we're now moving the design forward to the basic engineering level. Planning for project execution and operational readiness is proceeding as planned, ensuring that we are well positioned for the next phase of development. As we noted in our news release last night, most of the baseline studies required for the environmental and social impact assessment have been completed. The Certificate of Resources and Reserves has been approved by the technical committee, and we look forward to initiating the Special Purpose Spatial Plan once approved to do so. Based on an updated permitting time line, we now expect mine construction to commence in early 2027 with first production of concentrate targeted for the first half of 2029. We are maintaining close and proactive engagement with the relevant authorities to support this permitting process, and we remain confident in the overall progress at Coka Rakita. Key technical work streams are advancing as planned, and our proactive stakeholder engagement continues to support our path forward -- sorry, our path toward receiving the necessary approvals and advancing development activities on schedule. We're closely monitoring permitting time lines and implementing mitigation measures to ensure that we're ready to move forward with construction as soon as approvals are in place. In terms of our exploration activities at the Rakita camp, we continue to be excited by the impressive drill results which are clearly demonstrating the existence of a large copper gold system analogous to other large porphyry skarn systems globally. Results from Dumitru Potok are continuing to confirm the presence of a large high-grade gold-silver skarn system -- copper-gold-silver skarn system, with the mineralization concentrated along both the eastern and western sides of an intrusion. In September, we released results from one of the most significant intercepts at Dumitru Potok to date with 132 meters grading over 3.9% copper. Down the same hole, there was a 20-meter gap and then another 76 meters at 2.47% copper equivalent. On the western side of the intrusion, we extended the widest extent of mineralization by approximately 200 meters to the south and drilling to date has outlined about 600 meters of strike length of high-grade skarn contact mineralization. We also continue to see strong results in the Rakita North, Frasen and Valja Saka prospects, all located within 1 to 2 kilometers from Coka Rakita. Located adjacent to planned Coka Rakita infrastructure, the Dumitru Potok has the potential to unlock additional value and growth potential for an already high-margin, high-return organic project. We are targeting resource estimates for the Dumitru Potok, Rakita North and Frasen targets by year-end and have increased our exploration budget as we continue to target high potential areas within the 6-kilometer trend that we have identified to date. Based on drilling to date, mineralization has been detected over a 1-kilometer strike length up to 300 meters vertically and up to 500 meters away from the intrusion. I want to pause for a moment in order to acknowledge the significant contribution Paul Ivascanu, our Vice President of Exploration, who tragically and unexpectedly passed away in October. Paul was more than a leader at DPM. His passion, mentorship, which developed an impressive exploration team and his unwavering commitment to our values has left a deep impression on all of those who worked with him. Under his leadership, our exploration team's efforts have significantly transformed the future of DPM, driving the discovery of Coka Rakita, Dumitru Potok and identifying many other opportunities. On behalf of all of us at DPM, I extend our deepest sympathies to his family and friends who we are keeping in our thoughts. I'll now turn the call over to Navin for a review of the financial results. Navindra Dyal: Thanks, Dave. I would also like to acknowledge Paul's contribution and our condolences to his family and his friends. Returning to our quarter results, I'll be touching briefly on the financial highlights for the quarter, provide an update on our guidance for the year and conclude with some commentary on our balance sheet. All of my remarks will focus on results from continuing operations, unless otherwise noted. Looking at our financial results. Third quarter highlights include revenue of $267 million, adjusted net earnings of $129 million or $0.73 per share, cash flow provided from operating activities of $185 million and free cash flow of $148 million. Overall, we saw record financial results during the quarter, which reflected our strong operating performance, the low-cost nature of our operations, a favorable commodity price environment and the initial contributions from Vareš following the closing of the acquisition of Adriatic on September 3 of this year. Looking at our earnings and cash flow in more detail. Revenue was $267 million in the third quarter, an increase of $120 million compared to 2024 due to higher realized metal prices and higher volumes of gold sold as well as the inclusion of $42 million of post-acquisition revenue from Vareš. Adjusted net earnings in the third quarter of $129 million or $0.73 per share increased by $83 million compared to the prior year due primarily to higher revenue, partially offset by higher mark-to-market adjustments to share-based compensation expenses, higher depreciation expense and a stronger euro relative to the U.S. dollar. Adjusting items for the quarter, not reflective of the underlying operations of the company include a $25 million noncash fair value adjustment on inventories at Vareš recognized in cost of sales and Adriatic acquisition-related costs incurred by DPM totaling $10 million. Cash flow provided from operating activities of $185 million for the quarter was higher than the prior year mainly due to higher earnings generated during the period and the timing of sales and payments to suppliers. Free cash flow, which is calculated before changes in working capital was $148 million for the quarter, an increase of $77 million compared to 2024 due primarily to higher adjusted net earnings generated in the quarter. Taking a look at our cost metrics. All-in sustaining costs per ounce of gold sold for the first 9 months of 2025 of $1,136 were 32% higher than 2024 due primarily to higher mark-to-market adjustments to share-based compensation expenses, lower volumes of gold sold and a stronger euro relative to the U.S. dollar, partially offset by lower freight charges. Mark-to-market adjustments to share-based compensation expenses resulted in an increase of $193 per ounce of gold sold compared to an increase of $43 per ounce of gold sold in 2024. We continue to expect our 2025 all-in sustaining costs to be between $780 to $900 per ounce of gold sold, keeping in mind that our all-in sustaining cost guidance remains subject to external factors such as mark-to-market impact of DPM share price as well as metal prices and foreign exchange movements relative to our guidance assumptions. In terms of our capital spending, sustaining capital expenditures of $9 million for the quarter were lower than 2024 due primarily to lower expenditures on mobile equipment at Chelopech as expected and lower deferred stripping costs as a result of lower stripping ratios at Ada Tepe in line with the mine plan. Growth capital expenditures of $10 million for the quarter, excluding $2 million of capital spending at Vareš were higher than 2024 as a result of costs related to Coka Rakita project being capitalized from the beginning of this year. Last night, we provided updated guidance for 2025, reflecting our success year-to-date with our exploration activities in Serbia. Based on positive results, exploration expenses are now expected to be between $49 million, $54 million, up $5 million. In July, we had increased our growth capital expenditures related to Loma Larga. However, following the revocation of the environmental license, we now expect 2025 growth capital expenditures for the project to remain at the original guidance range of $12 million to $14 million in 2025, and we plan to minimize spending at the Loma Larga project until the issue with the environmental license is resolved. Our 3-year outlook does not reflect the operating and financial results of Vareš as we expect minimal production for the balance of 2025, consistent with the Vareš Technical Report that we filed in June of this year. As the Vareš mine ramps up to achieving commercial production by the end of 2026, the mine's 2026 production is now expected to be better than previously anticipated with higher ore processed and higher gold and silver grades when compared to the Vareš Technical Report. We will provide an updated 3-year outlook for Vareš along with our corporate guidance in February 2026. We continue to maintain a strong balance sheet and cash position. At the end of the quarter, after spending $400 million in cash for the Adriatic transaction, $136 million to retire Adriatic's debt and a total of $137 million returned to shareholders through dividends and share buybacks under the company's normal course issuer bid, or NCIB, our consolidated cash position was $414 million. With our strong free cash flow generation, balance sheet, no debt and a $150 million undrawn revolving credit facility, we are in a unique position with the financial strength to fund our peer-leading growth pipeline, invest in compelling exploration prospects while continuing to return a portion of our free cash flow to our shareholders. In closing, we continue to deliver strong performance from our mining operations and continue our track record of generating significant free cash flow. We remain in a strong cash position and are focused on our growth. I will now turn the call back to Dave for his concluding remarks. David Rae: Thanks, Navin. This is an exciting time for DPM and our shareholders as we look to our future as a growing precious metals producer, offering a peer-leading development pipeline, a strong balance sheet and capital returns, all of which are underpinned by our exceptional operational track record. Our portfolio is generating solid consistent results, and we are very well positioned as one of the lowest cost, highest growth producers. We are generating strong free cash flow and delivering peer-leading returns to shareholders. We're focused on executing a safe, efficient ramp-up at Vareš. We're nearing completion on the Coka Rakita feasibility study. We have substantial financial strength to fund growth opportunities and exploration, and we are focused on executing our strategy to deliver above-average returns for our shareholders as a mid-tier precious metals company. DPM has a clear path forward, and we're very excited about our future. I'd now like to open the call for any questions. Operator: [Operator Instructions] And our first question comes from Fahad Tariq of Jefferies. Fahad Tariq: First on Vareš, you mentioned that you expect 2026 production to be higher than previously anticipated. I appreciate we'll get the guidance in the first quarter. But maybe just talk about where the higher tonnage is coming from. The higher gold grades and silver grades, I believe that's a function of probably resequencing and maybe ore sorting, but where is the higher tonnage coming from? What process improvement is leading to that? David Rae: Yes, there's nothing on ore sorting, just to be clear, in terms of our outlook. What it's coming from is we brought in our teams to work with the Vareš team that we've acquired. And we worked on what we can do during the course of next year, that primarily focused on development initially. And then as we open up the different ore bodies, what that then means in terms of our access to those ore bodies translating to tonnages, grades, but also including things like mine recovery, dilution and so on. As we've done that, we've recognized an ability to do more than was in the original plan in terms of copper and gold grades, silver grades and also tonnages. And a lot of that will come down to the efficiency. So this is based on progress that was made ahead of acquisition and in month 1 after acquisition as well as our assessment with the capital investments that we've been making that can increase the reliability, throughput rates and sort of online times that we can anticipate. So basically, it's relatively early still. But based on what we've seen so far, we are optimistic that the PFS has been conservative in terms of its outlook. Just the last comment. It doesn't mean that on day 1 in January that we start off out of the gate at the tonnage that we described and you just divide by 365. Of course, I know you realize that. But we'll give some indication of what that ramp is going to be during 2026. But you'll notice we've been quite deliberate about meeting the 850,000 tonnes rate in the last quarter of next year. Fahad Tariq: Okay. That's clear. And then maybe switching gears to Coka Rakita and the permitting. Can you just provide any additional color on the level of dialogue with the government? Maybe what led to the -- it's a slight delay, but what led to the slight delay in the time line? And yes, just anything else you're keeping an eye on? David Rae: So as you'll understand, we're actually busy completing the next phase of reporting with the technical report. So there's obviously a revision that comes in as part of that. So we've looked at the overall situation. Our ongoing discussions with the government are very fruitful. We're very happy with that. Our ongoing discussions with our stakeholders is the same. And we've just taken the view of where are we at this point and what do we anticipate and recognize that we needed to revise that guidance. So what we've done, we've added 4 to 6 months to that guidance at the moment. Basically, if we look specifically at what's going on, there was an activity in midyear where a number of the different ministries were involved with some technical experts, what we call the technical committee. They looked at the Certificate of Resource and Reserves, where we provide some fulsome disclosure and information, which allowed that technical group to be able to come to a conclusion. They supported the project and that decision then triggers looking towards a spatial plan, and we were just waiting for a confirmation that we could actually start to proceed with that. So in the meantime, none of these things happen as a start-stop sequence. We do preparation while we're waiting for these triggers to occur so that we're ready to engage fully in terms of -- we're not waiting for these things to happen before we get ready with all the information. So it is one of these situations where we continue to work with the authorities. We continue to provide the information provided and answer any questions that come up. But I would say that I'm very happy with those relationships that we have ongoing, and we are confident that we'll be receiving the SPSP within the near future, which will allow us to move this project forward. There's a number of different activities that have got to happen, but really, we're focusing on the ESIA baseline studies and the release of the EIA and the exploitation permit, which would then trigger the construction for Coka Rakita. So where we previously said that time line would be mid-2026, we're now saying early 2027. Fahad Tariq: Got it. And then maybe just a quick one for Navin. I think in the MD&A and in the comments, there was a discussion about the strengthening of the euro. Is there an FX strategy -- hedging strategy at the company? Navindra Dyal: We do have the ability to put on hedges. We actually have utilized, if you recall, we used to hedge the Namibian dollar when we have the smelter. We look at that periodically in terms of whether or not we should be hedging. Typically, what we've done is, though, is that when we have significant capital expenditures that, for example, in the upcoming capital spend for Coka Rakita, we might look to otherwise hedge the FX exposure related to that. But for ongoing business, especially when it comes to euro, you're looking at -- historically, I tend to look at gold and euro kind of moving in the same direction. So as the strengthening of the euro happens, you typically have the gold market kind of improving as well. So it acts as a bit of a natural hedge. So we kind of just kind of watch that. And then if there is any change to that assumption, then we might take some positions there, but typically not in the past when it comes to euro. Operator: And our next question comes from Wayne Lam of TD Securities. Wayne Lam: Maybe just a follow-up at Coka Rakita. Just wondering if there's any read-throughs or knock-on impact from Rio Tinto's mine being deferred in terms of permitting implications? Or do you guys see the two projects as fairly mutually exclusive? David Rae: Yes, we see them as mutually exclusive. Wayne Lam: Okay. Great. And then maybe at Ada Tepe, can you give us an update on the expected timing in terms of the wind down in operations? Is that still slated for midyear next year? Or is there any ability to extend out the operations incrementally given the higher gold price? David Rae: Yes. Thanks, Wayne. So we're still planning that we'll wind down mining and process operations in Q2 next year, no change to that. Sorry, -- so changing in gold price environment, does that mean that, that opens up the opportunity for other material to be brought in? No. Wayne Lam: Yes, exactly. David Rae: In terms of infrastructure, sorry -- thank you to your question. We still plan to obviously disassemble the main infrastructure, which is primarily around the process plants, so crushers, mills, other pumping, piping, buildings, this type of thing. Plan will be that we will start to disassemble that at the end of that period where we close the mine operations, close the process operations. And then we'll disassemble that and we'll refurbish it. A good part of that still at Ada Tepe and some part of that in Chelopech, and then it will be stored ready for movement to Coka Rakita. Basically, as we get the infrastructure in place and we have the civils ready to receive the equipment, it will be moved to time with that. Wayne Lam: Okay. But with the higher gold price, so there's no potential for further extension even with the higher gold price? David Rae: No. Wayne Lam: Okay. And then maybe just last one at Chelopech. Can you talk a bit about the cost pressures you're seeing there on the labor side? And if we think about the levy that was paid in Bulgaria in Q1, should we be thinking about something similar as we think about the year-end here, particularly with the stronger metals price environment? Or was that a one-off event? Navindra Dyal: Wayne, yes, we consider that -- starting with the last question first. That levy we're considering a one-off event. We've got no indications that would suggest that this would be repeated for next year. When it comes to pressures on labor, we have -- every 2 years, we have renegotiated agreements with our workforce. And we just completed one this year and hence, why we're seeing that kind of translate into this year's cost. We planned for this as well, and we take an appropriate amount in consideration to our budget. I think that's just something that we're seeing not just in Bulgaria, but elsewhere globally. I mean, I think labor is sticky when it comes to increases. And -- whereas we're seeing benefits elsewhere such as our freight costs, which have been reduced significantly over the past year, labor certainly is one that we continue to see increases there. But again, our workforce is extremely skilled, as you would appreciate in Bulgaria, and we consider that in the negotiations as well. Operator: [Operator Instructions] And our next question comes from Raj Ray of BMO. Raj Ray: And first of all, I'm deeply saddened to hear about the news on Paul. My sincere condolences to the entire DPM team. I've got a couple of questions. First up on Coka Rakita. With the feasibility study expected, Dave, is there any change of scope or anything you can highlight that we should be looking forward to? And also in terms of the reserves update, what is expected to be included in that? And secondly, on capital returns, it's probably for Navin. Is there a potential for a boost up in capital returns? We see in Q3, there wasn't any buybacks. So as we go into Q4, is there potential for boosting of capital returns? David Rae: Okay. Yes. Thanks, Raj. In terms of changes of scope, we've got the feasibility study coming out in the fairly near future. So I would suggest let's wait for that to come out. It gives you an awful lot more detail. But what I would say is we're very happy with the way that's progressing. No sort of nasty surprises with that. So -- and looking forward to really getting on with that construction. I think the one thing that we've seen sort of touched on, but perhaps maybe some still miss, I'll make this comment for everybody here that we alluded to the fact that having Vareš puts us in a very good position in terms of our operational readiness. So one of the things to keep in mind is we're testing things that we've developed at Chelopech at Vareš at the moment, which feeds into what is going on for 2026 in order to bring us to the production numbers that we have and the efficient numbers that we have, which we'll put out in February next year. That then translates into readiness for Coka Rakita. So there's also that dynamic. So earlier, Wayne asked about what's happening with the equipment and are we still going to move it. There's that dynamic coming in as well, which was not there when we did the pre-feasibility study. So our confidence is obviously increasing as we do more engineering, and you'll see that reflected in the pre-feas. Keep in mind, any significant changes we typically do ahead of pre-feas. And really, all we're doing is we're working through the sort of dynamics of the costing and increasing confidence between the pre-feas and the feasibility study. So at this point, no scope changes. Navindra Dyal: And Raj, I'll just address your second question on capital return. So in the third quarter, as you can appreciate, we were pretty busy wrapping up the acquisition of Adriatic for much of the quarter. We also ran into some -- we had some upcoming disclosures that occurred at the end of the quarter as it related to Loma Larga's technical report. And as you can appreciate also in the fourth quarter, we have a significant amount of news flow up and coming with the Coka Rakita technical report, the initial resources for the three deposits that will carry us through. So I would say that from a fourth quarter expectation around buybacks and the like, I think it would continue to be minimal. However, it remains a considerable implement in our toolbox here, and we definitely consider a return -- a healthy return of capital to shareholders important. And so while you may not see a significant amount for the remainder of this year, I think you can expect to see that we will revisit that next year. Operator: And our next question comes from Jeremy Hoy of Canaccord. Jeremy Hoy: Just a quick one for me. It's on Loma Larga. A lot of momentum building in Eastern Europe there. And clearly, Loma Larga becomes, I think, less critical overall to the story. But has there been any dialogue since the revocation of the environmental permit with the government or stakeholders? Or are you essentially at an impasse there? David Rae: What we've said is that we are engaging with stakeholders, and there will be a necessity to engage with the government. You'll understand that at the time, there was a number of things that were going on and the revocation came about at a time which is most disappointing given what happened with the EIA issue. And the clear demonstration from the environmental ministry that our standards were robust and in line with what was required for this project and would stand the test globally in any place that we operate. So somewhat disappointing that, that happened. And there were a lot of things that were going on at the time. It will be necessary for us to consider what our options are. But basically, we're assessing all of our available options to preserve the value and maintain optionality for our shareholders. And that includes evaluating legal avenues. And I think more than that at this point, I'm not really able to discuss. Operator: I'm showing no further questions at this time. I'd like to turn it back to Jennifer Cameron for closing remarks. Jennifer Cameron: Well, thanks, everyone, for joining us, and we look forward to speaking over the coming months and look forward to sharing some of our upcoming news flow with you all. If you have any further questions, please feel free to reach out. And thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2025 Third Quarter Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead, Anna. Anna Hartley: I'd like to welcome you to our third quarter earnings conference call. Joining me on the call today is Ana Cabral, CEO of Sigma Lithium. Our third quarter 2025 earnings press release, presentation and corresponding documents are available on our website. I will now turn the call over to Ana Cabral. Ana Cabral Gardner: Good morning, everyone. It's a great pleasure to present Sigma Lithium's Third Quarter 2025 results directly from the Amazon, where COP30, the United Nations Climate Conference is being held. Sigma is here as a member of the Brazilian delegation. We have been engaged in high-level dialogues with other delegations from all over the world, and we are showcasing how we have implemented and executed on every single one of our targets of sustainability set out in 2017 when we made the original investment in the company. Since then, we have managed to build the most sustainable lithium beneficiation plant in the world, digitalized and using algorithms, the employee bots or AI to become more and more efficient in treating the mineralogy of our mines and increasing plant recovery. So our plan is where technology meets metallurgy meets mining and delivers sustainability, doing more with less. Please kindly read the disclaimers. We're going to make quite a number of forward-looking statements and projections and guidances as we go through this presentation. We're very proud of our accomplishments in the third quarter, especially considering the state of the lithium markets throughout the quarter. we have managed to increase the resilience of our business significantly, achieving the following 5 initiatives. First, we substantially increased our net revenues through optimum commercial strategy. We increased revenues by 69% quarter-on-quarter and by 36% if compared to the third quarter of last year. We have generated cash of $31 million, resulting from final price settlements of sales that happened throughout the year. In addition, we expect cash generation from sales of our processing, high-purity, high-grade middlings, which are the result of our sustainable efforts. We have approximately 1 million tons of those dry stacked high-purity materials. We are also in the process of successfully upgrading our mining operations. Our plant has already restarted this week, our mine is expected to resume operations within 2 to 3 weeks, and Sigma will operate the mine with equipment lease directly from the manufacturer. Lastly, we continue to maintain financial discipline, and that's demonstrated by deleveraging on our short-term trade finance debt by 43% this year despite the challenging lithium pricing environment. On this page, we showcased the financial highlights of the third quarter of '25 related to the increased cash margins and the deleveraging of our short-term trade finance debt. Our revenues have increased by 69% if compared to last quarter. More importantly, we increased revenues by 36% versus the third quarter of last year. Our pricing also increased by 33% versus last quarter. So the revenues increase are a result of our efficiency increase. Our margins also increased. The operating margin increased in 42% versus the third quarter, and the net margin increased 67% [Technical Difficulty] quarter of last year. Both margins also increased substantially versus the previous quarter. But by showcasing the increase versus last year, we demonstrate how we increase the resilience and the strength of the business. Our deleveraging is demonstrated by the decrease in trade finance. We managed to pay down export financing, short-term debt in 43% this year. The remaining balance is just $33.8 million as of November 13. Our cash has also increased by 42% versus last quarter, which is a trend very different from our peers, which had burned current cash. Our current cash today is $21 million plus $8 million of incremental trade receivables, all related to sales realized until the third quarter of 2025. On this page, we discuss our stellar record of 0 accidents. We have achieved 787 consecutive days without accidents with lost time injury. It's over 2 years with 0 records. This demonstrates our operational excellence in addition to managing to continuously decrease our costs. So we haven't cut costs at the expense of health and safety. Our TRFIR is 1.79 amongst the lowest in the world. This results in employee engagement and safety processes, a direct connection to the factory floor, which leads us to enhance performance and ideas for cost optimization coming straight from our employees. So it's a self-fulfilling circle where focusing on safety enables us to keep on getting better, both operationally by increasing efficiency, but also cost-wise by gaining ideas directly from employees on how to be lower cost. We're very proud of this. On this page, we're going to start to discuss our financial performance this quarter. On this slide, we demonstrate how Sigma achieved an optimum commercial strategy, which allowed us to price efficiently our material capturing the price cycle despite the price volatility that took over the metals market throughout the period that followed Liberation Day and the tariffs. You can see on this chart in red, the sales on provisional prices and in green, the sales on final prices. And it's visible that we were able to capture a much higher final price as we managed to authorize our clients to resell the products and settle our final prices. These adjustments resulted in incremental cash revenues for this quarter. So a picture is a thousand words. And here is how that translates into cash generation. This commercial success resulted in incremental cash from the final settlement with the trade partners. And you can see that by looking at the initial cash position at the end of the second quarter, the increasing cash from operations on a provisional price basis of $30 million, then the generation of trade receivables booked on sales up until third quarter on provisional prices of $20 million. That got converted into cash as of now, but that refers to sales with a cutoff on the third quarter. In addition to that, we had another incremental increase in trade receivables because of the extra increase in prices that we have been experiencing to date at $1,700 per ton. So that's another $8 million, which means that there were $28 million extra that resulted from our optimum commercial strategy. So when you observe our cash as of today, we have $21 million in the bank plus $8 million of settled trades at current market prices. Now in addition, we have $33 million of potential sale of lithium middlings, which are high-purity middlings or dry stack material that currently sits both at the port and at our plant at current market prices quoted at Shanghai metal markets of $112 per ton, net of transportation costs to port for part of it and to China for the material sitting at the port. So a significant cash boost coming from materials that have already been produced. But more importantly, a direct result of our investment in dry stacking our tailings and recycling and reprocessing and optimizing our lithium Greentech industrial plant. On this page, we show what that cash position enabled us to do. We managed to pay down our short-term trade finance 60% year-to-date to November. If you cut it off as of October, we paid it down 44%. That's a significant debt reduction, especially considering the down markets and the lithium prices volatility we experienced this year. So we had a cash increase, and we decreased our short-term trade finance expensive debt. That's a significant accomplishment in financial results for a year such as these in lithium markets. On this page, we demonstrate how the debt maturity profile will be lengthened further because all that's left now is essentially $10 million that we already paid down, plus $100 million that will be paid down next year in December, which relates to our shareholder debt, whose generosity has allowed us to get here to commission our Greentech plant and to continue to make improvements to achieve the stellar operational performance the plant has been delivering. So we are in a very comfortable debt position as of November 13. And we demonstrate here on this page all the short-term debt that we have managed to pay down or roll. This page demonstrates our low-cost resilience and the fact that we are a source of responsible lithium production in this industry. We have managed to maintain the highest sustainability and ethical sourcing standards throughout market pricing, meaning our resilience is here to stay. Even with the slight decrease in production, which is shown here in the little green over our regular costs, we're still lower than the lowest cost producer for nonintegrated lithium oxide concentrate in Africa. And this location to the very left of the nonintegrated supply curve is exactly where we plan to remain throughout the foreseeable future. On this page, we demonstrate how the lower production levels in September have not really affected our low-cost position. In other words, the slight increase in cost maintained this on guidance for the all-in sustaining cost, and that's demonstrated by the chart to the right, where we show the 9-month all-in sustaining cost versus the full year guidance we provided at the beginning of the year. This all-in sustaining cost includes interest, CapEx, maintenance, all of it, royalties, SG&A, environmental and social that is voluntary. So we're very much on track. We're issuing guidance of this all-in sustaining cost becoming $560, meaning lowering to $560 for 2026 based solely on production from the first plant. Now the increase in CIF cash costs and plant gate costs are easily corrected once we return to full production in the first quarter '26. So our low-cost position is unmatched and unchanged. On this slide, we basically outline the offtake agreements expected for this year. They're basically enabled by the significant commercial leverage and power we achieved by being an ethical producer and one of the lowest cost producers of lithium concentrate globally. Now what we've done, we tailored different types of offtakes to cater for different specific client needs across geographies. So this year, what we have is 3 different kinds of offtakes being discussed with 3 very different kinds of clients. The first kind is what we call the 3-month rolling offtake. They're done at market prices, and these are prepayment of upcoming production until March. The objective is to provide Sigma with low-cost working capital. The second kind of offtake is a 20,000 tons for 3 years for $25 million. It's a small long-term offtake and the use of proceeds will be to pay for the mining equipment that will help us upgrade our mining operations, meaning the larger-scale trucks and overall excavators and mining equipment. The third category is a conventional offtake or prepayment being negotiated with a global European trading company. So the use of proceeds is to deploy towards our expansion plans remaining on track for our growth strategy next year. We are in contract negotiation stages with them. Now for 2026, we still have another 120,000 tons of product uncommitted to be contracted into offtakes. The objective is to strike conventional offtakes for both amounts. The first amount for 80,000 tons will be assigned to a regular end user. And the objective is to repay the long-term shareholder debt that was generously enough offered to Sigma in December 2022 and enabled us to get here to this very strong operational position. We are in contract negotiations for that one. The second offtake is going to be achieved against an agent, meaning a trading company, which again, is going to be a typical conventional offtake, once again deployed towards building and delivering on our growth strategy, meaning building a second plot. And this offtake is under contract negotiation. So we're expecting to announce 3 offtakes still this year and 2 more next year. This page demonstrates our production and cost guidance for the upcoming years, 2026 and 2027. Our cash flow is poised to increase as our production efficiency increases with the execution of our strategic plan. With Plant 1 alone, we're bound to generate an all-in sustaining cost of $560 per tonne, and that includes everything, including interest expenses. Now at the current price levels of $1,000 per tonne, that represents a cash flow -- free cash flow generation of $132 million. Once we complete Plant 2 by the end of next year, we expect to have 550,000 tonnes of production throughout 2027, which will lower our all-in sustaining cost to $500 approximately that at current price points for lithium is expected to generate a free cash flow of approximately $270 million. So this page really demonstrates how by remaining the lowest cost producer globally, we are bound to benefit with excess returns from this relative increase in lithium prices from $700 per ton at mid-third quarter to $1,000 per ton as of November 13. This page demonstrates how our Greentech Plant upgrade into the 3.0 version concluded and executed in November '24 was not accompanied with [Foreign Language] this page demonstrates how the upgrade in our Greentech Plant into a 3.0 version, which was concluded in November of '24 of last year, 1 year ago, was not followed by our mining operations. Here at Sigma, just to recap, we have 2 different operations, which are integrated. We have a mine that delivers raw material to a state-of-the-art industrial lithium beneficiation plant, the Greentech Plant. That is automated, digitalized and run by an algorithm. Throughout the first 9 months of this year, what we could demonstrate is that the plant outperformance was compensating for the mine. You can clearly see that in the chart at the bottom left of the slide, where we had an 11% increase in production in the first 9 months of this year. Now the chart above show and demonstrate the significant upgrade that took place in the Greentech Plant last year when from the beginning of '24 to the end of '24, the production went up 43%. In other words, the plant can produce 300,000 tonnes of lithium concentrate if properly fed with fresh rock, fresh spodumene ore. It processed efficiently because the plant recoveries are 70%. Now that made it clear that a mining upgrade was required. So we reassessed our mining plan and concluded that we needed larger equipment scale to basically ensure higher volumes that would be moved faster. More importantly, that would also ensure that we would maintain our stellar safety and health record at our operations. The chart on the right break down the 2 quarters, the second quarter '25 and the third quarter '25. And it clearly shows that the last month of the third quarter when the mining equipment provider was demobilized was where we had a significant production decrease because they were simply demobilizing and phasing down their efforts in operating and moving material at the expected productivity rates. This page shows what's the way forward. Well, we have mastered dense media separation technology, achieving 70% recovered. Let me go back to the beginning, pause, pause again. This page demonstrates our way forward in our operational plan. Clearly, we have mastered dense media separation technology for lithium processing, achieving 70% recovery rates. That's equivalent to flotation. We have demonstrated also greater efficiency and reliability throughout 2025. And now we're going to match it by upgrading our mining operations. First, our plant. It has already restarted. So it restarted processing high-grade material that's in our current operating site. The target for 2026 is to achieve full plant operational capacity of 300,000 tons of lithium oxide concentrated. We have been recurrently achieving unprecedented recovery levels throughout the year up until the third quarter. So that's where our confidence comes from, from this track record. Now on the feed of the plant. Clearly, a mining upgrade was required and is underway. We reassessed the mining plan and the geometry. So we observed that we have mined about 798,000 tonnes in July and 659,000 tonnes in August. We continue to mine waste and strip in order to optimize geometry, and that is something I talked about during our second quarter '25 announcement. The ore grade has been perfectly aligned with our mine plan with no significant dilutions. So we maintain the cadence of the ore grade fed to the plant. As a result, we're very well positioned to resume our mining operations within 2 to 3 weeks once we're able to mobilize large-scale equipment so that we can increase the volume mined and the operational speed at which we advance the geometry and increase mining volumes. So with those upgrades, we expect to evolve our production capabilities at the plant already in the first quarter '26, reaching 73,000 tonnes of lithium oxide concentrate produced. That's the guidance for the first quarter of '26. This slide demonstrates how by being the low-cost and most sustainable producer at large scale, we have been able to obtain significant support by our clients to execute our -- on our expansion plans. That's financial support and offtake support. We plan to reach 80,000 tons of lithium carbonate equivalent upon completion of our Phase 2 expansion next year. By just adding a third production line, which infrastructure is already on site, we expect it to achieve 120,000 tons of LCE equivalent of production. That is a consequence of Sigma already being a pillar throughout global lithium supply chains. So this underpins the financial support that we receive from our very large clients downstream in the lithium supply chain. So we also conclude by outlining how we're going to continue to deliver on our strategic plan for 2025. First, we're going to conclude our offtake agreements as we have outlined in the presentation. Second, we have achieved financial strength, but we're going to continue to do so by continuing to close final prices on the provisional price sales that we have achieved year-to-date until the third quarter and we'll continue to deliver throughout the fourth quarter. We have deleveraged and we'll continue to delever by basically paying down expensive short-term trade finance debt. We're also going to monetize existing lithium products that are currently sitting in our plant and in a port, taking advantage of the current robust pricing environment where demand for these products become actual. Currently, these products are priced at about $120 per tonne, which could bring the additional revenues of $33 million throughout the fourth quarter. Thirdly, we are going to upgrade our mining operations to increase the Greentech Plant production scale, more feed, more concentrate. So there's another advantage to that, which means we're going to lower the structural costs of this company by lowering the plant gate costs by increasing production volume and by actually decreasing the absolute number of mining costs, which represent 2/3 of our plant gate costs. Four, we're going to continue to partner with our very large clients with very large balance sheets to create commercial strategies that allows us to navigate lithium price seasonality, benefiting from achieving higher prices during the high seasonality. Number five, we're going to continue to increase the scale of our suppliers so that we can obtain working capital support. This is a strategy where we're simply matching or copying with the global leaders in downstream, including battery makers and carmakers receive from their own suppliers in the duration of their account payables. The average of the largest carmakers in the world is from 130 days to 180 days to 210 days. We've been barely doing 30 days of deadlines for suppliers. So we are lengthening that period by leaning on larger suppliers that are as large as us. I want to thank you for the opportunity to present to you our third quarter earnings. And I'm now going to open the floor for the Q&A questions that are going to be submitted to our moderator through the chat function of this Zoom. Operator: [Operator Instructions] Our first question comes from [ Bavida ] from Bloomberg. Thanks for the granularity on the cash balance. Based on Page 9, is current cash balance at USD 29 million plus USD 33 million or only USD 29 million. Ana Cabral Gardner: No. The current cash balance is $29 million. The $33 million are basically bids we received on the current lithium material we already have, and we were mentioning that exists in the port and at the plant. Operator: Our next question comes from [ Leanne Crozier ]. What is the region of lithium middlings from the process circuits? What is their LI 20 grade even as a range? Ana Cabral Gardner: Yes. These are typical materials that are processed through the DMS circuit. They are more valuable because the chemical structure of the particle hasn't been broken. In other words, it's a very different manner of processing lithium ore than the flotation plant. So the lithium grade goes from 1% to 1.3%. There's an official quote for these products at Shanghai Metals Market, which can be validated daily. So in current market environment, where it's actually a search for physical materials to close open positions in Guangzhou, we've been getting bids for these materials, 100,000 of which are at the port already, which makes their cost simply shipping to China, which is $40 a tonne. And then we have another 850,000 tonnes of these materials at the plant, which makes their costs approximately $85. So when we bank on $33 million, it's just pure profit, given that there are costs incurred in transportation. So the number is net of transportation. The current quote for these materials at Shanghai Metals Market is $120 per tonne. They are roughly 11-ish percent of current lithium oxide concentrate prices as of today, which is about $1,070 to $1,080 per tonne. Operator: Our next question comes from [ Armando Wolfrid ]. Could you please provide some more info on the 100 million shareholders credit and the status of your BNDES loan disbursement for Phase 2? Ana Cabral Gardner: Absolutely. Well, we're going to lean on our suppliers -- on our credit clients the same way we have been leaning on them for a number of advancements we've been doing here, including mining upgrade. There are a number of ways to basically disburse the BNDES loan. However, as we discussed earlier, we were awaiting for a quarter of lithium price stability given the highly volatile pricing environment we experienced this year. I mean we were one of the few companies to actually generate cash this year. Our peers were mainly cash burning. So our Board decided to wait for a quarter of stability so that we could basically green light purchasing equipment. Once we do so, it could happen as early as January or late January, given current price environment being very robust. So we're going to utilize the same structures we've been utilizing, which are large customer balance sheet support to basically disburse [Technical Difficulty] what are we doing about expansion is ensure [Technical Difficulty]. Operator: Ms. Ana, your connection just dropped in the middle of the answer, if you can repeat that part, please. Ana Cabral Gardner: Okay. Yes, so regarding the structure for this bus in BNDES, our Board was waiting for at least 1/4 of price stability given the volatility in lithium prices, the market experienced this year. So what we are planning to do if the lithium prices environment continue to be as robust as it is now is probably green light equipment purchasing as early as January, late January of '26. But more importantly, we have already disbursed a certain amount and file that with BNDES. So it's all basically ready to be deployed once we continue on equipment purchases, which is the plant portion of Phase 2. Now the key element in ensuring the timeliness of a potential 2026 commissioning of the plant was adjusting mine geometry so that we could feed the plant with the same geometallurgy that we are feeding our current Plant 1. So feeding Plant 1 and Plant 2 with the same geometallurgy would ensure a shorter ramping up period given that we would have more chemical certainty of the ramp-up. In other words, any ramp-up issues could be only narrowed to processing, which are relatively easy to fix. So the work on mine geometry would continue the same way we carried on geometry work throughout the second quarter despite the lithium prices volatility. Operator: Our next question comes from [ Habbou ]. Will production be fast-tracked if the lithium market tightness and the market price of lithium increase happily? Ana Cabral Gardner: Yes. That's exactly why we're carrying through the mining upgrade. You were spot on, meaning we know what the plant can't do. I mean we have a state-of-the-art Greentech lithium plant that can't do 300,000 tons of lithium oxide concentrate on its own. What we needed to do was to match mine to plant. And this is exactly what we're doing, taking advantage of the relatively muted lithium price environment that we observed on the third [Technical Difficulty] production a year. Operator: Ms. Ana, your connection dropped again. If you can repeat... Ana Cabral Gardner: Okay. So resuming, what we are doing is basically spot on. In other words, we are basically matching -- the reason to decide on the upgrade of the mine was exactly what you asked us. In other words, we know what the plant can do. The plant can deliver 300,000 tonnes of lithium oxide concentrate per year. If properly fed with fresh rock. So by upgrading the plant, by revisiting the mine plan and moving more material, what we're doing is making more product available for the robust lithium price environment that we were expecting in 2026. We took advantage of the muted price environment still in the third quarter to make that decision, and it was the accurate timing to do so because as we enter '26, we will already enter with an upgraded quarterly production, as we indicated, to 73,000 tonnes. Operator: Our next question comes from [ Benson Chen ]. What's your estimated CapEx for bringing Phase 2 and 3 online, respectively? And what could be the risk of further delays. Could you not utilize some credit lines to speed up the expansion and avoid delays? Ana Cabral Gardner: Well, we have a credit signed with BNDES, which is the best possible credit we can get. But to your point, the offtakes, as I outlined on the discussion that we had about them, and it was quite detailed, are meant for that. In other words, we have the conventional offtakes when we declare the use of proceeds is to fund the growth, what they will be doing is essentially closing that gap. As offtakes get closed this year, what we will do is redirect those proceeds for the plant Phase 2, given that the mining upgrade has been fully covered by our current clients. Operator: [Operator Instructions] Our next question comes from Joe Jackson from BMO Capital Markets. Please confirm as of today, how much production Sigma had at the mine in Q4 due far? And how much spodumene inventory there is as of today. Ana Cabral Gardner: Yes. What we are planning to do, Joe, is to issue guidance for fourth and first quarter together. We issued the first quarter guidance, and we're going to issue fourth quarter guidance soon when we show a remobilization plan. What we have, though, is the full cost to upgrade mining operations, which is $25 million, which has been fully covered by our clients. So what we need to do now is to just wrap up what we call the mobilization curve for large tonnage equipment, which is either twice the tonnage of what we got or probably 2.5x the tonnage of what we got. Depending on the mobilization curve, which will be announced promptly, we will be able to perhaps have a surprise for the fourth quarter. And we've given the first quarter guidance and the fourth quarter guidance will be given as soon as we wrap up the mobilization curve for the very large tonnage equipment that's been made available to us by the manufacturer directly. By the way, one more point that's very important. The $25 million are not going to be paid at once. They're going to be paid in very nice soft installments throughout 2 to 3 years at very low rates, SOFR plus under 1% or 1%, again, facilitated by our very supportive clients given that we are the pillars of global downstream supply chains. So you'll be like -- it'll be an offtake like any other. Operator: Our next question comes from [ Ricardo Fernandes ]. Are your volume contracts based on spot price or negotiated? How much of lag is there between spot and realized at prices? Ana Cabral Gardner: Well, it's spot essentially. We closed provisional prices at spot. Today, fortunately, there's a very liquid market for both chemicals and spodumene or we call lithium oxide concentrate. Shanghai Metals Market, Guangzhou, I mean, they're literally moving with significant volumes. I mean, just for example, last night, Guangzhou negotiated over 600,000 tonnes of LCE of open interest contracts. That's a term of global lithium demand. So there's [Technical Difficulty] quite precise pricing. Last night, prices hovered around $1,070 a tonne. So that level of liquidity allows for spot to be quite precise, meaning clients bid and hedge immediately into chemicals. So we believe pricing is becoming more and more efficient, which helps producers like us, given that there's less opacity, more transparency. And again, what we do though is depending on the season, we close at final, or we close at provisional. And what we've done this year, given volatility, we basically closed the provisional pricing. And now we're benefiting from having the clients to lean on and realizing final pricing. Hence, the cash boost we received from sales of the third quarter at the moment, as we explained in detail in our cash from operations section of this presentation. Operator: Our next question comes from Shiva Kumar. Are you getting any premium at all of the green lithium compared to the market price? Ana Cabral Gardner: No, unfortunately not. I'm here at COP30. That's been one of the frustrations. What the advantage is, though, is commercial power, meaning given that global supply chains are being rearranged, what we have is similar battery makers supplying carmakers globally in the West, in the East, all over. So there's a huge focus on traceability, on sustainability, on health and safety. And what we have is essentially a brand that safeguards us from any questions. I mean it's very easy to ascertain the Quintuple Zero advantage. And that's what we have, a commercial advantage, which translates into what we showcased so far. Our ability to negotiate provisionals when we believe it's reasonable to negotiate provisionals, our ability to lean on our clients' balance sheets for support for mining upgrades and so on and so forth. But unfortunately, there is no green premium. And we do not believe there will be a green premium. If -- hopefully, that could be, but it's years ahead. What there is, is a green [Technical Difficulty] commercial advantage. Operator: Our next question comes from David Feng. Ana, this is David from CICC Research, and thanks for the presentation. We can see that there is still over 30 kt of spodumene concentrate inventory by comparing year production and shipments. Just wondering how we expect all these inventories to be sold in 4Q '25? And what would your inventory management strategy if lithium price continues to rise. Ana Cabral Gardner: Yes. Thank you, David. We'll sell it all down. I mean at current prices, the plan is to basically monetize everything we have, including the -- what we call in China middlings, right? And we have high-purity middlings with an intact we call intact spodumene chemical structure because it comes from DMS, and it hasn't been affected chemically by the flotation nor by organic contaminants nor by the chemicals utilized in flotations. Hence, we can get a straight quotation for $120 even for middlings, which is -- which just shows that the current strategy is to monetize all the lithium we currently have. Operator: Our next question comes from [ John Christian ]. Can you quantify in U.S. dollars, how much working capital will be required to restart the mine in the first quarter 2026? And can you bridge the $6 million on third Q ending cash balance to $21 million today, considering your slide show $20 million debt paid down in the 4Q so far. Where did that approximately $35 million came from in the past 6 weeks? Ana Cabral Gardner: Well, no, we discussed that. I mean if you look at lithium price behavior, it came from the final price settlements. I mean the lithium prices have rallied considerably, RMB contracts for LCE and Guangzhou were close to $88,000, $87,000. So we were able to receive the final price settlement adjustment from the sales of product that took place up until the cutoff date of September 30, 2025. So that's where the adjustment comes from, from actual cash from these settlements. And more importantly, there's extra adjustments from the settlements that haven't been closed yet. We started to close settlements at $875, and we kept going until the latest ones, which were $1,035 just last week. But again, these were shipments material in boats in the water. We were literally shipping everything and selling everything. The other question you asked was about the $33 million. That's essentially middlings which are monetized their bids out. We are waiting to work out on logistics. The profit varies significantly on logistics because we have $100,000 at the port. That is simply $40 to China. $120 minus $40, that's net profit, pure profit, no cost associated with it. Then we have 850,000 tonnes of those middlings' high purity with chemical structure intact at the plant. The logistic costs there are different because we need to truck it to port. So what we're working on is to thinking through berthing the biggest ships we can obtain and therefore, lower the shipping cost to perhaps $25, $30, so that $120 minus $70 of logistics back-to-back plant to China. So essentially 2 different costs of logistics. These products are 0 cost to produce because they are middlings or what we call dry stacked high-grade lithium tailings. And that's the sustainability advantage. We are able to monetize it to a net of USD 33 million, which is a considerable sum. It's equivalent to a boat or a bit more actually, pure profit. Operator: [Operator Instructions] Our next question comes from [ Olin Chen ]. Could you please clarify the expected lithium concentrate production volume for the 4Q 2025 based on your current operational plans and the ramp-up schedule. Ana Cabral Gardner: Yes, we're not there yet. I answered a similar question. We issued guidance for the first quarter '26. And as soon as we wrap up the -- what we call the mobilization curve in terms of the scale of the large equipment being made available to us, it could vary from 60-tonne trucks to up to 95-tonne trucks, which is a significant increase from the small [Technical Difficulty] trucks we were [Technical Difficulty] 75-ton truck can move twice much material than a 40-tonne truck, a 60-tonne truck could move 50% more material. A 95 to 120-tonne truck, same access size can move 3x more material. Cost, not that dissimilar because it's diesel, one driver instead of -- I mean, it's 4 drivers per equipment. So we are decreasing the number of men involved, consumption of diesel, not that dissimilar. So overall, structurally lowering the cost of this operation. And this is the guidance that we plan to provide in detail as soon as we wrap up mobilization schedule for the equipment, which is currently taking place. I was in China for 2 weeks, just go back 1.5 days ago. And we're making progress in strides on that front. And we're delighted with the support we received from manufacturers, clients because we're pillars of 3 global supply chains actually, Europe, Asia and China. Operator: Thank you. This does conclude the Q&A section. I'll now return the floor to our CEO, Ana Cabral, for her final remarks. Please, go ahead, Ana. Ana Cabral Gardner: Well, we're very optimistic about 2026. It's been a year where volatility dominated the conversation. It's consensus now where lithium is headed. Now what's important to highlight is lithium is a commodity like any other, meaning prices will be where they are. We're not talking about price spikes. We're talking about prices being at $1,000, $1,100, which for low-cost producers such as Sigma with current plant gate costs of around $350 normalized is a fantastic operating environment. And so the key is to continue to be a low-cost producer. Hence, our efforts in upgrading our mining operations to match the exceptional industrial operations we have achieved throughout this year. So thank you all for listening. Thank you all for being with us on our journey, and we're going to be open for welcoming you all through my colleague, Anna Hartley, who is heading Investor Relations, and we'll be visiting some of you through conference calls in the next couple of days throughout the world. Operator: Thank you. This does conclude the third quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website at www.sigmalithiumresources.com. You can disconnect from now on and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the 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: Welcome to the NIBE Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Eric Lindquist; and CFO, Hans Backman. Please go ahead. Gerteric Lindquist: Thank you very much. Good morning, everyone out there. Hans Backman: Good morning from me as well. Gerteric Lindquist: And just a few things when it comes to the order we are going to introduce, of course, ourselves and some figures afterwards, we have the Q&A sessions, and we will be pleased if there would only be 2 questions per individual and also try to end this Q&A session around 12 because we have other commitments shortly afternoon there. So with that said, once again, welcome to this conference call. And I think that the headline is that we are very proud to be able to present these figures as we are today. We've said several times that the organization that we represent, Hans and I, is very, very strong, very, very proud to have the ability and possibility to lead this organization. So that's the headline. Of course, it's a gradual recovery that we -- as you go through for the group. And of course, when comparing the situation in the world today, compare what it was when we started [Audio Gap] environment like that. And also the increased strength of the Swedish crown from many perspective, is very nice, of course. But when you compare figures, it's a little bit shadowing the real organic growth, which we, therefore, have explained very explicitly when separating it from the currency effects. And we gave a very bold promise from the very beginning of the year that we're going to be back at the intervals of the historic levels for each respective business area. And we are, of course, very proud that as far as we've come, and we are very transparent with where we are as we are with the targets. And of course, those disturbances that I just described, of course, they are causing some hindrances, but we are trying our best to give you some kind of a guidance where we possibly could land at the end of the year. You've seen them. We don't have to dwell so much about it. It's very pleasing, of course, that there is growth there well beyond the 1.2, like 4.6% organic growth. And what's also very pleasing is that we see that the gross margin is going up and the operating margin is moving in the right direction. And of course, moving into the quarter as such, the third quarter, then we see that the gross margin to be improving and the operating margin is now up to 11.3%, which is, of course, what we like when the margin that corresponds well to where we like to be. And if we just continue a little bit about the graphs that we typically look at, I mean we see now that the income is gradually coming back, and that's even more described perhaps in the next graph, where we see the curve is going in the right direction. And when we look at, again, it's an improvement quarter after quarter. And of course, it's a recovery all over, you can say, but in smaller portions, of course, where it's Germany and Sweden and Netherlands, particularly on the residential side, the U.S. remaining stable and also Italy, very much on the commercial side, which is very pleasing to see. We also see that there is a more traditional seasonal pattern, particularly with Stoves and with Climate Solutions. And it is also pleasing to note that all the efforts that we've done during the year despite the action program that we took, R&D remained at the same level and also the sales forces, and that is paying off now, of course. You can't look at things shortsighted. You have to be very determined long term to be successful. And here, we, of course, have now come up to the third quarter when it comes to the margin that is just in the right, can I say, level and the right span. And of course, we are giving a little bit of an indication here on this slide saying that, well, within margin of error, we should be close to the 13%. And that's, of course, again, a very bold statement, but you've been following us. We've been giving you very clearly the intervals. And now with 6 weeks remaining, it's very important we are into a quarter that is typically decent when it comes to invoicing and order intake. So we -- the best thing we can state is exactly what you read there, and that's also stated in the report. We are very cautious not to do anything or mention anything or do any saying here that wouldn't correspond to the report as such. So Hans, of course, is going to dwell a little more on the quarter as such on Climate Solutions. It's a good growth organically, and we've seen that, of course, and the margin here so far just south of 12%, whereas the quarter is coming in above the 13%. So it's a balancing act, a very delicate balancing act for the rest of the year. And coming into Elements, they, of course, at when the whole industry of heat pumps went down all over Europe, and of course, being a main supplier there of components, they also took a dive. They're a little bit behind [Audio Gap] but we also see now that, that is coming along. And electrification in general, of course, and also the rail segment, which is very pleasing to see. Industrial segment is more a reflection of somewhat cautious or subdued market, particularly in Europe. As a comparison, we can say that in general, Europe seems to be a little bit more cautious or subdued compared to the U.S. or the North American market. And if we just look at the same sort of forecast again if we dare to say or what we could offer as far as margin predictions, we say, well, it's going to be some close to the 8%, of course, but we also give a little bit of a buffer for ourselves depending on how the last weeks will look like. And particularly on the Element side, being a supplier or sub-supplier, we know that although the order intake could be good, but for obvious reasons, no customer wants to sit on too large inventories. It's always delicate to do the forecasting for the Element side. But looking at the figures there again, good growth. Operating margin is back at 6.8%. And when we look at the quarter as such, as Hans is going to come back to that. It's again, of course, on the higher level, up to 7.4% for the quarter. Quickly into Stoves. And there, of course, we noticed that had already indicated in the second quarter that, that would be difficult to arrive at the old or the interval of that we have been -- where we've been or where we used to be. So there, we need a few more quarters. And I think that is what we think that is more referred to -- be referred to the overall cautiousness, particularly in the European market. In North America, it's -- the markets are fairly buoyant, but there, we have difficulties with the manufacturing of stoves that's taking place in Canada and then being shipped into the U.S. So there, we take a hit when it comes to the margins. And there, we very consequently say that they're going to take us a few more quarters to come back to the span that we typically talk about between 10% and 13%. And there we see, of course, it's a thin margin and the quarter as such, that is around 3%. So it's not getting any worse. If we were bold enough, we could say that we've seen the bottom of also the stove market with the figures that we've seen during quarter 3 with a margin of 8%, which, of course, is not satisfying, but still is slightly higher than the previous quarter '24. And just a few concepts in here. I mean, Climate, it's a typical graph really on the pie chart here with climate being like 2/3 roughly and then Element and then Stoves. And on the distribution side, profitability, then we see that, of course, Climate Solutions coming out quite dominating here. And then geographically, not that much has happened. North America remains slightly above 30%. The Nordics, slightly below 20% and then Europe, of course, around the 45%. So no dramatic changes really there. So I think with those quick comments, I hand over to Hans, but I have a lot of eager people out there that would like to put questions to us. All right? Hans Backman: All right. Thank you, Eric. Yes, I'll try to be quick, but not rushing it, but to allow for questions, of course. Before we jump into Climate Solutions here, I would just like to mention from the main report, speaking for the tax rate. Some of you might have seen that the tax rate in the quarter is above 30%. And that is not a new normal as we see it. It's rather a matter of timing differences now, very much related to the introduction of the so-called Big Beautiful Bill in the U.S. where the rules and regulations around capitalization of R&D expenses has changed, and that has led to a couple of one-off effects, but that doesn't change anything in the long run really. That's the major reason for that tax rate going up. If we then move into Climate Solutions, I mean, Climate Solutions definitely shows a very robust performance in what still is a challenging world in a way. It's a very strong comeback from the challenges we faced last year and the profitability level at the time. We've been able now to grow sales with some 7% organically, but then, of course, current [Audio Gap] but due to increased sales and also our cost efficiency programs that we have undertaken, profit has improved by close to 50%, coming up from the SEK 1.5 billion to more than SEK 2.3 billion, landing in this operating margin at 11.9%, mentioned. And on a 12-month rolling basis, we are up to roughly that level, 11.8%. In the quarter, sales grew by some 8% and gross margin improved even further, coming up to 35.4%, up from 32.5%. So that's a good achievement as well coming from the volume that we get. And profit grew by another close to 29% or almost 30%, more than 29%, landing in the operating margin there at 14%. So it's a very robust performance and a robust and strong comeback from last year, showing our ability to adapt the cost levels when market conditions change and also to reap the benefits of a good volume that comes in. In terms of split of sales per geography, there is virtually no change at all from last year. It's very stable with Europe, Mainland Europe being 50%, our home turf here up in the Nordics being slightly north of 22% and North America with a solid quarter of total sales. NIBE Element has also shown a very robust in a challenging world. And here, we are really exposed, as you know, to many segments in many parts of the world. Organic growth here was above 6%. But then again, the Swedish currency took away a large portion of that, landing it in then at 2.9%. Gross margin took a jump up here from 19.8% to 21.1%. So that's a nice improvement. And then the profitability itself coming up with more than 30%, landing in on the 6.8%, which leads then to a 12-month rolling that is around that level as well. In Q3, sales actually grew even more organically, that is close to 9%, but again, with a headwind from the Swedish currency. Gross margin continued to improve and profitability again, and we came very close to at least the lower range in the interval for our historical profitability ranges there at 7.5% and a nice step in the right direction. Neither here have we seen any large changes in terms of split of sales per geography. So that's basically how it looked last year with North America being a very strong portion of that business. I would say when it comes to Stoves that despite these very challenging market conditions that they have experienced, first, an overconsumption, you can say, during the COVID period when everyone renovated their homes and then when Putin invaded Ukraine, leading to a lot of people wanting a freestanding and alone off the grid type of heating system. And after that, a period with low energy prices, higher interest rates, low new build. Despite all of those challenges, the business area has defended its position quite well. Despite, I mean, an organic decline there of 8% and more than 11% when you include currency, they have been able to generate a profit here and continue to spend time and money on interesting products and market activities for the future. Here, the -- yes, performance for the last past 12 months is just above 4% and far from where we're used to being, but not that we see that there is any in coming back to a stronger performance as soon as the market returns. And I think we see that a little bit in Q3. Here, sales dropped organically by 1.6%, so much less than before. With currency again, it's obviously a drop there, which is much larger than that. But despite this drop then of 7%, we were able to defend the operating profit from last year. So it remained on the same level, generating a margin there of 3%, which shows the ability also here to take out costs and of course, keeping a portion of them on board or a good portion to be able to meet an expected better demand going forward. In this area, we see a small shift or a clear shift in a way in the distribution of sales in the sense that North America has increased up to 37% from 32% of last year. That's the major change. And that shows that North America has actually, from a sales point of view, been quite decent. What then has hampered the picture for us is, of course, that we have our manufacturing in Canada, and this is where the tariffs have hit us from a profitability point of view. Moving then into the balance sheet. There are no major changes here. We have a fairly stable balance sheet. We've been able to amortize both on intangible and or depreciate rather -- intangible and intangible assets. The investment level has come down a little as well, which we will see on a slide later. On the liability side, you can see that both the interest-bearing -- long-term interest-bearing liabilities and the current interest-bearing liabilities, both have come down, which we also will see the effect of when we look at the net debt figure soon. The performance then and what we have on stock, so to speak, has an effect on the cash flow. We have had a good cash flow from the operating activities of slightly more than SEK 2.9 billion, up from just below SEK 1.8 billion for the corresponding period of last year. Then you see a change in working capital, which is negative with SEK 1 billion. That is solely related to an increase in receivables. It's the exact same situation we actually had -- inventories have been reduced and accounts payables have contributed in a positive way. So it's a result of us invoicing more, and we've not changed any payment terms really. So this should come eventually. And on the next line, you see that the investment in the current operations has decreased by some SEK 500 million, then leading to an operating cash flow, which is plus SEK 420 million rather than minus SEK 450 million of last year. And then we've had some amortization of loans and things affecting the change in liquid assets -- the currency change, we cannot do much about. A few comments here on the key financial figures. The -- we have a fairly decent amount of cash on hand, the unappropriated liquid assets. The number there is actually correct. I mean, the SEK 5,119, which was the exact same. But if you look into the report on Page 13, I think it is, you see that the composition is different. But it's a good portion of cash there. And then interest-bearing liabilities have come down and the net debt is now [Audio Gap] which is very pleasing to see. We typically amortize our loans and liabilities effectively after acquisitions. And what took a little longer this time was, of course, the acquisition of Climate for Life, one of the largest acquisitions we've made and then a market that took a very strong downturn after that. But we're definitely heading there in the right direction. And the equity assets ratio is solid as well, being above 45%. Just a quick comment there on the working capital. If we look upon it, excluding cash, it's also been improved from last year with more than a percentage unit. We are still targeting 20% as an intermediate target. So we still have some work to do imminently moving in the right direction. And moving in the right direction are also these key figures, although they are, of course, not where we want them to be yet, but they are heading there. Return on capital employed, now 9%, up from [indiscernible] return on equity also above 9% there, up from just below 7% and a profit per share that has increased just like equity per share. So things are slowly but surely moving in the right direction. And as always, we don't comment upon the share price, especially not today, I think I think. By that, I'm done. So, if you want to add something before we open up. Gerteric Lindquist: No, I think we open up now. And as we say, about 2 questions per individual and then we take it from there. All right. Operator: [Operator Instructions] The next question comes from Uma Samlin from Bank of America. Uma Samlin: Two for me, please. So first question is on the Nordic market. I was wondering if you could give us a bit more color on the lower growth in the Nordic this quarter. It seems like it's minus 1.5%. So what is the main drivers there? What are the trajectories do you expect in Q4? Gerteric Lindquist: Okay. So we should [Audio Gap] in general or you're referring to Climate Solutions now or you're talking about the whole NIBE group? Uma Samlin: Yes, the whole group is the one that you have reported. Gerteric Lindquist: Yes. Okay. That's fine. Well, I think that, of course, the contraction is substantial, as we said, in the Nordic when it comes to Stoves. That's very obvious. And also, we noticed that the industry as such is not that strong in the Nordic region when it comes to the heating element. And I think what's keeping it up at a decent pace is still the Climate Solution. So I think the consumer -- so cautiousness when it comes to Stoves, that's certainly an observation. Also that the industry in general is not that strong in performance, which is heating element where heat pumps are keeping up fairly decently. Uma Samlin: Okay. That's super. My second question is on your margin guidance. So I guess if you assume that Climate Solutions will reach the corridor of 13% to 15% for the full year with some margin of error, let's say, around 13%, does that indicate, I guess, significant upside in your EBIT margin profile in Q4? Would that be then like trending more close to 15%? So what would you expect to be the drivers of the step-up in Climate Solutions margins in Q4? Gerteric Lindquist: Well, I think that to start with, as we mentioned, the seasonal or the seasonality is back. So here is a little bit weaker and the second half is a little stronger. That's the traditional pattern that we've had prior to pandemic and the -- and those years with crazy, if I may call it, energy prices. So of course, quarter 3 and 4 traditionally should be stronger. And it's very difficult to predict anything, and we try our utmost to give you some kind of an indication that if we now say, as we say, regarding Climate Solution, of course, that is the best hint we can give you. It's impossible to say it's going to be so and so common. I think that's as far as we get -- the Stove side, of course, we saw after Q2 that it would be difficult, very difficult to arrive at within the span. And that's also clearly indicating now. That doesn't mean that we wouldn't have an uptick again. It's just that they came into this downturn a little bit later. First quarter '24 was not bad at all, whereas the other ones were really taking a hit. So it's more a matter of that has staggered a little bit when it comes to sales and profitability. Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: The first one is just a follow-up to the margin here and especially if we think about Climate because historically, the fourth quarter's margin is on average lower than the third one. So if possible, if we take aside the seasonality effect here, I see volume is one thing, but what other drivers do you think could help the margin in the fourth quarter help you approach the full year target that you guide towards? Gerteric Lindquist: Things that are moving in the right direction when you talk about the strengthened productivity. I mean, that continues quarter after quarter. Productivity is one factor and also the ambitious program that we have across the business areas, Element and Climate Solutions. So I mean, there are no magic factors, but there are some factors that we feel will continue to assist the profitability. Karl Bokvist: Understood. Yes. Understood. The second one is on the receivables point that you mentioned, Hans. Historically, the kind of balance between receivables and payables have kind of yielded a net neutral situation. But the last couple of quarters, the receivables have increased more than the payables. So how long do you think this kind of gap will be before they normalize? Hans Backman: That's very hard to predict. I think the result of the increase in the receivables is a consequence of the seasonality kicking in and with us invoicing more, so to speak. And typically, the invoicing takes place in the latter part of each month as well. So it's typically weaker in the beginning and then a lot happens and that you don't collect it until the next period. On the payables side, we have a little bit more deliberately than before, begun reviewing payment terms without treating our suppliers bad in any way, but to make sure we have competitive terms. And when it's going to level out, it's hard to predict. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I'm going to follow up on the working capital side, if I may, and on inventories, 23.9% of last 12 months revenue. I appreciate we're improving quarter-on-quarter, but still above the sort of long-run average. I guess, firstly, do you anticipate a seasonally strong Q4 for inventory? And then longer term, how do we think about the inventory level required to support growth either as a percent of sales or perhaps on an inventory days basis? That's the first one. Gerteric Lindquist: Well, I mean, as Hans mentioned, of course, we like to drive down the inventories. And I think that there's been a little bit of cautiousness here now from sales because we don't like to have any disturbances when it comes to deliveries. We know that everyone is on the tip toes out there. And of course, it's very tempting to say we are -- now we're going to bring down the inventories. And I think that we and our colleagues, we really have to restore our, should I say, reputation in the market by really delivering promptly. And I think that the discipline is coming back. And I think the next step is keeping the discipline and then very diligently moving down inventory levels further. So there is a cautiousness on our side and also our colleagues, I'm sure, that no one wants to sit out there saying that, now we have like so many more weeks of delivery. That is no, no go for us. And I don't think that's -- I think that's pretty much a symbol for the whole industry. And that was my immediate answer... Hans Backman: No, no, absolutely. It's very correct. And if I just may add, I mean, what we are taking down also step by step. It takes a little bit longer, but it's a deliberate work to do it, level of component inventory. We -- as you know, we had delivery issues, so to speak, during COVID because we couldn't get products on board to the extent we needed. And when we could source something, we sourced it to the extent possible. And that inventory, given the strong shortfall that came afterwards, is now being used step by step and being reduced. So -- but without, as Eric is pointing out, disturbing any production that we have throughout the group or deliveries to the customer. Christian Hinderaker: Okay. So just to be clear, the pre-2020 levels is probably an unfair number to think about in the immediate term? Gerteric Lindquist: Well, I think it's the reverse picture. Then there was an enormous demand or if I say, quite a heavy demand. And then we were lagging. And then, of course, the figures turned out to be very nice, perhaps a little bit bigger than -- or better than we really deserved being viewed for or criticized for, evaluated for. And now we come from the other side. Now sales are picking up, we are cautious. So I think that we have to take it step by step and bringing it down perhaps to '20 at least and then take it from there. Christian Hinderaker: My second one is on the action program. In the Q4 presentation last year, you gave a summary of the potential split for those savings by segment. I suppose, firstly, is it fair to assume that the 73% of savings have come in Climate Solutions as was set out in that slide? Or has there been a sort of readjustment as we move through the year? Gerteric Lindquist: No. Hans, you... Hans Backman: Yes. No, I think that the calculations we made at the time and as the program evolved, so to speak, they were pretty accurate. And that's what we see has come in as well. And given that the stretch in the return to normality has dragged out a little, we've undertaken a few more saving actions. But that's all kicking in now, you can say, according to the program. And then -- well, running a business, you always have cost reduction initiatives. So it's -- but it's mainly related to the program, kicking in as we planned. Operator: The next question comes from Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I have a question starting off with the Climate Solutions, Eric, if you could. You talk about sort of demand being back to -- or demand for next year, you're talking about external consultants and they share -- or you share their view upon sort of the growth. There are a lot of reports out there on the heat pump market in Europe, especially. Could you sort of give some sort of ballpark range what is the sort of the underlying assumptions you are looking for or basically the consultants are looking for, which you agree with? Gerteric Lindquist: Well, as you say, there are so many reports out there. And some are very biased and some are more -- I don't know where statistics come from. But I think that you can get reports anything from 5% to a few double digits plus, like anything from 5% to 12%, depending on which report you read. But the common denominator is that no one foresees a decline any longer, but rather growth, but in various sizes or various numbers, whether it's 5% or 7% or 11% or 12%, it's very difficult to predict. But what we take away from all those reports is that we -- the tide has turned. We are back on a market that is getting or growing again, which is very pleasing. Then, of course, it's up to all the colleagues out there, including ourselves to do as much as possible out of those figures. But perhaps, as we said before, we all love when the growth figures are phenomenal, but not necessarily do the customers always benefit from that. I think that we believe that a growth in an orderly fashion is better for everyone because then the installation work is done professionally and the distribution flow works much better. So those figures indicated that I think that would, to us, mean that it's a healthy growth possibility, but still in a way that they're going to make things materialize in a profitable and decent way for us as manufacturers, but also for the installers out there and for the end users. Johan Sjöberg: That's very clear. And also just looking at the different segments in Climate Solutions also. I mean, looking at sort of what is heat pumps and of course, the different segments within the heat pump and also you got the water boilers. Is it a big difference between the growth rates right now between sort of -- if you take sort of the bigger sort of subsegments, not going out to sort of add to water or anything like that, but more sort of between the different bigger segments within Climate Solutions, it's a bigger -- it's a big difference in growth right now? Gerteric Lindquist: Yes. Well, I think that the water heaters, if you talk about them, they have a more modest growth, and that goes for all over, of course. And that's pretty much -- construction is down -- new construction is down, and that's where you typically, you install those and when you build new houses and so forth, although the houses themselves, they might have heat pumps or district heating. But you have those modules there we typically have 1 or 2 of those water heaters. When construction is down, it's also down. So the water heater market is very, very cautious, a few percentage units, but doesn't have the same growth at all as the heat pumps, but stable, decent margin. So it's not something that we should neglect by any means, but the growth pattern is strictly on, you can say, on heat pumps. Johan Sjöberg: Got it. Hans, also a few questions for you, if I may here. You mentioned in the report the impact on sales from the currency. Could you also talk about the impact on EBIT just to get sort of a feeling for the dilution, if any, from FX in the quarter, if that's something you can provide us with? Hans Backman: Yes. It's roughly the same. I mean the margin is not influenced to a large extent. Of course, you can convert less dollars or euro or what have you at a poorer rate, so to speak, or stronger or weaker rate, which has an impact. But in percentage-wise, it doesn't deviate too much from the effect on the sales side either. Johan Sjöberg: Okay. And also your comments on the Stoves business also, the tariff, of course, impacting -- of course, impacting even more now when you have a higher share of sales in the North America coming from Canada. But what are sort of the impact from tariffs in the quarter, if that -- just give us some sort of feeling? And also what are your -- how can you mitigate that? And how long time will it take before you can mitigate these tariffs? Gerteric Lindquist: It is substantial. We won't dwell on any [Audio Gap] of course, partly will be taken like -- in any case, will be taken by price increases. But we -- at the same time, we've said we're never going to put our position on the market in jeopardy by being ridiculous in that. We just have to trim and trim and trim and be more efficient, try to come back to a margin that is decent. So we have taken quite a bit of a hit during Q3 and of course, during the whole year, and we don't expect that to improve, but price increases takes away a little bit. And then we just have to be more efficient and streamlined. Those are the only 2 recipes. And then thirdly, you could possibly -- but that's more of a guess. I mean the American manufacturers might be tempted to increase their prices when they see that's difficult to import from other countries. But that's a speculation. I wouldn't dwell on that. So we are between a rock and a hard spot, as I say, but we're going to come back to a decent margin by streamlining and doing everything possible without jeopardizing our position in the market. That was a long answer to you, but because that is a little bit of a long answer to us. We are, of course, doing our utmost just to keep and increase our position in the U.S. because we are well positioned. And now it's really up to productivity and doing everything we possibly can to combat the difficulties with those tariffs. That was a long answer. That's it. Operator: The next question comes from Anders Roslund from Pareto Securities. Anders Roslund: Yes. I was curious about your thoughts about next year for Europe and heat pumps. I mean this year have been characterized by de-stocking coming to an end, and now it's the true market growth we are looking for. And at least in Germany are sort of coming with some growth into next year. How do you see structurally on Europe for next year? Gerteric Lindquist: No. As I said there, we assume that Europe will grow overall. And of course, Germany is going to be one important contributor to that growth. And then, of course, there are -- it's important to distinguish between those applications and the number of heat pumps really being installed because you have a sort of a period once you have the application in and is approved, you don't necessarily start to install the week after. You have an allowance or is it like how many quarters was it now like -- many months... Hans Backman: Yes, yes, I don't recall exactly. Gerteric Lindquist: And then, of course, the true figure is around 40% -- or well above 40% that's been installed, partly taken from inventories, of course, and partly from producers directly. And we believe strongly that there will be a real organic growth for the manufacturers next year because now we should be out of the inventory, has been dampening things. So the overall picture, I mean, now again, sitting here or standing here on the 14th of November making predictions for '26, but if you ask us, we look at the European market in a fairly positive way because also that the interest rate die or at least they come down, that is also sending a report to consumers or sending a signal to consumers that, okay, now it's more decent. They can start to build homes, which is very important when you start to build homes in a country. That's a driver for the whole economy. So without too many other disturbances, but then you never know about Europe what's going to happen. We believe that it's going to be a stronger year '26 than this year. And then, of course, that is a prediction. I don't know whether I answered your question, but I tried. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I boldly went back in the queue, so I'm surprised to be fit in for the follow-up, but I appreciate it nonetheless. Yes, I wanted to ask the Selmo acquisition you made in Italy during the quarter, I guess, interesting in terms of its components, focus, smart thermostats and so forth. How should we think about that transaction and the scope of your broader M&A priorities looking forward? Is that illustrative of the type of deals you're looking at? Or are you still balanced in terms of also reviewing sort of OEM type transactions? Gerteric Lindquist: I think that we have received a number of questions earlier on today in other forums, and we say we're always working on acquisition. Nothing has come down. Of course, '24 was a year when there weren't that many signings carried out. But I think this is a decent acquisition for Element with a turnover around EUR 20 million. It's not gigantic, but it's profitable. It's a company that we've known for a long time. It's a company that we've been working with for a long time. We don't foresee any [Audio Gap] issues if I had to say that because we know the founders and has a very good relationship. So it's one of those add-on acquisitions that we really like to do, family-owned companies, and they remain helping us, it's perfect. I don't know whether I answered that question fully, but we have similar activities within Stoves and within Climate Solutions, ideal partners and that we try to trim and try to bring on board. But everything is timing, just like anything else in life. And this Italian acquisition was something we've been discussing with them for a long time. And then all of a sudden, they say, we are fine. Should we really -- now we really go and then we are ready. An acquisition takes more than a quarter or 2 in our world, we like to come in on a friendly basis, not coming in as an intruder or -- yes, exactly like that. We like to come in as partners, and it takes time to develop that over years. So those are the most successful ones in our book. Okay? Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: I was a little bit late, so apologies if this question has already been asked. But I wanted to come back a little bit on the topic of pricing. I mean we talked about this for roughly 2 years now. And I guess earlier this year, we were talking about inventory reductions amongst the distributors and increased campaigns on the back of elevated inventories. But now we hear, I guess, also from some of your listed peers that pricing environment on the hydronic side seems to have been improving here a little bit towards the latter part of the year. So I just want to hear your view here on sort of pricing in general and maybe if yourself have done any sort of definite price adjustments here in the latest months. Gerteric Lindquist: Well, I think that's one area we've been very cautious that we are one of the leading actors because to sell premium product, you can't devaluate the value because short term, they just deteriorates everything. So coming back again to the overstock situation, we had some of that. We've been very cautious of reducing prices. And therefore, it might have taken a little bit longer to reduce those inventories because you know that if you sort of spoil the market with lower prices, then that is very contaminating. But further on in the distribution chain, and I'm repeating this again, of course, when our distributors or installers have been sitting on inventories, knowing that also might have been refrigerants and stuff like that, they see a new wall coming towards [Audio Gap] well, and they have to be gone. Of course, it's very tempting just to free the capital tied up. And our own method has been sit still in a boat, be very cautious. And as far as price increases are concerned, monitor that very, very cautiously again, being very observant. Of course, we agree what you say. We also see that there is some signs of price increases in the market, which is very natural once it's been stabilized as it's been. And I think no one is the winner in the price war, just like any other war, all are losers. Carl Deijenberg: Fair enough. Then I wanted to ask also a little bit coming back to the balance sheet and sort of gross margin development. I mean, quite a good rebound here in Q3, but still, as you evaluated earlier on, you're still in the situation where inventories -- your own inventories are on the way down. And I just wanted to ask a little bit on the sort of internal production rates for you. Obviously, you've been adding capacity quite dramatically in the last couple of years. But would you say that sort of the shipments you are delivering on right now is the sort of utilization in sort of your base production sort of excluding the capacity expansion, is that fairly much 1:1 right now? Or are you still suffering quite tangibly on the gross margin from some utilization? Gerteric Lindquist: Well, I mean, we can't avoid depreciation. I think that's kicking in, of course. So of course, they're going to be lesser than what we sell. That's very obvious. But at the same time, on the other direction, those new facilities that we have, that's also offering better productivity. So it's not so easy to say that, okay, now we sit with a tremendous depreciation. Of course, it's going up. But they're also built for a reason, not only for volume increase, but also to do things more rational. So that's working in the other direction. I don't know whether I answered your question, but there was... Carl Deijenberg: No, no, no, but -- yes, yes, yes, absolutely. No, but I guess, I mean, my question was a little bit, and I understand there's multiple variable components to it. But I mean, assuming if you would see further volume support next year, it sounds like you could still have some upside on that gross margin development even now when we look at Q3, where you saw quite a good development year-on-year at least. Gerteric Lindquist: I think that we have to give you right there, yes. Correctly, so... Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: But I just wanted to go back to one thing that you've been very good at in the Nordics, which has been kind of heat pump products towards new buildings or new residential buildings. And if we think about both Nordics and Europe potentially seeing a bit of an uptick in new residential construction, how have you worked with that kind of product assortment in other areas than Sweden? Gerteric Lindquist: No, I think that if you talk about the exhaust air heat pumps, we've been working with that as well, but that comes to legislation -- the construction legislation and also preferences for what you can do. And I think that we see very positive view on our next generation of heat pumps where you also can -- like I'm talking about the exhaust air heat pumps now in well-insulated homes, that we also have a cooling capacity. When you come a little bit further south, then there's been a question, could you also possibly cool our facilities in the summertime. And I think that has given us quite a stir in demand. So that's one way of mitigating that. But of course, when you have lower standards, then you have to adapt to that when it comes to building standards. Here, we have a very tough situation up -- for instance, Sweden or that's pretty much the same, in the Nordic markets, you can say that you can only use 40 watt per square meter a year, and that limits your amount of energy of 6,000 kilowatt hours per year in house, and that's including tap water. So of course, that is -- that's quite a challenge. But that's also something we can -- we use when selling that to house manufacturers and customers when we go in other countries, ventilation and heat pumps in Holland or Netherlands, for instance, that's very, very important. So they are tagging along the same lines. And also in Germany, that is pretty much the standard that you have to recapture the ventilation air or the energy in the ventilation air. So the larger heat pumps, they are typically for renovation when you have -- when you're replacing a gas burning boiler or an oil burning boiler with an output of some 16, 20, 18 kW, then, of course, you have to have a larger heat pump and then you talk about a different vehicle or a different animal, but you still supply the same sufficient amount of energy to the radiators. But then you talk about refurbishment. I hope I answered your question. Karl Bokvist: Yes, partly one, I mean it is just that you've built up a strong position in the Nordics. And I mean, as you expand in the other countries, how you work to kind of get close to that level of relationship with the important stakeholders, house builders, et cetera, so that you're in their blueprint, so to say. Gerteric Lindquist: Yes, yes. Of course. And also working with house builders and giving them the upper hand, the advantage of using our products and demonstrating what can be achieved having the Nordic market as references. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Gerteric Lindquist: Well, once again, thank you for the disciplined way you've all times, you would like to have very, very much of a decimal, comma and so forth. And we, of course, couldn't do that. But I hope we've put some flesh on the figures in the report. So once again, thank you for calling in, and we see you, if not earlier, beginning of next year when we report the full year. Thank you again. Hans Backman: Thank you, everyone. Thank you. Bye-bye.
Operator: Good morning 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: Good morning, ladies and gentlemen, and welcome to the Automotive Properties REIT's 2025 Third Quarter Results Conference Call and Webcast. [Operator Instructions] Please be aware that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the REIT's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking information. For more information on the risks, uncertainties and assumptions relating to forward-looking information, please refer to the REIT's latest MD&A and annual information form, which are available on SEDAR+. Management may also refer to certain non-IFRS financial measures. Although the REIT believes these measures provide useful supplemental information about financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on November 14, 2025. I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb. Milton Lamb: That's great. Thank you, Krista. And good morning, everyone. Thank you for joining us today. On the call with me is Andrew Kalra, our Chief Financial Officer. We had an active period in advancing our strategic initiatives for unitholders, including a distribution increase and completing approximately $151 million of acquisitions. During the quarter, we deployed approximately $93.6 million for acquisitions of 7 automotive properties, including 5 automotive dealership and collision repair centers in the Greater Montreal area, a Rivian tenanted property in Orlando, Florida and subsequent to quarter end, we completed the acquisition of an additional 4 automotive properties in the Greater Montreal area at a combined purchase price of $57.3 million. We expect these property acquisitions to drive continued growth in our AFFO per unit. In addition, we recently completed a bought deal equity offering and concurrent private placement for a combined gross proceeds of approximately $57.1 million. While our results for the third quarter don't yet reflect a full quarter impact of our recent acquisitions, we still generated solid growth in our key performance metrics. Compared to Q3 a year ago, rental revenue increased by 7.9%. Cash NOI is up 6.5%. Same-property cash NOI increased by 2.3% and AFFO per unit diluted increased to $0.252, up from $0.233. Supported by the strong financial performance, the Board of Trustees approved a 2.2% increase to unitholder distributions in the quarter, increasing our annualized distribution per unit from $0.804 to $0.822. We're pleased with our progress in advancing our strategic initiatives for our unitholders, and we look forward to realizing the full impact of our acquisitions in the quarters ahead. I'd now like to turn it over to Andrew Kalra to review our financial results and position in more detail. Andrew? Andrew Kalra: Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $25.4 million from $23.5 million in Q3 a year ago, reflecting growth from the properties we acquired subsequent to Q3 last year and contractual annual rent increases, partially offset by the reduction of rent from the sale of our Kennedy Lands property in October 2024. Total cash NOI and same-property cash NOI for the quarter totaled $21 million and $19.6 million, respectively, representing increases of 6.5% and 2.3% compared to Q3 a year ago. Interest expense and other financing charges for the quarter were $6.5 million, a slight decrease from Q3 a year ago due to lower floating rates. Our G&A expenses were $1.7 million for the quarter, an increase of $0.3 million from Q3 last year, in line with our expectations. Net income and other comprehensive income was $10.4 million compared to $1.8 million in Q3 last year. The increase was primarily due to changes in noncash fair value adjustments for interest rate swaps and Class B LP units and unit-based compensation and a foreign currency gain. FFO and AFFO increased by 8.3% and 8.8%, respectively, compared to Q3 last year, reflecting higher rental revenue from acquisitions and contractual rent increases, partially offset from the reduction of rent from the sale of the Kennedy Lands. We paid unitholder distribution of $10.1 million or $0.204 per unit in the quarter, representing an AFFO payout ratio of 81%, down from 86.3% in Q3 last year, reflecting the positive impact of the properties acquired subsequent to Q3 last year and contractual rent increases, partially offset by the reduction of rent from the sale of the Kennedy Lands and the increase to REIT's distribution. The cap rate applicable to our portfolio was essentially flat quarter-over-quarter at 6.7%. The $3.6 million fair value adjustment primarily related to the write-off of closing costs associated with the new acquisitions. We continue to be proactive with our debt to limit our exposure to interest rate fluctuations and enhance our financial flexibility. During the quarter, we renewed and extended just over $29 million of floating to fixed interest rate swaps for the term of 5 to 6 years at rates just under 4.6%. We increased the amount of the non-revolving portion of Facility 2 by $40 million, and the maturity date was extended from January 2028 to March 2029 at the same credit spread. This extension of maturity term is consistent with our strategy and that we've executed on a regular basis for all our credit facilities. Subsequent to quarter end, we renewed a floating to fixed interest rate swap within Facility 2 in the amount of $15 million for a term of 6 years and an interest rate of 4.4%. We increased the amount of the non-revolving portion of Facility 3 by $40 million. We have a well-balanced level of annual maturities with only $63 million of swaps maturing over the next 24 months. We have a weighted average interest rate swap term and mortgages remaining at 4 years. As at November 13, 84% of our debt was fixed through interest rate swaps and mortgages. We have a fixed average effective interest rate through swaps and mortgages of 4.4%, which is comparable to recently completed swap rates. We also completed $57.3 million equity offering, including the exercise of the over-allotment by the underwriters. As a result of the successful completion of the offering and the issuance of $10 million of Class B LP units and the completion of our acquisition of 4 properties subsequent to quarter end, as at November 13, our debt-to-GBV ratio was approximately 45%. We had approximately $7.5 million cash on hand, approximately $9 million of undrawn capacity under our credit facilities and 8 unencumbered properties with an aggregate value of approximately $117 million. I'd like to turn the call back to Milton for closing comments. Thank you very much. Milton Lamb: Thanks, Andrew. This year marks the 10th anniversary since the completion of our initial public offering. And over that period, we've made significant process -- progress in raising our industry profile and diversifying our tenant base, market presence and brand representation while more than tripling the value of our investment properties. We have accelerated this progress over the last 12 months and further strengthened our position for growth through the acquisition of a total of 15 properties for an aggregate purchase price of just over $215 million, including our entry into both the U.S. market and the heavy equipment dealership vertical, both of which broaden our potential acquisition pipeline. Looking ahead, you can expect us to continue to build on these positive factors to drive unitholder value, supported by growing property portfolio featuring essential retail and service properties with 100% retail collection -- sorry, 100% rent collection since our IPO over 10 years ago, prime metropolitan markets anchored by GDP and population growth, high-quality tenants with resilient business models, attractive single-tenant net lease structure and embedded fixed or CPI-adjusted rental growth. That concludes our remarks. I'd now like to open the line for questions. Christy, please go ahead. Operator: [Operator Instructions] And your first question comes from the line of Jonathan Kelcher with TD Cowen. Jonathan Kelcher: I guess over the last 12 months has been one of the most active times since you guys went public and you just reloaded the balance sheet. But what are you seeing now? Traditionally, Q4 is kind of the most active time for dealer M&A. Are you seeing any pickup in activity there? Milton Lamb: When I talked about this about 12 months ago, I was saying I expected the next 18 months to be pretty busy. A lot of the deals that we've completed recently have been previous dealers who have sold their residential -- sorry, sold their real estate after the fact. So it wasn't on the back of M&A. We're still seeing some slight hesitation, a gap on pricing in some of the M&A because of the environment we're in. But the entry into the states, just the activity we've had overall, the fact in an inverse way that interest rates have got to a level where there is a cost of capital for dealers have allowed us a nice place back at the table to be active again. And the pipeline we're seeing the opportunities, especially in the states, it is very positive. I mean in the states, there's more opportunities. There's certainly more competition, we have to pick our spots. But the traditional weighting more towards the back quarter or slightly into the first quarter, I mean, we've got some of that done already. We have always had the mantra mindset. We never wanted to extend the balance sheet where we were not comfortable. So we didn't extend too much before knowing that we're in a place that we are comfortable and able to do the raise that we did. So we're certainly -- I'll reiterate what I said 12 months ago and just extend it a bit further. We're looking forward to the next 18 months. Operator: Your next question comes from the line of Jimmy Chen with RBC Capital Markets. J. Chen: I noticed that there's a footnote that Audi is looking to leave the Vaughan site. And I'm just kind of curious as to what you're planning to do there. Milton Lamb: We just received that notice. It was not a surprise. We have -- and we've talked about it before, looked at this as a high-density residential site. And at the same time, it is a very high-quality either automotive or retail property being right beside Vaughan Mills. So we are now exploring what we're going to do with that, whether it's a short to midterm lease or other. Certainly, the quality of the property, especially compared to the price we bought it at, we feel very good about it. But we're moving on to the next steps as far as what do we do with this as we go forward approximately a year from now. J. Chen: Okay. Sorry, just a follow-up. So what's looking more likely though? Milton Lamb: Sorry? J. Chen: Which one -- which of the 2 options are looking more likely in terms of... Milton Lamb: It's too early to say. Operator: Your next question comes from the line of Zemin Liu with Desjardins. Zemin Liu: Just a quick question on transactions. So after selling the Kennedy Lands in 2024, are there other assets on the list for recycling as we head into next year? Milton Lamb: Jimmy just kind of touched on it a bit. The one that we would have seen as potential would have been 9088, Jane Street. I don't think we're in a rush for that in the current market. We have said before that we are not going to create a development arm and be a developer. That doesn't mean we won't do entitlement and look at taking nice profits as we've done with Kennedy Road and recycling them. But I think it's doing it at the right time and a place. I've always said in real estate, you do very well unless you have to do something. So we are not in a position where we have to do something, but we certainly want to be able to continue to drive AFFO per unit and capital recycling and/or re-leasing at a good rate can both -- can do both of that. Operator: [Operator Instructions] And we have no further questions in our queue at this time. I'm sorry. Your next question comes from the line of Giuliano Thornhill with National Bank. Giuliano Thornhill: I'm just wondering on the distribution policy, if you could kind of outline how you're thinking about that? Was it like AFFO per unit? Was it the transaction? Just to see on that, please? Milton Lamb: I mean it all comes down to AFFO per unit. And we've said before that we don't believe a onetime distribution increase does a lot for either our investors or for the pricing of our unit. So we -- the trustees and management feel very comfortable as we're looking to move forward. Certainly, the recent acquisitions, the levels being able to do them, the levels we've been able to put debt in place driving AFFO, that allows us to have the continued confidence. So I mean, as a policy, you've got to do one before you can do a regular series, but we certainly like the idea with our lease structures that there's the ability to continue to see same-property NOI and therefore, AFFO growth per unit to leave us in a comfortable position. Giuliano Thornhill: And so are you comfortable kind of setting like a target like 1 to 2 or so going forward quite yet? Milton Lamb: You're asking for forward-looking. We certainly can't do that. You've certainly got the ending tones on what we like. We can't project what there will be in a year. But all I can say is that we have consistently said we don't like the idea of doing a one-and-done distribution increase. Operator: Your next question comes from the line of Sairam Srinivas with Cormark Securities. Sairam Srinivas: Congratulations on a good quarter. Milton, looking at your comments for the next 18 months, as you look to be active and looking at the asset stack, you have these longer-term leases right there. I mean if you look at the debt side of things, the cost of capital, I guess, on the debt side is still more short term in terms of lines of credit and credit facilities. And that's -- I know that's essentially how you guys have operated. But is there a thought process to essentially change that debt stack a bit and probably look to more permanent stack of capital there? Milton Lamb: Sorry, to convert it to... Sairam Srinivas: Probably maybe the other forms of debt essentially and put more secured debt or convert... Milton Lamb: I mean at a certain size, you would think we have the ability to do unsecured debt, debentures take advantage of the financing market that's out there on the public side. Mortgages are very -- they remove a lot of flexibility. Our tenants are operating businesses. So we do get a knock on a door to help them with expansions, et cetera. I've been in the business since 1991. Those mortgages sometimes really do handcuff you. We have had on a regular cadence, the ability to and continue to enjoy, as you've just seen, the ability to extend those credit facilities, expand them, contract them, bring properties in, bring properties out, do expansions. There is a lot of for our own flexibility and therefore, as a follow-through, our tenants' operating flexibility, a lot of reasons why a certain part of our balance sheet might be mortgages, but it's not going to be a significant part. We need and like -- and I think the unitholders benefit from that flexibility that we're able to achieve by initially starting out with an unsecured portfolio to be able to put this -- the credit facilities in place. Sairam Srinivas: That makes sense, Milton. And probably my last question is for the Montreal acquisition, which you guys just closed in Dorval. I know you told these assets when you did the property tour, I think, a couple of years back. And at that point in time, we spoke about a lot of the potential in the developments around that area and the broader, I guess, infrastructure development around there. When you've chosen this acquisition, was there a future vision in terms of what you could do here? Or was it just like -- are you currently basically looking at the properties as they are and it makes sense to kind of hold them? Milton Lamb: Yes. The short-term future vision was that they are opening up that DesRosiers REM station. I think it was supposed to be October, so kind of as we speak. That is going to continue to drive density and traffic in that area, which is good for our tenant and certainly good for the land underneath. If you look at that site, including the Mazda that we already have, that becomes an incredibly attractive site. Now the tenant does have renewal options. We certainly think they're going to stay there for a while. And we're not in a rush. We do love the fact that it has underlying ability to either support very successful dealerships or to do mixed-use higher density. It certainly allows us to sleep well at night. But today's market, it's not the time to kind of reach and kind of push just for density. Operator: And that concludes our question-and-answer session. I will now turn the conference back over to Mr. Lamb for closing comments. Milton Lamb: That's great, everyone. After a busy quarter, thank you very much, and we look forward to catching up with you soon. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Omar Al Bayaty: Good evening to all the people connected. Welcome to the 9-month 2025 result presentation. Enel's CEO, Flavio Cattaneo, will open with the key highlights; and our CFO, Stéfano De Angelis will present the economic and financial results of the period. We ask those connected to the webcast to send question only via e-mail at investor.relations@enel.com. Before we start, let me remind you, media is listening both the presentation and the Q&A session. Thank you. And now let me hand over to the CEO. Flavio Cattaneo: Thank you, Omar. Welcome, everybody. Over the past months, we continue to implement our strategy, and our result prove its effectiveness. First of all, EBITDA and net income continued to grow steadily, reaching EUR 17.3 billion and EUR 5.7 billion, respectively. We're improving asset quality and profitability, leveraging on stable geographies with high visibility of returns and a balanced risk profile. Our focus on European countries now representing 75% of group EBITDA and 90% of net income led to an improvement of the EBITDA conversion into net income. We expect this ratio will achieve 30% at the end of this year, 5 percentage point above the 2020-2022 average, also due to our share buyback program, a double benefit of investing in our industrial asset while giving an additional return to our shareholder. This continuous improvement lead to stable growth in EPS and confirming our focus on shareholder remuneration. Furthermore, as usual, we are going to distribute an interim dividend in January equal to the 50% of the guidance floor, even though the final payout in July is confirmed up to 70% of the net ordinary income. As you know, environmental sustainability remains central to our strategy with emission-free production reaching 84% of total generation. Now a brief overview of our 9-month performance across geographies. The results were driven by strong operating delivery in Spain, mainly driven by the integrated position management and in Colombia, mainly due to good water resource availability. A clear example of our attention to process and portfolio optimization is the U.S., where our commitment has led to a positive cash flow for the first time since the beginning of our operation. In addition, the renewables in other countries have been restructured and reshaped in a growth platform. In LatAm, the resilient operation offset currencies dynamics. While Italy continues to face challenges, lower water resource affected the result of our hydroelectric plant. In light of the result presented, we confirm our expectation to close the year with ordinary EBITDA aligned to the guidance and the net income slightly above the top of the guidance range. This is a clear indicator of execution and value creation. Now I leave the floor to our CFO for further details. Stéfano De Angelis: Thank you, Flavio, and good evening to everybody. In the third quarter, the group confirmed positive and consistent economic and financial results. The limited risk exposure and the quality of our earnings are evidenced by the linear trend throughout the quarters with a net income expansion funded on a structural improvement of our asset portfolio profitability. Focusing on the delivery of our strategic pillars, the group profitability continues to be strong with net income up by 5% year-on-year, expanding the 3% growth reported in June, thanks to an improved conversion of the EBITDA, which now stands at 33%. Efficiencies continue to be front-loaded with 80% of the 2027 target already reached. Our efficiency program is part and share the same approach of the capital allocation process, representing our best and cost-free source of funds. Last but not least, on financial sustainability, net debt on EBITDA remained flat at 2.5x despite the EUR 1 billion execution of the share buybacks, which were not included in our guidance for the year. In conclusion, these remarkable results confirm once again the solidness of our business model and our balance sheet flexibility. Before diving into the results, let me show you the delivery on capital allocation. The execution of the industrial plan, I'm on Page 6, presented in November last year is progressively reshaping the asset portfolio of the group, allowing for a substantial improvement of the business performance. This is translating into a better asset quality with reduced volatility exposure and a more balanced risk return profile and an improved asset profitability, which resulted into higher EBITDA conversion into both net income and FFO. Thanks to this growing level of investment deployed in Europe, 75% of EBITDA contribution is now coming from this area. A minority dilution is limited to 9% on the European operations. At the bottom line, this translates into 90% of net income contribution coming from both Italy and Spain. This improvement is driven by coupling new investment guidance and the maximization of the value to be extracted by our asset base. I move to Page 7. Here, I show how the previous investment cycle was focused on growth in renewables capacity in Latin America and U.S. However, lower market visibility and greater market volatility and -- generate a lower-than-expected EBITDA, while the net income conversion was also affected by the higher financial cost and depreciation related to the incremental capital expenditures. On the opposite, the new investment cycle started in 2023 is focused on countries and businesses with secure and visible returns. It is proving to be more efficient and effective, delivering an improved EBITDA contribution, thanks to a more effective and efficient capital allocation and the reinvestment of efficiencies, as I said before, at zero-cost source of funding. This is clearly visible in the stronger results along all the P&L lines, implying an improved conversion of the EBITDA that is set to exceed 30% for the full year when we compare with 25% on the average 2020-'22 period. The first execution of the efficiency plan, the improved conversion efficiencies achieved in the headroom created on the balance sheet that equip us with a significant firepower to implement the share buyback programs already announced that we have on Page 8. The full actionable buybacks plan at group level stands at around EUR 6 billion and includes the total amount of the 3 different programs approved both at Enel SpA and its subsidiaries level by the corresponding AGM. About Enel program approved by the AGM for EUR 3.5 billion, we are on track to complete the EUR 1 billion tranche launched in August. And as of today, we have purchased 63% of this amount. Endesa where the program approved by the AGM amount to EUR 2 billion has already announced EUR 1 billion in 2 different EUR 500 million tranches with the second one already ongoing and having a final date, February 26. As of today, Endesa have purchased EUR 0.5 billion -- have spent EUR 0.5 billion and with an average per share acquisition cost of EUR 26.6 per share that represent 1.9% approximately of the total share capital. Lastly, Enel Américas share buyback was completed and oversubscribed with a total amount of USD 470 million. The partial was financed by the available liquidity. This liquidity is still arising from the sale of Peru from the disposal plan that we executed starting from 2022 until 2024. The operation now that is conclude and will be financially executed -- has been financially executed on the 1st of October will increment the Enel shareholder into the company into the holding Enel Américas from 82.3% to 85.7%. This brings me to say that it's worth to highlight that also the share buyback program at subsidiary level increased the Enel SpA earnings per share, thanks to the higher portion of the consolidated net income post minorities. Then the Investor Relations may make this exercise with you of calculating the percentage point of the increase. Now we are around 1% of net income post minority increase with the execution of this portion of the buybacks. On Page 9, we finally move into the economic and financial results of the quarter. As I said before, the group delivered a solid performance, improving previous quarter's bottom line performance and the trend expectations. It is worth reminding that this year, we face relevant exogenous negative effects, a stronger euro exchange rate compared to our Capital Market Day guidance, the breakout-driven increase in network ancillaries' cost in Spain. And then the program, let me say, curtailment in Brazil that is defined by the regulator without any refund for the generators. Including the impacts of these, let me say, headwinds as we call them, we would have stayed exactly in the expected growth of the budget and the plan that is plus 3%. But the reduced exposure to countries and business where we have this kind of higher volatility and sometimes unnecessary risk profile represented also by the limited contribution to the bottom line allow us to mitigate these headwinds at net income group level. Well, the limited conversion of the EBITDA exposed to these negative impacts smooth this impact that is more than compensated by the better execution, for example, in terms of bad debt and financial expenses. Finally, net income came in at EUR 5.7 billion, up by 5% year-on-year. It is important to remind that as already represented in the previous quarter, at net income level, the adjustment related to different perimeters across 2024 and 2025 includes also the sale of Slovenske that resulted in a negative noncash impact in the reported numbers of 2025 for the release of [ network reserves ] that was booked in the past related to derivatives. Remember that we have the important cash impact of taking back to Italy more than EUR 1 billion of shareholder loan and all the interest that was capitalized in the previous years. Finally, our improved organic results translated also into enhanced cash conversion, enabling us to reduce our net debt by EUR 0.6 billion year-on-year despite an additional EUR 1 billion not included in our business plan allocated to shareholder remuneration through the buyback execution and this maintaining the net debt on EBITDA ratio stable at 2.5x. I will now dive into the key highlights of the business moving to Page 10. We are talking about the grid's delivery, and it's important to highlight, as always, that we deployed a very huge amount of investment in this segment that amount to EUR 4.7 billion with an increase of 14% when we compare the same perimeter of 2025. Italy, that is the unique, I would say, regulatory framework that evolve versus the new needs in terms of network evolution in order to grant the resiliency and the support -- the adequate support to the system network security and contribution to the entire economic environment growth. This is the unique country where we already achieved the most important goal that is having a fair regulatory framework to allow us to invest, and we are ready to invest significant resources if we found other framework like this one. I'm anticipating probably some question about Spain. So it's clear that Italy gained the lion's share. So when we say Europe gained 80% of these shares, we have to also say that 70% of this amount is dedicated to Italy. The huge amount of investment boosted the value of our RAB, which has now reached almost EUR 46 billion, increasing the resiliency also and the visibility of our EBITDA for the coming periods. Finally, it's worth to highlight that as I have been questioned several times, and I don't know if this was part of the communication that you received from the analyst or from the financial market, the WACC in Italy was confirmed at 5.6%. Let's now look at the generation and supply business. In terms of capacity, our renewable asset base grew 3 gigawatt in the last 12 months, supporting the share of the renewables production on total, which remains stable at 72% as of September for the lack of resources in Italy for hydro, approximately in the year-on-year comparison, we have 1.5 terawatt hour less this year. And in Spain for both wind and solar resources and also for the relevant impact in terms of curtailment in Brazil because it's important to highlight that terawatt is not considered also in the production KPIs. We continue to deploy greenfield BESS capacity, reinforcing our leading position in storage, and we add 1 gigawatt in the last 12 months. And if we include our pumping capacity, now the full storage capacity of the group reached almost 12 gigawatt. Continuing on BESS, in the MACSE auction in Italy, we achieved a remarkable result awarding almost 70% of the total battery storage capacity auctioned with 6.7 gigawatt hour out of a total of 10. Moving to the retail segment. In our domestic market, volumes remain pretty stable at around 52 terawatt hour. Other important point, we also underline this, starting from the second part of last year, we complete the reshape of the offer portfolio and now our customer base is more resilient, demonstrated by the strong reduction in churn rate. Furthermore, our offers are now based on a sustainable price level in line with the current market price. I will now move into Page 12, and I will talk about the earnings evolution. As I said at the beginning of my presentation, ordinary net income came in at EUR 5.7 billion with a solid 5% growth that was supported by the mentioned EUR 8 billion CapEx. And this is the result of a strict but simple financial discipline and the value-driven approach that we have bring into the integrated margin management. I will now focus just in some specific topics. D&A increased EUR 100 million versus last year, but this is mainly driven by higher amortization resulting from the increased level of CapEx deployed over the year, but this was fully offset by a very positive result that was the bad debt evolution, especially in Italy that was also connected to the improvement of the -- sorry, on the churn rate, confirming a structural trend that we have observed along all the year. And already in the first half, we have a very positive impact. So the CapEx is doing its job, adding EBITDA, adding D&A. You do not see the impact at EBIT level of this additional D&A because we have the bad debt that is performing very well and reducing EUR 300 million -- sorry, EUR 300 million in Italy and EUR 100 million additionally in Spain, so EUR 400 million in the 9 months that compensate the D&A effects. Another very positive impact is financial expenses that are down by around EUR 300 million, and this is thanks to the reduction in charges on debt driven by the EUR 4.3 billion reduction in gross debt and the lower cost of debt compared to last year. Let's now move to the slide related to the FFO and net debt. I'm on Page 13. The EUR 11.1 billion FFO delivered in the 9 months implies a remarkable 64% cash conversion, which will be confirmed as [ share ] for the full year results. The FFO generated in the 9 months more than covered the deployment of organic CapEx as well as the acquisition of asset, brownfield in Spain with FFO minus CapEx being positive for EUR 2.5 billion. This net cash flow from operation, the net cash related to nonrecurring or accounting adjustment funded a EUR 7 billion shareholders' remuneration that have approximately EUR 6 billion of dividends and the EUR 1 billion approximately related to the buyback. Finally, net debt came in at around EUR 57.5 billion with a remarkable and confirmed ratio of FFO/net debt at 25% that is up by 2 percentage points versus previous year, another sound results proving the quality of our asset and very important for our rating. With this, I end my presentation. Thank you for your attention, and let's now open the Q&A session. Omar Al Bayaty: We thank our CFO. Let's now open the Q&A session. We received a lot of question for the call that we have summarized by topic and will be answered by the CFO. The first one, share buyback program for Enel SpA. Now you are on track to complete the first EUR 1 billion. What's next? Stéfano De Angelis: First of all, it's clear that we have today the balance sheet to execute the entire program, meaning EUR 3.5 billion approved by the AGM. Important to remind that the 18 months that is the difference, for example, from Endesa program, that is the duration of the program is the mandatory maximum duration for the Italian law. So it's not a specific decision underlying the 18 months. Clearly, the buyback is one of the option that we have to use part of the available financial flexibility. But we have to keep in mind that we have other relevant opportunity to expand the industrial asset base in order that is our fundamental goal to ensure stable and long-term earnings accretion. Omar Al Bayaty: Thank you, Stéfano. Let's move to Italy concession extension. In Italy, we are waiting for the final document on concession extension. Any news? Stéfano De Angelis: Not depending where you are, but the last relevant event is the ARERA Resolution in August. So we are currently waiting the decree of the Ministry of Economy. But as of now, in terms of -- you asked about the assumption. Being a decision that is not in our hands, our unique assumption -- for my unique assumption, let's call it this way, about the amount of the lump sum is what we have included in our Capital Market Day in November. And probably some of you remember that we included this amount not having still the opportunity to disclose the ongoing discussion about the scheme of the extension of the concession. Regarding the timing for the cash out, this is based on a step-by-step process whose timing is set by the government bodies because we have different actors that participate into this process that are involved. And this should target, as we always stated, the last quarter of 2026. But let me say about this topic that the value of this concession extension and the related extraordinary CapEx plan has to be considered independently from whenever and whatever will be the lump sum, even if it is a relevant element of the framework because the extension and the new and increased CapEx cap, this is really important as I have the opportunity to share with some of you, will allow us to invest more than EUR 15 billion in the next 3 years in Italy with a dramatic increase in the RAB compared to the past. Don't forget that we will have just in 2026, EUR 1 billion of grant still in our CapEx. But starting from 2027 and in 2028, we will not reduce the CapEx, the gross CapEx for EUR 1 billion, as you see in my number. So you know that the grants do not translate into RAB. So if this is EUR 3 billion or if this is EUR 4 billion, we have 3 year and a new framework that allow us to make an extraordinary level of CapEx, and we have the full firepower to realize a very significant upside in the CapEx that we will transform into RAB. Omar Al Bayaty: Thank you, Stéfano. Let's move to Spain. Can you please update us on the latest news on regulation in Spain? And what's your view? Stéfano De Angelis: We do not expect further updates earlier than the end of November. After that, the regulation will be finalized before year-end. Endesa has already got the access to the file, then they are still, as all the other operators, submit comments as always. We think that the changes proposed by the CMC in the latest documents do not solve the issue of effectively incentivizing the level of investments needed to accelerate the country's electrification and support the energy transition. This means that failing to establish a more predictable and adequate remuneration framework to meet this demand will mean missing a historic opportunity to enhance competitiveness, create jobs and drive economic growth. These are all topics that were part of the program of the government when we start to discuss about this topic. It's not my personal idea of Spain. But to be pragmatic, once the final remuneration framework is approved by year-end, we will be in a position to reassess if there are the condition, and we will assess also the sites for a potential upside in this CapEx plan. So we are talking about an upside. And this will happen ahead of the upcoming Capital Market Day that is scheduled for February 2026. Omar Al Bayaty: Thank you. Next question, if you -- could you please update on hydro concession extension? Stéfano De Angelis: There are several concession in Italy that have already expired by several years. And it's worth to remind that our concession will expire after the end of the next 3 years' industrial plan. So I can say that we expect the process will take longer time to start. It will -- this has to involve regional, national and European authorities. So it should be different from the one of the distribution. This does not mean that -- this is not a negative consideration. Because at the same time, it's a common understanding that in the present macro and geopolitical scenario, the condition that shaped the present regulatory framework need to be currently updated. Finally, what I want to say that we are not in a hurry, and I think it's not the proper time to speed up the process from our side, having the regulatory agenda already full. We were talking about the extension of the grid concession some years before of relevant topics, not just for our company, but the whole industry. Omar Al Bayaty: One more on concession, but Brazilian one. Could you please update us on the process for the concession renewal in Brazil? Stéfano De Angelis: But the process -- there are 3 processes that have different timing. So I will -- about the specific administrative update about the 3 processes that you can share with the -- also with the IR department. The relevant underlying discussion and evidence from our point of view, that is our point of discussion with the authorities are all pointing to the full extension of Enel concession. This is because we -- it's worth to remind that our effort in the country translates into a complete turnaround of the operation, targeting a dramatic improvement of the quality and the effectiveness of our operational processes that is joined with a gain in terms of productivity and efficiency in terms of spending. As an example, we are in-sourcing mission-critical field activities in order to improve the end-to-end management and monitoring of the network, but this is just one of the example. We are strongly increasing -- already increasing the capital expenditure and the OpEx dedicated to this turnaround plan. So despite a complex unfortunate starting point, with this approach, the present scenario drive to a full concession renewal as, I would say, also the unique scenario that we are considering today. Apart the concession topic, let me also update you on the liberalization of the retail market in the country. The government has defined the full liberalization of the retail market with a final deadline within 3 years. This means that our strong leading presence in the country should create a growth platform able to capture an incremental value creation that implying a potential but significant re-rating of our Brazilian operations. Omar Al Bayaty: Thank you, Stéfano. One question on MACSE auction. Could you please elaborate on investments and expected return? Stéfano De Angelis: This is the auction that -- it's in Italy, the counterparty is Terna, the TSO. We were awarded with around 70% market share of the total capacity in the auction. And as I already said in the presentation, 6.7 gigawatt hour, that is the other way of, let me say, measuring the auction level of capacity and megawatt, gigawatt hour as you prefer. The auction was based on a pay-as-bid mechanism. So you see that we have different pricing. So it's very difficult to understand an average point because you have different price for different players and for different plants. What is important is that this auction generated 15 years, 95% regulated revenues that give us full -- also to our shareholders, full visibility of the earnings stream with, let me say, I would say, a very risk profile because we have the construction, but BESS, we are the leading, I think, company. I don't know because nobody was helping me to understand this, but I think that we could be also the leader for sure in Europe and maybe also in some other continent. But I'm not joking that the execution of the construction of the BESS, we already realized approximately 2 gigawatt in Italy. So for us, this is not an element to consider a risky point. So the COD of this capacity and the EBITDA will be 2028 as based in the auction. So you will have full visibility in our next business plan and also positive impact of this CapEx in this auction. Omar Al Bayaty: One more on auction, FER X auction. Deadline for competitive process is at year-end. What's your expectation on the outcome? Stéfano De Angelis: If you look at the press releases that we have from the -- let me say, the administrative bodies, it's already, let me say, quite clear that we are -- first of all, we have 2 different auction. The big one baseline, let me say, auction and then we have another smaller that was dedicated to non-Chinese, let me say, components and agreements. The first one, we already understand, let me say, by the statement, the official statement from the GSE that have been awarded around EUR 60 per megawatt hour, something -- some capacity less, some capacity higher. But you have to consider that this price is adjusted for inflation. There is a full curtailment coverage, and this has generated so we have, let me say, a solar scenario. Solar was the big portion of this auction. And then there is an additional component in the price that is -- that depends from the geography. You have EUR 4, if I'm not wrong, plus in the center of Italy and EUR 10 plus in the north of Italy. This is not adjusted by inflation. So at the end, you have something that is in the range of EUR 65. In some cases, you have more than EUR 70. Again, that for the EUR 60 average of the base auction will be adjusted for inflation. In the other auction, we do not have any statement. We have to expect a price that reflects the spread of the market price against the Chinese prices, something that could be in the range of EUR 5, depending if you have the Indian one or something more. But in the second auction, we do not have the official statements that we have for the first one. Omar Al Bayaty: Thank you, Stéfano. Let's move to CapEx evolution. Do you see opportunity to invest more in renewables? In U.S., in particular, how many megawatts you already lock in? Stéfano De Angelis: Maybe also kilowatt. But again, I think that the market now should start to understand our behavior. It's not just U.S., it's not just Italy, it's not just Germany. It's a question of investing where you have a scenario that have, let me say, a balanced risk rewarding profile. This means that in Italy, we have a different approach than in Spain, for example, it's not just Europe because in Spain, now we are very long in terms of generation. In Italy, we are dramatically short as a country and as Enel. So the approach is different. But at the end of the game, it's the same because in Italy, we could be more aggressive in terms of pricing, let me say, expectation. In Spain, clearly, we have very low expectation because when we look at the market of the PPA with solar, it's not a country where you can imagine today to have a merchant photovoltaic plant to be built in the next months and the next couple of years. Moving to the U.S., it's really an interesting country because it's, first of all, one of the country that is in our scope, and you know that in our scope, you have a country when the -- also the market scenario, the geopolitical scenario and the regulatory scenario is, let me say, visible and let me say, less volatile. The safe harbor discussion, it's important. But at the same time, it's also important to consider that U.S. is a market that is growing. And this growth is visible today, is already visible in the price of the PPAs. It's already visible in the price also of the market, the different markets. And when I say different market, it's more visible in the PJM that in the [ SPP ] or something like this. So the approach remain the same. In U.S., we have a pipeline that should present some interesting safe harbor greenfield opportunity. To transform this opportunity into a positive final investment decision, we are already having discussion about PPAs because it's clear for us that if we are going to build a greenfield plant in the U.S., we will have a signed PPA at the day of the final investment decision. And this is part of the evolution that we are carry on in these months. Omar Al Bayaty: Thank you, Stéfano. Now let's move to guidance. First question regarding EBITDA guidance. Could you please run us through the trend of the last quarter of the year? Stéfano De Angelis: As I -- also last year, I insist, let me say, that utilities should have also, let me say, an annoying trend. And so my annoying answer is that the trend will be the same that we have observed along this quarter. So Europe will have an Italian pro forma that will be, let me say, almost flat year-on-year. And Spain will have a pro forma that will be more or less 5% growth year-on-year. That is exactly the figure that we have in September. It's clear that in South America, we have, let me say, a more, let me say, volatile trend, also considering the FX. So we expect a different -- a recovery, let me say, in LatAm that will be driven by the confirmed positive performance of Colombia, where we have -- is the unique relevant country in the region that do not have a negative FX. And the positive rebound in Brazil, the rebound that will be in the integrated margin will depend on 2 specific point. The first is that the FX impact should reduce because last year, 2024, the euro start to strongly appreciate against real in this period, let me say, in the fourth quarter of the year. So let me say the year-on-year comparison will benefit from a worse 2024 in the last quarter of 2024. But the most important topic because it's a very important industrial change that we will book probably if nothing changed in terms of process in respect expect to the positive impact of the curtailment refund in line with the decree that was approved recently by the Brazilian government. As you know because I read a lot of daily news from the investors, from the analysts, this is not what I would say you were expecting because we were expecting this, it's very difficult to expect that the excess of capacity, it's refunded. When the network operator cut for -- with the programmed cut for security reason. So it's a programmed cut not for a temporary excess of generation, but it's in order to secure the transmission and the network system. In this case, we were expecting strongly to be refunded and the decision is, let me say, positive as again, I [ wrote them ] this is also our position, the generated distribution shouldn't be, let me say, impacted by the definition because it's the reason why we have that kind of congestion in Brazil. So -- but this is something that could be introduced also in the final word of the law when transformed into law. So the impact is not hundreds of millions. It's something that, let me say, bring our performance in line with our expectation because the amount more or less will cover the full impact of the curtailment that is the one generated by the -- let me say, by the programmed cut from the TSO and the other is the real congestion that, in our opinion, is something that is, let me say, a long-term strategy from the -- of this energy system because that kind of evolution in the distributed generation was -- should have been managed some years ago probably. But again, don't move from the positive reaction that we had. So Brazil will driven by these 2 specific FX that will not change, let me say, the trend of the LatAm business dramatically, but we will move from a flat to a low -- no, let me say, to a single-digit growth in the specific fourth quarter results. This is our expectation. Omar Al Bayaty: Thank you. Stéfano, one more on guidance, net income guidance. On net income, you guided slightly above the guidance range. To which extent do you expect to exceed the guidance? Stéfano De Angelis: Let me say, I think that I gave all the elements that have the translation of the EBITDA into the net income. So I will just, let me say, refer to something that is not related to the EBITDA because the mix of the EBITDA will have a negative -- let me say, a slightly negative impact on the minorities. In terms of seasonality, also last year, we had, let me say, a different quarter in terms of economics last year, but you have to consider that there is also a concentration, as always, of the CapEx that you probably remembered also impact. So I probably answered the question of the working capital in this moment that how you expect to recover the working capital because the CapEx concentration, it's a historical that nobody will be able to remove from also all the industries that have this intensity of CapEx. So this will be -- let me say, again, we are a very utility. So the linear trend will continue, excluding this change that we have a higher, let me say, share of depreciation and a slight increase in minorities because -- due to the positive improvement of the LatAm operations. Omar Al Bayaty: Thank you. Let's move to hydro. The hydro production in Italy is down 1.5 terawatt hour year-on-year. What's your expectation for the last quarter? And any visibility on 2026? Stéfano De Angelis: First of all, I think it's very important to keep in mind that 2024 was -- if I'm not here by 20 years, but probably the best year in terms of [ hydraulicity ] in the story of the hydro in Italy. So when you see year-on-year comparison, you not to worry about also our plan because we never make a plan with the historical high. We are always in an average. So we were expecting this trend. In this moment, Italy is not improving. So we will not recover. I will tell you that we will recover the 2024 condition. And to have full visibility, we have to wait still some weeks in order to have, let me say, a first visibility on the first part of 2026. But it's important also the 2026 in the Capital Market Day, industrial plan was defined based on an average hydro resource in Italy as in the other countries. Omar Al Bayaty: Thank you, Stéfano. Let's move to retail. It looks like you recorded a drop into retail clients in Italy and Spain. What is the churn? And what are the main drivers? Stéfano De Angelis: But unfortunately, it's in this quarter, something very strange happened because we talk about churn reduction, and you see the drop of the customer base. The churn is confirmed at the significant lower level compared to last year. And this is what we were expecting because all the -- also repricing that we performed in the last -- until the first part of 2024, this process was completed by the end of first half 2024. And this started to give us improvement of the churn that now is very solid and clear. But another important thing happened in one day that was that in the 1st of July, we have millions of customers moving from one side to another because we lost millions of customers from the regulated base, and we gained in one day approximately 1 million customers. So now we are -- like-for-like this is a change that is real, let me say. The other one also was real because that customer was not in the free portion of our customer base. And this is also important to look at the volumes, let me say, in the reported figures because starting from this quarter, in one day, we lost also the terawatt hour of the -- when you look at the total figure of the terawatt hours sold in Italy, in one day, we lost millions of customers, so some terawatts generated from the so-called [ tutti i lati ] customer base that was in a specific company, and you probably know the story that is not so fantastic... Omar Al Bayaty: Okay. Thank you for your answer. D&A were almost flat year-on-year despite the new investments. Which are the drivers? Stéfano De Angelis: Again that we gave the trend -- the industrial trend of the asset is that we have an increase in the D&A because of the increase in the investment plan. Keep in mind that in the past, you have the figure that was also reporting the disposal plan. So when you see the asset base and the depreciation, when you sell an asset, you sell also the depreciation with the asset base. So now that we are trying to be more stable and comparable, now the pro forma is limited to Peru and Lombardy. When we look at the industrial part of the comparison, we will start to see the increase in the depreciation that is, let me say, organic. But fortunately, as I said before, we have the strong reduction in the bad debt that you will see in the same line, if we don't move into a scheme that have, let me say, an open description of the D&A figures in the simplified P&L. Omar Al Bayaty: One question on data centers. It's a business opportunity for you? Stéfano De Angelis: Yes. As presented 1 year ago, this is part of our additional growth opportunity. As of today, we are working on a specific pipeline of industrial sites through a dedicated full-time organization set at the beginning of last year. The specific business opportunity is represented by the sale of time to market. What does it mean? A value that is embedded in the industrial site where we can offer real estate permitted and ready-to-use energy network connections and facility services on top of a power PPA with a premium above this business model that is different from a spot sale model, we are finalizing the first preliminary agreement in Italy, where we have several potential sites in our pipeline. Omar Al Bayaty: Thank you, Stéfano. Let's move to financial expenses. What is driving the improvement in financial expenses versus plan expectation? Stéfano De Angelis: Because none of you -- I was thinking there is a different -- because already I think I answered through the presentation, and we have also included this EUR 4.3 billion reduction in volume effect. And then we have -- let me say, we have to consider the short-term and long-term part of the debt. But let me say, generally speaking, we have also an important reduction in the cost of debt, also thanks to the new mission of the last, let me say, 24 months. Omar Al Bayaty: Okay. Thanks for the clarification. Stéfano De Angelis: Sorry, before -- somebody that was on the line that I didn't respond about -- I didn't answer about Spain. I just talked about Italy. Spain is a completely different market. I'm referring to the retail churn. In Spain, we have a dramatic churn. What is important that we started to have, let me say, a different approach to different segment of the market on the sales channel. So when you see the positive results that we have in Spain because we don't want to do fight for customers just for an absolute figures of invoices. And the result is negative when you look at customer base, but if you see the trend also comparing us to other peers in the generation supply, let me say that we have a quite -- slight better trend comparing year-on-year. So we expect this to be also something that is an example because the churn in Spain is structurally average churn at 25% that I never seen in my life also in telecommunication sector. For example, that the churn has destroyed also entire groups of companies, but 25% in Spain that have the lower price wholesale in Europe is something that depends on specific behavior on some specific player that it's important not to follow because they are not creating value in that market. This is important to [indiscernible]. Omar Al Bayaty: Thank you, Stéfano. Let's move to working capital. Stéfano De Angelis: I said before that I already answered working capital. It's -- again, the seasonality is always -- last year, I say that we will recover, and we recover. So you have to start to trusting me about working capital. But also because I remember perfectly last year that I said I have the invoice, the visibility, the short-term visibility of our business is very high, very, very high. So the working capital is something that is -- if you have some change because you decide to have some change from the forecasted amounts. So don't worry about the working capital. Omar Al Bayaty: Okay. Thanks, Stéfano. There are no more question. So the Q&A session is over. We cover all the main topics. But if something is missing, the IR team is available for follow-ups after the call. Thanks to everybody. Stéfano De Angelis: Thank you, and see you maybe somewhere before Christmas, different happy Christmas because this time, we will see for the Capital Market Day, not in 2 weeks, but in 3 months. Bye-bye. Omar Al Bayaty: Thank you.
Operator: Good morning. Welcome to Corby Spirit and Wine's Fiscal Year 2026 First Quarter Financial Results Conference Call for the period ended September 30, 2025. Joining me on the call this morning are Nicolas Krantz, President and Chief Executive Officer; and Juan Alonso, Vice President and Chief Financial Officer. Hopefully, you've had the opportunity to review the press release which was issued yesterday. Before we begin, I would like to inform listeners that information provided on today's call may contain forward-looking statements, which can be subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks and uncertainties about the company's business are more fully discussed in Corby's materials, including annual and interim MD&A filed with the securities regulatory authorities in Canada as required. [Operator Instructions] Now I would like to turn the call over to Mr. Krantz. Nicolas Krantz: Thank you very much, and good morning, everyone. I am Nicolas Krantz, and it's a pleasure to connect with you today, joined by Juan Alonso, our CFO, to share Corby's Spirit and Wine Q1 result as we kick off fiscal year 2026. In a few minutes, Juan will walk you through the financials in more detail, but I will begin by highlighting the key drivers behind our strong start to the year in what continues to be a volatile and evolving market environment. Indeed, it's been a good start, strong start with a record high quarterly reported revenue and net earnings growing plus 16% and 9%, respectively, fueled by continued share gain in spirits and the rapid expansion of our RTD business. This marked our third consecutive year of outperforming the overall spirit market, a testament to the strength and resilience of our strategy and diversified brand portfolio. Our RTD strategy continue to deliver, Corby is now position as one of the key players in the Canada fast-growing RTD category. And importantly, we are outpacing category growth as well. Part of the success for the RTD portfolio and our wine portfolio has been successfully capitalizing on the Ontario route-to-market modernization, creating new opportunities for consumer engagement. Now turning to market dynamics. The Canadian spirits landscape is evolving, and we've seen some reduced processing patterns in Ontario as a new channel expense, and we are now lapping the LCBO labor strike from July 2024. So despite these factors, we have delivered consistent profitability margin against a dynamic backdrop, reflecting strong operational execution. Notably, our Q1 performance reflects the excellence of our sales execution with a strong share across the total portfolio and within the context of the U.S. origin products being removed from shelves, also benefiting from favorable order phasing effects expected to normalize in Q2, but more on that to come. Beyond top line growth, we continue to actively manage our portfolio to enhance Corby's growth profile. And during the quarter, we completed the disposal of certain noncore ABG brands, and also Juan will give a bit more detail, allowing us to sharpen our focus our priority categories and accelerate our growth. Finally, from a financial perspective, we delivered strong cash flow generation supporting by attractive capital returns to shareholders. Our balance sheet remains healthy and the net debt to adjusted EBITDA at 1.4% is proving to show our flexibility for our balance sheet. In line with our confidence in the outlook, we maintained our quarterly dividend at $0.23 per share, consistent with our Q4 FY '25 and up 5% relative to the Q1 FY '25, signaling the sustainability of our dividend policy. But before Juan gives a bit more in detail on our financials, let me give you a quick glimpse of the wider market context. As I mentioned, Corby saw an acceleration of our share gains across all category in Q1. And a lot of this is possible towards the excellence of our sales execution as we plan to capture share following the U.S. origin products in removed from shelf. In the rolling 3-month period ending -- end of September, while the Canadian spirits market declined by minus 0.9%, Corby values performance outpaced the market by 6.8 points, delivering a 5.9% growth in value. Our wine portfolio as well delivered a very strong result, achieving plus 20% growth against a fairly flat market at 0.7%. And as I've explained previously, we can specifically highlight the RTD category that continued to be, of course, in good growth. But Corby has firmly established itself as a major player, consistently outperforming the market with 44% growth, which is, of course, an outstanding 27 points for the market. For marques as well, if you look at the first quarter of the year, this has been, of course, a very strong result. But also if you move to the R12, it continues to be also a very resilient market. Effectively, the broader market on the R12, we can see that the spirits market is declining by 3.8%, and we are almost flat, slightly growing. So again, with a strong performance versus the spirit. On the RTD, the market remains in double digits, and we are outperforming as well in the category. And on the wine side, slight decline, and we are also outperforming the category. Now deep diving a bit more on the spirits category. We can see that we continue to outpace the market in almost all spirits category over the last 12 months. And we share gain acceleration in the last 2 quarters as we benefit from this U.S. original product being removed from shelf. And we have, of course, a uniquely a diverse portfolio across every price point in every category across spirits, RTD and wine. And this is very much a competitive advantage of Corby right now that we are leveraging with impact. Turning a bit more on the RTD portfolio, which is very important for us. Corby's RTD growth has accelerated over the last 12 months, with a sustained share gain driven by strong innovation and strategic execution. In Q1, as I mentioned earlier, our RTD portfolio delivered outstanding plus 44% value growth, significantly outpacing the category nationally. And over the last 3 months, the RTD portfolio took share in every region, reinforcing the strength of our brands and the effectiveness of our strategy. Specialized route-to-market now remain a key advantage with ABG proving strategy reached from Ontario, but also new strengthening its presence in Western Canada. In that category, innovation continues to be a core strength and our pipeline is robust. We see now that we have a lot of new brands winning share, allowing Corby to rapidly attacking white space and capture further growth opportunity. In Ontario, we've been capitalizing on the route-to-market modernization since September 2024, leveraging the breadth and depth of our RTD portfolio. And this has translated into growing prominence in grocery store where our brands continue to lead and benefit from the strong consumer demand. Of course, our flagship brand, Cottage Springs is at the forefront of that success and remain the #1 RTD in Ontario. Finally, we've taken the advantage and the strategic step to enhance our RTD portfolio and growth profile. And this quarter, we have also announced that we'll increase our ownership of ABG by adding 5%, bringing our ownership to 95% subsequent to this call option being exercised. I've mentioned before that we have also taken the opportunity to streamline the portfolio from ABG, and we dispose some noncore assets, particularly Ace Hill beer and the Liberty Village Dry Cider. So non-strategy assets has been divested to refocus the portfolio on our core strategic SKU. Finally, before I hand over to Juan, and I don't want to dwell too long on our strategy since it was already well covered on previous pages. But I want to make clear that our goal remains to really focus on market share gain to grow sustainability and also in a profitable way so we can create value for our shareholders. Now with that, I'll hand over to Juan to highlight our Q1 financial results. Juan Alonso: Thank you, Nicolas, and good morning, everyone. I'm Juan Alonso, Corby's CFO. I'm pleased to walk you through our financial results today. Very quickly before we talk about our financial performance, you are going to note that some mentions of adjusted metrics and organic revenue growth. We believe that these non-IFRS financial measures support a better understanding of our underlying business performance and trends. We provided detailed explanations of each of those elements in our Q1 FY '26 MD&A, and I invite you to refer to this document for any questions related to it. So let's start with Q1 results. In the first quarter, Corby delivered strong results with record quarterly revenue and adjusted EBITDA, sustained by the expansion of our RTD business and the acceleration of our spirits market share gain. Corby generated $75.4 million in revenue, a plus 16% increase over Q1 of fiscal 2025. This performance marks Corby's highest quarterly revenue achieved in a challenging retail environment. I will go over the key drivers in more detail shortly. With strategic investments behind key brands and diligent control of expenses, our adjusted EBITDA also reached a record high, totaling $20.3 million up plus 4% and adjusted earnings per share were $0.39, which reported at $0.36, representing a solid plus 9% growth in reported earnings and plus 8% in adjusted earnings. Our cash flow from operating activities totaled $5.6 million, a $1.9 million increase year-over-year. This was supported by earnings growth, disciplined management of costs and working capital favorable. On Wednesday, the Board of Directors declared a dividend at $0.23 per share for the first quarter of FY '26, consistent with the previous quarter, which represented an increase of $0.01 or 5% compared to the first quarter of fiscal year 2025. The Board of Directors assesses the dividend on a quarterly basis. And as a reminder, the quarterly dividend was less increased in Q2 FY '25. Now let's go to the next slide and delve deeper into our year-to-date revenue growth. To reinforce, Corby delivered an all-time high quarterly revenue of $75.4 million in Q1, representing a 16% increase over Q1 of FY '25. And this growth can be attributed to: firstly, domestic case goods performance reached $61.3 million, reflecting a plus 15% growth. This is highlighted by improved shelf prominence of Corby's spirit, capitalizing on the removal of U.S. origin products in key provinces. ABG Brands grew plus 33% with continued strong momentum on new channel expansion in Ontario and Western Canada. Secondly, commission revenue rose to $8.2 million, a growth of plus 7% versus last year, driven by imported RTD staffing into routes-to-market modernization opportunities with the openings of grocery and convenience channels across Ontario. In addition, represented brands lapped the LCBO labor strike impact last year and benefited from favorable LCBO order savings in Q1 this year which is expected to normalize in Q2. Lastly, export revenue increased to $4.9 million or plus 55% reflecting a strong recovery of shipments across all markets, also benefiting from favorable shipment phasing in the U.S. So to summarize our P&L results for Q1, Corby saw strong 16% revenue growth, leading to a record quarterly performance, bolstered by the strength of our portfolio, specifically the accelerating RTD portfolio, tapping into new channel expansion in Ontario and the spirits gaining additional shares in the spirits market. Our total operating expenses increased by 18% to support the continued growth and expansion of our RTD business in addition to strategic investments behind key brands such as the J.P. Wiser's NHL partnership and also disciplined people cost management. As a result, Corby delivered a record quarter adjusted EBITDA, marking 4% increase versus last year, growing at a lower pace than revenue due to an adverse portfolio market and channel mix along with lapping very low marketing spend levels last year to mitigate the business impact of the LCBO strike last year. For the sake of clarity, when we talk about a diverse portfolio mix, it refers to RTDs, growing at a softer pace than the rest of portfolio and notably our more profitable spirits. The diverse market mix refers to a stand-out recovery of our export business across all markets, less profitable on average than our domestic market. Lastly, the adverse channel mix deals with the increase of direct delivery sales of RTD products following the route-to-market modernization in Ontario,that is more costly than the retail channel. Finally, on a per share basis, our adjusted net earnings was $0.39 and reported net earnings was $0.36, reflecting growth of 8% and 9%, respectively, versus last year. Moving to our cash flow performance. In Q1, Corby generated $5.6 million in cash from operating activities, supported by higher net earnings and favorable working capital movements, partially offset by higher interest and tax payments. These working capital benefits were primarily driven by timing of spend. Our free cash flow also improved, increasing by $1.3 million compared to the prior year. As a result, our net debt position was $93 million at the end of the quarter, representing a $16 million improvement versus Q1 FY '25. Our net debt to adjusted EBITDA ratio improved at 1.4x, down from 1.8x last year, demonstrating robust solvencing and reinforcing our financial health. Corby maintained an attractive dividend payout ratio at 55% on a rolling 12-month basis, highlighting the sustainability of the company's quarterly distance. Notably, quarterly dividend payment increased by 5% in Q1 FY '26 compared to Q1 FY '25. These actions have contributed to a high dividend yield over recent years at 6.6% at the end of the quarter, providing consistent returns over FY '24 and FY '25. We are proud of our performance in Q1, and we remain focused on delivering long-term value for our stakeholders and shareholders. With a strong portfolio, disciplined execution and a clear strategy, Corby is well positioned to continue driving growth and shareholder returns. Before I finish, I want to share our outlook and priorities for the remainder of the year. After all you've heard today, you can see that Corby is well positioned to continue outperforming the market in FY '26, even as the environment remains dynamic. Our ambition is to continue to gain market share in spirits despite the challenge of a potential slight market decline. We are going to remain agile and respond appropriately whenever U.S. products are permitted back on shelves. We are confident in our resilience, leveraging leading brands, local footholds, top-tier marketing and advanced tools like AI-based prioritization to stay ahead. Our RTD portfolio remains a major growth engine and we see significant potential to expand across Canada, led by strong traction of strong ABG. In Ontario, we will continue to capitalize on routes to market modernization, meeting evolving consumer preferences with agility and breadth. From a financial perspective, we remain focused on protecting margins, driving profitable growth and generating long-term shareholder. Finally, regarding the outlook for the next quarter and beyond, we expect Q2 results to be softer than Q1 due to the normalization of LCBO orders from Q1 and the impact of BC labor strike that elapsed over September and October. We anticipate that these FX will normalize over time and will not impact Corby's ability to execute on its market-leading strategies. Now I hand over to Nicolas for some closing remarks. Nicolas Krantz: Thank you very much, Juan. Strong financial indeed and good clarity for outlook. Well, I want to leave you with the core reason you should invest in Corby really. And for us, it's really the backbone. Corby remains at the end of the day, the Canada's largest publicly listed multi-beverage alcohol company in Canada with the most diversified portfolio in the market, and that's something we need to anchor. Add to that, our close partnership with Pernod Ricard gives us strategic advantages and of course, access to global brand [ assets ] and the portfolio is, of course, extremely -- the diversity of the portfolio and the strength of the portfolio is supporting us as well. We have a clear strategy, strong execution and a proven ability to outpace the market in value growth. Our innovation pipeline, marketing strength and recent acquisitions continue to drive performance and operational excellence. And finally, we have consistent financials. It means like we have resilient revenue, strong cash flow and a healthy balance sheet that support attractive and growing dividend. Now as you know, we recently announced upcoming leadership changes at Corby. This means that today is my last day of stating our earnings conference call as the President and CEO of Corby. I'm extremely proud of what we've accomplished over the past 5 years and in Corby has been an honor. I will continue to work closely with Florence Tresarrieu, the incoming President and CEO as we transition. I know she will lead Corby with energy, strength and passion, and she is looking forward to connecting with Corby's shareholders. With that, thank you once again for joining us today and for your continued interest and support in Corby. Juan and I, of course, are now happy to take any of your questions. Thank you. Operator: [Operator Instructions] Nicolas Krantz: Okay. So I think we have a question here. Thank you very much regarding the export opportunities. So listen, the export today is a relatively small part of our business. It's an opportunity because at the end of the day, from a small base, it's showing on the regular basis, of course, a good growth. In terms of our, I would say, battleground, we really have 2 types of battleground. The first one, of course, mainly for whiskey business, it's the U.S. The Canadian whiskey category is actually a large category in the U.S. and J.P. Wiser's and the rest of our COVID portfolio is relatively small. So we are showing good trajectory from a small base but this is something which we'll continue to do. The rest is more in Europe where we export J.P. Wiser’s and Lamb’s rum. Lamb’s rum in particularly in the U.K. But also J.P. Wiser's is showing some good traction in a country like Sweden and Central Europe. So that's also something that we are going to do. Now regarding the commercial opportunity for the RTD, for the moment, we think we have plenty of opportunity to scale up the business in Canada. That has been the focus in terms of resource allocation and the team. But listen, there is no doubt that the U.S. is, of course, a large playground as well for RTD. I think for us, it's a matter of timing of maturity and in the long run, of course, the U.S. may also represent a good opportunity for Cottage Springs or for that matter, for any other brand or innovation, what we call new-to-market brands that could be developed for the U.S. market. So in the short term, I would say probably not the focus for the RTD portfolio in the mid- to long term, likely to be also an opportunity for us. Maybe Juan, you're okay to take the questions on the debt and the cash flow? Juan Alonso: Yes, yes. Thanks for that. The question is related to the increase of the cash flow and if the company intends to prioritize debt repayments or other potential uses such as dividend increase. So our idea is continue to amortize our debt straightly -- we have 10 years to pay our intercompany debt with Pernod Ricard that was taken in 2023 for the acquisition of Ace Beverage Group for the amount of $120 million. And we have a 10-year tend to amortize this debt, and we have been amortizing straightly across the years. At the same time, that this enables us flexibility to continue to increase dividend as our earnings from profit increase. So that's both. So continue to repay the debt and continue to assess dividend increase as the business profit grows. Nicolas Krantz: Is there any further question? Operator: There are no questions on the phone lines. Nicolas Krantz: Okay. So with that, again, thank you very much for your attention. I usually close specifically on Friday to say the best way to get to know Corby is to get to know our portfolio and enjoy our brand responsibility, specifically before the weekend. So with that, I wish you a very good day and a very good weekend. Thank you, everyone. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Thank you to the Plus team and Adrian for that very engaging discussion. So next in our lineup, we're pleased to welcome Nickel Asia Corporation. Presenting on their end will be Mr. Andre Dy, Vice President for Finance and Corporate Planning and Deputy Chief Finance Officer. Joining him in the Q&A will be Mr. Dennis Zamora, President and Chief Executive Officer. Moderating this session will be Mr. [Gab Aguila] from Sun Life. So now as we begin, please turn your attention to the video as we get to know more about Nickel. [Presentation] Andre Mikael Dy: Good afternoon. Good afternoon to the participants of the PSE Star Day. I'm Andre Dy for Nickel Asia Corporation, and I'm happy to be here with you together with our CEO, Mr. Dennis Zamora and our Chief Commercial Officer, Mr. Koichi Ishihara; and Miren Cueto, who is part of the Investor Relations team. We're here to present Nickel Asia Corp's 9 months results. So for the financial highlights, let me go straight here. And if I could -- we could just pay attention to the left-most bar chart on the upper part of the screen, it indicates our top line performance. So for the first 9 months of 2025, revenues have increased a 35% improvement year-on-year to PHP 22.8 billion from PHP 17 billion, and that's because of the favorable nickel ore prices, specifically because of the saprolite ore exports. The bar chart in the center displays our consolidated EBITDA for the period. So that's close to PHP 11 billion. It's a 65% improvement from last year's PHP 6.6 billion. Again, the profitability driven by better ore prices and more efficient mine operations. So we've already surpassed our full year 2024 EBITDA with the 9 months because of the circumstances surrounding the nickel ore price dynamics. Then the rightmost bar chart is our attributable net income. That's -- for the 9 months, it's PHP 5.2 billion. So it's double from last year's PHP 2.6 billion. This puts us about PHP 1.9 billion ahead of the full year 2024 Recurring Net Income performance. So the improvement in net income is due to the higher direct shipping ore prices. These are up 52% year-on-year. And another is our onetime income from the PHP 1800 million generated from the sale of our stake in Coral Bay HPAL plant earlier this year. And then if you refer to the table below, the first row summarizes our gross profit margins. It stood at 63%. So this is up 8 percentage points compared to the same period last year. Second row is our EBITDA margins. These stood at 48% for the first 9 months. That's an improvement of 9 percentage points. So despite OpEx increasing due to more volume, we were still able to achieve high EBITDA margins. The next row indicates our net income margins. These also increased to 32% from 22%. Now moving on to the next slide for the mining highlights. The first set of bar charts on the left shows us the nickel ore sales volumes sold. So green portion presents the saprolite exports, while the orange portion represents the limonite HPAL deliveries. So mining sales volume increased 2%, totaling 13.89 million wet metric tons. Ore exports, which is around 40% of mining sales reached 8.32 million wet metric tons. This is up 3% year-on-year and HPAL deliveries totaled 5.57 million. That's a 2% increase from previous year. The middle bar chart is a change in ore prices. So the significant change is the average prices registered for saprolite, which is $37.52 per wet metric ton. That's a 52% increase from last year's average price of $24 per ton. And then for the limonite HPAL, there was a decrease of 6% in the price to $10.17 from last year's $10.78. This is due to lower nickel LME rates, which is a factor when considering for the price of HPAL delivery. And this is because of the global oversupply for nickel metal. But due to the more favorable saprolite ore export prices, we can see the rightmost bar chart, the combined ore revenue rose by 41%. So that is at PHP 20.96 billion. Table below gives us additional context on nickel prices. The first column indicates the average nickel LME price per pound. So for the first 3 quarters of the year, it amounted to $6.87 per ton. It's lower compared to the $7.75 per wet metric ton last year. Nickel LME are still weak at the moment because of the global oversupply of refined nickel metal. However, the supply of raw nickel ore remains tight and limited, which explains why ore prices remain elevated. Below this, we have a summary of nickel pay factor for our ore exports. So nickel payability for ore exports for the whole 9 months is very high. It's at 27.31% compared to last year's 6.68%. So even with low nickel LME, nickel ore prices remain higher, and that's because of the tightness of ore supply in Indonesia and in the Philippines combined. So in Indonesia, it's due to the mining quota permit issues, while the demand for ore processing remains strong from -- in their country and also in China. Another thing to explain here is the nickel pay factor for the HPAL. You would notice that this year, in the 9 months, it had increased to 9.9% from last year's 9.24%. So despite nickel LME falling down, we've been able to successfully negotiate better prices with our customers who -- the HPAL plant [Technical Difficulty] limonite ore from us. Next slide. Now for the revenue analysis, so we'll show you a waterfall just to dimension where the gains in revenues are from last year. So a big part of that gain is the improved ore export prices. So that's the main contributor. That's almost PHP 6 billion effect. Then the other parts that follow that is the more shipments contributed from Rio Tuba and Manicani, a mine that we just recently opened. And all other Fx are due to slightly lower average Fx, lower limestone deliveries and no TSF activities for the year. Next slide. Then on the cost side, there's an increase in cost, but it also goes with more ore that's been produced. So because of the 3% increase in ore, we also saw some increases in mining costs. There's also contribution from depreciation. And of course, the ramp-up from the new mine, the Manicani operations, and also higher excise tax and royalties because of higher prices of the ore. So really, it's more variable, that's driven the increase in cost and expenses. Next slide. Now for the investment in HPAL equity losses, we completed the sale of our 15.625% equity in Coral Bay. So for this year, we were able to trim our losses in our equity investments. If you look at it year-on-year, it's a 59% improvement or reduction from the same period last year as a result of our divestment in Coral Bay. Next slide. Now for the balance sheet highlights. Our total assets had grown by 10%. We are now at a PHP 67.6 billion asset base from last year's PHP 61.7 billion, primarily driven by a generation of more cash and cash equivalents because of the better ore price. So now that stands at -- net cash stands at PHP 18.9 billion. So that's an increase for -- in our cash, short-term cash investments and cash managed funds. Trade receivables likewise increased by 31% from higher sales. Our liabilities, not so, just an increase of 10%. Notable movements include short-term debt increase 10%. It's a long-term debt that saw a significant increase, 85%, PHP 2.1 billion to PHP 3.8 billion this year. So these are really from the proceeds from bank loans used to fund or construct our solar project in Subic, Cawag. Our equity grew by 10% to PHP 48.6 billion. This is an 8% increase in Equity Attributable to the Parent now at close to PHP 40 billion. And then in terms of gearing ratios, gross-debt ratio is low at 0.28x. And then net-debt ratio, we are actually in a cash position. So that's at 0.0 -- the net debt is at 0.04 -- negative 0.04x. So yes, we are in a net cash position. Next slide. And we just recently announced cash dividends that we declared. It's a special cash div. It's more than the dividend policy of regular payout. So last November 11, we announced and declared a special cash dividend of $0.07 per common share payable on December 15 for shareholders on record of November 28. So this brings total dividends declared by our company to $0.18 per common share. That represents a payout of 80% -- 80% payout of previous year's net income. Now we move on to renewable energy. So our JSI project, our Pioneer project, this is the visual of our operations in Mount Santa Rita situated within the Subic Bay Freeport Zone in Zambales. This is run by Jobin-SQM. So the site has installed an operational capacity of 172 megawatts. It's one of the largest in the country coming from a single solar power generation plant. The table on the left indicates the current offtake profile of Santa Rita. As of the 9 months of 2025, 89% of energy sales mix is from PSAs. The remaining is 11%, is exposed to OSM. Moving forward, the direction is to fully contract the JSI via PSAs. Next, as we move to the financial highlights. For the 9 months 2025, generation is up 2% year-on-year to 171,279 megawatt hours. EBITDA for the 9-month period is at PHP 617 million. It's a decline of 16% year-on-year due to the lower tariff rates. However, because JSI sales are predominantly secured through PSAs, the decline in WESM prices during this period was mitigated by the PSA contracts. Next slide. Now for the pipeline. Here, this is our project that just recently turned on the San Isidro, Leyte project. So this is the first project with Shell Overseas Investments BV under a joint venture company called Greenlight Renewable Holdings, Inc. The Leyte project is divided into 2 phases. Each phase will contribute an additional 120 megawatts or an attributable 72 megawatts capacity to EPI's portfolio. For Phase 1, energization, testing and commissioning already began last October and COD is targeted for the second quarter of next year. For the Phase 2 of Leyte, another 120 megawatts. The notice to proceed has already been issued and the construction of the solar facility started in the first quarter of this year. We anticipate energization to commence in the second quarter of 2026 and COD to take place in the third quarter of next year. This is our San Juan, Botolan, Zambales project. Again, it's in partnership with Shell through Greenlight. So this will add a total capacity of 59 megawatts, so an attributable capacity of 35.4 megawatts for Nickel Asia for EPI. As seen in the photo, the Botolan project is in its early stages, predevelopment activities have already been completed and land possessory rights have been secured. Last October, the notice to proceed was issued. We are targeting energization for both phases to be by the third quarter of 2026 and the commercial operations to begin by fourth quarter of next year. Moving on to the Subic, Cawag project. So this is solely developed and managed by Emerging Power Inc. Here is a visual of the project in Subic, Cawag. We are developing a 145-megawatt facility divided into 2 phases. For the first phase, which is 70 megawatts. As you can see in the picture, construction is currently underway, and we are targeting to test and commission this by end of 2026 and commercial operations to commence by the second quarter of 2027. The construction for Phase 2 or 75 megawatts is expected to commence before the end of this year. Target energization is for third quarter of 2027 and commercial operations will begin by early 2028. This next slide is our project in Nazareno, Bataan. This is a 50-megawatt project that is currently under predevelopment activities with land possessory rights already secured and the EPC bidding already completed. Construction is targeted to commence by second half of 2026. It should also be noted that we are actively assessing the integration of battery energy storage systems to maximize the project value and operational efficiency of the Nazareno project. This marks the first among our RE initiatives to formally incorporate BESS as a component. Next slide is the project capacity buildup of generation assets. From what I mentioned, this slide from those projects that were mentioned prior to this. So by -- we anticipate to reach gross installed capacity of 293 megawatts by 2025 and 542 megawatts by 2026. By 2027, with several projects, as mentioned, already in advanced stage of development, we are targeting a total gross capacity of approximately 1,100 megawatts. Previously, our guidance projected an installed capacity of 1 gigawatt by the end of 2030. So barring any significant delays, we now expect to achieve this milestone by end of 2027. Other updates. So for the CapEx, we've broken down the CapEx for the mining business, for the gold business and also for the renewable energy business. For mining, we spent approximately PHP 1.15 billion during this 9-month period for the year and expect to catch up and invest an additional PHP 0.5 billion by year-end. This year's mining CapEx was primarily focused on refleeting, replacing and upgrading mining equipment for both our existing operations and our new mine in Manicani. We also allocated capital for construction of a new causeway in Dinapigue in Isabella. And looking ahead to next year, we anticipate spending approximately a lower amount at PHP 1.2 billion, with the bulk of this being earmarked for refleeting activities. The big part for our capital expenditures is really in our renewable energy business. CapEx was approximately PHP 4.6 billion during the 9 months, and we forecast to add an additional PHP 6 billion for our projects that are being developed. So these investments are tied to the planned notice to proceed for our Botolan solar project as well as the continued construction progress for both Cawag and Leyte projects. For next year, we anticipate a total CapEx of around PHP 8.7 billion with PHP 5.1 billion allocated to Greenlight projects such as Leyte Phase 2 and Botolan and PHP 3.5 billion earmarked for the ongoing development projects of Cawag and also Nazareno. We also have CapEx allocated for our gold and copper exploration company, Cordillera Exploration Company. For 2025, we are -- mining exploration costs under CEXCI are projected at PHP 127 million. And then for next year, we anticipate allocating around PHP 221 million for gold and copper exploration. The next slide will provide further details on the status of this aspect of the business. So for gold and copper, for CEXCI, our JV with Sumitomo Metal Mining, we are happy to report that we have confirmed the presence of gold-bearing veins and porphyry copper-gold mineralization. So the highlights from the recent drilling program conducted at the San Luis Prospect, which is situated in the southern section of the tenement are as follows. There's a gold-silver intercept, so 4.6 meters grading, 15.5 grams per ton of gold and 85 grams per ton of silver from 69.9 to 74.5 meters in drill hole. And copper gold intercept is 50 meters grading at 0.50 grams per ton of gold and 0.42% copper from 300 to 350 meters. So what this tells us is these results are encouraging and strengthen our confidence in Cordon's project potential and reaffirm our commitment to advance further exploration activities throughout the year-end with the goal of further delineating the gold-bearing veins and defining the depth and extent of mineralization. So that ends our formal presentation, and we'll be happy to open the floor for questions. So I'll hand it over now to Mr. [Gab Aguila] to facilitate the Q&A. Unknown Analyst: Great presentation. It looks like it was a good quarter for you guys. Maybe before we go into the details of the quarterly earnings, maybe some top-level questions first. As we all know, nickel is having a drive in market prices coming in the first quarter and into the second quarter and now with their third quarter results. Maybe you could walk us through the current state of the global nickel market and maybe share your outlook on the pricing trends moving forward. Quite interested to understand how the company would be adapting its strategy to stay competitive and capture the opportunities in this evolving landscape. Andre Mikael Dy: Yes, sure. Thanks for that question. So when considering all nickel metal product types, the market is currently in a state of global oversupply, so which explains why the LME nickel price hovers around $15,000 per wet metric ton. But if you look at our ore export prices, you would see that it's already decoupled. It doesn't follow the nickel LME. So while there is an excess in Class 1 nickel supply and some excess in Class 2 nickel supply, there is a tightness in the raw nickel ore itself, and that's driven really by the Indonesia government regulating the permitting and the supply. So this is where it benefits us in the Philippines and where we see this, this policy will continue. I think they set a clear message that in terms of ore permitting, they're very strict with environmental compliance. So in terms of awarding of permits, they've also been stricter. So in fact, the 3-year quota in Indonesia has been reduced back to a 1-year quota, and that was implemented last October. The way we are responding to the industry shifts is by broadening our renewable energy portfolio. So as we've taken you through the projects that we've mentioned a while ago, these are the things where we are highly focused on. And then in order to -- and as a response also to what's happening, we are also doubling down on our upstream activities. That's why you could see that we've divested from our downstream exposure in the market in Coral Bay, but we are now ramping up in our Manicani mine, which will be the next leg of growth for us. So yes, that is how I think we are responding. And plus, we're excited about our gold and copper prospect. We just hit the gold veins. Now it's -- the next step is to really define the resources and reserves for this asset. So that's something to look forward to. And you know where gold and copper prices are at. It's at very healthy levels. So we're looking forward to take advantage on that. So we need to execute on that project. Unknown Analyst: Now that. Maybe I do want to ask this question that's tied to that, as you mentioned, the Manicani. Any idea you could give us moving forward on the amount and net metric tons that may come from the mine and how that's going to go into the mix of overall right now from where nickel stands? Andre Mikael Dy: Yes, sure. So in the 9 months, you could see that ore exports really drove our earnings. It really moves the meter. So if we're able to export around, I guess, we're on track to do 11 million for the whole year. So Manicani’s contribution this year is barely 0.5 million, maybe 0.5 million only, 0.5 million. So they're doing around 4% to 5% of total volume. But next year, we're targeting to do 3 million tons. And the nickel grade from Manicani will be the highest among Nickel Asia mines. So what that will mean is if our exports stay where they are in terms of volume, 11 million tons, and we do 3 million with Manicani, effectively, we're pushing 30% more -- close to 30% more year-on-year for volume. And then in terms of pricing, if our ASP for exports are at $38 and that's not the highest grade and Manicani would give you a kicker of around 10% -- at least 10% to 15% more in price. Yes, then I guess the -- I'll leave it to the imagination of the analysts of how that -- that they could forecast the revenues for next year. Unknown Analyst: Speaking in particular, away from the metal prices, this year has had quite a year of weather-related disruptions and particularly heavy rainfalls. How has that affected your company so far? And what have you been doing to be able to mitigate these setbacks? Andre Mikael Dy: Yes. Our company has taken a proactive approach to minimize these weather-related risks and logistical risk by really carefully planning our mine production schedules, our ship loading activities. So even with the very challenging weather, you could see that we've been able to deliver on the volumes, and we're on track to reach the target. So -- and then we also maintain advance stockpiles to ensure that we can continue meeting the requirements even during unforeseen disruptions. Unknown Analyst: Yes. Well, related a little bit more to that, just going to take a quick look at the questions on the side. Maybe let's talk about this first. So if you talk about the strategy, competitive strategy and how weather-related disruptions is being addressed. Looking ahead from where you are right now, what would you say that Nickel's top strategic priorities would be over the next 2 to 3 years? Andre Mikael Dy: Yes. Thank you. Thank you for the question. Well, Dennis could add to this as well. But for the strategy, it's really executing the nickel mining business, we will need to add resources and add our tonnage. So growth in nickel, we would like to achieve like double-digit growth in terms of volumes. And our -- and Manicani would be the next big story as we talked about. We think we can do 3 million tons from that, and this is high-grade nickel ore. So look to us to deliver on that. And then for our renewable energy business, look to us to be able to execute on the time lines that we are disclosing in Cawag, in Leyte. So these projects is really going to drive the growth. And then also look to us to press harder from -- for our Cordillera Exploration. We have found the gold. So look for us to drill further and try to define the resource and reserves. And we'll be a completely different company 12 months from now. Hopefully, we'll be reporting tonnages that are more from where we are today, installed capacity of Tuba than where we are today and then a gold and copper prospects of where reserves and resources are already identified. So I guess that's where I see our 3 legs of growth. And if Dennis has anything to add? Unknown Executive: Those are all accurate. And in particular, the -- I mean, to be more specific, the -- so we're very excited about the gold and copper prospect. But usually, these projects take a long time though. So for it to be a mine that would be possibly 2030 or later. But maybe in the next 2 to 3 years, we will be able to firm up the reserves and resources. And hopefully, our target will be to come out with JORC and PMRC certified reserves and resources within maybe 2 to 3 years. And then on the renewable side, it is definitely an area of growth for us. And I think 2 things I want to note here is that we will be looking at other opportunities, not just in the field of solar energy. So we will -- we are mindful of the additional supply in solar in Philippines and the need to diversify our projects into other types of renewable and clean energy. And also, I want to address the CapEx issue for solar and for our -- for EPI. Our intention is to -- for EPI to be able to fund itself in the near future. So this means that EPI will have to do its own fundraising activities for its equity moving forward. And this also means that Nickel Asia can now focus its resources on our other projects of growth -- for growth and of course, to fund future dividends. That's all I have for now. Unknown Analyst: That at least gives us a glimpse of where we see nickel to be going over the next 3 to 5 years. But maybe for now, as I'm flagging some questions here, we could try to look in where we see it in the next few years or quarters, in fact. Interesting that you talked about RE and the growth of that pipeline, the question that we have here is, could you give a glimpse of nickel's contribution mix based on mining versus RE? If you can give a 5- or 10-year time frame, that it looks like it would be appreciated. And from the CapEx schedule, there is some concern that is RE being beefed up in anticipation of mine resource depletion. Unknown Executive: Sure, sure. RE will increase in terms of its share, but it will still not be a huge chunk of our revenues and EBITDA. Our estimate is at most, it would be 1/3 of our revenues in 5 years. And then with respect to the CapEx issue, I just mentioned in my previous statement that although there will be significant CapEx for the power sector, we will use our -- we will project finance 70% of the funding requirement. And then the 30% equity will come from either the internal cash of EPI or from external funding. So that's our goal moving forward. Unknown Analyst: Maybe a little bit more of a technical question when it comes to the RE projects. As you do your planning and you start to execute these RE projects in the pipeline, maybe you can give an idea of what sort of IRRs are you're looking at? And by -- yes, we already have the 2027 outlook on the percentage between the two. But yes, more on the IRR question. Unknown Executive: Yes. For our grid-connected projects -- solar projects, our project IRR target is about 12% or above. And then for our other projects, we're aiming to achieve a higher IRR. But that is our base target, 12% project IRR. Unknown Analyst: There is a question on any updates for the plan to cease the operation of Coral Bay Nickel Corp. Andre Mikael Dy: Yes. Well, we disclosed this before. So we are looking at the operations to close by 2028. But what we would like to highlight is from this moment on, we've already been preparing for a transition period on how to respond and transition the community from the closure of Coral Bay. So as early as this year, this full year, we've been planning for that. So rest assured, we will be able to do it in the way that's expected out of us. After all, we've operated the plant since the early 2000s. So we owe it to the community for a proper transition. Unknown Analyst: And maybe on a forward-looking idea, there is a question asking for an update on the JV with DMCI for a possible development of HPAL. Andre Mikael Dy: Well, I guess for that, we continue to study what would be the -- and a big part of it is the timing as well. As you know, nickel LME is quite depressed. So there will be a right timing as well in order to kick start the joint venture with DMCI. So there are no news as of now. But what -- but we're excited to work with them once we're able to firm up the plans and get the timing. The overall supply in nickel in the near term will remain, but our view is that in another 5 years, the market may change and the market may change sooner. So we'll have to -- we'll be prepared for that. Unknown Analyst: Well, maybe two more questions. I think we're at the 8-minute mark. With all of this talk in mining, sustainability is especially critical in these industries. Where has the company positioned itself as a leader in these responsible practices? Any color you can give on that? Andre Mikael Dy: Yes, I do have some. Well, we are the first company in the Philippines with mining assets to be admitted as a member of the United Nations Global Compact, UNGC. So sustainability road map aligns with global standards and regular materiality assessment. So some of the programs that are part of that is the environmental protection and enhancement program or the EPEP, so which focuses on water and management, land rehabilitation, biodiversity protection. So in 2024, we've invested like PHP 514 million. And we also have the social development and management program, or the SDMP. It's a 5-year plan supporting education, health, infrastructure and livelihood initiatives. We spent PHP 221 million for this in 2024. So we view profitability and ESG compliance as complementary and not really competing with our priorities. So sustainability is embedded in our core operations. Unknown Analyst: Well, it looks from the question, there's been a good questions from the crowd that there's a great following for Nickel, especially now that you're seeing improved prices with a good prospect on the Indonesian ore ban. What message would you like to leave your potential investors about why now would be the right time to invest in Nickel Asia? Andre Mikael Dy: Well, I think the timing couldn't be more perfect. We are at a situation where it really favors the upstream miner. So the nickel ore and the ramp-up in Manicani will definitely provide the nickel growth story. And then we have our renewable energy arm, which will double in capacity soon. So it's accelerating. So our diversification away from the nickel metal is present in Emerging Power Inc. And then to add to that, because of the prospects of gold and copper, and then if we're able to define the resources and reserves soon, now is the best time to invest in Nickel Asia because we are growing the nickel business, our core business, and then we're diversifying away also into other revenue streams. Unknown Analyst: Fielding no more questions. I think all the questions have been answered quite thoroughly with the guidance. Thank you so much to Nickel's management. Great results in the 9 months 2025 so far. Moving forward, we'll continue to track where nickel goes in the future. And thanks for that. We're passing it back now to [Kami] for the next segment. Operator: Thank you very much, sir, Andre, sir Dennis and Gab for sharing valuable insights into the company's quarterly performance. So before we move on to our final 2 presentations of the day, we'll take a short 5-minute break. So feel free to grab a refreshment or take a quick pause, and we'll resume shortly.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to VolitionRx Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, November 14, 2025. I would now like to turn the conference over to Louise Batchelor, Group Chief Marketing & Communications Officer. Please go ahead. Louise Batchelor Day: Thank you, and welcome, everyone, to today's earnings conference call for VolitionRx Limited. Before we begin, I'd like to remind everyone that some of the information discussed on this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations in our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. We do not undertake an obligation to update any forward-looking statements made during the course of this call. Cameron Reynolds, Group Chief Executive Officer, will open the call providing a business update. Dr. Jake Micallef, our Chief Scientific Officer, will present research highlights from across our product pillars. Terig Hughes, our Chief Financial Officer, will then provide a financial report before handing back to Cameron to close with a discussion of upcoming milestones. We will then open the conference call to a question-and-answer session. And with that, I'll turn the call over to Cameron. Cameron Reynolds: Thanks, Lou, and thank you, everyone, for joining Volition's Third Quarter 2025 Earnings Call today. We very much appreciate your time given the busy earnings season. 2025 efforts for Volition have focused on commercializing our groundbreaking Nu.Q platform in the human diagnostic market, and we were excited this quarter to sign not 1 but 2 agreements, a research license and exclusive commercial option rights agreement for antiphospholipid syndrome, APS, with Werfen and a co-marketing and service agreement with Hologic. Both are multibillion-dollar companies and worldwide leaders in their specialized fields, and we are delighted to report that both have very much hit the ground running. Now taking each in turn. Werfen is a global leader in the field of in vitro diagnostics for hemostasis and thrombosis, among others, where neutrophil extracellular traps, NETs play such an important role. And of course, we have the only approved test to measure NETs. So this agreement fits extremely well into our strategy of leveraging the installed base of machines, specific disease knowledge and customer reach of our partners, combined with our unique NETs platform. Under this agreement, Werfen will gain access to the components of Volition's proprietary Nu.Q H3.1 NETs assay and will investigate its clinical utility in the management of APS patients on its platforms. Werfen also has an option to negotiate terms with Volition for it to launch the product commercially under an exclusive license. We have already successfully transferred the Nu.Q NETs assay to their ACL AcuStar platform. Early results in NET levels detection in APS patients with Nu.Q test are encouraging. Werfen are excited to validate further and complete a clinical utility study to determine the potential role of this marker as a risk indicator of thrombosis in APS patients, allowing a better management of this very complex syndrome. This could open the possibility to enlarge Werfen's portfolio in APS testing. Just to provide a bit of background about the condition as we haven't previously discussed this in detail. APS is a complex disorder of the autoimmune system affecting around 4 million people worldwide. It causes increased risk of blood clots and their associated complications such as stroke, heart attack, pulmonary embolism or deep vein thrombosis. It is also associated with the recurrent miscarriages and pregnancy complications. It is currently diagnosed through a panel of blood tests requiring 2 positive results at least 12 weeks apart and is often a lifelong condition requiring regular monitoring. Emerging evidence suggests increased net formation appears to be a central mechanism in thrombosis in APS and that targeting NET pathways could provide future therapeutic avenues for thrombotic complications. We believe that Volition's Nu.Q NETs test is the first CV -- IVD assay being investigated in APS and could provide not only improved diagnostic information to aid clinical decision-making and personalized care, but also a low-cost test to continue to monitor these patients throughout their lifetimes. APS diagnosis and monitoring represents a total addressable market of approximately $85 million annually. So it is a very good early target for our NET platform. It is exciting to achieve this major milestone with Werfen, and we are already working with them on study design, et cetera. The second agreement we announced this quarter is with Hologic Diagenode for the co-marketing of Volition's Nu.Q Discover service. The Nu.Q Discover service provides drug developers and scientists with a range of state-of-the-art assays for rapid epigenetic profiling in disease model development, preclinical testing and clinical studies from discovery to being market ready. Hologic has extensive experience recording revenues of over $4 billion in 2024 from a large client base and international reach, providing tools to biotech and pharma companies and also to academic and government organizations. We have seen strong growth in interest from our Nu.Q Discover services and believe this partnership with Hologic will further accelerate the expansion of Nu.Q services to a wider base of customers to drive revenue. The inclusion of our nucleosome-based biomarkers in Hologic's portfolio demonstrates a strong validation of their value in clinical development. The Hologic team have really hit the ground running and have already presented the Nu.Q Discover offering at several international conferences, have launched a digital marketing campaign, including e-mails and LinkedIn advertising and have a webinar planned for next quarter. They have also received a lot of inbound interest from existing customers, so definitely an exciting start to what we hope will be a long and fruitful relationship. We are continuing our discussions with around 10 of the world's leading diagnostic and liquid biopsy companies and are at various stages of this process across our different pillars, ranging from due diligence to tech transfer to evaluation of clinical samples to term sheet and contract negotiations. We are very confident of further licensing deals with a range of large companies, and we'll update on progress as they are completed. We believe that our positive emerging clinical evidence supports the broad applicability of our Nu.Q technology in critical areas such as cancer and sepsis, including as a biomarker of interest to epigenetic drug development and expanding area of focus for big pharma. Beyond licensing, as discussed on our previous calls, another prong of our Nu.Q NETs commercialization strategy is to leverage our granted CE Mark approved in the EU for any NETosis-related diseases with the product under valuation in 14 hospitals in 5 European countries. As Dr. Andrew Retter has discussed on previous calls, NETs are implicated in a wide range of diseases. We anticipate the presentation and publication of results regarding the clinical utility of the Nu.Q NETs H3.1 assay across a range of diseases in the coming months and quarters. So please keep an eye out. In fact, we have made significant progress on several publications in recent months and anticipate peer-reviewed publications across all pillars in the coming quarters. One such paper just recently submitted for peer review, concerns our groundbreaking Capture-Seq technology. We believe the ability to concentrate chromatin fragments and therefore, tumor DNA has the potential to be a game changer in the liquid biopsy field. It is an exciting prospect from a licensing perspective, and I am pleased to report that we are currently in active discussions with third parties. But to provide more detail, I'm delighted to pass over to Dr. Jake Micallef, our Chief Scientific Officer, to share a more thorough update on scientific and clinical progress. Jake? Jacob Micallef: Thanks very much, Cameron, and good morning, everyone. I'd like to start by providing a little more color and detail to the Capture-Seq project. We've recently submitted a paper on this describing an entirely new liquid biopsy method to analyze blood samples to find DNA from cancer cells. This is not a new way to target the same cancer-derived DNA targeted by other tests. Instead, we target an entirely new class of cancer-derived DNA. This represents an entirely new class of cancer biomarkers with hundreds or possibly thousands of new targets, all of which are ignored by current methods. We have isolated this previously ignored DNA from blood and removed the background DNA. This is important because background DNA is the single biggest problem in current liquid biopsy methods and nobody has ever previously managed to remove this background; however, our new method isolates just the DNA we are looking at with 180-fold concentration. That's an 18,000% enrichment and removes more than 99.5% or almost all of the background DNA. This is a great result, but it would be easy to throw away the baby with the bathwater. That didn't happen. We retained 48% of the target material for analysis with almost all the background DNA removed. This is the first. It's never previously been achieved in liquid biopsy. Our new Capture-Seq method is extremely exciting, and I personally believe it may become commonly used worldwide, both in the detection of cancer and in cancer patient management. The focus of the paper we've submitted is scientific rather than clinical and showcases what we believe is a revolutionary new liquid biopsy method for detecting cancer DNA in blood. So how is it revolutionary or different to existing biopsy methods? Well, the vast majority of DNA circulates in the blood as nuclear proteins called nucleosomes, and most of this is actually background; however, small amounts of DNA also circulate bound directly to epigenetic regulators called transcription factors. And this DNA, as I say, it's ignored by present methods is our target. Some transcription factors bind to different DNA locations in the genome or DNA sequences in the cells of cancer patients; however, their isolation from blood has never previously been successful. And consequently, the different transcription factor binding that occurs in cancer has never previously been measured in blood samples. We have now succeeded in isolating transcription factors from blood plasma and found hundreds of transcription factor bound DNA sequences in the plasma of cancer patients that are not present in the plasma of healthy people. As I said, these new sequences represent an entirely new class of cancer biomarkers with hundreds or maybe thousands of new targets available to science for the first time, and Capture-Seq is an entirely new way to analyze blood samples to find them. So the next step was then to establish a proof of concept for cancer detection by transcription factor occupancy measurement in blood using Capture-Seq. The technical details will be published in the paper when it comes out, but the transcription factor we've worked on is called CTCF, and we've shown in a small number of patients that a panel of plasma CTCF ChIP-Seq results identified patients with cancer with 100% sensitivity and specificity. In lay terms, we detected all the cancers with no false positives. That was very encouraging, and we have good reason to believe Capture-Seq will be accurate and economic in routine use. Although we focused on one particular transcription factor, CTCF, this may be a pathfinder for many other similar tests using other transcription factors that are important in particular cancers. An easy example would be the estrogen receptor as a transcription factor in breast cancer. And perhaps most importantly, this new transcription factor DNA method may be used alone or in combination with other existing methods to bring multi-omics cancer DNA testing to patients for patient management and for early cancer detection. As Cameron mentioned, we're in many confidential discussions, and this is certainly proving a hot topic. So scientifically, a great step forward and hopefully, one which will translate into real-world clinical benefits for patients. We will, of course, update you more fully once the paper is out. I also wanted to take the opportunity to update you on a few other Q3 activities. I was very fortunate this quarter to visit our key collaborators in our lung cancer product development programs. In August, I met with Professor Chen and his team as well as the screening program leaders at the National Taiwan University Hospital in Taipei. During the visit, the IDS-i10 analyzer, which is the automated platform for our tests, was installed in NTU's laboratory and training was provided by 2 of our team to progress their validation study for lung cancer screening. They've also performed some analysis regarding use of the Nu.Q H3K27 [ TriMethyl ] test in prognostication of diagnosed lung cancer patients in studies similar to our previous collaborative studies in France. I also visited our colleagues in France who are continuing their work using Nu.Q [ H3K27 TriMethyl ] in lung cancer, and they're now expanding into other cancers. The clinical lung cancer patient management results in France are consistently excellent, and we're preparing for the introduction of Nu.Q [ H3K27 TriMethyl ] test in clinical practice in a group of hospitals in France. There will also be quite a few upcoming publications in cancer in the near future. In August, we also published a paper showing the utility and reliability of our Nu.Q NETs assay, and we expect further publications from ourselves and from collaborators over the coming months in NETs. So a lot of activity. And with that, I'll hand over to Terig for the finance. Terig Hughes: Thanks, Jake, for that thorough and exciting update. Now on to the finance report. Revenue for the third quarter grew 32% over the same quarter last year, coming in at $0.6 million. At this early stage of commercialization, revenues remain fairly lumpy and difficult to predict from one quarter to the next. So we will not be providing revenue guidance at this point in time. Operating expenses for the quarter were down 10% year-on-year and down 18% for the first 3 quarters, primarily reflecting lower personnel costs and lower research and development expenses. As a result of strong cost management, net cash used in operating activities was $3.6 million for the quarter, down 33% over the same period prior year. Net loss was down 8% for the quarter and down 20% for the first 3 quarters compared to the prior year. Receipts during this third quarter included $1.2 million from a registered direct offering, which included participation by some of our directors. And subsequent to quarter end, we received net proceeds of approximately $6.1 million from a confidentially marketed public offering, including partial exercise of the underwriters' overallotment option. This raise also included insider participation, demonstrating once more strong managerial commitment. So to summarize the quarter, revenues were higher by 32% versus prior year, total operating costs lower by 10%. Cash used in operations was lower by 33%, net loss improved by 8%. And as Cameron reported at the top of the call, we are excited to have signed our first agreements with Werfen and Hologic. One of our key financial goals is to be cash neutral, meaning income, including licensing receipts, matches expenditure on a cash basis. We have made significant progress on cost reductions. However, to fully realize our ambition, we need to execute several significant licensing agreements in the human space and secure existing milestone payments in the vet space. I'm happy to say we continue to make solid progress against each of these targets. And with that, I will pass back to Cameron for closing remarks. Cameron? Cameron Reynolds: Thanks, Terig. Before summing up, I'll provide a quick update on Nu.Q Vet. Expanding the global reach of our Nu.Q Vet cancer test remains a key priority, enabling veterinarians worldwide to improve canine cancer screening and outcomes. Our supply agreements with leading industry players, including Antech, part of Mars Science and Diagnostics, Fujifilm Vet Systems and IDEXX are instrumental in achieving this. To further accelerate revenue growth and ensure consistent delivery, we are focused on centralized lab automation. At the end of the first quarter, Fujifilm Vet Systems expanded their contract with us to validate and then implement a centralized automated platform using the IDS-i10 analyzer. I am delighted to report that the Fuji team have made great progress this quarter in validating and verifying the Nu.Q Vet cancer test on the automated platform. We believe the automation of centralized labs is crucial to accelerating our growth rate. So this is a particular area of focus for us. We aim to enable all our large customers to be automated so that they can easily and effectively handle the much larger numbers of tests that would result from having our tests in annual pet wellness panels. Putting our tests into wellness panels would greatly increase sales volumes and will be a key target for 2026. Notably, this automated platform is the same technology utilized for our human diagnostic products, Nu.Q Cancer, Nu.Q NETs and Nu.Q Discover, highlighting the inherent synergy and efficiency of our core Nu.Q technology. Terrific work from the Fuji team who continue to see steady growth in the use of the Nu.Q test in Japan. On the research and development front, we continue to make progress towards securing the final milestone payment of the $5 million related to our feline cancer product. In the second quarter, a peer-reviewed paper regarding pre-analytics was published, and we plan to present and submit for publication clinical data in the coming months. In drawing the call to a close, our goal is to secure a wide range of licensing agreements in the human diagnostics space, mirroring our successful strategy in the veterinary market and anticipate similar to the veterinary market, diverse deal structures with potential for upfront and milestone payments and future recurring revenue. We believe we have developed a unique and widely applicable platform that will be a big part of both oncology and NETosis for decades to come for hundreds of millions of people and animals worldwide. Cancer and sepsis diagnostics alone represent a combined total addressable market of approximately $25 billion annually, offering substantial revenue opportunities for Volition and our partners. I believe that these next few quarters will be transformative for our company. Our laser focus is on executing license agreements, and we will update you as they complete. Thank you for joining the call today. We very much appreciate it. We will now take your questions. Operator? Operator: [Operator Instructions] Our first question is from Justin Walsh with JonesTrading. Justin Walsh: Can you provide some additional color on the size of the antiphospholipid syndrome market and how it compares to other potential Nu.Q NET applications you guys are looking at? Cameron Reynolds: Yes, Justin, thanks. That's a good question. So obviously, the NET market is huge. If you -- the big ones are things like sepsis and AKI. And I mean, obviously, they're the biggest of the big. And for us the start of the program, the first cab off the rank, we're very happy that starting with these kind of diseases, which are big worldwide. There are 4 million people who have APS. So it's considerable. It's not one of the biggest markets, but that's a very good one to start with. And the TAM, we've calculated is something in the $85 million to $90 million per year. So autoimmune diseases are obviously very important for a whole lot of reasons and it's something which is very tough to diagnose. So we think this is a great first cab off the rank, something, as I said, $85 million or $90 million market -- sorry, TAM is a very good way -- market size to start with. And currently, the way it's diagnosed is far from ideal, and it is very much NETs related. And as you know, the Revvity is selling our assays in Europe now, and they're analyzing 21 different uses beyond APS. So there's a large range of ones coming up, but that's the size of the first one. And as we said, we strongly expect to see a range of others. Operator: Our next question is from Yi Chen with H.C. Wainwright. Yi Chen: My first question is, could you tell us whether the Werfen partnership has made any contribution to the third quarter revenue? And also, how do you expect the Werfen and the Hologic partnerships to shape the top line revenue trend in 2026? Cameron Reynolds: Yes. So Werfen have not accreted to the revenue. They're in the process of validating it on clinical samples for clinical utility. They absolutely hit the ground running. I think we'll end up with a broader agreement with Werfen. They've got it working on their machine. So -- and the machine is quite -- they're one of the biggest in the autoimmune space in coagulation. So I think they will be a big part of what we have going forward. I think our plan has always been and still remains to be that we will be on a range of different platforms. So these coagulation companies, companies like Werfen, Sysmex, [ Hologic ] are a very good way to start. They're all large multibillion-dollar companies, but are specialists in certain pieces of the NETosis market. So I think Werfen the first off the rank and they've hit the ground running, and I think we'll broaden the relationship. As far as Hologic, actually, I can announce today, they've actually made their first sale. Obviously, it's not in the last quarter's revenue because that's come and gone, but there will be some on this quarter's revenue. We could not be happier with that relationship as well. They've got a very -- well, compared to us, they're a multibillion-dollar company at Hologic, as you know. They're very excited about our epigenetics offerings. They presented at quite a few conferences. They've done a lot of social media and marketing. They've trained their workforce. They've also visited our laboratories in Belgium and in California already to really understand it. And as I heard today, they've made their first sale. So I think both are very important to our growth. I think the great thing with both agreements as well is we are in a lot of other discussions as we -- as you know, it does give everyone else a bit of a nudge to when you make deals with their competitors. So I think it's been transformative in our relationships with our -- the 10 other people we're talking to, have been taken so seriously by such large companies that obviously, they're very excited as well. So overall, I'm very, very happy with both the arrangements with Werfen and Hologic. And as I said a few times on this call, we're very active discussions with a bunch of others. I do believe very much going forward, the NETosis test, the oncology will be something which is taken by a very large number of people worldwide very regularly. And this is the start of that process that we expect to see a lot more in the coming months and quarters. Yi Chen: Got it. And with respect to those ongoing discussions with additional partnerships, how many do you expect to close in 2026? Cameron Reynolds: I guess one thing we've never really been on top of is the timing of which ones will happen when. It's always tough. These are very important deals for us. But if you are the largest company in the world or the largest companies in the world, they can speed up and slow down. But I'd strongly expect we'll have a range more, I do expect that we've got some very active discussions going and some of which are in hopefully, the latter and final stages. But exactly which ones will happen when, it's very hard to say. But I would be very surprised if there wasn't a bunch more through this year and through next year because I think what gives me that confidence, our NETosis test is the only way we know of measuring NETs. NETs are the next big things. They have been associated with dozens and dozens of different conditions and processes. On the oncology side, our basic Nu.Q platform in H3.1 and H3 K27 is the biggest seller in the Vet market. It's making a big splash in the lung market in France and Taiwan and moving to other countries. And as you've heard today, for the first time, again, very, very exciting. Our ovarian -- Dr. Micallef has cracked concentration of chromatin, which is just one of the holy grails in oncology. The issue with all the companies in the liquid biopsy space is a very rare target. So being able to concentrate chromatin fragments, and we started with transcription factors, which are the pinnacle of epigenetics. They are the most important factor and all that is just huge. So I think between all of that, I'm very confident we'll be getting some deals signed with different groups. We have something very special. But as we've said many times, it's bigger than us. There's no way we can commercialize all the different things we're doing. And I think, obviously, the first companies you've seen realize that. And I think it's really starting to pick up with the other companies as well. And the more we sign, the easier they've become to sign because our credibility and track record go up and up and up. Operator: Our next question is from Steven Ralston with Zacks. Steven Ralston: First of all congratulations on the traction you gained on the revenue line in the products and also on the significant reduction of expenses this quarter. And I'd like to dig into both of those. First of all, can you give some sort of breakdown of the product revenues? I know it consists of the Nu.Q Vet test and the Discover kits. In the vet, was there any like stocking for Fuji? Or was there some lumpiness in the Discover side? Terig Hughes: So this is Terig, Steven. Yes, there is still a lot of lumpiness, which makes it a bit difficult to predict and then discover is very project-based. So that's up and down each month and each quarter. What I would say is that, as you can see, both services and product revenue had a very good quarter. And on the pillar side, every pillar made some progress, and we'd expect to continue to make progress through the balance of the year. We don't provide individual growth numbers for the individual pillars. But I do expect that we'll see growth across all the pillars through the full year. Cameron Reynolds: And just one thing, Steven, I think to keep in mind, just to go through them one by one. The vet, obviously, we are the biggest selling oncology test in the veterinary market. But obviously, we'd like it to be much higher in the millions of tests and tens of millions of dollars in revenue. That is not going to happen until it's got a centralized lab machine working. But as you heard, that's something we have actually achieved this month with Fuji validating the i10. So the platform currently is on microtiter plates work fine. But as you can imagine, that's not an easy thing to do hundreds of thousands of tests on plastic plates. So having the i10 working, and it's -- obviously, it's made by Revvity, so a large, again, multibillion-dollar company is a massive breakthrough for us, and we're going to focus next year on trying to get -- getting the big companies to automate. And then there's a real prospect of them putting on this in wellness panels. So if you see them starting to go into wellness panels for the big companies, that means it's finally taking more of a vertical lift off with a steady sort of slow ramp, which we've been having. So we're very excited about that. Nu.Q Discover has actually outperformed what we expected. It's been -- we've had, I think, dozens of clients now for different uses, including all the research uses and the commercialization, the big companies. And Hologic getting their first customer is very exciting for us because they're out there. They've got far more rigs than we could ever have, of course, and they're taking it extremely seriously and very energized by this. And then on the Nu.Q Net side, they're very big companies and the big milestone payments take time. But in the meantime, the prong we have in Europe of all those different hospitals, 14 hospital networks using the system in 5 countries for -- I think it's 23 different net-related uses now. Now they're all just buying them now initially to work out a cutoff for what each use is, but we'd expect them to start the clinical utility in the next year as well. And so they should really start to take off as well and distributed by Revvity. So that makes it much easier. And we do expect the first clinical use of the oncology platform in Europe, in France, as we talked about in Lyon sometime in the next quarter or 2 as well. So everything is getting there. It's been -- it's one of those things. We've got a lot of things going on, and they always take some luck -- aeroplane taking off, sometimes it takes some time to get off the ground and then we're really hoping at least some of those happen in the next few months and quarters. And we can really turbocharge the revenue in the vet space, in the Discover space, in the net space and the lung space. And we're doing everything we can to put those things in place so that it comes from something where we're getting good sort of organic growth to a real lift off, which is what we all want. Does that make sense? Steven Ralston: I'd actually like to pursue the revenue line a little more because as an analyst, I have to do financial modeling, and I'm looking at it by product line and the addressable markets that they have. And I realize it's a very nascent stage in terms of revenue right now and it's -- but thinking about it long term, I mean, right now, 75% of -- well, actually over 80% of the revenues in this quarter were on the product line. And looking at accounting rules and that sort of thing, segments usually break down by when they achieve over 10%. Do you think there will be a time where you'll actually break it down that we'll see product lines like in the vet space and Discovery, each one of your pillars having a separate revenue line or subsegment revenue line? Terig Hughes: Yes. I think as the pillars mature and each revenue line becomes more meaningful, I think it would make sense to then provide that level of detail. At the moment, it's -- each pillar in and of itself is still relatively small and like I said, quite lumpy. And so for the foreseeable future, I think this is how we'll report it. But as soon as I think we get some significant growth. So for example, as Cameron mentioned in the vet space, if that starts -- that gets adopted into the wellness plans and takes off, I think it would be good to split that out and report that pillar separately or likewise, any of the others when they cross certain milestones. But in the meantime, we're happy to give you a bit of color on these calls, but we're not splitting that further at this time. Cameron Reynolds: And to be clear, just to reiterate, on the revenue side, obviously, the product revenue is important in the short term, but we see more of kind of priming the pump proof of concept, proof of product to license. If this is going to be taken up worldwide and if NET is the biggest thing out there, which I think it could well become by 2030 or 2032, this could easily be in the hundreds of millions of tests per year as the TAM for NETosis. That's clearly not going to be us out selling that product, and we don't want that sales force. We don't want the process. So we're out now through our partners and licensees to sort of show that it works. But the bigger it gets, the less we'll end up doing and we'll make the money from the key components and the royalties and licensing revenues rather than the process. So I think if you look into how it fits together, in the short term, it will be more product-based because we're showing it works and these kind of relatively smaller sales. But once it really takes off, and I think I'm very, very excited with the potential in the oncology space and also in NETosis space, that's when it will -- the licensing revenue will drop the product revenue because these big companies have a reach that we're never going to want to have. So does that make sense, Steven? And so it will change from a lot of product revenue to overwhelming licensing revenue if it goes the way we expect. Steven Ralston: Moving on to the expenses. the -- well, actually year-over-year and the sequential improvement was dramatic, much more than I expected. And somehow I had some sort of an indication that like the second quarter relative expenses were like going to be the floor now, but you made such a huge jump here in the third quarter. And actually, it's kind of a prop, it's about like the 1-year anniversary since you announced the cost-cutting program. Do you think you've come to the end of the cost cutting and this is more of the baseline? Or is there still more to come? Terig Hughes: So I would certainly say it gets more difficult to beat the prior year because we started making progress in the third and fourth quarter of last year on the cost savings program. And so you're battling against a tough comparative. But yes, I certainly hope that we can continue to make progress, but it may not be as steep as we made year-to-date. Cameron Reynolds: And Steven, it's a lot been listened to our investors as well. Obviously, we've been having to raise money, and it's a tough market. So we really want to spend and we have -- I think we've developed some of the most remarkable technologies with that money, but we're also aware that the market is horrible at the moment. So we need to save every single penny. So Terig has been extremely good at. But it's a balancing act. You're not going to become a successful company just by cutting. You've got to deliver the deals and products, which we're in the process of doing. So we've drastically cut our workforce and our expenditures. But at the same time, we managed to launch a range of products. And that's a balance we take every day because -- I mean, the cutting has been crucial. We had to listen to the market and had to listen to what's going on. But we also have to deliver. So it's something we thread that needle every day. But yes, so we'll see how that goes on the deals being signed. But the big difference now, I think the value of the company now isn't necessarily from cost cutting. It's from delivering deals and licensing arrangements and sales. So -- but in no situation, are we going to allow the expenses to blow out. We've got to keep it tight. It's very hard to raise capital at the moment and as we all know. So we have to do as much as we can, the little, but we do have to deliver at the same time. So it's a balance. Steven Ralston: And last question, and hopefully, this is a short one. I noticed that in a recent conference, it was mentioned that some preliminary results from the ongoing lung cancer study were presented. Was there any new information there? Cameron Reynolds: No. That's -- there's actually a lot going to be presented at the conference in Chicago in December. North American... Steven Ralston: No, this is the one... Cameron Reynolds: In Chicago, yes. No, they're getting there. So there's a lot of new data being [indiscernible], and we expect it to be in routine use. This will be the first time our test to be in routine use in humans that's coming up in the short term. And the Taiwanese has done a lot of work as well. So expect to see it later this year and early next year, but there's nothing -- I believe nothing new, nothing new in that process. But they are -- that's not a lack of activity. They are in the process of doing a huge amount -- and so that's our basic Nu.Q platform, and then we hope to be able to add on arrangements in the more complicated -- slightly more complicated areas of capture and process, but both are progressing well. Operator: Our next question is from Bruce Jackson with the Benchmark Company. Bruce Jackson: So if we could start with the -- I know the terms of the agreements with Werfen and Hologic were confidential, but just broad brush, were there any upfront payments in those agreements? Cameron Reynolds: Yes, they were in Werfen, not as we've said, we start smaller and we expect them to get bigger and bigger with every deal. But yes, there were upfront payments and ongoing payments from Werfen. So to the earlier question, there were some not product income from them, but Werfen did have some upfront. I can't discuss that too much more. They're confidential, but yes, they were, and they are ongoing. And Hologic, it's a co-marketing, so it's not upfront, but they are very active and have made their first sales, so it will contribute to our revenue in the short term. Bruce Jackson: Okay. And then second question, the milestone for the feline cancer testing, where do you think that might hit? Cameron Reynolds: So it's in the process. So we're just in the final stages of getting the last caps, which has actually taken longer than we thought. Finding caps with cancer isn't an easy process, but we're getting there. So upon that, under the terms of agreement, it will be due on -- I'm not sure it's public. I'm not sure we can say the time scale, but the time scale is in the agreement with Antech. But as soon as the paper is published, that is a process where we can -- do you want to go through that, Terig? What can we say? I'm not sure exactly what that was... Terig Hughes: Well, what I would say is that the conditions to meet the milestone that we need to get a paper published and then the payment follows thereafter depending on, again, either the launch, the first commercial sale of a test or there's also a time line by which they have to pay to us. So what we'd hope that once we've completed the study, got the paper published that shortly after that, we would be looking for that milestone payment to be paid. Cameron Reynolds: It's up to the finishing the paper. And as you know, takes some time sometimes. But I'm very hopeful we are close to getting that across the line. And then yes, then we're in a position to ask for that payment. Bruce Jackson: So publishing the paper triggers the milestone. Is that correct? Cameron Reynolds: That's correct. Bruce Jackson: Then last question. There were some Series A warrants that were out there that were milestone-based. Has that milestone been met with the announcement of the agreements? Or -- what are the conditions for that? Cameron Reynolds: The conditions were an aggregate of milestone payments, which is higher than the milestone payments that we have. So it has not been triggered yet. Operator: There are no further questions. I would like to turn the conference back over to Cameron for closing remarks. Cameron Reynolds: So thank you, everyone, for coming on the call today. I really appreciate your time. There's obviously a lot going on at Volition in all of our pillars. Obviously, it's a very tough market at the moment for our shareholders, and we do understand that. So we're doing everything we can to deliver what's going to make us a very successful company. If we achieve them all, things we are making very strong progress. As said in the vet market, we've got the i10 validated now for centralized labs, which we're hoping will lead to other companies doing centralized labs and wellness tests, which would be transformative for our revenue in the vet space. The Nu.Q NETs, we're making a lot of progress in Europe with our fantastic partners at Revvity, who are selling them to 14 hospital networks now. They're working on the cutoffs in a range of a couple of dozen different uses for NET. We signed our first 2 human deals in the NET space, starting with APS, which, as we said, has like a $90 million-ish -- $85 million, $90 million TAM. So it's a good start, but we do expect a lot more. Jake, as announced, he has submitted for publication on the capture side, which is very exciting. We're making strong progress on the lung cancer side in both France and in Taiwan, and we expect it to be used in the first clinical sense in the short to medium term as well. So a huge amount going on, and I'd like to thank you all for having the interest in the company and keeping track of what we have. Expect to see a lot of news on all those fronts in the coming months as well as we continue to deliver on the commercialization plan. So thank you very much for your time today. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good morning, and welcome to Vallourec's Q3 2025 presentation hosted by Philippe Guillemot, Chairman of the Board and Chief Executive Officer; and Sascha Bibert, Chief Financial Officer. [Operator Instructions]. And now I would like to hand the call over to Connor Lynagh, Vice President of Investor Relations. Please go ahead, sir. Connor Lynagh: Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Vallourec's Third Quarter 2025 Results Presentation. I'm Connor Lynagh, Vice President of Investor Relations at Vallourec. I'm joined today by Vallourec's Chairman and Chief Executive Officer, Philippe Guillemot; and Vallourec's Chief Financial Officer, Sascha Bibert. Before we begin our presentation, I would like to note that this conference call will be recorded. A replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are also available for download here. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced on Slide 2 of today's presentation. These are also included in our universal registration document filed with the French Financial Market regulator, the AMF. This presentation will be followed by a Q&A session. I will now turn the call over to Philippe Guillemot. Philippe Guillemot: Thank you, Connor. Welcome, ladies and gentlemen, and thank you for joining us to discuss Vallourec's third quarter 2025 results. In the third quarter, we delivered solid results once again with group EBITDA margin rising to 23%, the highest level since the first quarter of 2024. With this, we have now maintained our EBITDA margin around the 20% level and generated positive cash flow every quarter for the last 3 years. Our strategic initiatives are paying off, demonstrated this quarter by the closing of the Tubes profitability gap versus our primary peer. You can see today's agenda on Slide 3. I will move to Slide 5 to discuss the highlights of the third quarter. Our third quarter results were in line with our expectations. EBITDA of EUR 210 million was at the midpoint of our guidance range. We recorded very strong net income of EUR 134 million. Our net income has recently been added by the execution of strategic projects, in this case, the sale of Serimax. Group EBITDA margin was 23%, driven by the robust performance in Tubes. Tubes EBITDA per tonne improved by more than 25% sequentially to EUR 621 Total cash generation was positive for the 12th straight quarter. We reduced net debt to EUR 140 million. Looking ahead, we expect fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Our full year outlook confirms the expected second half versus first half EBITDA improvement. We have seen some positive trends in the business despite a volatile macro environment. In the U.S., our fully integrated domestic operation is benefiting from high levels of customer demand. Recent bookings have been strong. In Brazil, we secured a major contract with Petrobras, which will expand our OCTG market share. This contract further demonstrates Vallourec's ability to deliver high-value solutions from our domestic manufacturing base. Meanwhile, in select markets in the Eastern Hemisphere, we have seen delays in some customers' activity. These delays will result in some orders being invoiced in 2026 later than initially planned. This delay is embedded in our fourth quarter outlook. Turning to capital allocation. We further optimized our capital structure in the quarter, redeeming 10% of our 2032 senior notes. In addition, today, we announced a special meeting for holders of Vallourec warrants. The key proposal will be to allow Vallourec to satisfy its warrants obligation with existing or new shares. The current terms of our agreement only allows the delivery of new shares. This will enable maximum flexibility in our capital return options over the next year. Let's move to Slide 6. The 2 goals of the new Vallourec plan were to crisis-proof our business and deliver best-in-class profitability. Today, I am pleased to announce that Vallourec has achieved another major milestone. In the third quarter, we fully closed the margin gap versus our primary peer. This is thanks to our core principle of value over volume and our relentless focus on operational excellence. We also continued our strong trend in return on invested capital in Q3. I assure that our journey will not stop here. We have many initiatives underway to further improve our return on invested capital. Let's turn to the current market environment on Slide 8. We start here with the U.S. OCTG market. While crude prices remain volatile, oil drilling activity bottomed in August. The oil rig count increased modestly through the third quarter. Gas directed drilling has stabilized at a healthier level after rebounding in H1. Recent strength in U.S. gas pricing could drive higher activity. OCTG consumption per rig is also a tailwind. Since 2015, OCTG intensity per rig has increased nearly 5% per year, as shown on the right-hand chart. The drivers are clear. Our customers are drilling longer laterals and rigs are drilling at faster rates. The push towards long laterals has driven strong demand for our high-torque connections. Because of this, one of our return-enhancing initiatives is the construction of our new training line in Ohio, which we announced earlier this week. This line will serve the strong and increasing market demand for high-torque connections with a high return on capital. Let's move to Slide 9. On the left side, you can see the import trend. While recent data is unavailable due to the U.S. government shutdown, we believe imports have started to decrease. This is particularly true for seamless products. Our order intake has been robust in recent months, reflecting healthy demand level and an improvement in our market share. This is likely at the expense of some of these imports. Seamless spot pricing was stable in Q3 with the latest survey showing a slight increase. We have seen divergence in welded versus seamless pricing in some recent industry surveys. This validates the differences in import economics we highlighted last quarter. Let's move to the international OCTG market on Slide 10. Demand, as measured by the rig count remains at a healthy level in most regions. On the left, we highlight that activity trends have not been uniform across key geographies. Middle East activity, particularly offshore, has shown a downward trend over the past several months. This was particularly driven by activity reduction in Saudi Arabia. Our premium portfolio is outperforming the overall market. Still, we have seen some delays in customer activity in select countries, especially in the Middle East and North America region. Meanwhile, activity in other international markets has moderated very slightly. Many of our core markets, such as Brazil, have been stable and look set for further growth. Market prices according to Rystad Energy are consistent with the change in activity. There has been softening in the Middle East relative to offshore markets like North Sea. Our product mix is skewed toward more premium grades and connection that is indexed. Our pricing has remained more stable, including in the Middle East. Looking at the long term, our key international customers continue to advance ambitious capacity growth plans. This will inevitably lead to higher drilling activity and higher OCTG demand well into the future. The structural shift towards increased gas and unconventional fields and the resilient development of deepwater basins is a tailwind. These resources require high-tech solutions, including new fit-for-purpose solution that we are developing today. Before I hand over to Sascha for his last participation to Vallourec's analyst call, I would like to warmly thank him for his contribution next to me to the successful execution of the new Vallourec plan, which I announced in May 2022 and that Sascha will recap in his presentation. We all wish him the best for his future challenge in Germany. Sascha Bibert: Good morning, everyone. Thank you, Philippe. Yes, I'm leaving with a lot of gratitude and also some pride when looking back on what we have achieved as a team. Under your leadership, Philippe, we have executed the new Vallourec plan, including the closure of plants and implemented a change in the business mix towards high value-add products, which allowed us to generate cash consistently. This opened the door for the refinancing and the initiation of shareholder returns. Meanwhile, our shareholder base has transitioned from Apollo and SVP Global towards ArcelorMittal and many global investment funds. Similarly, we have established a new banking group and are now fully transitioning towards an investment-grade balance sheet. In short, the chapter has closed and a new one is opening. The Vallourec team will go towards the next level of efficiency, continuing to further optimize our return on capital. This will offer new opportunities, but will also benefit from new skills and fresh energy. I will join the BASF Group to support them with the carve-out and IPO readiness of the Agricultural Solutions business. It was a fantastic journey with Vallourec, and I thank you all for your support during those years. Let me also highlight important changes in our Investor Relations team. Connor will continue to lead the team until early '26. however, then transition the IR leadership to Daniel Thomson, who recently joined us from Exane BNP Paribas. I think many of you know Dan. Sometime in H1 2026, Connor will then fully concentrate on his new responsibility as Finance Head for our North American operations. Furthermore, we have another addition to the IR team, Igor Le Blan, who brings with him lots of valuable experience from his former Vallourec roles, including for sales in Northern Africa. Let's start with Page 12. This slide shows the impact of the new Vallourec plan. As part of our premiumization strategy, we have changed the business mix and increased prices. We also worked hard on our cost, reducing fixed costs and thereby increasing our resilience to market cycles. The combination of higher prices and higher efficiencies have contributed to an EBITDA margin that is now consistently around 20% for the last 3 years. We additionally focused on the bottom line, both in the P&L and manage for cash. With diligent working capital management, we have improved contractual payment terms with our suppliers, focused on the cash profile of our customer contracts and are continuously optimizing our inventory levels. This has led to a balance sheet with basically 0 net debt and ample liquidity, giving us the flexibility to operate successfully in any market environment and allowing for attractive shareholder returns. On Page 13, you have the group KPIs. Q3 was another quarter that added to the execution track record I just referred to. Our EBITDA came in right at the midpoint of our guidance, though again, we had some foreign exchange headwinds. Let's look at our Tubes segment on Page 14. Tubes volumes increased sequentially and so did the average selling price. We have recently recorded some important customer wins, for example, in Brazil. The new LTA with Petrobras will lead to revenues starting in H2 '26 and then fully from '27 onwards. Tube's profitability is shown on Page 15. In line with our value over volume strategy, based upon a clear selection of where to play while making use of our premium capacity, we also increased profitability in the Tube segment to one of the highest levels in recent quarters. As Philippe outlined, we are now also closing the margin gap with best-in-class peers, though there are many more performance initiatives to come. Over to Page 16. Mine & Forest earnings reduced sequentially, but are still higher than the normal run rate we have guided at our Capital Market Day. Volumes were slightly down sequentially, while the quality of the ore sold remained high. As expected, cost went up slightly, though still leading to an attractive EBITDA margin for the segment of more than 40%. Moving to net income on Page 17. Net income was strong, additionally supported by a capital gain recorded as part of the Serimax disposal and a favorable tax rate. Looking at the right side of the chart, Vallourec has clearly moved away from being a company with a predominant capacity and top line focus towards managing for the bottom line, both in the P&L and in cash. Page 18 shows our cash flow. Total cash generation came in at EUR 67 million despite of a EUR 43 million increase in working capital. Restructuring charges and asset disposals offset each other in the quarter following the disposal of Serimax. Cash conversion was once again high. Page 19. In line with positive cash generation, net debt improved and also gross debt came down following the repurchase of 10% of our outstanding bonds. The reduction in gross debt will continue in the next quarter as accrued interest will then reduce subsequent to the payment of the coupon. Philippe, back to you. Philippe Guillemot: Thank you, Sascha. Let's turn to Slide 21 to discuss our outlook. Starting with our tubes business. In the fourth quarter, we expect volumes to increase slightly sequentially. EBITDA per tonne should remain similar to Q3. For Mine & Forest, we expect production sold to be around 1.4 million tonnes in the fourth quarter. The sequential decline is in line with typical seasonal patterns. We expect full year production of around 6.2 million tonnes. EBITDA in the Mine & Forest segment will be contingent on market prices for iron ore. That said, we have hedged a portion of our production, so our results will not be fully exposed to further price developments from here. At the group level, we expect our fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Looking at the full year, we confirm our prior year guidance for EBITDA improvement in the second half. Based on our Q4 outlook, full year EBITDA is expected to range between EUR 799 million and EUR 829 million. Let's conclude on Slide 22. We remain focused on improving our profitability and return on invested capital as we drive Vallourec towards operational excellence. We were very pleased to close the profitability gap versus our priority in the third quarter, but we will not stop there. Our vertically integrated U.S. footprint is paying dividend with customer demand remaining strong. Finally, we strive to be one of the most shareholder-friendly companies within our peer group. Today, we announced a key step to improve flexibility in our shareholder returns. By allowing our warrants to be satisfied with existing shares, including treasury shares, we can approach our shareholder return in 2026 in a more holistic way. Thank you again for your attention. Sascha and I are now ready to take your questions. Operator: [Operator Instructions] Now we have a question from Matt Smith from Bank of America. Matthew Smith: A couple, please, both reflecting on some of the prepared remarks. So I mean the first one would be around the international business. You commented on some delays to customer activity, sort of orders from 4Q into '26. I guess I just wondered if your confidence level that this is sort of simply order deferrals. I guess you already have visibility on that, but perhaps that sort of leads into some wider comments on the international business for '26 might be useful if you could, and you could talk to the visibility that you already have there from the order book. I think that would be useful. And then secondly, coming back to the warrants that proposed in those modifications to the terms today. I just wondered if you could talk to sort of the intention and what you would see as the sort of ideal outcome and resolution from all of this, please? Philippe Guillemot: Okay. Thank you for the question. Well, first, as you know, our long-term agreement with customers do not have quarterly volumes commitment. So we make an estimate of our activity levels in certain countries has been -- activities has been slower than forecast. In addition, customers have some control over when we deliver and invoice orders. So we have some highly contributed orders that push out of the year. So it's just a question of time. We have these orders. It's just a question of when customers will need the pipe so we can invoice them. And that's why what we don't invoice as expected in Q4 will be invoiced somewhere in 2026. Overall, about the market we are in, I think we are confident. I think our customers have capacity increase plan they are executing. And so far, we have no reason to think they won't do so, especially as you have seen that OPEC+ is ramping up production. So that's for your first question. As far as the second one is question, as we indicated, as I indicated, we want maximum flexibility in our return to shareholder. And with the change of terms of the agreement with the warrants orders, I think we will open the door, obviously, to potentially buy shares in order to have treasury shares that could be used at the time warrants will be exercised and not only to use new shares. Operator: Now we have a question from Guilherme Levy from Morgan Stanley. Guilherme Levy: Sascha, wish you, of course, all the best in your next steps. I have 2 questions, please. The first one, if I may, you commented on your perception of lower imports into the U.S. recently. So I was just curious to see how quickly you think that inventory levels can fall in order for you to see a more significant increase in terms of prices and margins on the back of the recent import tariffs in the country? And then the second one, thinking about this new investment in the dredging line in Ohio, could you perhaps share with us more examples of small-scale investments that you have in mind that you could make over the coming quarters? And how should we see your maintenance CapEx and also your total CapEx, including these small initiatives over the coming years? Philippe Guillemot: So yes, what we start to see is the impact of the tariff on the U.S. imports as even though there is no statistic available, it looks like imports are decreasing. By the way, one of the European player who used to sell to the U.S. has announced yesterday that they will go from 3 shifts to 2 shifts, so lower volume, which is a first clear indication that importing pipes in the U.S. given the tariff may not be as viable as in the past or as profitable as in the past. So this, as a consequence, favor domestic players. And I remind you that 100% of what we sell on the onshore market in the U.S., we make it in the U.S. from steelmaking to finishing that we are the second player on the seamless pipe OCTG business in the U.S. So as far as inventory is concerned, yes, they were up because of the imports in anticipation of the tariff, but now they are obviously slowly but surely depleted. And we think that we will see even more of this happening in 2026. That's the reason why, as I said, we see strong demand for our product and premium product, as I mentioned earlier. Trading line. So the trading line investment in the U.S., USD 48 million, we announced on Monday, and we had, by the way, a groundbreaking ceremony in Ohio to do so is a clear illustration of what we are doing First, value over volume. Here, we are talking about increasing capacity to deliver high connection to help our customers to generate productivity gains. So we are really at the heart of their success. Second, we invest with, obviously, a state-of-the-art line. But I can guarantee you that this is a good example of an investment that will further improve our return on invested capital. As far as CapEx is concerned, we stay very disciplined. And what we have in mind doesn't mean that we are going to increase CapEx envelope in the next few years. I think we are in the EUR 200 million range, and we have no intent to exceed this amount. By the way, talking about return on invested capital, which is a key metric we are focused on, and we will be even more focused in the next few years. Another example is our investment in Thermotite do Brasil, the thermo insulation business in Brazil. We more than doubled the value we can sell to customers. And I can already tell you that this acquisition, this new plant is already fully loaded for next year to thermization, to thermal insulate Vallourec pipes. So another good example of the investments we are making to further improve our return on invested capital. Sascha Bibert: Just adding one addition to what Philippe said on CapEx. for the current financial year, looking at what we have spent at the 9-month stage and acknowledging there's only the fourth quarter left, I think we will come out quite a bit below the EUR 200 million, i.e., in the Capital Market Day, we have mentioned maybe a long-term average of EUR 175 million. I think we'll be closer to that in this fiscal year. And thanks for your wishes, Guilherme. Operator: Now we have a question from Kevin Roger Kepler Cheuvreux. Kevin Roger: And first of all, Sascha, well done for everything that has been done in terms of financial, but also in terms of communication, frankly, it has been very appreciated by anyone. So good luck also for the next journey, wishing the best. The first question, if I may, just going back on the shifting of the volumes from Q4 to 2026. I was wondering if you can provide a bit of magnitude the impact on Q4 in terms of volumes. Making some math, I'm finding that maybe we are thinking about 30,000 tonnes of tubes that will be missed in Q4 compared to the previous expectations. So maybe some words around that, please? And the second one, sorry for this stupid accounting tax question. But implicitly with the new mechanism on the variant, you are telling us that potentially you would buy back some shares. In the current French tax environment that is evolving every day, can you just try to summarize and of course, I understand that it will be subject to what we have in terms of budget in the coming weeks, but what it would imply for the tax payment on any buyback for you, notably related to difference between the cash payment and the book value, et cetera, please? Philippe Guillemot: So going back to Q4 volume and invoicing. First, I remind you that we will invoice more in Q4 than Q3. And I won't give you any indication of how much we could have invoiced had customers ask to be delivered as we forecasted. And again, it's only a forecast. And every quarter, we have to forecast what customers will ask for. But again, I'm talking about orders we have. As far as warrants are concerned and tax treatment, I remind you that the tax in France is such on share buyback is such that if we don't cancel the shares, so we use them. And as an example, we can use them for management incentive plan. We -- they are not tax -- so we are immune to this. And as far as the amendments that have been voted at the parliament, what I understand is that it's not likely to be in the final budget as it is totally incompatible with European laws and other regulations. Operator: Now we have a question from Guillaume Delaby from Bernstein. Guillaume Delaby: Thank you, Sascha, for all your help over the past few years, especially if I remember between Christmas and New Year Eve a few years ago. Three questions, if I may. The first one is the -- two first ones, in fact, are for Philippe. So I've been impressed by your average selling price, which is up 8% sequentially, while globally OCTG prices have still remained flattish. We didn't have yet an increase in OCTG prices. So what has been your secret sauce during Q3? Is it a question of mix, more connection? If you can elaborate a little bit? That's my first question. My second question is on your 2026 outlook. Many services companies have provided a much more constructive 2026 outlook at the Q3 that what could have been expected. So just curious to see what is your -- whether or not your view on 2026 has evolved. You mentioned probably more drilling at some stage. And the third question is about the warrants. Sorry to be long, just to fully understand. So basically, what is going to happen? So the warrants are going to be exercised. So you are going to get some cash with additional shares. Am I understanding correctly? Or if not, please correct me. Philippe Guillemot: Okay. So our secret sauce, but now I think you start to see it in the numbers, value over volume. We are very serious about it. What we sell is high value-added products, which obviously give us some pricing power. And again, we don't only sell tubes. We sell solutions. We sell tubes and service associated. So this is a combination of all this. And as I've said since I joined, our focus is to develop the right portfolio of customers and markets that are in need of these high value-added products. So yes, definitely, what we sell, and that's what I mentioned when we compare our average selling price to the Hat index, nothing to compare. We are much more stable than what you see on that chart. So it's just an evidence that the strategy and the change of strategy I made when I joined is working. '26, I won't guide for '26. But as I said, U.S. market is good. We see demand -- very strong demand month after month. And so far, no reason to think it won't continue that way. And as far as drilling activity is concerned with some international customers or you see that Petrobras is obviously very active. They're even talking about exploration of the Amazonian area. And in Middle East, I think Aramco has seen some decrease in their rig count, but it may increase next year again. So again, so far, I think demand is still there for our high premium solutions. As far as -- so warrants, the question was... Sascha Bibert: Yes. Guillaume, your principal understanding is correct. Provided that the conditions are satisfied in the summer of '26, the warrants will convert, and this will lead to a capital inflow to the tune of EUR 300 million and a bit to Vallourec. There is no change to that. The change, if any, that we have announced today is that we want to create flexibility in how we serve the warrant holders with shares. The existing documentation allows us to create new shares and new shares only, while after the approval from the warrant holders, we would then also have the opportunity to deliver existing shares. Philippe Guillemot: So again, we stick to our return policy. We said we would return to shareholders between 80% and 100% of the total cash generation of the year before. So as you have noticed, we have year-to-date generated cash and obviously, even more at the end of the year. So all this cash is available and obviously, it is supposed to be returned to shareholders within our policy. So with the warrant agreement terms change, we have the flexibility to use existing shares once warrants will be exercised at the latest end of June next year. And obviously, we may decide to buy back shares in order to have them available in due time. Sascha Bibert: Philippe, when it comes to the secret sauce, maybe you also want to just remind people about the current stage of our North American onshore business, which I think is also doing quite well and added to the ASP development that we have seen. Philippe Guillemot: Yes. On the U.S. market, as you see and when we announced the investment on the [ ITO ] connection, it means that, yes, the mix we are selling in North America is more high value-added than it used to be. And as a consequence, lead to higher average selling price, too. So what we see -- what you see on the overall group average selling price is true in all regions. And same thing for Petrobras. The long-term agreement we have signed with Petrobras that will start to fall in our numbers in the second half of '26 is obviously with mix of products of high value added, including larger diameter, 18-inch and above that we, in the past, were not able to produce in Brazil, but now we are able to produce in Brazil, thanks to the investment, which were part of the new plan. Guillaume Delaby: Maybe just a follow-up on the warrant. It means that practically, you are likely or you have the option or the flexibility to buy back and to reduce some of the dilution which will be caused by warrants. Am I correct? Philippe Guillemot: You are correct. If all warrants are exercised and we deliver only new shares, it's roughly 15% dilution. So if we buy back shares and we use existing shares, obviously, we will reduce the dilution. And that's obviously the option we want to have. Operator: Now we have a question from Paul Redman from BNP Paribas. Paul Redman: I just wanted to delve a little bit down into the shareholder distributions for next year. So you've been paying out dividends for the past couple of years as part of the 80% to 90% -- 80% to 100%, sorry, of total cash generation paid out to shareholders. Is this new buyback possibility part of that 80% to 100%? Or does it go beyond it? And if it's part of the 80% to 100%, do you have a minimum level of dividend you would like to guide us towards and the rest possibly coming through buybacks? And then Sascha, I just wanted to ask you, you've been at the company and the company has changed a lot over the past few years. I wanted to ask, have you got any key highlights that you can say have been your biggest successes over the past few years? Philippe Guillemot: So before I hand over to Sascha, Yes, again, we will stick to our return policy. So we are very disciplined, as you know, in everything we do. So we will stick within the EUR 80 million to EUR 100 million. So we'll see how much total cash will be generated in '25, and we will use this to potentially execute any share buyback to, as I said earlier, reduce dilution at the time of warrant execution. But as you rightly said, we will cash in more than EUR 300 million end of June. And this cash, obviously, will have to be returned to shareholders within the same return policy we -- I stated earlier, 80% to 100% of total cash generation. Sascha, over to you. Sascha Bibert: Yes. Well, thanks for the question. But to be honest, I'm not sure whether I had too many successes. But as a team, we had a lot, and that's what we are proud of. I think ultimately leading to the establishment of a track record and therefore, the recreation of trust, I'd say, with many stakeholders, equity and credit alike. So I think it's the sum of many of the operational initiatives from the team, the refinancing, some work on the financial infrastructure that we have been doing that ultimately led to the stage where we are. But again, we don't get tired of hammering the point home that we have done a lot of good, but there's more to come. Vallourec will go into the next phase of optimization. And this is why, for me, the story is ending, but for Vallourec, it's just the beginning. Philippe Guillemot: Maybe Sascha is too modest, but you remember, we have refinanced our balance sheet in 2024. And it was obviously good to see that we managed to refinance it the way we did. On top, you remember that Fitch has awarded an investment-grade rating, and I hope more to come. So again, for a company that was almost bankrupt in 2021 being where we are today with all the -- obviously, the opportunity we have to further create value through a much higher return on invested capital than our weighted average cost of capital is very rewarding. And again, I thank Sascha for having been next to me to deliver this super performance so far. Operator: We have a question from Baptiste Lebacq from ODDO BHF. Baptiste Lebacq: First, Sascha, congrats for the very impressive job you have done, even if it's a job -- a team job, but very impressed by the way you did it and good luck for the future. One question regarding, let's say, working cap in Q4. You mentioned some delays in terms of deliveries. We have seen some tension in working cap already in Q3. How should we think about, let's say, working cap at the end of the year? And second question regarding your, let's say, optimization of Brazilian assets. Is it now fully on stream? And if I'm not wrong, you could sell some, let's say, lands in this country. How is it evolving? Philippe Guillemot: Well, as far as Q4 working cap, we expect a modest increase. So no big deviation versus where we are. As you know, since the beginning of the new alloy plan, I think we have been very focused on working cap. And as shown by Sascha in one of his slides, I think you can see that the working cap expressed in days sales has steadily decreased over time, and we continue and we see room for further improvement in the future. So you refer to maybe, yes, some -- first, as we are very focused, and this is what's going to drive the next 5 years till 2030, return on investment capital, we challenge every asset in Ball. And so that's the part of the challenge. So the forest, obviously, is an asset, as you know, that doesn't generate EBITDA, but is used to produce veg charcoal. So again, as any asset in Vallourec. And you remember when I said when I joined, there is no room for asset which is not generating cash. So each asset in Vallourec is challenged, and that's what just we do again and again. Operator: Now we have a question from Jean-Luc Romain from CIC Market Solutions. Jean-Luc Romain: Congratulations to Sascha and to Connor for his promotion. My question relates to the second phase of investment in the mine in Brazil. Could you update us on where you are there and when it should start? And what are the benefits you are expecting from this second phase of expansion? Philippe Guillemot: Yes. On the mine, thank you for the question. You remember at the Capital Market Day in September '23, we gave you some numbers on what we were doing and what we were expecting. And I'm glad to tell you that we delivered exactly what we said, even better. especially in H1 where we had the opportunity to extract high-quality iron ore from our mine. So the expansion is well on track, Phase 1, Phase 2, and we expect to deliver the EBITDA we mentioned at that time, so up to EUR 125 million between EUR 100 million and EUR 125 million as we go. So very pleased with the progress of the mine. And on the mine, I insist that we are applying the same secret sauce that we do on the tube business, value over volume, and that's the reason why tonnage may be less, but quality is higher. And the way we operate the mine enable us to extract more iron ore from existing room. So again, another good example of a value over volume strategy impact. Jean-Luc Romain: So as a follow-up, do you have in your mind kind of what do your geologists say better -- enough resources of better quality ore, which can help you continue increasing the value. That's what we should understand? Philippe Guillemot: No, we are -- Yes, obviously, iron ore is what it is in the mine, and it may change from where we export from over time. But the way we process the iron ore, that may lead to higher iron ore content, so salable value at the end of the day. So that's exactly what we are doing. I won't go into the details, but... Sascha Bibert: Jean-Luc just remind that we are externally selling the vast majority of our ore production. Philippe Guillemot: We deliver what we said we would deliver. But again, applying the secret sauce, value over volume, so less tonnage, but same EBITDA. Operator: Now we have a question from Jamie Franklin from Jefferies. Jamie Franklin: So 2 from me. So firstly, you mentioned the divergence between seamless and welded. And looking at the historical data, it actually appears to be the highest point on record, the gap between the 2. Can you maybe talk about whether you see any risk here in terms of substitution of welded for seamless given that the differential is so high? And secondly, if I can just push one more time on the Middle Eastern volumes. So I think previous expectation was that 4Q volumes would be substantially up in the third quarter in order to reach around 1.3 million tonnes in 2025. Now if we assume that 4Q is only slightly better than 3Q, we're going to get closer to 1.2 million for the full year. So can we assume that the entire delta there shifts into 2026? And finally, Sascha, congrats on the great job you've done at Vallourec, wishing you all the very best in your new role. Philippe Guillemot: Yes. I assume when you talk about divergence between seamless versus welded, you talk about the U.S. market. So yes, dynamic is -- again, we illustrated in our last quarterly communication, how these 2 markets diverge. Seamless imports are in proportion less than they are in welded. But at some point, it becomes noneconomical -- with the tariff, it becomes faster, noneconomical to import seamless and welded in a nutshell. And that's why we see in our business, which is only seamless, faster, the impact of the tariff on our business. Substitution, we don't think so because as we said, the market is more and more premium and this [ ITO ] connection are seamless pipes, and they will continue to be seamless pipes. As far as volume are concerned, yes, which -- again, we have a slight increase in volume, maybe not as much as we could have expected, thanks to our forecast. So they are delayed because customers ask us to deliver pipes later in '26. This will happen in '26. So we'll see what the volume will be. But as I said, we see drilling activity being back on the increase with some customers, to name one Aramco as an example, in Middle East. So we will see. But again, it's always a question, every quarter, we have to forecast what -- how much volume customer will call off from the orders we already have. It's a question of just delivering the order to match their needs. Operator: There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Philippe Guillemot: Thank you again for joining us for today's call. We are very pleased with the track record of execution since the launch of the new Vallourec plan in May 2022. We see further room to drive higher returns in our business. We will continue to optimize our capital allocation and capital return framework to deliver maximum value to our shareholders. Thank you again. Operator, you may close the call.
Operator: Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2025 Third Quarter Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead, Anna. Anna Hartley: I'd like to welcome you to our third quarter earnings conference call. Joining me on the call today is Ana Cabral, CEO of Sigma Lithium. Our third quarter 2025 earnings press release, presentation and corresponding documents are available on our website. I will now turn the call over to Ana Cabral. Ana Cabral Gardner: Good morning, everyone. It's a great pleasure to present Sigma Lithium's Third Quarter 2025 results directly from the Amazon, where COP30, the United Nations Climate Conference is being held. Sigma is here as a member of the Brazilian delegation. We have been engaged in high-level dialogues with other delegations from all over the world, and we are showcasing how we have implemented and executed on every single one of our targets of sustainability set out in 2017 when we made the original investment in the company. Since then, we have managed to build the most sustainable lithium beneficiation plant in the world, digitalized and using algorithms, the employee bots or AI to become more and more efficient in treating the mineralogy of our mines and increasing plant recovery. So our plan is where technology meets metallurgy meets mining and delivers sustainability, doing more with less. Please kindly read the disclaimers. We're going to make quite a number of forward-looking statements and projections and guidances as we go through this presentation. We're very proud of our accomplishments in the third quarter, especially considering the state of the lithium markets throughout the quarter. we have managed to increase the resilience of our business significantly, achieving the following 5 initiatives. First, we substantially increased our net revenues through optimum commercial strategy. We increased revenues by 69% quarter-on-quarter and by 36% if compared to the third quarter of last year. We have generated cash of $31 million, resulting from final price settlements of sales that happened throughout the year. In addition, we expect cash generation from sales of our processing, high-purity, high-grade middlings, which are the result of our sustainable efforts. We have approximately 1 million tons of those dry stacked high-purity materials. We are also in the process of successfully upgrading our mining operations. Our plant has already restarted this week, our mine is expected to resume operations within 2 to 3 weeks, and Sigma will operate the mine with equipment lease directly from the manufacturer. Lastly, we continue to maintain financial discipline, and that's demonstrated by deleveraging on our short-term trade finance debt by 43% this year despite the challenging lithium pricing environment. On this page, we showcased the financial highlights of the third quarter of '25 related to the increased cash margins and the deleveraging of our short-term trade finance debt. Our revenues have increased by 69% if compared to last quarter. More importantly, we increased revenues by 36% versus the third quarter of last year. Our pricing also increased by 33% versus last quarter. So the revenues increase are a result of our efficiency increase. Our margins also increased. The operating margin increased in 42% versus the third quarter, and the net margin increased 67% [Technical Difficulty] quarter of last year. Both margins also increased substantially versus the previous quarter. But by showcasing the increase versus last year, we demonstrate how we increase the resilience and the strength of the business. Our deleveraging is demonstrated by the decrease in trade finance. We managed to pay down export financing, short-term debt in 43% this year. The remaining balance is just $33.8 million as of November 13. Our cash has also increased by 42% versus last quarter, which is a trend very different from our peers, which had burned current cash. Our current cash today is $21 million plus $8 million of incremental trade receivables, all related to sales realized until the third quarter of 2025. On this page, we discuss our stellar record of 0 accidents. We have achieved 787 consecutive days without accidents with lost time injury. It's over 2 years with 0 records. This demonstrates our operational excellence in addition to managing to continuously decrease our costs. So we haven't cut costs at the expense of health and safety. Our TRFIR is 1.79 amongst the lowest in the world. This results in employee engagement and safety processes, a direct connection to the factory floor, which leads us to enhance performance and ideas for cost optimization coming straight from our employees. So it's a self-fulfilling circle where focusing on safety enables us to keep on getting better, both operationally by increasing efficiency, but also cost-wise by gaining ideas directly from employees on how to be lower cost. We're very proud of this. On this page, we're going to start to discuss our financial performance this quarter. On this slide, we demonstrate how Sigma achieved an optimum commercial strategy, which allowed us to price efficiently our material capturing the price cycle despite the price volatility that took over the metals market throughout the period that followed Liberation Day and the tariffs. You can see on this chart in red, the sales on provisional prices and in green, the sales on final prices. And it's visible that we were able to capture a much higher final price as we managed to authorize our clients to resell the products and settle our final prices. These adjustments resulted in incremental cash revenues for this quarter. So a picture is a thousand words. And here is how that translates into cash generation. This commercial success resulted in incremental cash from the final settlement with the trade partners. And you can see that by looking at the initial cash position at the end of the second quarter, the increasing cash from operations on a provisional price basis of $30 million, then the generation of trade receivables booked on sales up until third quarter on provisional prices of $20 million. That got converted into cash as of now, but that refers to sales with a cutoff on the third quarter. In addition to that, we had another incremental increase in trade receivables because of the extra increase in prices that we have been experiencing to date at $1,700 per ton. So that's another $8 million, which means that there were $28 million extra that resulted from our optimum commercial strategy. So when you observe our cash as of today, we have $21 million in the bank plus $8 million of settled trades at current market prices. Now in addition, we have $33 million of potential sale of lithium middlings, which are high-purity middlings or dry stack material that currently sits both at the port and at our plant at current market prices quoted at Shanghai metal markets of $112 per ton, net of transportation costs to port for part of it and to China for the material sitting at the port. So a significant cash boost coming from materials that have already been produced. But more importantly, a direct result of our investment in dry stacking our tailings and recycling and reprocessing and optimizing our lithium Greentech industrial plant. On this page, we show what that cash position enabled us to do. We managed to pay down our short-term trade finance 60% year-to-date to November. If you cut it off as of October, we paid it down 44%. That's a significant debt reduction, especially considering the down markets and the lithium prices volatility we experienced this year. So we had a cash increase, and we decreased our short-term trade finance expensive debt. That's a significant accomplishment in financial results for a year such as these in lithium markets. On this page, we demonstrate how the debt maturity profile will be lengthened further because all that's left now is essentially $10 million that we already paid down, plus $100 million that will be paid down next year in December, which relates to our shareholder debt, whose generosity has allowed us to get here to commission our Greentech plant and to continue to make improvements to achieve the stellar operational performance the plant has been delivering. So we are in a very comfortable debt position as of November 13. And we demonstrate here on this page all the short-term debt that we have managed to pay down or roll. This page demonstrates our low-cost resilience and the fact that we are a source of responsible lithium production in this industry. We have managed to maintain the highest sustainability and ethical sourcing standards throughout market pricing, meaning our resilience is here to stay. Even with the slight decrease in production, which is shown here in the little green over our regular costs, we're still lower than the lowest cost producer for nonintegrated lithium oxide concentrate in Africa. And this location to the very left of the nonintegrated supply curve is exactly where we plan to remain throughout the foreseeable future. On this page, we demonstrate how the lower production levels in September have not really affected our low-cost position. In other words, the slight increase in cost maintained this on guidance for the all-in sustaining cost, and that's demonstrated by the chart to the right, where we show the 9-month all-in sustaining cost versus the full year guidance we provided at the beginning of the year. This all-in sustaining cost includes interest, CapEx, maintenance, all of it, royalties, SG&A, environmental and social that is voluntary. So we're very much on track. We're issuing guidance of this all-in sustaining cost becoming $560, meaning lowering to $560 for 2026 based solely on production from the first plant. Now the increase in CIF cash costs and plant gate costs are easily corrected once we return to full production in the first quarter '26. So our low-cost position is unmatched and unchanged. On this slide, we basically outline the offtake agreements expected for this year. They're basically enabled by the significant commercial leverage and power we achieved by being an ethical producer and one of the lowest cost producers of lithium concentrate globally. Now what we've done, we tailored different types of offtakes to cater for different specific client needs across geographies. So this year, what we have is 3 different kinds of offtakes being discussed with 3 very different kinds of clients. The first kind is what we call the 3-month rolling offtake. They're done at market prices, and these are prepayment of upcoming production until March. The objective is to provide Sigma with low-cost working capital. The second kind of offtake is a 20,000 tons for 3 years for $25 million. It's a small long-term offtake and the use of proceeds will be to pay for the mining equipment that will help us upgrade our mining operations, meaning the larger-scale trucks and overall excavators and mining equipment. The third category is a conventional offtake or prepayment being negotiated with a global European trading company. So the use of proceeds is to deploy towards our expansion plans remaining on track for our growth strategy next year. We are in contract negotiation stages with them. Now for 2026, we still have another 120,000 tons of product uncommitted to be contracted into offtakes. The objective is to strike conventional offtakes for both amounts. The first amount for 80,000 tons will be assigned to a regular end user. And the objective is to repay the long-term shareholder debt that was generously enough offered to Sigma in December 2022 and enabled us to get here to this very strong operational position. We are in contract negotiations for that one. The second offtake is going to be achieved against an agent, meaning a trading company, which again, is going to be a typical conventional offtake, once again deployed towards building and delivering on our growth strategy, meaning building a second plot. And this offtake is under contract negotiation. So we're expecting to announce 3 offtakes still this year and 2 more next year. This page demonstrates our production and cost guidance for the upcoming years, 2026 and 2027. Our cash flow is poised to increase as our production efficiency increases with the execution of our strategic plan. With Plant 1 alone, we're bound to generate an all-in sustaining cost of $560 per tonne, and that includes everything, including interest expenses. Now at the current price levels of $1,000 per tonne, that represents a cash flow -- free cash flow generation of $132 million. Once we complete Plant 2 by the end of next year, we expect to have 550,000 tonnes of production throughout 2027, which will lower our all-in sustaining cost to $500 approximately that at current price points for lithium is expected to generate a free cash flow of approximately $270 million. So this page really demonstrates how by remaining the lowest cost producer globally, we are bound to benefit with excess returns from this relative increase in lithium prices from $700 per ton at mid-third quarter to $1,000 per ton as of November 13. This page demonstrates how our Greentech Plant upgrade into the 3.0 version concluded and executed in November '24 was not accompanied with [Foreign Language] this page demonstrates how the upgrade in our Greentech Plant into a 3.0 version, which was concluded in November of '24 of last year, 1 year ago, was not followed by our mining operations. Here at Sigma, just to recap, we have 2 different operations, which are integrated. We have a mine that delivers raw material to a state-of-the-art industrial lithium beneficiation plant, the Greentech Plant. That is automated, digitalized and run by an algorithm. Throughout the first 9 months of this year, what we could demonstrate is that the plant outperformance was compensating for the mine. You can clearly see that in the chart at the bottom left of the slide, where we had an 11% increase in production in the first 9 months of this year. Now the chart above show and demonstrate the significant upgrade that took place in the Greentech Plant last year when from the beginning of '24 to the end of '24, the production went up 43%. In other words, the plant can produce 300,000 tonnes of lithium concentrate if properly fed with fresh rock, fresh spodumene ore. It processed efficiently because the plant recoveries are 70%. Now that made it clear that a mining upgrade was required. So we reassessed our mining plan and concluded that we needed larger equipment scale to basically ensure higher volumes that would be moved faster. More importantly, that would also ensure that we would maintain our stellar safety and health record at our operations. The chart on the right break down the 2 quarters, the second quarter '25 and the third quarter '25. And it clearly shows that the last month of the third quarter when the mining equipment provider was demobilized was where we had a significant production decrease because they were simply demobilizing and phasing down their efforts in operating and moving material at the expected productivity rates. This page shows what's the way forward. Well, we have mastered dense media separation technology, achieving 70% recovered. Let me go back to the beginning, pause, pause again. This page demonstrates our way forward in our operational plan. Clearly, we have mastered dense media separation technology for lithium processing, achieving 70% recovery rates. That's equivalent to flotation. We have demonstrated also greater efficiency and reliability throughout 2025. And now we're going to match it by upgrading our mining operations. First, our plant. It has already restarted. So it restarted processing high-grade material that's in our current operating site. The target for 2026 is to achieve full plant operational capacity of 300,000 tons of lithium oxide concentrated. We have been recurrently achieving unprecedented recovery levels throughout the year up until the third quarter. So that's where our confidence comes from, from this track record. Now on the feed of the plant. Clearly, a mining upgrade was required and is underway. We reassessed the mining plan and the geometry. So we observed that we have mined about 798,000 tonnes in July and 659,000 tonnes in August. We continue to mine waste and strip in order to optimize geometry, and that is something I talked about during our second quarter '25 announcement. The ore grade has been perfectly aligned with our mine plan with no significant dilutions. So we maintain the cadence of the ore grade fed to the plant. As a result, we're very well positioned to resume our mining operations within 2 to 3 weeks once we're able to mobilize large-scale equipment so that we can increase the volume mined and the operational speed at which we advance the geometry and increase mining volumes. So with those upgrades, we expect to evolve our production capabilities at the plant already in the first quarter '26, reaching 73,000 tonnes of lithium oxide concentrate produced. That's the guidance for the first quarter of '26. This slide demonstrates how by being the low-cost and most sustainable producer at large scale, we have been able to obtain significant support by our clients to execute our -- on our expansion plans. That's financial support and offtake support. We plan to reach 80,000 tons of lithium carbonate equivalent upon completion of our Phase 2 expansion next year. By just adding a third production line, which infrastructure is already on site, we expect it to achieve 120,000 tons of LCE equivalent of production. That is a consequence of Sigma already being a pillar throughout global lithium supply chains. So this underpins the financial support that we receive from our very large clients downstream in the lithium supply chain. So we also conclude by outlining how we're going to continue to deliver on our strategic plan for 2025. First, we're going to conclude our offtake agreements as we have outlined in the presentation. Second, we have achieved financial strength, but we're going to continue to do so by continuing to close final prices on the provisional price sales that we have achieved year-to-date until the third quarter and we'll continue to deliver throughout the fourth quarter. We have deleveraged and we'll continue to delever by basically paying down expensive short-term trade finance debt. We're also going to monetize existing lithium products that are currently sitting in our plant and in a port, taking advantage of the current robust pricing environment where demand for these products become actual. Currently, these products are priced at about $120 per tonne, which could bring the additional revenues of $33 million throughout the fourth quarter. Thirdly, we are going to upgrade our mining operations to increase the Greentech Plant production scale, more feed, more concentrate. So there's another advantage to that, which means we're going to lower the structural costs of this company by lowering the plant gate costs by increasing production volume and by actually decreasing the absolute number of mining costs, which represent 2/3 of our plant gate costs. Four, we're going to continue to partner with our very large clients with very large balance sheets to create commercial strategies that allows us to navigate lithium price seasonality, benefiting from achieving higher prices during the high seasonality. Number five, we're going to continue to increase the scale of our suppliers so that we can obtain working capital support. This is a strategy where we're simply matching or copying with the global leaders in downstream, including battery makers and carmakers receive from their own suppliers in the duration of their account payables. The average of the largest carmakers in the world is from 130 days to 180 days to 210 days. We've been barely doing 30 days of deadlines for suppliers. So we are lengthening that period by leaning on larger suppliers that are as large as us. I want to thank you for the opportunity to present to you our third quarter earnings. And I'm now going to open the floor for the Q&A questions that are going to be submitted to our moderator through the chat function of this Zoom. Operator: [Operator Instructions] Our first question comes from [ Bavida ] from Bloomberg. Thanks for the granularity on the cash balance. Based on Page 9, is current cash balance at USD 29 million plus USD 33 million or only USD 29 million. Ana Cabral Gardner: No. The current cash balance is $29 million. The $33 million are basically bids we received on the current lithium material we already have, and we were mentioning that exists in the port and at the plant. Operator: Our next question comes from [ Leanne Crozier ]. What is the region of lithium middlings from the process circuits? What is their LI 20 grade even as a range? Ana Cabral Gardner: Yes. These are typical materials that are processed through the DMS circuit. They are more valuable because the chemical structure of the particle hasn't been broken. In other words, it's a very different manner of processing lithium ore than the flotation plant. So the lithium grade goes from 1% to 1.3%. There's an official quote for these products at Shanghai Metals Market, which can be validated daily. So in current market environment, where it's actually a search for physical materials to close open positions in Guangzhou, we've been getting bids for these materials, 100,000 of which are at the port already, which makes their cost simply shipping to China, which is $40 a tonne. And then we have another 850,000 tonnes of these materials at the plant, which makes their costs approximately $85. So when we bank on $33 million, it's just pure profit, given that there are costs incurred in transportation. So the number is net of transportation. The current quote for these materials at Shanghai Metals Market is $120 per tonne. They are roughly 11-ish percent of current lithium oxide concentrate prices as of today, which is about $1,070 to $1,080 per tonne. Operator: Our next question comes from [ Armando Wolfrid ]. Could you please provide some more info on the 100 million shareholders credit and the status of your BNDES loan disbursement for Phase 2? Ana Cabral Gardner: Absolutely. Well, we're going to lean on our suppliers -- on our credit clients the same way we have been leaning on them for a number of advancements we've been doing here, including mining upgrade. There are a number of ways to basically disburse the BNDES loan. However, as we discussed earlier, we were awaiting for a quarter of lithium price stability given the highly volatile pricing environment we experienced this year. I mean we were one of the few companies to actually generate cash this year. Our peers were mainly cash burning. So our Board decided to wait for a quarter of stability so that we could basically green light purchasing equipment. Once we do so, it could happen as early as January or late January, given current price environment being very robust. So we're going to utilize the same structures we've been utilizing, which are large customer balance sheet support to basically disburse [Technical Difficulty] what are we doing about expansion is ensure [Technical Difficulty]. Operator: Ms. Ana, your connection just dropped in the middle of the answer, if you can repeat that part, please. Ana Cabral Gardner: Okay. Yes, so regarding the structure for this bus in BNDES, our Board was waiting for at least 1/4 of price stability given the volatility in lithium prices, the market experienced this year. So what we are planning to do if the lithium prices environment continue to be as robust as it is now is probably green light equipment purchasing as early as January, late January of '26. But more importantly, we have already disbursed a certain amount and file that with BNDES. So it's all basically ready to be deployed once we continue on equipment purchases, which is the plant portion of Phase 2. Now the key element in ensuring the timeliness of a potential 2026 commissioning of the plant was adjusting mine geometry so that we could feed the plant with the same geometallurgy that we are feeding our current Plant 1. So feeding Plant 1 and Plant 2 with the same geometallurgy would ensure a shorter ramping up period given that we would have more chemical certainty of the ramp-up. In other words, any ramp-up issues could be only narrowed to processing, which are relatively easy to fix. So the work on mine geometry would continue the same way we carried on geometry work throughout the second quarter despite the lithium prices volatility. Operator: Our next question comes from [ Habbou ]. Will production be fast-tracked if the lithium market tightness and the market price of lithium increase happily? Ana Cabral Gardner: Yes. That's exactly why we're carrying through the mining upgrade. You were spot on, meaning we know what the plant can't do. I mean we have a state-of-the-art Greentech lithium plant that can't do 300,000 tons of lithium oxide concentrate on its own. What we needed to do was to match mine to plant. And this is exactly what we're doing, taking advantage of the relatively muted lithium price environment that we observed on the third [Technical Difficulty] production a year. Operator: Ms. Ana, your connection dropped again. If you can repeat... Ana Cabral Gardner: Okay. So resuming, what we are doing is basically spot on. In other words, we are basically matching -- the reason to decide on the upgrade of the mine was exactly what you asked us. In other words, we know what the plant can do. The plant can deliver 300,000 tonnes of lithium oxide concentrate per year. If properly fed with fresh rock. So by upgrading the plant, by revisiting the mine plan and moving more material, what we're doing is making more product available for the robust lithium price environment that we were expecting in 2026. We took advantage of the muted price environment still in the third quarter to make that decision, and it was the accurate timing to do so because as we enter '26, we will already enter with an upgraded quarterly production, as we indicated, to 73,000 tonnes. Operator: Our next question comes from [ Benson Chen ]. What's your estimated CapEx for bringing Phase 2 and 3 online, respectively? And what could be the risk of further delays. Could you not utilize some credit lines to speed up the expansion and avoid delays? Ana Cabral Gardner: Well, we have a credit signed with BNDES, which is the best possible credit we can get. But to your point, the offtakes, as I outlined on the discussion that we had about them, and it was quite detailed, are meant for that. In other words, we have the conventional offtakes when we declare the use of proceeds is to fund the growth, what they will be doing is essentially closing that gap. As offtakes get closed this year, what we will do is redirect those proceeds for the plant Phase 2, given that the mining upgrade has been fully covered by our current clients. Operator: [Operator Instructions] Our next question comes from Joe Jackson from BMO Capital Markets. Please confirm as of today, how much production Sigma had at the mine in Q4 due far? And how much spodumene inventory there is as of today. Ana Cabral Gardner: Yes. What we are planning to do, Joe, is to issue guidance for fourth and first quarter together. We issued the first quarter guidance, and we're going to issue fourth quarter guidance soon when we show a remobilization plan. What we have, though, is the full cost to upgrade mining operations, which is $25 million, which has been fully covered by our clients. So what we need to do now is to just wrap up what we call the mobilization curve for large tonnage equipment, which is either twice the tonnage of what we got or probably 2.5x the tonnage of what we got. Depending on the mobilization curve, which will be announced promptly, we will be able to perhaps have a surprise for the fourth quarter. And we've given the first quarter guidance and the fourth quarter guidance will be given as soon as we wrap up the mobilization curve for the very large tonnage equipment that's been made available to us by the manufacturer directly. By the way, one more point that's very important. The $25 million are not going to be paid at once. They're going to be paid in very nice soft installments throughout 2 to 3 years at very low rates, SOFR plus under 1% or 1%, again, facilitated by our very supportive clients given that we are the pillars of global downstream supply chains. So you'll be like -- it'll be an offtake like any other. Operator: Our next question comes from [ Ricardo Fernandes ]. Are your volume contracts based on spot price or negotiated? How much of lag is there between spot and realized at prices? Ana Cabral Gardner: Well, it's spot essentially. We closed provisional prices at spot. Today, fortunately, there's a very liquid market for both chemicals and spodumene or we call lithium oxide concentrate. Shanghai Metals Market, Guangzhou, I mean, they're literally moving with significant volumes. I mean, just for example, last night, Guangzhou negotiated over 600,000 tonnes of LCE of open interest contracts. That's a term of global lithium demand. So there's [Technical Difficulty] quite precise pricing. Last night, prices hovered around $1,070 a tonne. So that level of liquidity allows for spot to be quite precise, meaning clients bid and hedge immediately into chemicals. So we believe pricing is becoming more and more efficient, which helps producers like us, given that there's less opacity, more transparency. And again, what we do though is depending on the season, we close at final, or we close at provisional. And what we've done this year, given volatility, we basically closed the provisional pricing. And now we're benefiting from having the clients to lean on and realizing final pricing. Hence, the cash boost we received from sales of the third quarter at the moment, as we explained in detail in our cash from operations section of this presentation. Operator: Our next question comes from Shiva Kumar. Are you getting any premium at all of the green lithium compared to the market price? Ana Cabral Gardner: No, unfortunately not. I'm here at COP30. That's been one of the frustrations. What the advantage is, though, is commercial power, meaning given that global supply chains are being rearranged, what we have is similar battery makers supplying carmakers globally in the West, in the East, all over. So there's a huge focus on traceability, on sustainability, on health and safety. And what we have is essentially a brand that safeguards us from any questions. I mean it's very easy to ascertain the Quintuple Zero advantage. And that's what we have, a commercial advantage, which translates into what we showcased so far. Our ability to negotiate provisionals when we believe it's reasonable to negotiate provisionals, our ability to lean on our clients' balance sheets for support for mining upgrades and so on and so forth. But unfortunately, there is no green premium. And we do not believe there will be a green premium. If -- hopefully, that could be, but it's years ahead. What there is, is a green [Technical Difficulty] commercial advantage. Operator: Our next question comes from David Feng. Ana, this is David from CICC Research, and thanks for the presentation. We can see that there is still over 30 kt of spodumene concentrate inventory by comparing year production and shipments. Just wondering how we expect all these inventories to be sold in 4Q '25? And what would your inventory management strategy if lithium price continues to rise. Ana Cabral Gardner: Yes. Thank you, David. We'll sell it all down. I mean at current prices, the plan is to basically monetize everything we have, including the -- what we call in China middlings, right? And we have high-purity middlings with an intact we call intact spodumene chemical structure because it comes from DMS, and it hasn't been affected chemically by the flotation nor by organic contaminants nor by the chemicals utilized in flotations. Hence, we can get a straight quotation for $120 even for middlings, which is -- which just shows that the current strategy is to monetize all the lithium we currently have. Operator: Our next question comes from [ John Christian ]. Can you quantify in U.S. dollars, how much working capital will be required to restart the mine in the first quarter 2026? And can you bridge the $6 million on third Q ending cash balance to $21 million today, considering your slide show $20 million debt paid down in the 4Q so far. Where did that approximately $35 million came from in the past 6 weeks? Ana Cabral Gardner: Well, no, we discussed that. I mean if you look at lithium price behavior, it came from the final price settlements. I mean the lithium prices have rallied considerably, RMB contracts for LCE and Guangzhou were close to $88,000, $87,000. So we were able to receive the final price settlement adjustment from the sales of product that took place up until the cutoff date of September 30, 2025. So that's where the adjustment comes from, from actual cash from these settlements. And more importantly, there's extra adjustments from the settlements that haven't been closed yet. We started to close settlements at $875, and we kept going until the latest ones, which were $1,035 just last week. But again, these were shipments material in boats in the water. We were literally shipping everything and selling everything. The other question you asked was about the $33 million. That's essentially middlings which are monetized their bids out. We are waiting to work out on logistics. The profit varies significantly on logistics because we have $100,000 at the port. That is simply $40 to China. $120 minus $40, that's net profit, pure profit, no cost associated with it. Then we have 850,000 tonnes of those middlings' high purity with chemical structure intact at the plant. The logistic costs there are different because we need to truck it to port. So what we're working on is to thinking through berthing the biggest ships we can obtain and therefore, lower the shipping cost to perhaps $25, $30, so that $120 minus $70 of logistics back-to-back plant to China. So essentially 2 different costs of logistics. These products are 0 cost to produce because they are middlings or what we call dry stacked high-grade lithium tailings. And that's the sustainability advantage. We are able to monetize it to a net of USD 33 million, which is a considerable sum. It's equivalent to a boat or a bit more actually, pure profit. Operator: [Operator Instructions] Our next question comes from [ Olin Chen ]. Could you please clarify the expected lithium concentrate production volume for the 4Q 2025 based on your current operational plans and the ramp-up schedule. Ana Cabral Gardner: Yes, we're not there yet. I answered a similar question. We issued guidance for the first quarter '26. And as soon as we wrap up the -- what we call the mobilization curve in terms of the scale of the large equipment being made available to us, it could vary from 60-tonne trucks to up to 95-tonne trucks, which is a significant increase from the small [Technical Difficulty] trucks we were [Technical Difficulty] 75-ton truck can move twice much material than a 40-tonne truck, a 60-tonne truck could move 50% more material. A 95 to 120-tonne truck, same access size can move 3x more material. Cost, not that dissimilar because it's diesel, one driver instead of -- I mean, it's 4 drivers per equipment. So we are decreasing the number of men involved, consumption of diesel, not that dissimilar. So overall, structurally lowering the cost of this operation. And this is the guidance that we plan to provide in detail as soon as we wrap up mobilization schedule for the equipment, which is currently taking place. I was in China for 2 weeks, just go back 1.5 days ago. And we're making progress in strides on that front. And we're delighted with the support we received from manufacturers, clients because we're pillars of 3 global supply chains actually, Europe, Asia and China. Operator: Thank you. This does conclude the Q&A section. I'll now return the floor to our CEO, Ana Cabral, for her final remarks. Please, go ahead, Ana. Ana Cabral Gardner: Well, we're very optimistic about 2026. It's been a year where volatility dominated the conversation. It's consensus now where lithium is headed. Now what's important to highlight is lithium is a commodity like any other, meaning prices will be where they are. We're not talking about price spikes. We're talking about prices being at $1,000, $1,100, which for low-cost producers such as Sigma with current plant gate costs of around $350 normalized is a fantastic operating environment. And so the key is to continue to be a low-cost producer. Hence, our efforts in upgrading our mining operations to match the exceptional industrial operations we have achieved throughout this year. So thank you all for listening. Thank you all for being with us on our journey, and we're going to be open for welcoming you all through my colleague, Anna Hartley, who is heading Investor Relations, and we'll be visiting some of you through conference calls in the next couple of days throughout the world. Operator: Thank you. This does conclude the third quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website at www.sigmalithiumresources.com. You can disconnect from now on and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Freehold Royalties Third Quarter 2025 Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Spyker, President and CEO. Please go ahead. David Spyker: Good morning, everyone, and thank you for joining us today. On the call with me is Rob King, our COO; Shaina Morihira, our CFO; and Todd McBride, our Manager of Investor Relations. So before we get started, I just want to advise everyone that certain statements on this call are considered as forward-looking information, and we caution the listener to review the advisory on forward-looking statements in the news release and MD&A found on our website. So for the quarter, we achieved production of 16,054 BOE a day with a liquids weighting of 65%. This represents a production increase of 10% from Q3 2024, reflecting the contribution from our Permian Basin acquisition in late 2024, in addition to continued drilling activity across our asset base. With the acquisition work, we have shifted to a much more balanced portfolio where 45% of our production in the first 9 months of 2025 is from the U.S., now representing 53% of our revenue. This is a material shift from the first 9 months of 2024, where 36% of our production was in the U.S. This balanced approach allows us to take advantage of stronger U.S. pricing with a realized oil price of $93.25 a barrel for the first 9 months of the year compared to $79.03 a barrel for our Canadian oil. It is a similar story on the natural gas side, where U.S. realized pricing was $2.72 an Mcf over the same period, twice that of our Canadian gas price of $1.34 an Mcf. So with a liquids-weighted North American portfolio, we're delivering best-in-class operating margins. In Canada, our heavy oil production grew 13% compared to the same quarter last year as producers continue to actively develop our lands in the Mannville heavy oil and Clearwater plays. Drilling activity in Canada picked up after spring breakup with 83 wells drilled this quarter. In addition to the heavy oil drilling, we are seeing an uptick in drilling activity related to the Belly River, Cardium and the light oil and liquids-rich Mannville section in Western Alberta. A number of our operators are having success in these plays with horizontal drilling applications. On the gas side, we see production down 6% compared to the third quarter of 2024, as the weaker gas pricing in Canada, it was $0.63 an Mcf AECO in the third quarter has kept gas-directed drilling rigs on the sidelines. As we head into winter with a stronger Canadian gas price outlook, we are seeing licensing activity and drilling activity pick up. Drilling activity on our U.S. lands continues to be concentrated in the Permian Basin with 92% of the quarter's activity focused there. Activity has been steady year-over-year as our large investment-grade payers such as ExxonMobil continue to execute their capital programs. ExxonMobil plans to grow their Permian production from about 1.6 million oil equivalent barrels daily to 2.3 million by 2030. Given Freehold's mineral title position in the Permian, this would reflect approximately 800 BOE per day growth from our ExxonMobil-operated lands, which is approximately a 20% increase from our current overall Permian production levels. This quarter, we have 4 large well pads, 63 gross wells in total on those 4 pads drilled in the Permian and all currently in various stages of completion. These large pads are operated by investment-grade operators and are a good reminder of the scale and scope of drilling and completion operations in the Permian. In the Eagle Ford Basin, as we've seen in previous years, production was lower quarter-over-quarter due to timing of drilling activity from our largest payer, ConocoPhillips. Exciting things that is going on in the U.S. right now is that we're seeing considerable infrastructure build-out underway to improve gas takeaway capacity out of the Permian Basin to feed the rapidly expanding Gulf Coast LNG export capacity and data center growth. Gas production from the Permian is growing at a faster pace than any other U.S. basin with the next phase of pipeline expansion expected to be in service late next year. Freehold has 11 million cubic feet a day of gas production in the U.S. and is well positioned to participate in the ramp-up of gas required to feed LNG demand and the data center power requirements. In support of the strong leasing activity we've seen year-to-date, particularly in the U.S., we just had a 4-well pad permitted on one of those leases, targeting the deeper Barnett Shale in the Permian, as operators continue to look to unlock the multiple reservoir benches in this resource-rich basin. Both sides of the border, we're seeing operators focusing on optimizing well placement in the reservoir, advancing drilling efficiencies and lateral lengths and enhancing completion designs. We continue to see a shift to longer horizontal wells in the U.S. with our average horizontal well length increasing 12% year-over-year. In 2025, almost 40% of the wells drilled on Freehold's lands in the Midland Basin are 3 miles or longer compared to only 30% in 2024. These continued improvements in accessing the reservoir have resulted in a 15% improvement on average production rates when compared to last year's averages. Similarly, in Canada, average well performance is up 25% compared to 2024 across our lands. So turning to our financial results. We generated $59 million of funds from operations in Q3 2025 or $0.36 a share. With this funds flow, we paid $44 million in dividends to our shareholders, we reduced our long-term debt by $9 million and we invested $5.8 million in acquisitions focused on purchasing undeveloped lands in the Permian Basin and select Western Canadian operating areas. Freehold continues to advance its ground game strategy of acquiring mineral title lands in the U.S. ahead of the drill bit. This approach enables us to acquire lands that are held in perpetuity in areas that have significant undeveloped resource and drilling inventory. On the Canadian side, we continue to partner with talented technical teams to fund their drilling programs in exchange for a royalty and a drilling commitment. So our portfolio offers investors exposure to the premier oil and gas basins across North America, including our growing heavy oil segment in Northern Alberta, the lighter oil plays in Southeast Saskatchewan, exposure to Gulf Coast pricing with our Eagle Ford assets and the growing light oil and natural gas production contribution from the Permian. Our U.S. portfolio is driving 33% higher pricing when compared to our Canadian asset base, benefiting from light sweet oil production, close to markets and strong U.S. natural gas pricing supported by the aforementioned LNG build-out and growing demand for natural gas-fired power generation to feed data centers. We continue to deliver a monthly dividend of $0.09 per share with a payout ratio of 72% through the first 9 months of 2025 and sustainable to prolonged USD 50 WTI price levels. So with that, we're pleased to take your questions. Thank you. Operator: [Operator Instructions] And I have a question. Our first question will be coming from Jamie Kubik of CIBC. James Kubik: I just had a couple of questions for you on the U.S. business. It looked like net drilling was down year-on-year despite the increase in asset heft, I suppose, after the acquisition that you completed last year. Can you just talk about some of the nuances in that? And then can you also talk about the NGL volumes in the U.S., what you're seeing on that side? It looked like a pretty big number again this quarter. Robert King: Jamie, it's Rob here. I'll answer the first part, and Shaina will answer the second part. So on our U.S. drilling in Q3, I think a lot of it was probably more related to our Eagle Ford asset. When we look at our Permian drilling, which was clearly the key focus of our acquisition activity in 2024, that we've sort of certainly seen the expectation in the drilling results sort of in line with, say, what our expectations were. On the Eagle Ford side, that's probably more of a timing issue that we've observed with our key payer in the Eagle Ford being ConocoPhillips in that activity that we expected to see in Q3 looks like it's been pushed into Q4. And then on the NGL question, Shaina will touch on that. Shaina Morihira: It's Shaina. So just a little more color around the NGL volumes that we are seeing. So we have seen an increase in the NGL yields that we're recognizing on some of those 2024 acquisitions. The challenge is the timing of when we get recognized by some of our operators for those assets. So there is a bit of a lag in the U.S. compared to what we would see here in Canada. So we did have some adjustments that came through tied to those higher NGL yields. We're not expecting that to continue going forward, as we trued up a lot of those balances in the third quarter. James Kubik: Okay. And then maybe a bit of a different question here. But can you just talk about the capacity increase in your credit facility? What you look to do with the increased capacity, and how you're thinking about capital allocation here? Shaina Morihira: Sure. So I can take that one, Jamie. So yes, we did increase our existing credit facility to $500 million from $450 million, just to provide greater financial flexibility. We still plan to live within cash flow, but I think having that extra capacity makes sense for Freehold. We also extended the credit facility by a year to a tenure to November of 2028. So I feel that it gives us options, and as I said, that additional kind of financial flexibility going forward. James Kubik: Okay. And then maybe last one from me is just on the NCIB. I didn't see any activity from Freehold in the quarter. How are you thinking about that capital allocation option going ahead? Shaina Morihira: Sure. I could take that one as well. So I think, first and foremost, we are -- we remain committed to our current dividend. And so we see that as being sustainable kind of through a prolonged USD 50-barrel environment. So with the lower commodity prices, we have increased our payout ratio, so sitting around 72% year-to-date. So that does exceed our target dividend payout ratio of 60%. However, we still believe kind of under mid-cycle pricing, 60% remains competitive. So in terms of alternate uses of capital for the available funds from operations, we continue to be excited about our Permian ground game and other Canadian opportunities where we can get kind of high-teen, low-20 return. So in terms of the NCIB, it continues to remain in place as an option, but it is a tool available to us, not something we've initiated on at this point. Operator: And I'm showing no further questions at this time. I would like to turn the call back to Dave for closing remarks. David Spyker: Okay. Well, thank you all for joining our call today and allowing us to share with you our enthusiasm for business and all the things that we have going on in our business today. So thanks again, and have a good weekend. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to H&R Real Estate Investment Trust 2025 Third Quarter Earnings Conference Call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts or projections and the remarks that follow may contain forward-looking information, which reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward-looking information. In discussing H&R's financial and operating performance and in responding to your questions, we may reference certain financial measures, which do not have a meaning recognized or standardized under IFRS or Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows and profitability. H&R's management uses these measures to aid in assessing the REIT's underlying performance and provides these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks and uncertainties that could cause actual results to differ materially from the statements in the forward-looking information and the material factors or assumptions that may have been applied in making such statements together with details on H&R's use of non-GAAP financial measures are described in more detail in H&R's public filings, which can be found on H&R's website and www.sedarplus.com. I would now like to introduce Mr. Tom Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter. Thomas Hofstedter: Thank you, and good morning, everyone. With me today are Larry Froom, our CFO; Emily Watson, President of Lantower Residential. We get a lot to talk about today. So I think I'll just jump in and hand it over to Larry, followed by Emily and then Q&A. Larry? Larry Froom: Thank you, Tom, and good morning, everyone. As at September 30, 2025, the value of our real estate assets broken down between our segments are as follows: Residential is our largest segment at 50%; industrial 19%; office, 16%; and retail 15%. By geography, 71% of our real estate assets by value are now located in the United States. Overall, given the headwinds we faced with multifamily supply concerns, a weak office market, the tariff war creating general market uncertainty and a weaker Canadian economy, we are very pleased with our results and in particular, the 2.1% growth in same-property net operating income on a cash basis for the 9 months ended September 30, 2025, compared to the same period last year. For the 9 months ended September 30, 2025, FFO was $0.90, same as the 9-month period ending September 30, 2024. An amazing result considering net property sales of approximately $500 million over the 21-month period from January 1, 2024 to September 30, 2025. Breaking down our same-property net operating income on a cash basis between the segments, Residential was down 3.4% for Q3 2025 versus Q3 last year and was up 1.2% for the 9 months 2025 versus the same period last year. Emily will provide more details on Lantower's results shortly. Our Office segment same-property net operating income on a cash basis increased 0.5% for Q3 versus Q3 last year and was up 1.5% for the 9 months 2025 versus the same period last year, primarily due to the strengthening of the U.S. dollar. Our office occupancy at September 30, 2025, was 96.9% with an average remaining lease term of 5.3 years. Our Office portfolio now consists of 15 properties and comprised 16% of our total portfolio. Retail segment same-property net operating income cash basis increased 5.3% for Q3 2025 versus Q3 last year and was up 7.3% for the 9 months 2025 versus same period last year due to occupancy gains at River Landing and [ ForEx ]. Industrial segment same-property net operating income decreased 7.5% for Q3 2025 versus Q3 last year and was down 1.9% for the 9 months 2025 versus the same period last year. Industrial occupancy decreased from 98.9% at December 31, 2024, to 89.9% at September 30, 2025. During the quarter, we leased our newly constructed 122,000 square foot industrial property at 6900 Maritz Road. This lease will commence in December 2025. In addition, a further 108,000 square feet of vacant industrial space was leased with these leases commencing in Q4 this year and Q1 next year. Our FFO payout ratio was a healthy 50% for the 9 months ended September 30, 2025, and our AFFO payout ratio was also healthy at 61.3%. Our balance sheet remains strong. Debt to total assets at the REIT's proportionate share at September 30, 2025, was 47.3% and debt-to-EBITDA was 9.3x. Our unencumbered property pool totaled approximately $4.1 billion. With that, I'll turn the call over to Emily for an update on the Lantower Residential segment. Emily, please go ahead. Emily Watson: Good morning, everyone, and thank you for joining us. I'll begin with an overview of our third quarter performance and the operating environment across our multifamily platform before turning to market trends and development progress. While the broader economy continues to navigate a mixed landscape, including slower job growth, rising tariffs and fiscal uncertainty, our portfolio once again demonstrated its resilience. Occupancy, collections and resident retention remained solid through the quarter, and we saw steady leasing momentum even as pricing power moderated across many sunbelt markets. The quarter underscored the strength of our operating fundamentals. Our residents remain gainfully employed, wage growth has held firm around 4% and affordability remains a competitive advantage. With average rent-to-income ratios around 20%, that positioning gives us access to a wider and financially stable space, supporting consistent collections and healthy renewal trends. We are seeing early signs that the most supply-heavy markets are beginning to rebalance. Deliveries of new competitive units are declining each quarter and forward-looking forecasts show an expected reduction of roughly 54% or about 79,000 units in 2026 compared with 2025 levels. As the pace of completion eases and job growth normalizes, we anticipate regaining pricing traction and achieving more balanced fundamentals across our footprint. Our diversified presence across high-growth markets, combined with a deliberate focus on expense discipline and technology adoption continues to support performance through the cycle. Even in areas where lease-up activity remains elevated, we've taken proactive steps to preserve occupancy and mitigate revenue drag through targeted concessions and digital leasing efficiency. From a long-term perspective, we remain confident in the structural underpinning of our business. Housing affordability challenges continue to steer demand toward quality rental housing and with less than 10% of move-outs tied to home purchases, retention remains high. Taken together, we believe the ingredients are in place for a gradual reacceleration in revenue growth through 2026 and beyond. Our operating results reflect both resilience and realism. Some same-property NOI from residential properties in U.S. dollars decreased 4.6% on a cash basis for the 3 months ending September 30, 2025, primarily due to the decrease in rental income in H&R's sunbelt properties, including higher concessions being offered to tenants and higher operating expenses, including repairs and maintenance, leasing and marketing and utility expenses, which were partially offset by lower property taxes and insurance expenses. Same asset occupancy ended the quarter at 94.6%, an improvement of 50 basis points from prior year and 90 basis points from Q2. Same-asset sunbelt occupancy closed at 93.8%, up 40 basis points quarter-over-quarter, supported by steady renewal demand and moderating new deliveries. Same-store blended lease trade-outs were negative 1.6% in Q3 with new lease trade-outs negative 8.9% and renewal lease spread at 4.4%. October trends improved further to a blend of negative 1.2% with new lease negative 9.6% and renewal at 4.7%. While industry broadly continues to experience slower rent growth, our fundamentals remain intact. Demand is underpinned by population inflows, resilient employment and the enduring affordability gap between renting and owning, which today sits near all-time highs in favor of renting. These conditions reinforce our conviction the durability of multifamily performance even amid softer near-term pricing. Innovation continues to be a differentiator for us. Our AI-driven leasing platform ensures 100% coverage of calls, e-mails and text as nearly 1/3 of all inquiries are initiated outside of traditional office hours. Our centralized platform has allowed the days between application to lease sign dates to be cut in half and the time from lease approval to lease execution has decreased to 3%. At the same time, rigorous identity and income verification protocols have reduced bad debt in half post centralization. These tools allow our teams to focus on higher impact relationships and revenue-generating activities, effectively amplifying our workforce productivity. We also continue to make headway on portfolio-wide WiFi initiatives, which improve both resident satisfaction and margin potential. We have one community scheduled to go live with property-wide WiFi by year-end with an additional 6 installations planned through 2026 that are projected to deliver an estimated 86% return on investment. Our sunbelt portfolio fair market value is supported by a third-party appraisal and recent market transactions, thereby maintaining a weighted capitalization rate of approximately 4.97%. This level remains consistent with Q2 and reflects our ongoing institutional confidence in the sector. High-quality multifamily assets across the sunbelt continue to trade at cap rates, driven by the region's compelling long-term fundamentals, including robust population, employment growth, business-friendly environments and durable migration patterns that underpin lasting value creation. Turning to development. Our new Dallas assets continue to progress well. Lantower West Love is 83% leased and is expected to stabilize by April 2026 as supply pressures ease in the market. Lantower Midtown is 82% leased on track to stabilize in early Q1 of 2026. Both communities are outperforming competitive market absorption, averaging 21 leases per month versus industry averages of roughly 14 per month since initial move-ins. Each was completed on time and on budget, underscoring the discipline of our development execution. Our REDT projects remain on budget. We are on schedule to receive first move-ins at Lantower Bayside in Tampa in March of 2026 and first move-ins at Lantower Sunrise in Orlando in April, with completion expected in mid-2026 for both assets. In addition, Lantower currently has 9 sunbelt developments in the pipeline totaling approximately 2,900 suites at H&R's ownership interest. Multiple sites are fully permitted and ready for construction, and we are advancing design, drawing and permitting on the remainder. These projects reflect our conviction in the long-term growth of sunbelt markets and our ability to capitalize on favorable land positions as construction costs stabilize. In summary, our third quarter results highlight a portfolio that remains fundamentally sound, operationally agile. We've maintained stable occupancy and record high collections and continue to invest in technology and innovation that expands margins and strengthens resident loyalty. While near-term market conditions remain mixed, the long-term setup for multifamily housing is compelling, moderating new supply, favorable demographics and strong affordability advantages relative to homeownership. We expect these factors, coupled with disciplined execution and our culture of innovation to drive sustained growth in NOI and value creation as we move into 2026. Finally, I want to recognize our exceptional Lantower team. Their focus, adaptability and commitment to excellence continue to be the foundation of our success and our ability to navigate evolving market conditions with confidence. And with that, I'll turn the conversation back to Tom. Thomas Hofstedter: Thank you, Emily. Operator, please open the call for questions.. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. And the first question comes from Sam Damiani at TD Cowen. Sam Damiani: Obviously, a disappointing outcome. I wonder if you could talk about the stages of the various sale transactions that aggregate $2.6 billion, the difference between the assets that are held for sale and the assets that are not. Thomas Hofstedter: So I guess it's a precursor to everybody will be asking the same question. We're not going to get into details of what we're selling. We're not because we're currently in negotiations to try to conclude them. We have confidence that they will get done. Some have been approved by the Board, some haven't. So that's where we have a list of assets held for sale and the others that are not in there because we just haven't had approval from the Board yet. So stick with us, what we're really saying is that we hope this is all finished by the end of the year, which is short enough, hopefully sooner than that, because we are confident that will get done, but we're in the final throes of it. So I really can't get involved into any details on this. It's sensitive to the negotiations that we're having with the post-buyers. Sam Damiani: Okay. And what about the use of proceeds, Tom? I mean, it would be obviously selling over. Thomas Hofstedter: Yes, good questions. The use of proceeds, what's the quantum of the use of proceeds? So I can't -- obviously, we pay down debt, we have a debenture that's coming due. So that's priority #1 would be pay down debt. If you do $2.6 billion, you have excess funds, and we really haven't addressed that nor at the stage to identify what the -- how we'll use the proceeds because we don't know what the proceeds are. So again, same answer. You have to stick with us for a couple of weeks, hopefully, no longer. Sam Damiani: Yes, it's a theoretical question. Obviously, you've stated the plan. And so I was just wondering what the priorities are if you $2.6 billion. Thomas Hofstedter: Yes, pay down that, number one, get our balance sheet in order. And then if there's any excess funds depending on the quantum, obviously, an NCIB would be high -- maybe giving back unitholders and an NCIB would be high. Okay. Larry, do you want to jump in too or... Larry Froom: I think Tom said it, I mean, there's quite a bit of proceeds that will come in and it would hopefully come in, in stages. So the first sales for sure will be going to pay back down debt. And then as we get further down and we're comfortable with our balance sheets and everything, then we'll look and it will be a Board decision then what to do with the excess cash? Do we buy back units or do we distribute to our unitholders. Sam Damiani: Okay. Last one for me. Some of the dispositions are clearly some higher cap rate assets and even deleveraging is often dilutive. Just wondering on your thoughts about the sustainability of the current distribution. Larry Froom: So you are correct, Sam, that it would be dilutive to FFO as the sales because some of them are higher cap rate sales, and we've taken the write-downs before that. So -- but our FFO payout ratio is only 50%. So we have a lot of room to work with. And I think the distributions are quite safe right now. Thomas Hofstedter: And any scenario, I can envision the distributions being challenged. I don't think that's the issue. I think we have plenty of cash. It's just a question to distribute and pay out. Debt is obviously number one. But after we do that, as I said beforehand, it's NCIB or distribute. Under no scenario, do we see any challenge to cutting distributions. Operator: The next question comes from Fred Blondeau at Green Street. . Frederic Blondeau: Just one quick for me. The fair value adjustment is quite sizable. I was wondering if you could give us a bit more color on what would be the breakdown of the adjustment between that $2.6 billion that's for sale and the core portfolio? Larry Froom: I mean if you look -- you're quite right, we've taken sizable write-downs -- not only this quarter, but in the 9 months, $830 million. To help you give you a sense of size, I will just comment on the assets that we have marked as held for sale, that is $865 million there. We probably comprised almost the majority of that -- of the write-down this quarter. So we had $482 million, and most of it was in office through Hess, Front St. and [ Shepherd ]. So most of that write-down from the office came from there. It wasn't solely there. There were other office properties that were written down. But I'd say just over 50% was from that. Operator: The next question comes from Mario Saric of Scotiabank. Mario Saric: Just a couple of questions on the process. Firstly, is there any -- are you willing to provide any color on the pricing level of the nonbinding bids that were received during the process? Thomas Hofstedter: Again, the answer is going to be no. We were subject to confidentiality, and we really don't want to get into there because it's complicated. It depends on the mix of the scenarios, the players who were involved in and why -- and it never got to the final stage anyhow which was accept the special committee. So I'd rather decline from answering that question. Mario Saric: Okay. And then I guess, somewhat related, did the Board ever consider kind of putting the bids received to unitholder vote? And if so, I guess, what are some of the drivers behind not doing so? Thomas Hofstedter: The committee did not get to the stage where they had -- the answer is no. They not up to the stage where they had an acceptable offer to present at a price that they were would suggest going forward with. Mario Saric: Okay. Maybe switching to the asset sales. On the $2.6 billion that are expected, do you have a sense of the potential required kind of special distribution if they were all to be completed within a calendar year? Thomas Hofstedter: You're talking about taxes. Larry Froom: Yes, there would be substantial Canadian sales there, obviously. I mean the retail announced is part of it. The Canadian retail is definitely part of it. So there would be a special distribution that would be required to be made. But again, I would just say we will give more details as each sale becomes firm, we will put out more detail -- full details of the disclosure of the price, the NOI we expect to lose from those sales and potential tax implications. Thomas Hofstedter: I might add that the tax implications are not for 2025. The would be closings, although we have nonbinding agreements we expect sometime this year, closing would take place in 2026. Mario Saric: Okay. And then I guess you talked about the mix being up for debate. But if we step back before the strategic review was announced and the potential kind of bids coming in, the intent was really for the organization and for the REIT to become more focused on U.S. residential and industrial. When we look at the $2.6 billion that's under consideration, would it be fair to say that you would substantially make your way towards that previous objective by doing so? Thomas Hofstedter: Yes. I can't get involved too great details, but obviously, what will be left with either 1 of the 2 buckets you mentioned or one of the buckets, but definitely office would be brought down and retail will be brought down. In other words, this is somewhat in line with our original strategic plan, but I think the completion of this initiative, the strategic plan will be fine-tuned. Operator: The next question comes from Jimmy Shan at RBC Capital Markets. . Khing Shan: So just on -- when you did the full auction process, you mentioned there were parties that was interested in some specific assets. So of the $2.6 billion essentially comprised of those assets in which you got interest in? Thomas Hofstedter: Yes. . Khing Shan: I'm sorry. Was that yes. Larry Froom: The answer is yes. Khing Shan: Okay. All right. So are there any residential or industrial in -- that's currently under negotiation to sell? Thomas Hofstedter: Again, as I mentioned before, we really don't want at this time to get involved in that level of detail. But again, as I said beforehand, we hope to have this all wrapped up soon enough. Khing Shan: I guess maybe the broader question is kind of what is the go-forward strategy? Is it to stick to the original strategy, sell what you can and just trying to step back and say, okay, what is -- what does H&R look like on a go-forward basis? . Thomas Hofstedter: Well, I guess the overall strategy was a declutter. We were too many divisions. We mentioned that the overall strategy was to get more focused on industrial/U.S. residential. They're healthier -- although they're not necessarily healthy, they're healthier asset classes than office. So the original strategy was declutter, and that's exactly what we will be doing. How far are we going? Will it end up being an industrial REIT or a residential REIT or both? I don't know at this stage, again, again, it's a little too early to tell. But the overall goal was to become less of a diversified REIT, and that's for sure what we will succeed to do. Khing Shan: Okay. And then in the past, you've talked about condo land for condo development being pretty tough. I mean you do have 145 Wellington, you do have the Front St. ones. I guess what's changed? Thomas Hofstedter: Well, it's interesting. What changes is 2 things. The office market got better, the residential market got worse. So our initiative to rezone our commercial properties was not for the here and now in either was to have some -- when the market does improve some optionality is whether it's office or residential. At this stage of the game, it looks like the office market is recovering faster and the winner of the races are going to be remaining is office rather than residential. I would say that in all cases other than 55 Young, the status quo, whether it's Union St. or Front St. or 25 [ Shepherd ] -- sorry, or 145 Wellington is always going to be commercial rather than residential. Khing Shan: And then on the use of proceeds, I know it's hypothetical, but in the past, you've been averse to doing substantial issuer bid, but it does look like it's going to be a decent sized number. Would you contemplate doing that? Thomas Hofstedter: I don't think so. We haven't run the Board give, but our objection to a substantial issuer bid is you can probably achieve the same goal by doing an NCIB at probably 17% less. I was never a fan of it. I'm still not a fan of it, but we can have offline in discussion convince me otherwise. Khing Shan: But it's safe to say that beyond paying down the debt, there'd be a [indiscernible] to a buyback. Thomas Hofstedter: You can do a special distribution cash instead of an SIB and you wouldn't have to worry about excess money in your bank account. Khing Shan: Okay. Sorry, last question, just in terms of -- since the original solicited bid wasn't -- or didn't get to the finish line or wasn't presented to the unitholders, like what did the special committee consider to be acceptable in terms of terms and pricing? Thomas Hofstedter: I wasn't on the special committee. I don't know. The experience tells me there was a moving target. If you had a real offer that was really acceptable that they can bring forward, I can maybe answer more, but they never -- they didn't have that at the end of the day. But again, I wasn't -- I was not in the special committee. I don't know what the answer to that question is. I'm sure it was a range. Operator: The next question comes from Matt Kornack at National Bank. Matt Kornack: Just with regards to the tax implications, I understand if you sell Canadian assets, you can kind of push that through to unitholders in a special distribution. But for the U.S., if you can't take advantage of the 1031 exchange, do you think there would be a cash tax component? Thomas Hofstedter: There would be a minor tax cap for minimum tax, but we have tax loss carryforwards. So we'd be utilizing those. I don't see any U.S. tax leakage -- any material tax leakage. Matt Kornack: Okay. And then just in terms of the quarter itself in terms of the sequential NOI, Larry, was there anything seasonality-wise in terms of the NOI reduction or there would have been a recovery or something to that effect? I know the portfolio has changed. So there may be a little bit more seasonality in it, but I was a little surprised with the move there. Larry Froom: No, there was -- I think this is a normal run rate. When I say normal run rate, I mean, we saw residential was down a little, and that's showing some weakness. But other than that, which is expected to recover, other than that, there was nothing unusual. . Matt Kornack: Okay. And then going back to the sale, I know you aren't talking specifics, but could you give kind of a broad sense as to what the disposition cap rate would be? And then also in terms of where your line of credit is in terms of current interest expense on that? Thomas Hofstedter: Well, listen, I'm not going to give specifics and without that, it's pretty hard to answer your question. If you have an office building that's leased hypothetically, obviously, and it falls off, it's not a cap rate discussion. In many cases, it's the present value of the residual cash flow plus dollar at the end, which represents by the pound. So cap rates would kind of be a useless discussion if I can't identify and not willing to identify the specific asset that we're talking about. And you're talking about Lantower, you can talk about a 5% cap and that's easy. In the sunbelt, you use 5.25%, whatever number you want, you can't do that in office. If there's a 7-year WALT and it all comes to a balloon at the end, that's going to be substantially different than something that has a longer-term cap rate. So I can't really discuss cap rates. But we will give you all the color in a couple of weeks, hopefully. Matt Kornack: I understand the dynamics there, but we don't have the same level of detail that you guys do. So more based on... Thomas Hofstedter: No, I know. Fair enough. But not giving the asset, it's very hard to give you -- have an intelligent conversation as to the impact without identifying the asset. Matt Kornack: Okay. Fair enough. But Larry, just in terms of the variable interest rate, where would that stand today on your line of credit? Larry Froom: Well, we disclosed that the average weighted rate is 4%. But the variable rate today is on our credit line, just about just 3.9%, something like that. Matt Kornack: And presumably, you have a lot available there, which is good. You have the flexibility to pay it down. What would be the next kind of pieces of debt that you would pay off with the proceeds? Larry Froom: Well, we've got $250 million coming up next year in a bank term loan. So that will be the next. We have another debenture later on in next year. That will be the next to be hit to be taken off the debt list. And from there, we will see. Matt Kornack: And is it mostly unencumbered portfolio or the $2.6 billion slated for sale? Larry Froom: Well, I can tell you that the assets held for sale that we're showing of $860, whatever, $5 million, that's totally free of any debt. It may be pretty much totally free of debt and the 2.6... Thomas Hofstedter: Well, in a nutshell, our Lantower and our industrial divisions have debt on it. The rest we don't have debt on it. So Larry is trying to answer your question as best as he can. But if it's not in the Lantower and industrial buckets, it's debt free for the most part. Larry Froom: Sorry, Matt. And just a correction on what I said. There is one mortgage on our assets held for sale, and that is on the Front St. property. That's about [indiscernible] million. Matt Kornack: Okay. Last one for me. And again, maybe that's too specific, but it sounds like these skewed to more Canadian asset sales. So you're becoming predominantly a U.S. REIT. Is that a fair point after this? Or how should we think about that? Thomas Hofstedter: Well, I'll let you answer the question. We are right now. Operator: Next question is from Sam Damiani at TD Cowen. Sam Damiani: Just a follow-up. I believe, Tom, in an answer a few minutes ago, you said that you don't see any material tax leakage from U.S. asset sales. Is that correct? Larry Froom: That's correct. . Sam Damiani: So that would suggest that the sales that are being contemplated are not those with inherent gains. Is it fair to take that away from that comment? Thomas Hofstedter: Well, yes and no, you have tax loss carry forward. So I don't know. That would not be correct. I don't believe what you're saying. You can have the gains, but we wouldn't be paying the taxes on them. We have significant tax loss carry forward. Sam Damiani: Okay. And then just the other one for me. I'm not sure this may have been asked, but the fair value marks taken in Q3, I think the language was to reflect the bids for the stuff that's held for sale, the $865 million. Does primarily, sorry, of course. So how much of that would still need to be taken based on the remaining $1.7 billion of the $2.6 billion planned? Larry Froom: Not, very little. If any, I don't think -- I think we've marked down -- as I said, we've taken our hits and we've taken them now and in the previous quarter. If we were to do the $2.6 billion, we would not be expecting to take anything major on that. Operator: The next question comes from Tal Woolley at CIBC Capital Markets. . Tal Woolley: One of the questions I've been trying to get an answer for investors about is that I think like when we're thinking about the process that there probably could be some agreement on what asset values are that there might not be that wide a bid-ask spread, but the problems sort of come up in affecting the transaction and that there are maybe transaction costs or tax implications that we can't see from the outside. You guys have the deferred tax liability on your balance sheet, but it's just -- can you -- is there any sort of sense you can give around what beyond that might be the cost? We've seen this come up with other diversified REITs going through processes like Cominar in the past. Thomas Hofstedter: I don't really understand the question. Larry Froom: I don't think there'll be -- it depends on the price, obviously, for deferred tax, how much ends up paying. But assuming it was even at our fair market value that we're holding it at, all that will be paid is the deferred taxes on our balance sheet. So that would end up becoming payable if everything was sold at the prices we are carrying them at. Other hidden costs would probably be like change of control payments and that kind of thing, which are normally not substantial in any deal. And I don't think ours would be any different in that -- to that effect. Operator: Next question comes from Mario Saric of Scotiabank. . Mario Saric: Just one quick follow-up. You mentioned that the $2.6 billion will be effectively done in stages. In terms of communication with the market going forward, coming back to Jimmy's question a little bit in terms of what is H&R going to look like over the next 2, 3, 5 years? What is the expectation for communication with the Street in terms of updated strategy, where you're going versus maybe just individually announcing the asset sales as they come up? Thomas Hofstedter: So the assets they come up, first of all, just for clarification, it will be lump that will be done by the end of the year rather. Closing will be probably over the first quarter, Q1 2026. So you'll have a pretty good handle on what in totality we're selling. You'll have a pretty good handle on -- we will announce at that point in time, but that was before the years out what our revised strategy is pending on the actual completion of these sales. So it's pretty hard to answer these general questions without -- in a vacuum because $2.6 billion is lumpy enough that it will formalize our strategy going forward. So I'm sorry for being evasive all the time, but it really -- you're going to know soon enough. You don't have to wait for 2026. One way or another, we expect by the end of this year to give you the answers to those questions. Mario Saric: And just to clarify again, Tom, I think you mentioned that you don't see a scenario unfolding in which the existing distribution is unsustainable. Is that correct? Thomas Hofstedter: That is correct. That is correct. Under no scenario do I see that being the case. Operator: Next question from Fred Blondeau at Green Street. Frederic Blondeau: Just a quick follow-up. It looks like the REIT will be quite different, of course, in '26 than what it is now. I was wondering if you -- we should expect some sort of management restructuring or major management changes or any announcements in that regard that before the end of the year or in the beginning of next year? Thomas Hofstedter: Not the end of the beginning of next year, could well be depending on how -- in other words, hypothetically, let's assume that we become 100% Lantower and life changes. And obviously, management -- the need for management over here changes. I think we can't answer that question again until we formalize the sales, formalize the strategy and then we'll see then management will follow with the residual what's left in our company. Operator: Next question from Sam Damiani at TD Cowen. Sam Damiani: I really appreciate this. But just trying to get some clarity and certainty on this $2.6 billion. I mean your comments, Tom, are pretty clear. You're very confident and you're telling everybody to wait and you're going to hear all the details by the end of the year. But what can you tell us today that gives us comfort that, that's -- that this is kind of a done deal in terms of getting across the finish line, getting these agreements signed and binding and then closing in early next year? Thomas Hofstedter: So just to be clear, one way or other, we're going to conclude that whatever this quarter, whether it happens or happens, I'm not develop telling you that it's going to happen or won't happen, but the special committee is done. They're closed up for shop. It now is back to the Board. We either execute on these deals or we don't. We have a pretty good understanding throughout this lengthy process of our company and where to go from there. So I think we'll be able to give you a high degree of comfort by the end of this year, by the end of December as to what the future strategy is going to look like, what our cash position is going to be and if there will be any further sales. Sam Damiani: I guess, but on the $2.6 billion specifically, are you saying just there that there is not -- like there's a chance that they're not -- like they don't get signed, they don't close. Is that what you're saying now? Thomas Hofstedter: Well, the signs get closed, there's definitely a possibility that it doesn't -- the deals don't happen. In this world today, in real estate, the deal is not done until it's done. You know that. It's a very tough environment out there. Sam Damiani: Yes. And so this is sort of the direction... Thomas Hofstedter: None of the players that we're dealing with have the deals that this helps you are contingent on financing. They all have their equity, they all have -- they don't need any debt or they all have their debt done already. So none of those -- it's not confidentiality, it's just getting to the finish line. Sam Damiani: Okay. And the path that the REIT is on now, having wound up the special committee, like this $2.6 billion of asset sales, this is not the finish line. Is that right? There's still further asset sales to achieve to get to whatever this goal is. Thomas Hofstedter: That I can say definitively, yes. That won't be done through the special committee, but there will definitely be a formalization of the strategy, whatever that is to conclude -- to get there will involve future sales. Operator: Next question from Matt Kornack at National Bank. . Matt Kornack: One quick follow-up, and I don't know if you will answer it. But are management or insiders part of the bidding for any of this $2.6 billion . Thomas Hofstedter: No, they are not. . Operator: Next question from Jimmy Shan at RBC Capital Markets. . Khing Shan: Sorry. Two more quick questions. So just going back to the $2.6 billion, I guess what determines an asset that makes it to the assets held for sale versus not? Larry Froom: Jimmy, we put the assets held for sale in that category because they've already been approved by our Board. The rest of the sales have not been approved by the Board yet. Khing Shan: Okay. So the determination is Board approval only. And why were they not approved by the Board yet? Larry Froom: For IFRS, it's a bit more. It's approved by the Board and highly confident that they will conclude within a year. That's the IFRS mandate of putting them into that bucket. Khing Shan: Okay. And so the other assets that are not on there, what -- I guess, it's just a matter of timing being not approved by the Board? Larry Froom: Yes. There's still negotiations and pricing hasn't been finalized. Khing Shan: Okay. And then in terms of the full auction process that was done post July, can you give us a sense of kind of how many parties looked under the hood and sort of how far did the parties get far -- how far did they go? Thomas Hofstedter: How far did they go in what? -- due diligence? Khing Shan: In terms of like how many parties were left at the table if there were any when you did the full auction process or is there none at all. Thomas Hofstedter: This has always been -- we're a diversified company. This is diversified. As it's diversified. I don't -- I think it's fair to say that it would be very hard for one player to come up and absorb the entire company. This was always a club deal. And there were various players within the clubs in and out as the asset composition changed. Towards the end, the player that was -- there was -- I don't know, round numbers, very generally speaking, there was 4 or 5 that looked at the entire company, but there were club deals in different partnerships. There was one that was much more -- spent more time and remain there throughout. But at the end of the day, there was no -- at the end of the day, there was nobody there left for the entire company at a price that the special committee wanted to take forward and bring forward to unitholders. And needless to say, this whole exercise has taught us, I guess the conclusion is that the sum of the parts are greater than the whole. And in a diversified company, it's a club deal anyhow, maybe it's better off just to do it by ourselves. That's one of the options we have. So we don't have to go to our strategy, be industrial, residential being residential being industrial. We could just continue to sell and achieve a higher price. I think that's something you can't abandon, but that's definitely the potential. We'll get clarity -- again, we'll have clarity on that before the year is out. Khing Shan: And to Matt's question, was management part of any of those such club deals? Thomas Hofstedter: Sorry, I couldn't hear what . Khing Shan: Was management also part of some of the club deals that may or may not have happened in the past? Thomas Hofstedter: Management were there, management was there to plug some holes where we didn't have a player. But at the end of the day, management was not there. Well, there was no deal at the end, but management could be there if there's -- for example, in all cases, there are certain assets that just nobody wanted or we needed in order to finish off a price for everything, management could step in or would step in. But at this stage, again, that management is not there at all. There's no necessity for management to be there. We're not giving you one price. There's no bidder for the entire company. Operator: We have no further questions at this time. I will turn it back over to management for closing comments. . Thomas Hofstedter: Thanks, everybody. Stay tuned. We hope to be back with you years out. Have a good day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Welcome to Stantec's Third Quarter 2025 Results Webcast and Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer; and Vito Culmone, Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the Investors section at stantec.com. Today's call is also webcast. Please be advised that if you have dialed in, while also viewing the webcast, you should mute your computer as there is a delay between the call and the webcast. All information provided during the conference call is subject to the forward-looking statements. qualifications set out on Slide 2, detailed in Stantec's management discussion and analysis and incorporated in full for the purposes of today's call. Unless otherwise noted, dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded. With that, I'll turn the call over to Gord Johnston. Gordon Johnston: Good morning, everyone, and thank you for joining us today. I'm pleased to announce that Stantec delivered robust performance in the third quarter, generating organic growth across all our regions and business operating units. Global trends across water, transportation, energy transition and mission-critical sectors continue to drive strong demand for our services. And our diversification across sectors and geographies creates resilience within our operations. Net revenue grew to $1.7 billion in the third quarter, an increase of almost 12% compared to Q3 of last year, driven by organic and acquisition growth, each over 5%. Most notably, our Water business delivered almost 13% organic growth, Energy & Resources delivered nearly 10%. We grew adjusted EBITDA by close to 18% year-over-year with a record margin of 19%. We also delivered adjusted EPS growth of 17.7% compared to Q3 2024. Looking at our results in each of our geographies. In the U.S., net revenue increased over 14% in the third quarter, which was driven by 4.6% organic growth and almost 9% acquisition growth. In our Buildings business, net revenue increased by more than 40% in Q3 and over 20% year-to-date, driven by our acquisition of Page and continued organic growth. The integration of Page is going very well, and already, we're seeing many revenue synergies from the acquisition. We expect to have completed the financial integration into our systems by year-end. Private and public sector investments, particularly in mission-critical, Science and technology and Civic supported growth in buildings. Organic growth was also driven by our Water and Environmental Services businesses. Large public sector water supply and wastewater treatment projects contributed to double-digit growth in water. In energy transition, mining and infrastructure sectors as well as the continued work for a large utility provider supported growth in environmental services. In Canada, net revenue grew 7.6% in the quarter, driven completely by organic growth. We delivered double-digit growth in our Water and Energy & Resources businesses and high single-digit growth in infrastructure. The continued momentum on major wastewater projects contributed to over 20% organic growth in Water. Continued work on major industrial process projects also drove double-digit organic growth in Energy & Resources. Solid growth in infrastructure was supported by land development projects in Alberta, airport sector projects in Quebec as well as transit and rail projects and bridge sector work in Eastern Canada. Public sector investment drove growth in buildings, primarily in our health care and civic markets. Finally, our global business delivered net revenue growth of almost 11% in the third quarter, achieving 5.5% organic and 2.8% acquisition growth, along with positive foreign exchange impacts. Our industry-leading water business continued to deliver consecutive double-digit organic growth through long-term framework agreements and public sector investment in water infrastructure across the U.K., Australia and New Zealand. The ramp-up of new projects in Chile and Peru drove double-digit organic growth in Energy & Resources as the growing need for energy transition solutions continues to drive demand in mining for copper. We also achieved double-digit organic growth in our German infrastructure business due to continued momentum on a major electrical transmission project and increased volume on transit and rail projects. Now I'll turn the call over to Vito to review our third quarter financial results in more detail. Vito Culmone: Thank you, Gord, and good morning, everyone. We are very pleased with Stantec's third quarter financial results, which demonstrate the continued momentum of our business and the resilience of our operating model. Robust demand for our services, combined with favorable global trends allows us to continue achieving record-setting results. In Q3, we achieved gross revenue of $2.1 billion and net revenue of $1.7 billion, an increase of 11.8% compared to Q3 of 2024. This was driven by 5.6% organic growth and 5.2%, acquisition growth. As a percentage of net revenue, our project margins once again remained in line with our expectations at 54.4%. We achieved an all-time high adjusted EBITDA margin of 19% in the quarter, a 100 basis point increase compared to Q3 of last year. The increase in margin primarily reflects lower administration and marketing expenses as a percentage of net revenue due to our disciplined management of operations and higher utilization. And our adjusted EPS in the quarter increased 17.7% to $1.53. Turning to our cash flow, liquidity and capital resources. Our year-to-date operating cash flows are up 86% compared to 2024 from $296 million to $551 million, reflecting strong revenue growth, strong operational performance and continued strong collection efforts. DSO at the end of the third quarter was 73 days, a decrease of 4 days compared to year-end 2024 and in line with our Q2. Our net debt to adjusted EBITDA ratio at September 30 was 1.5x, reflecting the funding of our recent acquisition of Page. This remains within our internal range -- target range of 1 to 2x and positions us well for continued M&A. And as we have stated before, we are comfortable going above this range for a period of time for the right acquisition. Gord, I'll now hand the call back to you. Gordon Johnston: Great. Thanks, Vito. At the end of the third quarter, our contract backlog stood at $8.4 billion, an almost 15% increase year-over-year, representing approximately 13 months of work. Backlog continues to grow organically and is up 5.6% year-over-year. Organic backlog growth has been driven primarily by our U.S. and global operations, which achieved 6.6% and 6.8% growth, respectively. The acquisitions we've completed in 2025 contributed to 6.8% growth in backlog, primarily within our Buildings and Water businesses. Over the quarter, Stantec was awarded a number of significant project wins across each of our 5 business verticals, each project varying in size, scope and complexity. I'll highlight just a few of these wins. Stantec was selected as owner's engineer for Manitoba Hydro's $7 billion high-voltage direct current reliability project. The project aims to secure continuous grid reliability for communities across the province. And we've worked with Manitoba Hydro on power delivery projects in the province for over 50 years, and we look forward to continuing our work with them. Stantec's Infrastructure team was selected for a $745 million project to widen the SC-90 corridor in South Carolina. Our team will be responsible for shaping the overall project vision and layout, focusing on traffic operations, access management, bicycle and pedestrian infrastructure and impact minimization. And in Western Australia, our buildings team was selected to deliver specialist engineering services for 2 hospitals, one of which will be over 94,000 square meters in size and valued at nearly $1 billion. The second project includes refurbishment and expansion work at the Osborne Park Hospital valued at over $250 million. These projects will enhance health care for women, children and families. Given our solid third quarter results, our net revenue growth guidance for the full year, while increasing our adjusted EBITDA margin outlook to 17.2% to 17.5% on the strength of our operational performance and discipline in cost management. We maintain our mid-single-digit guidance for U.S. organic growth given persistent slower procurement cycles in the region. However, we remain optimistic that these are simply near-term challenges as we continue to see strong demand driven by the ongoing needs and the priorities of our clients. In Canada and in global, we still expect organic net revenue growth in the mid- to high single digits. Growth in Canada is expected to be driven by continued strong demand and elevated backlog levels. Following the release of Budget 2025 last week, we're encouraged to see the federal government prioritize infrastructure investments across various sectors. And while we don't expect immediate spending, the budget signals strong long-term support for our industry. In global, growth is supported by ongoing high levels of activity in our water business under the AMP8 program in the U.K. and other framework agreements in Australia and New Zealand. Strong demand for infrastructure in Europe and positive demand fundamentals in Energy & Resources are also supporting growth in our global business. Considering all of these factors, we expect growth in adjusted EPS to be in the range of 18.5% to 21.5% for the year and adjusted ROIC is expected to be greater than 12.5% -- given our uniquely diversified business, Stantec remains resilient amid evolving market conditions across all of our regions. We continue to progress towards the targets we laid out in our 2024 to 2026 strategic plan, including delivering net revenue of $7.5 billion by the end of next year. And with that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] And our first question from today comes from the line of Sabahat Khan from RBC Capital Markets. Sabahat Khan: Knowing it's kind of close to the end of the year, a good organic print this quarter. Just wondering if you're able to share at a high level how you're thinking about 2026? Just maybe -- and I know you guys provide guidance at Q4, but just given some of the moving pieces this year, any color you can provide either by major end markets or by region would be helpful. Gordon Johnston: Great. Thanks, Saba. And certainly, this is something we spend a lot of time talking about as well. And you're right, we're going to provide our formal guidance for 2026 in February. But directionally, we see really strong momentum going into next year. In global, the AMP8 programs in the U.K. are going to continue to ramp up as well as the frameworks in Australia and New Zealand. So we see continued strong support in our water business going forward. The need for copper to support grid strengthening, energy transition keeps continuing to support growth in our mining teams, particularly in South America, where I actually was down and visited with our offices last month. here in Canada. The federal budget that was recently released provides continued support for infrastructure really across the company -- country, sorry. And we see a lot of opportunities in the major projects that Prime Minister Carney announced last week and even those that he announced previously. And we're already working on a number of those projects, and we're in discussions and participating on a whole bunch of other ones. In the U.S., a little period of uncertainty, but we see that the macro fundamentals really are still strong there. Aging infrastructure, climate-related impacts, reshoring of manufacturing, data centers, mission-critical facilities. So all of those things, whether it's global, Canada, the U.S. are strong. And then I think one thing that we've talked about a lot, too, is that around the globe, certainly a lot of discussion for increased spending on defense work. And for that, that's -- for us, that's ports, that's dry docks, that's aircraft hangers and runways, housing, all sorts of various types of infrastructure. So we're actually really positive on the prospects and the momentum going into 2026. Sabahat Khan: Great. And then maybe if you could just dig in on the Canadian side, obviously, a large part of your business. Obviously, we saw [indiscernible] come out thus far. Can you just share some thoughts on -- is it just kind of the broad infrastructure programs in Canada that the Prime Minister is announcing that you're getting involved with? Or is it more kind of the energy base I know historically, some of the pipeline work in Western Canada was a big part of your business. Are you seeing maybe some of those opportunities as being more meaningful? Just curious kind of where within those buckets is Stantec exposed? Gordon Johnston: Yes. Great. Thanks, Saba. I think in both of those fields, both the opportunities that Prime Minister Carney has announced, and we see great opportunities. But you've seen the really solid organic growth that we've seen in Canada all year, really 8.5% year-to-date organic growth in Canada. And that's, of course, absent any of those projects that Prime Minister Carney had mentioned. So when we look at Canada, we've seen a lot of strength actually in Western Canada, in particular, in land development. We've seen great opportunities in transportation. A number of the projects we're working on bridge jobs in Toronto and a lot of sort of roadway projects here in Western Canada. But water has been incredibly strong all year for us. And we see really no slowdown of the -- both public sector work that we're doing. We've talked about the work we're doing with Metro Van in Vancouver, in Winnipeg and other locations, but a lot of private sector work coming along as well, advanced manufacturing, data centers and that sort of work. So that's very, very robust. And then, of course, as you said, the energy sector, we've seen some opportunities there as well as that group working on a number of -- the work that we do on industrial projects also comes out of that. And we've talked in previous quarters about some work that we're doing in Eastern Canada on some industrial projects. So Canada, pretty strong, pretty broad-based. And we're feeling pretty good about Canada overall and as we go into next year. Operator: And our next question comes from the line of Yuri Lynk from Canaccord Genuity. Yuri Lynk: Gord, I just want to push a little bit more on the outlook. I understand things are strong right now, but that's generally reflecting work that was booked 12, 18 months ago in some cases. Can you just talk about some of your forward most looking indicators? And I'm thinking, if you look around Canada, I know there's lots of good headlines, but the current economic data is pretty weak. Australia is soft outside of water. AMP8, one of the biggest customers there is struggling financially. The U.S. government shutdown. There's a whole bunch of worrying signs out there. So are you seeing any of that in proposal or RFP or whatever you look at on the most leading edge of your outlook? Gordon Johnston: Yes. No, great question. Maybe I'll address a couple of them individually there. So in the U.S., without question, there's been a confluence of factors that we've seen there caused a little bit of uncertainty and kind of slowed that -- the procurement cycles. I mean, certainly, that's not unique to Stantec, and you've seen that throughout the industry. So in the U.S., we've -- and you'll see that our backlog in the U.S. has been flat year-to-date. And a lot of that is -- we've been verbally awarded a number of projects, but we haven't been able to get them signed and contracted. So they haven't showed up in backlog. A little bit slower start on some of the things. Environmental Services in the U.S. and maybe a little bit slower so far waiting for some of those things to pick up. We're encouraged by the fact that the government is back at work now. We're also keeping a pretty close eye on that, that might only be for a couple of months until we have to go through this again. But the macros haven't changed in the U.S., whether it is the aging infrastructure and roadways related to and support from IIJA, and we still see those supports coming to some of the reshoring that we're seeing in the private sector. So we see some positivity there. You talked about AMP8 and one of the largest customers there is certainly having some financial difficulty, and we all read about that in the papers. But that really has no impact on our business because the way that the AMP cycles work is the water company commits to doing certain amount of capital spend in order to justify rate increases and so on and improvements in the overall operations. So that work has to get done. And people have said, well, what if that particular client was to get nationalized? Well, for us, we wouldn't want to see that happen. But if it did, the work still has to get done. And we've worked with Thames Water and all -- and for a number of successor companies for the last 200 years in the region. So we do see that regardless of what shakes out there, that AMP8 work is going to continue. So it certainly is a little bit of a cloudy environment out there, not all rays of sunshine, but we do see the demand drivers in our business being pretty strong. Vito Culmone: The only thing I'd add to that, Gord, is it's hard to argue with the points that you bring forward. But the diversity of our platform, I think, is an incredible asset and you're starting to -- you see it manifest itself through our year-to-date results and I think you'll continue to see that both geographically and across our segments. So notwithstanding, you're going to see pluses and minuses through it all. I think net debt to Gord's opening comments here, we will be positive moving into 2026, no doubt. Yuri Lynk: Okay. Good to hear. Second and last one for me. Just any update on the M&A pipeline? I understand over the last year or 2, there's been some large private players maybe working themselves towards a sale? Just any change in the pipeline? Gordon Johnston: Yes. It's a pretty robust industry right now, lots of discussions ongoing. You certainly read in the papers about some of these private firms coming to market. You also heard rumors about big firms in our space having discussions. And of course, we can't comment on any of those things other than to say we maintain very, very positive on M&A in general and specifically for Stantec. Our Board is supportive. The -- our investor community is supportive. We're supportive and the opportunity set is there. So we're continuing a number of conversations and look forward to bringing something forward at the appropriate time. Operator: And our next question comes from the line of Ian Gillies from Stifel. Ian Gillies: Following on some of the previous commentary and maybe just hit the nail on the head. With organic backlog growth in the U.S. supply year-to-date, you don't believe that impinges on your ability to generate some amount of organic growth in the U.S. as we go into next year? Vito Culmone: Yes, that's absolutely correct, Ian. We do not envision our year-to-date backlog being flat as an indicator of organic growth going into next year. We'll be positive in organic growth next year. We'll give guidance again at the appropriate time, but our expectations at this time, and you heard Gord echo opening comments around the U.S., including the U.S., we feel pretty good about it. Factors that are contributing to the year-to-date. First of all, backlog is generally lumpy. And obviously, we expect it to build here as we move into the first half of the year. Our year-to-date backlog, though, even in the U.S., our year-to-date, which is probably a better comparison or equally important comparison -- excuse me, our year-over-year is up 6.6%, I believe it is or over 6%. So overall, notwithstanding the confluence of factors that we've talked about that our peers have talked about, we clearly expect organic growth in the U.S. as we move into next year. Ian Gillies: Understood. That's very helpful. And maybe along similar lines and most of the other engineering firms have been asked about this, so I'll ask as well is, do you have any concerns about IIJA funds not being released like with some certainty, like, for instance, does your U.S. team still feel quite confident that the bulk of those funds will come out over the next, call it, 4 to 5 years and should continue to be that long-term tailwind and not be canceled? Gordon Johnston: Yes. And so I think our answer would be similar to what you've heard from some of our -- from the others who have reported as well that we have no indication that program like the IIJA would be canceled or funds would be withheld. We still see the continued momentum on that. And no, we think that, that program remains intact. Operator: And our next question comes from the line of Krista Friesen from CIBC. Krista Friesen: Maybe just thinking about your margin, obviously, a pretty impressive quarter and raising and narrowing the god for the remainder of the year. Can you speak to what's changed on that front relative to the beginning of the year when you first issued your guidance? Vito Culmone: Krista, yes, it's Vito. You're absolutely right. We're really pleased with a lot of hard work across all of the teams, of course, across our organization in delivering an EBITDA margin. Year-to-date, 17.7%, 100 basis points ahead of prior year or more than that actually. So really, really pleased with it. It all -- I sound like a broken record a little bit with this, but it all starts with project margins. So right customer, right project, right pricing, right risk profile. We spend a lot of time with that, and our professionals are excellent in the delivery of that. So our project margins year-to-date are 0.1% ahead of where we were last year. So without that, that's the fundamental. And then what you're seeing, of course, is admin and marketing as a percentage of NSR come down. So on a year-to-date basis, 37.6% versus 38.6% last year, again, 100 basis point improvement. And that's driven by a number of things. Clearly, scale is a big part of that. So as we grow and organic growth is a significant component of that, the ability to obviously deliver against that base in a more efficient way, that's important for us, and that's contributed meaningful to our year-to-date results. Our utilization, our utilization is another area that has contributed positive to it. Our occupancy costs are also contributing positively on a year-to-date basis. So net-net, you've got -- this business has significant operational leverage attached to it. And with continued organic growth, continued acquisitions contributing to, obviously, the net revenue growth, it provides a continued opportunity for EBITDA margin expansion going forward. While at the same time, very importantly, ensuring we continue to invest, invest in our people, invest in our offerings and invest in the market. That's equally, if not more important as well as we move our way through here. Krista Friesen: That's great color. And just a last one for me here. You mentioned the Page acquisition integration is progressing well and starting to realize some synergies there. Can you just provide us with a little bit more detail there? Yes. Vito Culmone: Not much more to add to the Gord's commentary. We knew Page very, very well coming into this acquisition. We work with them. And we have to say that everything post that close of the acquisition has just reconfirmed just an incredible team and really hit the ground running from an integration perspective. I think the pace to which we're seeing some of the opportunities, both in market and some of the efficiency reflects the fact that we knew each other so well and had spent a fair bit of time in these sorts of discussions well in advance. But Gordon, any additional comment on Page? Gordon Johnston: No, it's as we've really started working through the integration, everything that we thought was there has really shown itself to be true and then some. So it's actually been very, very positive. A lot of great project-based and pursuit based synergies there. So actually feeling really good about Page. I wish we could find another 5 Pages to join us. Operator: And our next question comes from the line of Benoit Poirier from Desjardins. Benoit Poirier: Yes. Great performance on the margin front and also great color that was provided on the previous question. So looking at 2026, could you provide maybe some comments whether the pace of improvement we've seen so far this year is sustainable going into 2026. And what are the puts and takes when looking at margins going into next year? Vito Culmone: That's a sneaky way of asking me for guidance already there, Benoit. But so we'll do that in February. I mean, I think when you look at the last several years, there's been steady year-over-year improvement, 0.3, 0.4, 0.5 -- this year, to your point, a little bit outpacing our historical track record, which is wonderful. One of the big factors in EBITDA margin expansion clearly is connected to a lot of what this call has been about, which is the pace of organic revenue activity in the business. So that is a big driver of obviously what you can deliver bottom line. But when you sort of zoom out, notwithstanding where we may be here in 2026 and what, which, again, we feel fairly comfortable with at this point and you look at a 2- or 3- or 4-year picture with the macro demand and whatnot, I think you can expect obviously continued EBITDA margin expansion. We're just going through -- we're entering our third year of our 3-year strat plan where we committed to 17% to 18%. Obviously, we're in the higher end of that range as we sit here in 2025. We expect to be at these levels or better, obviously, as we move into 2026, and we'll refine that next year. But it's the commercial activity that enables in large part for us to really lean into these margin expansions, and we expect that to continue. Benoit Poirier: Okay. That's great color. And maybe, Gord, you made some great comments about the opportunities you foresee in terms of defense. So I would be curious if you could on what is your exposure to defense right now? And how material could it be given the opportunities you see out there? I would be curious to see how it would compare to the opportunities with data center, let's say? Gordon Johnston: Yes. No, that's great. The beauty of the Stantec model is in that diversification piece. And so when you look at even in the U.S., where we do a lot of dry docks and aircraft hangers and those sorts of things, our exposure to the U.S. federal government overall is still in that 5-ish percent range. And so it's-- that's the beauty of the diversification model. I think you would see in other countries around the world, it's probably sub-5%, what we would be doing in that. But again, a lot of this is just our bread-and-butter infrastructure work just with a little bit different instead of a hangar for a commercial aircraft, it's for a military aircraft. And so this is stuff that we're all very, very comfortable with. And we don't expect that while there's been a lot of commitments to increasing spending on defense and some of these infrastructure things, we don't expect it's going to pop right away. It's going to take a while to build. And that's fine. We're spending a lot of time with our clients and ensuring that when they get the budget and they're ready to go that they're thinking of us top of mind. So I think we'll see it continue to grow, but I'm not sure that it will be -- that we'll see it being material. Benoit Poirier: Okay. That's great. And maybe last one for me. In terms of free cash flow, Vito, very strong performance in the quarter. It looks like that you were able to maintain DSO while typically they go up a bit sequentially from Q2 to Q3. So just wondering what is the matter of a stronger collection efforts? Is it a matter of business mix? Or what about the expectation, let's say, for Q4? Was there some pull forward in terms of free cash flow? I would be curious to get some thoughts around the strong free cash flow performance. Vito Culmone: Yes. And again, Benoit, I take you to there. You're right, free cash flow can be lumpy quarter-to-quarter, and this Q3 was outsized year-over-year gain. But clearly, the trend has been incredibly positive for us. As you heard in my commentary, our prepared commentary, our year-to-date numbers are up significantly. That's driven by, of course, the business and the expansion of the business, first and foremost. But clearly, our working capital management has -- it remains to be seen, but it looks like we've made a significant one-step onetime sort of move here that is continuing to stay with us. Our DSOs now are at 73, 74. We had an internal target of 80 for the longest time. I think we're getting pretty comfortable saying that perhaps the mid-70s is the new starting point for us. But we'll give ourselves another quarter before we do that. And I just need to -- we've made some changes internally. It's an area of focus for us primarily and just a huge shout out to all of our project managers across all of the entire network that are managing aggressively to that while obviously keeping our commitments to our clients and whatnot. So really, really pleased with it. Might give some back in Q4. I'm not worried about that in any way, shape or form. But full year will continue to be well ahead of where we were in the prior year. So very pleased with our working capital management. Operator: [Operator Instructions] Our next question comes from the line of Michael Tupholme from TD Cowen. Michael Tupholme: Gord, you've talked a fair bit about the water business, obviously, over time, but also I mentioned it this quarter, very strong organic growth. Often talk about the contribution from the U.K. AMP program and what that's meaning for our organic growth. I'm wondering if you can talk a little bit more about what you're seeing in Canada and the U.S. I think you've touched on it a little bit, but I'd be curious what kind of organic growth rates you're seeing in Water in those regions? And maybe you can talk a little bit about the drivers you're seeing as well? Gordon Johnston: Yes. Well, so in the U.S., really, really strong growth in water as well. Just trying to look on the number here, but it's definitely well into the doubled. Was it 20% in the quarter, Vito? Vito Culmone: In the U.S.? Gordon Johnston: But we'll grab that. Yes. No, I've got certainly double-digit growth in the U.S. in Water. And what's interesting whether it's -- and it's over 20% in Canada. But what's really interesting is that we've talked about it in sequential quarters, like we've had continued organic growth in our Water business, like all the way back to early 2019, and it just continues and continues to strengthen. So in... Vito Culmone: It was 10%, Gordon, in the U.S. Gordon Johnston: 10%, okay. So like in Canada, the type of work that we're doing are big public sector wastewater projects and water projects in Metro Vancouver, where we're working on the Iona Island relocation there, big biosolids project in Winnipeg that we've talked about $1 billion. So there's just a lot of big projects like that. Toronto continues with basement flooding enhancements and such. In the U.S., we see the same. A lot of it is municipal type work, water supply, water treatment, water scarcity type issues and some areas. And in the Gulf, certainly, it's flooding in excess of water. And so it's all just that sort of that core fundamentals that just keeps going with our water business where -- so whether it's not enough water, and we're working on water reuse and recycle, too much water and flooding and so we're doing big projects like the big pump station we did in New Orleans several years ago. We're currently working on shoreline protection type work, sea-level rise type work. Regulation like PFAS continues to provide opportunities in the short, but more so in the longer term. And then just the advanced manufacturing and reshoring of some of that, that, of course, you read about in the papers all the time. And very often, the first thing that clients need is water, access to water, water allocations, the treatment of high-purity water for manufacturing processes. So really, really strong drivers in water, and we don't see them slowing down in any way. Michael Tupholme: That's very helpful. The second question I wanted to ask is just about data center activity. Wondering if you can provide a bit of an update on activity levels and in that area, I guess, also curious what percentage of the revenue of the company is that represented by today and how you see that evolving and looking into 2026 as far as share of revenue contribution relative to 2025? Gordon Johnston: Yes. So we're currently working on over 100 data centers, mission-critical facilities ranging in size from 20 megawatts all the way up to a gigawatt. So a lot of projects on the go, but a pretty robust pipeline as well. I think right now, it would represent, Vito, I'd say like 3% 2%, 3% of the overall net revenue of the company. And do we see that growing? Yes. I mean that's growing at a bit of an outsized, but would it get to 4%, maybe 5%, but we don't see that we'd want it to go a lot more than that. We don't want to become 15% exposed to any sort of a high-growth area like that because just in the -- as we've talked about our diversification over time. So we feel good in that 3% to 5% range if data center is mission-critical, we're in that area, but certainly a high-growth area for us. Operator: And our next question comes from the line of Chris Murray from ATB Capital Markets. Chris Murray: Gordon, you mentioned earlier the 3-year financial targets hitting, I guess, the $7.5 billion by the end of next year. And so maybe just a couple of thoughts here. I mean, I'm looking at consensus right now, it's about 7.2, which means that you probably have to find some acquisition growth, I won't say in a hurry, but soon. But there's also, I guess, some questions. I think we kind of heard on the call about the whole idea behind being able to maintain a 7% CAGR because even if we go back a couple of years ago and what we've actually experienced over the last couple of years, hitting 7% next year on a 3-year CAGR is going to require just a stupid lift, which is probably not reasonable. So I guess the question I've got for you is the rest of the other metrics that we're seeing up and down, things like adjusted EBITDA, some of the financial metrics are all looking okay. Are you -- I guess the question I've got for you is like are you married to that 7.5% as a target? Or is it just more kind of aspirational and we can kind of think about how the game is going to play because the environment is shifting, and we could be heading into some choppy waters. So just thoughts on how those targets are set and how you're actually aiming at them. Vito Culmone: Yes, Chris, maybe I'll take that one, and Gordon, you can jump in if you -- the $7.5 billion was established, $7.5 billion was established obviously years ago based on exactly what you're describing, Chris, it was based on a CAGR of 7% organic. And then obviously, the rest of it filled in by acquisition. You're right. When you look at that 7% CAGR now relative to obviously what we did -- we're doing here in 2025, it's going to be hard probably for us to get 7% CAGR. But obviously, again, we'll stop just short of 2026 at this point. We'll see how the next few years. clearly expect organic growth next year and expect a good year there. And so we're not married to the 7.5%. It's not something that at the end of the day, we're linked to. This company is all about just obviously continued diversification, organic growth and M&A strategy. When you look at the pace of our M&A, you sort of say we expect to obviously be in market, expect to continue to do acquisitions. And as a result, that's what contributed, I think, to Gord's comment around our ability to be in that 7.5% range. But I would say the number itself isn't driving our activity. It's our strategy that's driving the activity, and it's proved out really well at this point. Gordon Johnston: No, absolutely right, Vito. And Chris, while you're -- if organic growth does slip below that 7% CAGR, there's some great optionality on the acquisition side that we would never rush anything or do anything that we didn't feel was the right thing to do long term in order to hit that 7.5 target. But it's a pretty robust environment right now. So feeling optimistic about some things that could happen there. Chris Murray: Okay. That's helpful. The other question, and I know this is something that we haven't looked at in a while, but Vito, I'll throw it out at you is just getting back into the market and maybe buying back stock again, we haven't really seen that. I know that the multiple has been fairly high, but now it's starting to come maybe back to what I would call a more normal range. Is maybe getting into a regular cadence on the NCIB is something that you guys are maybe more open to? Or is that something that you're just going to stay kind of full bore pressed on M&A as a use of capital? Vito Culmone: Yes. No, I take you back to our capital structure objectives. Obviously, we're going to generate a significant amount of free cash flow. We will continue to do that. Our capital allocation priorities are obviously, first and foremost, funding our internal capital needs, which are fairly modest. Our capital expenditures have been in the area of $100 million on an annual basis. This year, we'll be actually fairly below that. And then obviously, we have a dividend in place. We'll continue to respect that dividend and likely grow it as we have in the last several years. And then the NCIB there and M&A -- and M&A is there. Again, we see an incredible opportunity for this organization going forward with the right acquisitions, a fragmented market to prioritize acquisitions. And that also contributes to organic growth, right? I mean acquisitions are a big part of also across revenue synergies and whatnot to drive inorganic growth. But M&A is lumpy. Like when you're looking at M&A, over the years, you can't sort of predict it. So clearly, we'll continue to use the NCIB. You're absolutely right. We have been muted on share buybacks in the last couple of years, I think, now. But we'll continue to use the NCIB and have it on the shelf as required. And opportunistically, we wouldn't hesitate to get in the market and buy back our shares if required. But M&A is, we think, a really significant value creator for this organization going forward as is our stock buyback program. Operator: And our next question comes from the line of Maxim Sytchev from NBCM. Maxim Sytchev: Gord, maybe the first question for you and just turning back to the U.S. I mean one of the things that we're hearing is that the procurement methodology has changed a little bit from the federal government that is a bit more book-and-burn sort of less visibility, but work is still coming through. Is this also something that perhaps explains that dichotomy between backlog and organic growth, which still remains pretty robust? So just any color you can provide with this, that would be so helpful. Gordon Johnston: Yes. Without question, the overall procurement cycle and process for a number of federal, state and local governments have changed with some of the executive orders that have come from President Trump. And so that was a little bit slowness there the first part of the year. Now we've been awarded a number of projects, and we're just waiting to get them signed. And certainly, the shutdown slowed things down there. So I think as we see, hopefully, folks start to come back and gain to work through the -- they work through the backlog of paper on their desk, we get some things signed and then they'll turn into backlog for us and others in the industry. So I think we're still long-term bullish on the U.S. market there, a lot of good opportunities, and we'll just keep working on it. Maxim Sytchev: Yes, for sure. And then do you mind providing a bit of color in terms of the environmental services organic growth? I mean we're seeing a bit of a slowdown while water is actually accelerating. So do you mind maybe talking about the puts and takes in terms of what explains that divergence as well? Gordon Johnston: Yes, absolutely. So a couple of things there. One is that even more than other groups, our ES group has got a number of large U.S. federal projects that we've been awarded just waiting for signature. So we do see those coming. No question of discussion of cancellation or deferral. We just need to get some signs that we can get them going here early in the early in the new year. So I think longer term, we see both in Canada. Canada, we've got some good projects that are going to be starting up in the near term as well in the U.S., too. So I think we've seen a little bit of a slowness in ES this year or organic growth really quarter-over-quarter has been kind of low single digits. I do think we'll see a bit of an acceleration in that as we move into 2026. Maxim Sytchev: Okay. Super helpful. And then last question, if I may. You called out the German market, which is obviously sort of a recent beachhead for you guys seeing very nice growth. Do you mind maybe talking about what is driving that? I presume some of that is defense, transport, but any incremental color would be more helpful. Gordon Johnston: Yes. So our group in Germany, incredibly well managed with lots of opportunity, particularly since the government took off the debt break there and investing another EUR 500 billion. So some of the work that we're doing now in addition to the typical work that we do, which is roadways and bridges and rail projects. We're working a lot of folks on right now on a big electrical transmission project. And there's a real north-south need for electrical transmission in Germany as well. So -- and that's a market that we've just begun to move into probably over the last 6 to 9 months. So I see a lot of growth there. So in addition to the strength of our existing business, which is growing really, really well. We're absolutely looking for other opportunities to bolt on to the beachhead the foothold that we've got now in Germany and continue to grow it. Good market, predictable well-run companies. So we're looking to look for opportunities to continue to expand. Maxim Sytchev: Okay. And sorry, does that imply sort of inorganic growth as well. That's how we should be interpreting this? Gordon Johnston: Yes. I think we -- certainly was going to see a lot of organic growth, and we're absolutely looking at inorganic opportunities as well. Operator: Our next question comes from the line of Jonathan Goldman from Scotiabank. Jonathan Goldman: If we think back to the commentary on the last call, I think in the U.S., you called out in July, you had seen high single-digit organic growth. I'm just curious how things progress sequentially through August, September, October and November? And if there's been any reversal in the trend because, I guess, with the 4.6% in the quarter, it does seem like it's deteriorated August and September. Vito Culmone: Yes, Jonathan, you're absolutely right. We did call out, obviously, that July number. We ended up where we ended up, which was just under 5% there. So it wasn't a big drop from July. And I wouldn't say there's further deterioration at this point. All the commentary with respect to the U.S., we sort of made it here today. I don't have anything else to add. The only other thing, one small tidbit here, it's not a bigger picture -- piece is -- clearly, as we go into Q4, we have a very significant comp that we're cycling here with Q4 for the year, and U.S. organic was a part of that where I believe we were 10% or so last year or just under 10%. So that's just the reality of what we need to cycle. But overall, no additional commentary in the U.S., as we've mentioned, and we wouldn't say there's actually deteriorating. If anything, over the last little bit, the last few weeks, a month or whatnot, maybe just a bit more buoyancy, quite frankly, and you've seen that reflected in our commentary. Jonathan Goldman: Okay. That's good color. And then I guess maybe switching to the margin guidance. If you take the full year guide and by my math, if you back it out, it looks like you're implying Q4 margins would be down year-on-year, something in the range of 30 to 40 basis points. Clearly, that's not year-to-date trend. And obviously, there's moving pieces. But why would margins be down year-to-date given all the improvements in the business you've undertaken? Vito Culmone: Yes. I don't know that margins are going to be down going into next year. That's not what necessarily what we're predicting. Obviously, you do have we will see the page integration manifest itself fully next year with next quarter with our with our financial integration, you always can have some ups and downs with the financial integration. Again, nothing concerning, but that could impact margins. And the only other thing I'd say is back to that or the consolidated organic growth that we had last year, clearly, depending on where we're at, just cycle in a big quarter, that ends up manifesting itself through a margin back to operational scale and one up. But no, we're very, very pleased with our margins and don't expect any significant pullback in the trends and thematics that we've talked about when it comes to EBITDA margin expansion. Jonathan Goldman: Okay. That's helpful color. And I guess last one. If we're looking at M&A, at this point, I guess, maybe relative to other periods, what would be the main bottleneck at the moment? Is it valuations culture fit, maybe a paucity of attractive targets? And how does the cycle time from identification to closing late now versus other historical periods? Gordon Johnston: Yes, sure. I'll start and then Vito will be able to chime in if you like. But I think, Jonathan, we there's really nothing slowing the process down right now. It's just very robust, a lot of conversations on the go. Cycle times vary from discussion to discussion. Sometimes we work with a client or a company partner with them for 5 or more years before we finally decide, hey, you want to do this? And then because we know each other really well, it can proceed pretty quickly. Other times, there's an established process that can take 3, 4, 6 months. 6 would be an outlier, I would think. But -- so they're really -- they're all over where -- in terms of timing and where we would see them. But certainly, a number of ongoing discussions and both exclusive and through processes that are in play right now. So yes, I think it's just a normal cadence here. And when the time is right, if the stars aligned, we'll be glad to share news with you guys. Vito Culmone: Not much more to add there, Gord. Each one has a life of its own. That's it. Jonathan Goldman: Anything to say on valuations. I think you referenced maybe store organic growth could also translate into a silver lining on valuations. But how have those trended year-to-date versus, I guess, last year or maybe the last couple of years. Vito Culmone: Yes. No major changes on valuation. I mean, obviously, it's sometimes a little bit sector dependent and significant areas of growth in one sector obviously have a higher valuation, which is quite obviously expected and implicit obviously in the valuations of us and our peer groups. So I don't think valuations in any way, shape or form are an issue. We look at these things clearly from a strategic perspective, always above value creation over a reasonable period of time, revenue synergies, the valuation isn't getting in the way at this point for us. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Gord Johnston for any further remarks. Gordon Johnston: Great. Well, thank you, operator, and thanks to everyone for joining us this morning. We're really pleased with our Q3 results. And certainly, if you have any follow-up questions following the call today, please read out to Jess Nieukerk Newkirk, our VP of Investor Relations. So thanks again, and look forward to catching up with everybody in the next little while. Operator: Thank you. Ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 14, 2025. [Operator Instructions]. I will now turn the call over to Bill Jones, Investor Relations. You may proceed. William Jones: Thank you, operator. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Ceci Welch. . As a reminder, today's call and webcast as well as answers to investor questions include forward-looking statements which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect, plan and project and similar words identify and express forward-looking statements. These statements are made based on the beliefs, assumptions and information currently available to management as of today, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of such risks and uncertainties, which affect future performance, please see Risk Factors in the company's annual report, Form 10-K as filed with the SEC. Listeners are cautioned not to place undue reliance on such forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after today's call. And now with that, I'll turn the call over to Mike to begin. Michael DePasquale: Thanks, Bill, and thank you all for joining us today. After my remarks and CC's financial review, we will open up the call to investor questions. From a big picture standpoint, we reported revenue of approximate $1.55 million in Q3 '25, roughly in line with revenue in the first 2 quarters this year, and we reported year-to-date revenue of slightly under $5 million. The roughly $600,000 decrease in both the third quarter and year-to-date revenue in 2025 compared to last year. It is largely due to quarter-to-quarter variability resulting from the timing of some larger customer orders. We had particular strength in last year's third quarter from 2 large orders, one from a long-time banking customer, which was more of a catch-up for expanding their deployment and another one from an ongoing rollout of solutions by a long-time defense industry customer. Both customers are still very, very active. And the defense customer had a $140,000 order after the quarter closed in October that we really expected to get in the third quarter rolled over to the fourth quarter. And we continue -- and we expect continuing deployments in orders even this quarter and beyond. In addition, we expect our large banking customer to renew their contract, their subscription contract in early 2026 on their steadily expanding deployment of our solution. The customer has over 29 million users enrolled in our solution with the potential for meaningful future additions. They made a major expanded investment in our solutions in 2023 and 2024, including a $900,000 upgrade to our fingerprint only biometric customer identification technology. And this option or solution allows them to identify clients with just a single fingerprint scan eliminating the need for any other identifiers, including a card or an ID number. And that, in essence, is saving them approximately 30 seconds per transaction, which time is money, which is meaningful for them. Their current annual license fee is now over $1 million scheduled for renewal in early 2026. And whether they choose a 1- or a 2-year contract, we expect that we'll see $1 million to $3 million in business and renewal in the first quarter. Across the board, and this is general within our business, we enjoy very high renewal rates in excess of 90%, meaning our churn rate is in the single digits. The lumpiness that we see in our quarter revenues is more of a function of timing of renewals, new deployments, our large customer expansions, and there can also be true-ups for additional software licenses. Q3 is generally a seasonally slower period for us, particularly in Europe due to the summer holiday period. But we expect to close out the year very strong as we advance our channel sales efforts in the broader Europe, Middle East and Africa regions, where we are now focused solely on BIO-key branded solutions. Additionally, we're in the final stages of developing new marketing messaging for our website and our business development. This messaging and collateral should be implemented during the fourth quarter to get us well positioned for the start of the new year. To support this project, we engaged an external marketing firm earlier in the year to work with us on our new website content and targeted marketing strategies. We're finalizing a major website overhaul, focused on improving again the content, the navigation with a plan released prior to the Gartner IAM Conference, which is held mid-December. We also plan to release a significant update to our PortalGuard identity platform. PortalGuard operates as a single MFA, multifactor authentication user experience providing a broad set of 17 factors of authentication, including, of course, our identity-bound biometric options to meet virtually any use case. Version 7, which is the new version represents our most significant update ever. It features major platform modernization, enhanced configurability with improved deployment capabilities. Development is expected to conclude within the coming weeks, after which we'll undergo rigorous internal and third-party security testing. The time line for general availability is late Q1 or early Q2 in 2026. Also in Q3, we introduced our new FBI FAP 20 certified EcoID III fingerprint scanner, which is aimed primarily for the regulated industries. Although BIO-key is primarily a software company, providing a total solution, including state-of-the-art hardware is essential in supporting our annual recovering revenue software model. The EcoID III reader pairs encrypted device to host communications with liveness detection for faster, more secure authentication. We've delivered initial volume EcoID III orders for defense and government customers in Q3. We also expect government-related and highly regulated industries like financial services, higher education and health care to gravitate towards our new reader. Our PortalGuard platform, our IDaaS, Passkey:YOU solution, all pair very, very nicely with the new EcoID III fingerprint sensor. As I mentioned on our call last quarter, we launched our cyber defense initiative in response to increased global defense spending, particularly in Europe and the Middle East, and our success with some significant high-profile deployments in these markets. Incorporated in these rising defense budgets is a significant emphasis on cyber resiliency and security as a priority. Today, two of the top four largest global defense agencies by spending are using BIO-key technology to secure all of their critical information. We are well positioned to capitalize on these growing defense budgets and spending and are advancing a growing pipeline of opportunities based on the deployment of our solutions by some of the most respected military security and defense ministries and agencies. Supporting this initiative, we are adding select resources to engage with contractors who will help us expand our market reach. We expect to see a growing base of new contract activity from these efforts, building on deployments this quarter and beyond. A primary factor in defense industry deployments is our ability to support critical infrastructure and access to sensitive environments with advanced biometrics and our multifactor authentication technologies without reliance on mobile devices or hardware tokens. Biometric authentication is better suited than these engagements given its enhanced security, accuracy, convenience and ability to better prevent fraud and unauthorized access compared to traditional methods. Biometrics minimize false positives and improve the precision of access control. In addition, uniquely tying individuals to actions and access events, aids in monitoring traceability and insider threat management or improved accountability and audit trails. Streamlining access processes also reduces time spent on logins and boost productivity for defense personnel while maintaining strict security. For defense agencies managing highly sensitive data and infrastructure, we believe biometrics are growing as a preferred choice over traditional methods alone. And our references in that space gives us a unique competitive advantage. We are gaining momentum, as I just described in the defense sector as well as in banking, government, higher education as the rising incidence of security incidents highlight potential cybersecurity vulnerabilities. In addition, growing regulatory requirements and increasingly stringent cyber insurance underwriting standards requiring MFA adoption helped create opportunities for our superior biometrics and portable authentication options. We are excited about the growth prospects into next year. And though given our size, and as I just described, the variability of our business, our business may continue to fluctuate on a quarterly basis based on the timing of larger orders. But as we work to build the business, we'll continue to keep a sharp focus as well on our cost structure, seeking to reduce our breakeven levels and support our goal of positive cash flow and profitability. Ceci will walk through the numbers but let me highlight that we have been able to reduce our operating expenses by over 10% through the first 9 months of 2025, while at the same time, expanding our global reach and suite of solutions. Finally, as far as funding our runway to profitability after the close of the third quarter, we were able to raise approximately $3 million net of fees and related expenses through a warrant exercise transaction priced at $1.02 per share. This funding significantly expands our cash liquidity, puts us in a stronger position to pursue growth. And as we expect, they close a strong close to 2025, we are in a very, very good position from a financial perspective to be able to grow our business and actually overachieve our objectives coming into the new year. With that, let me turn the call over to Ceci to review the financials, and then we'll take questions. Cecilia Welch: Thank you, Mike. We released our results this morning, and we plan to file our 10-Q later today. Let me walk through some of our highlights. Our Q3 '25 revenue was $1.5 million versus $2.1 million in Q3, down approximately $595,000 year-over-year, principally due to the large orders Mike referenced in Q3 2024 that we did not have in this quarter. Those orders accounted for approximately $665,000 of year-over-year difference, offset by some new orders. As a result, our license fee revenue was $918,000 in Q3 '25 versus $1.4 million in Q3 '24. Service revenue increased slightly to $268,000 in Q3 '25 versus $267,000 in Q3 '24 as growth of recurring service revenue more than offset the decline in customer service revenue, supporting large customer upgrades in Q3 '24. . Hardware sales declined to approximately $364,000 in Q3 '25 from $436,000 in Q3 '24 due to the timing hardware shipments in support of ongoing customer rollouts. Partially offsetting the timing difference was the sale of fully reserved inventory in Q3 '25. And now we have approximately $2.8 million remaining in fully reserved inventory for which we have several potential customers. Q3 '25 gross margin remained strong at 77% compared to 78% in Q3 '24 as the absence of third-party license software offset a lower portion of our license revenue. BIO-key may further inroads in trimming operating expenses, which decreased 8% to $2.1 million in Q3 '25 versus $2.3 million in Q3 '24. This reflects a 13% or $208,000 decrease in SG&A expense, offset by a 5% or $31,000 increase in research, development and engineering expenses required to support the generation product introduction, including the EcoID III and our forthcoming PortalGuard upgrade. Reflecting lower revenues tempered by lower operating expenses, BIO-key Q3 '25 net loss was $965,000 or $0.15 per share as compared to $739,000 or $0.39 per share in Q3 '24. For the first 9 months of 2025, our net loss was $2.9 million or $0.50 per share as compared to a net loss of $2.9 million or $1.69 per share a year ago. Per share amounts were based on 6.6 million and 1.9 million weighted average shares outstanding in Q3 '25 and Q3 '24, respectively, and 5.8 million and 1.7 million for the first 9 months of 2025, respectively. Reflecting shares issued for warrant exercises and other finance-related activities. As of September 30, BIO-key had current assets of $3.7 million, including $2 million in cash compared with 2024 year-end current assets of $1.9 million and $438,000 in cash. Accounts receivable and different factor increased 21% to $959,000 at September 30, 2025 from $792,000 at year-end 2024. BIO-key also secured gross proceeds of $1 million for working capital and to support ongoing operations with the September 30 issuance of a senior secured promissory note. As Mike mentioned, subsequent to the close of the third quarter, we generated net proceeds of $2.9 million from the exercise of warrant agreements to purchase BIO-key shares at an exercise price of $1.02. Accordingly, the cash proceeds of the financing were not reflected in our Q3 balance sheet, '25. And with that, all of you, operator, let's proceed with the question-and-answer session. Operator: [Operator Instructions] And your first question comes from [ Dan Khamis ], a private investor. Unknown Attendee: Well, it's been about 10 months, I think, since you announced the Bank of Egypt win, was that a recurring revenue deal? Or were the permanent licenses? And are you expecting similar revenue from that client customer in 2026? . Michael DePasquale: Absolutely. Yes, the answer to that question is that was an initial deployment that we announced just about a year, give or take, 10 months ago. And we are expecting an expanded deployment and that may even happen here in the fourth quarter. So the answer to that question is, yes, that is a growing. deployment. . Unknown Attendee: I see. And a follow-up on that is, since you partnered, I think, with Raya on that, does that mean your margins are lower on that project? . Michael DePasquale: Not at all. Our gross margins on software are 90-plus percent, and so they remain 90-plus percent from a gross perspective. I'll make a comment about partners just as kind of an aside. You may have noticed over the last month or so, we've made a number of announcements with partner companies that are bringing us into local markets throughout the Middle East, in Africa and in Europe, and you're going to see even more coming in the near term. That's a force multiplier. These are very significant. If you read these press releases that we've made, these are significant players who have significant resource in the local markets and have influence in particular industries, some in government, some in banking, health care and so forth. And what you get there is you get local cultural support, you can influence, and given that 90-plus percent of business in EMEA, in general, that's Europe, Middle East, Africa comes through partners. This growing base in our -- what we call our CAP Program, right, Channel Alliance Program is going to pay significant dividends for us as we proceed forward. And every one of these partners that we've signed like Raya comes with a deal, right, historically, right? Partners get signed and then you go out kind of license to hunt, try to find an opportunity. What's happening here, particularly again in EMEA, is that we're signing these partners because they have a deal. We've already been working with them and they want to go out and represent what they perceive to be the most unique and capable identity and access management, biometrically enabled platform that's available. And you can see, again, based on all those announcements that we're getting, we're making very, very good progress. Unknown Attendee: Yes, that's helpful. Just on the Bank of Egypt still, the first step was to handle the NBE employees, right, and then move on to B2B and B2C. Are we looking at non-employee expansion as a, say, 2027 target? Michael DePasquale: Well, I think 2 things. Number one, the initial deployment was I believe, in the range of 20-or-so thousand users, and that was not the full employee base. So there is still an expansion in the existing enterprise employee base. And the answer to the second question, which you see what we call CIAM, Customer Identity and Access Management, the answer to that is, yes, there is definitely an opportunity to take this to customers. Similar in nature to what we do with Capitec Bank in South Africa, where they're utilizing our biometric technology not only internally for employee and employee access, but for customer access. . Unknown Attendee: Okay. So -- but is that 2027? Is that by any chance next year? Michael DePasquale: I think all of this is on the table for some -- again, the employee expansion is on the table for this year. And I believe in 2026, they'll begin looking at the CIAM deployment. Unknown Attendee: On the defense side, I think in the second quarter CC, you mentioned iterating to multimillion dollars with your largest defense ministry. Last week, you announced one of the largest Middle East sector deployments in the region. With another unnamed defense organization. Is this contract on the same scale as this longer-term defense ministry? Michael DePasquale: It's even bigger. It has bigger potential. So the answer is yes, they're very large. Most of these defense ministry opportunities, depending upon the size of the country are large opportunities. And they have a really good expansion potential because usually, you're starting with a base population so that they can get going and then they're expanding out to additional users and enrolling additional users. So these are large deals, and they have a really long tail, and they're very sticky, meaning once you get involved, they do a lot of betting they look at a lot of different options. But once you get involved, you're there for a significant period of time. Unknown Attendee: Sounds really good. With all these bank and defense wins, do you have any kind of feel for what your current ARR is, the recurring revenue? Michael DePasquale: Our ARR is growing. I would say we certainly are in the because you have to back out when you look at our total number includes hardware and software. But I think our ARR base, including renewals on our traditional contracts, right, the traditional PortalGuard business that we purchased probably are in the $6 million to $7 million range right now. And our churn, as I mentioned in my prepared remarks, is in the single-digit range as well. So I would say that's a good number. . Unknown Attendee: Yes, that's a remarkable churn. Your Echo III ID or EcoID III release said the price point, high-quality scanners was significantly reduced. Is the price lowered relative to EcoID II? Or does this third version compete with a different quality of scanner? Michael DePasquale: Definitely competes with a higher-quality device. We sell to, what I call, FBI-certified PIV-certified readers. One is called the PIVPro, which we've been selling for many, many years. That's a very high-quality optical device, glass platinum. The EcoID III competes with that device at a lower price point. So it's $49.99, list price quantity 1 versus the PivPro, which is in the high 60s, low 70s. That's number one. Number two, the new EcoID III is much higher quality and carries liveness detection and full encryption on device. The EcoID II did not have that capability. So the EcoID II was priced a little bit lower at $44.99, but it didn't have encryption and it did not have liveness detection innate in the device like the EcoID III does. We sold, I guess, initial order is about 7,500, a little under 10,000 units to one of our defense customers out of the gate as soon as we were able to deliver the product in Q3. Unknown Attendee: Okay. It's been a year about since you received the boomerang stock. I assume the 9-month put period is over and you didn't return the stock. Is there any update on the value of that asset now? Michael DePasquale: I think we'll be looking at that as we do our audit for calendar 2025, fiscal 2025. But I know they've made a number of small acquisitions and I know they're involved in some strategic scenarios, nothing that I can speak to, but it appears that, that value is certainly intact. . Unknown Attendee: One more question, I guess, for this round here. I think your -- have you done any research into -- well, I mean the stock is trading anywhere from 1x to 100x the flow for the last 3 weeks, any research you've done to figure out what's driving that kind of action? . Michael DePasquale: It's a tough question to answer. First, I think announcements typically drive volume, right? And so we've seen significant volume in the stock on some of the announcements we've made. Why our stock would trade 450 million shares on 1 single day and turn $400 million in trade value is it's almost cereal, and I don't have a particular answer for that. I think there's a lot of interest in our space. There's an awful lot of interest in security. And in particular, we have a very unique offering in a very strong niche in defense and banking, and we have great references. So if you look at where we are today from a market capitalization perspective, if you look at the numbers, we're very undervalued. . And so perhaps there's interest in investing and taking a position in a potential company that has a lot of upside. But those are only theories and I can't really say and understand at any level why we see those days with that kind of volume. Unknown Attendee: Okay. Is there anybody else in the queue right now? Michael DePasquale: Operator? Operator: Yes. We do have another questioner in. Unknown Attendee: Okay. I'll get off then. Operator: And your next question comes from Jack Vander Aarde are with Maxim Group. . Jack Vander Aarde: Mike, I'm juggling a few conference calls this morning, so I had to join this call a little late. So I apologize if I'm being redundant, the guidance, this is something new that popped up. And so I just want to know what kind of led to your decision process to feel confident enough to install a formal guidance parameters. And then can we expect formal guidance framework for 2026 on the next earnings call? . Michael DePasquale: Thanks, Jack. First of all, I appreciate you're pretty busy today. Yes, we're pretty confident in our position right now. I think, again, you've seen the announcements. You've seen that we're starting to see the results of the investments we've made, in particular, in this, I described partner network that we've been building. So we have more confidence because typically, these deals are RFP or they're very large opportunities that are being worked and their competitive. And you'll know a couple 3 months before you get the contract signed that you actually won the order and won the business. So the pipeline now is pretty solid, and we feel good about that. So that's the reason behind that. . I'd love to be able to give guidance and as we get more predictable, we'll do that. But look at this quarter, look at the third quarter. Quite frankly, we expected at least $200,000, $250,000 more in business that didn't materialize not because the business went away, but just because of the timing, one of our customers, one of our defense customers had to change budgets. And so it caused 1.5 weeks delay in processing the order. That's an order we expected in the third quarter, wound up falling to the early part of October. Nothing to do with the business or the efficacy of that contract just timing. So that's what makes it difficult for us, Jack. And I hope that we'll be more predictable in the beginning part of the year, we'll be able to do that. . Jack Vander Aarde: Okay. Great. Two more questions there, Mike. I guess the first one was, I recall, a large renewal that was coming up, I think, in 1Q, '26. Is this still on track? And is that the case? . Michael DePasquale: Yes. . Jack Vander Aarde: Okay. Great. And then just, obviously, there's -- we just had the longest government -- U.S. government shutdown in history, had that -- does that have any impact on your business in the fourth quarter? Or just any of the growth initiatives or just anything operationally did that have an impact? . Michael DePasquale: Not at all. Not at all. We didn't see any impact at all. Typically, we're flying way above that in the context of security. And so it's kind of a mandate. And we've never really seen any of that impact anything that we do. Just doesn't...... Jack Vander Aarde: And then can you just touch on maybe as you look at 2026 outside of the large renewal in 1Q '26. Are there any other major upcoming renewals throughout the year that I should be aware of? And then also any expansion opportunities that you see coming up throughout the year? Michael DePasquale: Well, I think there's a lot of that on all sites. In particular, again, our pipeline of new deals, new opportunities that are spawning as a result of our footprint growing in both defense and banking, in health care. So you're going to see a lot more happen over the coming over the coming months and coming quarters. You're going to see renewals from, again, that large banking and finance contract that we've had, we've had for years and continues to grow and expand. And you're going to see expansions like we discussed in the last question period with customers like the National Bank of Egypt and others that are continuing to expand their existing deployments, right? Not only for employees or internal use, but also ultimately out to customers. So I think there's an awful lot of that on the horizon. And I go back to the point that I was trying to make with Dan, and that is the expanding partner network is a force multiplier for our company. That is going to have a huge impact in our ability to double and triple our business in the coming quarters and the coming years. Jack Vander Aarde: Great. Maybe just one more follow-up. Speaking to your channel partners, can you just give us an update on all the various channel programs you do have. The Channel Alliance Program, I recall, was a major growth area, a couple of years ago, and I just haven't gotten a clear update on that. What's the status of the Channel Alliance Program and some of your other partnerships? . Michael DePasquale: Yes. Well, again, in Channel Alliance Program, you've seen a number of announcements we've made just recently. I won't repeat that. But those are all partners that are part of the Channel Alliance Program that we have. We have distributors. We have MSPs, what we call, managed service providers. We have MSSPs, managed service security providers, right, or managed security service providers. We have resellers. So there's various components within the CAP Program for different types of partners that service end user customers. And that is just continuing to grow. But more importantly, it's not quantity, it's quality. What you want are significant players who have a cultural and a local expertise who deliver services to large companies, mostly large companies and do it over a period of time where they have credibility. And when they come in and recommend the solution, the customer takes a look at it. So that's what we're driving. We're not trying to drive quantity anymore. We're trying to drive quality. Jack Vander Aarde: Yes. No, I'm happy you said that. And I think just another part of that though is, are they -- are any of your channel -- are your Channel Alliance Partners, or is there a portion of them that are exclusively reselling and pushing BIO-key? Are they also servicing other or providing other vendors support as well. How does that kind of, I guess, break out within the Channel Alliance Program? . Michael DePasquale: Yes, that's a great question. We do have some partners that exclusively sell the BIO-key IAM solution. But most of these players sell all the core broad software like Microsoft and Oracle, and you name it, and all of the network security, Cisco and so forth. They typically provide all of that to an end-user customer and the security piece is one component of their overall solution or service for that client. So it really depends. But as it relates to security, we have some that exclusively sell BIO-key and some that sell other solutions as well. But remember, our unique competitive advantage, and I don't care if you look at Okta, SailPoint, Ping, ForgeRock, it doesn't really matter. We have the biometric component that they don't natively have. So that's our differentiator. So even if we're not exclusive, we tend to be exclusive because they don't have what we have. Jack Vander Aarde: Got it. Great. And then I guess I'll ask one more. And Ceci, maybe this is a question for you as well. Just the margins were really strong again for the licensing revenue, which is great to see. I think that's helping the breakeven case. I look at the operating expenses and you guys have done a good job of keeping those tamed. Going forward, do I expect any changes in the operating expenses? Or is this -- are there any further cost savings? Just curious because it does seem like you're tracking towards that breakeven number on maybe even a smaller base of revenue because of those strong margins. Cecilia Welch: Yes, we are just analyzing everything. So it's just something that every quarter people are looking to spend on this, that and the other thing. And we're just trying to make good decisions on those types of things. As we said in the past, we've lowered all of our rents for all of our places. We're just doing what we can. And so we will continue to do that, just keep our eyes on the prize, so to speak. Jack Vander Aarde: Great. And Mike, do you echo those comments, though, just in terms of do you see profitability breakeven on the horizon? Michael DePasquale: Absolutely. No question in my mind. I do see it. I think it's a combination of things. It's, again, the pipeline. It's some of the larger renewals. It's also us managing and scaling around our existing resource pool, which, again, with the CAP Program gives us the ability to do that, right? Typically level 1 and level 2 support for these customers comes from the partner, right? We're there as a backup. This business scales very, very nicely with the model that we built. And even on the hardware side, the hardware that we sell, we get really good margins. We don't do anything without a 50% plus margin, even on the hardware side. Blended, we're in that 70%,80% range, and we think we can stay there. Operator: And your next question is a follow-up from Dan Khamis. Unknown Attendee: So it looks like your revenues are going to be flat or down year-over-year. The very good news, of course, is that the expenses have come down. But in terms of revenue, have you isolated the basic reason for flatness? Was it the loss of swivel revenue? Or what caused it to be flat, I guess, is my question. Michael DePasquale: Definitely, the transition from third-party to BIO-key product that took a little while to get productive. We're productive now. So I think you're going to see actually far better results. That's number one. And I think number two is we had an anomaly last year with our banking customer having to catch up. And so in particular, in the third quarter, we had over $0.5 million in revenue that was not recurring. It was pretty much a onetime shock. So I think that's it. I mean there is nothing here in this business other than timing that I am concerned about right now. I think we're in a really, really good position. We're lowering our breakeven point. We're growing our partner network, which again is a force multiplier to get more deals and more business. And we're operating in a market that has just insatiable demand. I mean, defense banking, huge market opportunities for advanced security. And we've got the solutions, and we've got the references and the quals to be able to solve those issues. And it goes back to what we call zero trust, but more importantly, it goes back to no phone, no token and fundamentally utilizing a passwordless solution that can be used across the enterprise because, again, our focus is enterprise right now. But we're blending and moving the CIAM. And I just think we've invested very, very heavily over the last 4 years in R&D, in sales and in marketing and expanding our footprint globally, especially now in the Middle East. You're going to see more of an expansion coming in the Asian markets. Stay tuned for that. That's going to have a huge impact on us. Unknown Attendee: Okay. Just as a final thought, I think with the $3 million in cash, you're probably still at about 1x book value. I know you and Jim have been doing some buying in the second and third quarters, maybe about $25,000 worth. I would just like to hear your take on why you think BKY is the best investment for that $25,000. Cecilia Welch: I think we're fundamentally undervalued, look at us, take any multiple, take any comp. And I think, again, we're just we've been traditionally undervalued. We've done a lot of financing. So I want to be brutally honest, right? I understand that, that created overhang, and it creates sometimes investor trepidation. There's no doubt or debate about it. But I felt, we felt, keeping the company alive with the notorious base installed base of customers we have. We're in a really good position. And I think we are we're not grabbing the value that we deserve. And I think you're going to see that unlocked in the near term in the future. Operator: Showing no further questions. This concludes the question-and-answer session. I'll ask Mike DePasquale to provide closing remarks. . Michael DePasquale: Thank you, and thank you again for joining our call today. We greatly appreciate your interest in investment in BIO-key and look forward to updating you on our progress. If you have any questions, please reach out to our IR team via phone or e-mail, and they will be very responsive. Their contact information is in today's release -- our earnings release. With that, operator, this will conclude the call. Thank you, everyone, and have a terrific weekend. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Scholar Rock's Third Quarter 2025 Conference Call. [Operator Instructions] This call is being recorded on Friday, November 14, 2025. I would now like to turn the conference over to Scholar Rock. Please go ahead. Laura Ekas: Good morning. I'm Laura Ekas, Vice President of Investor Relations at Scholar Rock. With me today are David Hallal, Chairman and Chief Executive Officer; Akshay Vaishnaw, President of R&D; Keith Woods, Chief Operating Officer; and Vikas Sinha, Chief Financial Officer. For those of you participating via conference call, the accompanying slides can be accessed in the Events section on the Investors page of our website. During today's call is outlined on Slide 2, David will provide introductory remarks and a business update. Akshay will review our R&D progress. Keith will provide an update on our commercial readiness activities and Vikas will provide a financial update. We will then open the call for questions. Before we begin, I'd like to remind you that during this call, we will be making various statements about Scholar Rock's expectations, plans and prospects that constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any future date. I encourage you to go to the Investors & Media section of our website for our most up-to-date SEC statements and filings. With that, I'd like to turn the call over to David. David? David Hallal: Thank you, Laura, and good morning. Thanks to everyone for joining our third quarter earnings call today. In April, when I was appointed CEO after 8 years in the Board Chairman role, and on the same day, we brought in Akshay, Keith and Vikas, we were confident that Scholar Rock was positioned to be the next great global biotech powerhouse. We based this on several factors. First, our conviction that the global opportunity with apitegromab in SMA alone offers the potential for many years of sustainable growth that will power our company through the end of this decade and into the next. Second, as world leaders in myostatin biology, our ability to deliver transformative therapies to patients suffering with additional rare, severe and debilitating neuromuscular disorders. And third, leveraging our innovative platform to advance our novel subcutaneously administered myostatin inhibitor, SRK-439. When we joined Scholar Rock, the most significant milestone ahead was the September 22 PDUFA date for apitegromab in SMA, which had been granted priority review. Our BLA was supported by robust data demonstrating apitegromab's efficacy and safety for children and adults living with SMA. Based upon our 188-patient prospective randomized, double-blind, placebo-controlled multinational Phase III trial. This trial showed a statistically significant and clinically meaningful benefit in motor function as measured by the Gold Standard Hammersmith Motor Function Scale for SMA. While we were disappointed to receive a complete response letter on September 22, we were pleased that the strength of our Phase III data was reflected in the FDA's review of our BLA and that the sole approvability issue referenced in the CRL was the status of our third-party fill/finish facility in Bloomington, Indiana, which is owned by Novo Nordisk. We know that it is not a matter of if but when apitegromab will be approved in the U.S. for patients living with SMA. We are emboldened by the commitment we have made to the more than 35,000 patients globally living with SMA who have received an SMN-targeted therapy. We are working expeditiously to deliver on our ambition that globally any patient with SMA who can benefit from apitegromab should have access to apitegromab. And now more than ever, we are confident in the significant opportunity that we have ahead of us to serve the SMA community as we work with the termination to bring this important medicine to children and adults with SMA. This is indeed what we know well and what we do well. I would like to now provide a regulatory update on apitegromab. We had our Type A meeting with the FDA on Wednesday. We are grateful to the agency for their full participation, particularly in the context of a government shutdown. The meeting was in person and included the relevant leaders and decision-makers from the agency, including the neurology division and the Office of Compliance. Our team was joined by Kenneth Hobby, President of Cure SMA and representatives from Novo Nordisk. We were encouraged by the meeting. It was constructive and collaborative. It was clear that there is a shared understanding of the high unmet need for the SMA community and a shared sense of urgency to bring apitegromab to children and adults with this disease. Novo Nordisk detailed the progress they have made in implementing their remediation plan at the Bloomington facility and affirmed that they expect the facility to be ready for reinspection by the end of this year. We discussed the path forward and await the final minutes of the meeting. We will continue to work closely with the FDA and anticipate resubmitting the BLA and U.S. launch following approval of apitegromab for children and adults with SMA in 2026. I'd like to now turn to adding redundancy to our supply chain. When Novo Nordisk purchased the Bloomington site in December of 2024, they plan to internalize the plant for their own products. In light of that, Scholar Rock implemented a plan to add an additional U.S.-based fill/finish facility. Now with the OAI classification, Scholar Rock has accelerated our timelines for an additional vialer. We have selected a world-class commercial facility that has a proven track record and has successfully completed recent site inspections, including with the FDA and EMA. As you know, one of the bottlenecks to rapidly adding a new vialer is securing commercial capacity. This can be a lengthy process. Importantly, we have secured commercial capacity commencing in the first quarter of 2026, and tech transfer is now underway. We anticipate submitting an sBLA for this facility later in 2026. In summary, we will continue to work with urgency to bring this important medicine to the SMA community. We look forward to providing clarity on resubmission timelines as soon as we are able. In addition to the large opportunity we have to serve children and adults with SMA, we continue to strategically advance our pipeline. This includes the Phase II OPAL study progressing apitegromab in a second rare debilitating neuromuscular disorder as well as advancing SRK-439 into the clinic. Akshay will provide additional detail on these activities shortly. Importantly, to reach our ambitions, I am pleased to opportunistically strengthened our balance sheet during the third quarter, and we continue to operate with a tight financial plan. which Vikas will discuss later in the call. This plan is aligned to thoughtful strategic investments to drive long-term value creation. We remain confident in the strength of our strategy, the grid of our team and the transformative potential of apitegromab and our pipeline. The regulatory challenges we face today are temporary, but the opportunities ahead to serve patients are extraordinary. With that, I'll turn the call over to Akshay to provide more detailed update on our R&D progress. Akshay? Akshay Vaishnaw: Thank you, David, and good morning, everybody. As David noted, we continue to work with urgency to bring apitegromab to children and adults with SMA as quickly as possible. SMA is a rare severe neuromuscular disease resulting in irreversible loss of motor neuron and progressive muscle wasting that diminishes the independence of both children and adults. Apitegromab has the potential to reverse the trajectory of SMA from a loss of motor function to a gain of motor function as demonstrated in the Phase III SAPPHIRE study, underscoring the importance of the potential benefit of this therapeutic. I'd now like to turn to Wednesday's Type A meeting. I was pleased to lead our team at that meeting in Bethesda. As David said, the meeting was in person and included the relevant leaders and decision-makers from the agency, including the neurology division and the Office of Compliance. Our team was joined by Kenneth Hobby, President of Cure SMA and representatives from Novo Nordisk. The meeting was constructive and collaborative. We reviewed the comprehensive data from apitegromab development program, including the Phase II TOPAZ study, which demonstrated that delayed treatment results in suboptimal motor function outcomes. These data underscore the impact of delayed treatment and the urgency to make apitegromab available to the SMA community. At the Type A meeting, it was clear that the CRL we received on September 22 was based solely on the need of the Bloomington facility to be in compliance with CGMP or Current Good Manufacturing Practice regulations. During the meeting, Novo Nordisk, detailed the progress they have made in implementing a robust remediation plan at the Bloomington facility. Novo Nordisk also shared with the FDA that it expects the facility to be ready for the inspection by the end of the year. We remain in close coordination with Novo Nordisk as we await the minutes from the Type A meeting. After Novo's completion of remediation of the Bloomington facility and a site reinspection by the FDA, we anticipate recommission of the BLA and U.S. launch following approval of apitegromab in 2026. As part of our long-term growth plans to serve patients around the world with apitegromab we're also accelerating timelines to bring a second fill/finish facility online. This process requires rigorous validation and regulatory approval to ensure the same quality, safety and efficacy of the drug product. Importantly, we have secured commercial capacity commencing in the first quarter of 2026 and anticipate submitting an sBLA for the second facility later in 2026. Outside of the U.S., we continue to expect a decision from the EMA on our apitegromab Marketing Authorization Application, or MAA, near the middle of next year. Further to our commitment to a broad SMA community, we announced today that we've initiated dosing in our Phase II OPAL trial evaluating apitegromab in infants and toddlers under the age of 2. The trial is enrolling participants who have been treated with an SMN1 targeted gene therapy or who are receiving treatment with an approved SMN2 targeted therapy. It is designed to investigate 2 different doses of apitegromab for a duration of 48 weeks and will assess PK/PD, efficacy and safety. In the OPAL study, early intervention with apitegromab could support muscle during the critical early development phase, complementing SMN targeted therapies that aim to preserve motor neurons. By promoting muscle growth when motor neurons and muscles are still forming, apitegromab has a unique opportunity to improve motor outcomes in young children with SMA. Beyond SMA, we're on track to initiate clinical development activities for apitegromab in a second neuromuscular disorder by year-end. We plan to provide additional information on the disease and the clinical development strategy in early 2026. And finally, we continue to advance our world-leading Anti-myostatin Platform beyond apitegromab. The FDA has cleared the IND for SRK-439, and we're on track to initiate a Phase I study in healthy volunteers before the end of this year. This program is built on the validated approach that delivered apitegromab. Specifically, 439 was designed to be an innovative, subcutaneously administered myostatin inhibitor binding to both pro and latent myostatin with high affinity and selectivity. Based on preclinical data, 439 has the potential to potently inhibit myostatin and increase muscle mass. We expect to have data from the SAD portion of the Phase I study in 2026. In summary, our focus remains on bringing apitegromab to patients and investing with financial discipline to deliver on the promise of our broader pipeline. The strength of our data and the momentum across our programs gives us confidence in the impact we can deliver. Now at this point, I'll turn the call over to Keith to discuss our commercial launch strategy and planning. Keith? R. Keith Woods: Thanks, Akshay. The SMA community is demanding more. Even with currently available treatments, they need a treatment that directly addresses progressive muscle wasting. Apitegromab demonstrated that ability in our Phase III SAPPHIRE study, and we will be ready to deliver apitegromab to the SMA community upon approval. This is not a matter of if, but when. Our understanding for the demand of apitegromab and our confidence in its potential to address the unmet need for children and adults with SMA continues to strengthen. As we look at SMA globally, nearly a decade following the launch of the first SMN-targeted therapy, the demand for treatment continues to grow. After the first 3 quarters of 2025, annual revenue for current SMA treatments are trending to approximately $5 billion globally with the continued growth of SMN targeted therapies, the need for the world's first muscle-targeted therapy is greater than it has ever been before. Our small, lean and highly experienced U.S. customer-facing team is active in the field and we are using this additional time to enhance our engagement activities and to strengthen our performance against key prelaunch readiness metrics. As a reminder, we are just under 4 months in to our pre-commercial field deployment, whereas most biotech companies typically benefit from a longer runway prior to approval. Nationwide, there are approximately 140 SMA treatment centers and more than 2,600 SMA prescribing physicians. With this additional time, we are working to both broaden and deepen our engagement with these potential prescribing physicians. However, an SMA patient is not just treated by one of these physicians but by a broader cross-specialty SMA treatment team. This team can include physical therapy, pulmonology, orthopedics and more. This additional time is enabling us to better understand the patient journey and the roles of the SMA treatment team in each of these 140 treatment centers and how they influence patient care. Additionally, our market access team is expanding their focus beyond that of national payers to also include top regional payers. This builds on our ambition that any patient with SMA who can benefit from apitegromab should have access to apitegromab. Furthermore, our unwavering commitment to the SMA patient community continues by a partnership at a local and national events and to educate on the importance of targeting muscle. We are deepening our collaboration with the advocacy groups, and we are also building lasting relationships, 1 patient, 1 caregiver, 1 family at a time. In Europe, our efforts continue to drive SMA education and awareness, laying the groundwork to ensure we reach patients efficiently across key markets. Our opportunity to serve patients around the world in SMA is significant. There are an estimated 35,000 people with SMA who have received an SMN-targeted therapy and who could be eligible for treatment with apitegromab. We are making strategic disciplined investments in our launch infrastructure, and we will be ready to execute rapidly once apitegromab is approved. In short, we are ready the strategy is clear. The team is in place and our commitment to the SMA community has never been stronger. Now I will turn the call over to Vikas. Vikas? Vikas Sinha: Thank you, Keith. Our overarching objectives are to fund our R&D activities to expand our leadership in the myostatin and muscle space to support a strong commercial launch and to extend our runway to meet our eventual timelines for apitegromab approval. In line with these objectives, I'm pleased to provide our third quarter financial results and to discuss our approach to managing our cash runway and investment prioritization moving forward. Turning first to our third quarter results. We ended the third quarter with $369.6 million in cash and cash equivalents. For the quarter, we reported $103 million in operating expenses which includes $18.3 million in noncash stock-based compensation. Excluding stock-based compensation, operating expenses were $85.3 million, which reflects ongoing investments in infrastructure to support apitegromab regulatory approval, commercial readiness and our clinical pipeline. During the third quarter, we strengthened our balance sheet, adding $141.7 million. This cash came from 2 sources. First, we executed our ATM and sold approximately 2.8 million shares, which resulted in net proceeds of $91.7 million. And second, we drew down $50 million from our existing debt facility. As we await apitegromab approval, we continue to operate with a tight financial plan focused on thoughtful capital allocation to advance our clinical pipeline and strategic investments to support commercial readiness. Accordingly, we have adjusted our go-forward operating plan. We have deferred investments across a number of areas, including new hiring, launch expenses that are gated to approval, certain R&D activities, including a third indication for apitegromab and other discretionary spend. Now I'll turn to the 6 prioritized investments we are making. The acceleration of a second fill/finish facility for apitegromab, SMA commercial launch readiness, ONYX apitegromab extension study, the Phase II OPAL study, the second indication for apitegromab and the commencement of SRK-439's clinical development. Turning to our balance sheet. Our current cash balance is $369.6 million, which we expect to be augmented by approximately $60 million in cash from the exercise of outstanding common warrants by year-end. With this, we expect our cash to be sufficient to fund operations into 2027. This cash runway has conservative assumptions and does not reflect any upside from potential sale of apitegromab or a priority review voucher. To further strengthen our balance sheet, we intend to expand our credit facility while preserving our non-dilutive financing options. We will provide further clarity on this as well as our anticipated operating expenses for 2026 during our fourth quarter earnings call. Scholar Rock continues to operate from a position of financial strength with a disciplined approach to capital allocation and a clear focus on supporting our strategic priorities. With that, I'll turn the call back to David. David? David Hallal: Thanks, Vikas. In closing, Scholar Rock remains focused on near-term execution while building with financial discipline for the future. Our conviction in apitegromab and in our broader strategy is stronger than ever, and we are moving with urgency and purpose to deliver meaningful impact for patients. Our priorities are clear: execute with urgency to bring apitegromab, the world's first and only muscle targeted treatment that improves motor function to children and adults living with SMA as rapidly as possible. Advance apitegromab development activities in the second rare debilitating neuromuscular disease, and that will be followed by additional indications where we can have a transformative impact for patients. We want to progress SRK-439 into the clinic and continue to invest in our future with discipline to support these high-value initiatives. Before I close, I want to share my sincere appreciation for Cure SMA and the SMA patient community. Over these past weeks, I have had the opportunity to meet with many individuals and families living with SMA and the words of support that have been shared with us and with me directly have been tremendously meaningful as we work harder, better and faster to bring this impactful medicine to those who can benefit. With that, we'll now open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Mani Foroohar from Leerink Partners. Mani Foroohar: Congrats on the progress through what's been obviously a choppy period for everyone in the government. I think a couple of quick questions. I know I'm violating the one question rule. One, in terms of thinking about further financing opportunities to top up the tank as necessary, how do you think about debt versus royalty/equity? Like how do you think about relative cost of capital? And what's the most appropriate use once you get to a launch. And then another commercial question. In the early days of launch, it is probable that you will be transitioning from one facility to another. To what extent does that introduce any operational risk going from products from one facility to another? And how can that be addressed ahead of time by you guys now? David Hallal: Thanks, Mani. Why don't we take the first question first with the cost on the financing options and then I'll come back on the redundancy of supply chain with fill/finish. Vikas? Vikas Sinha: Yes. Thank you, David. Mani, our first objective here is to bridge the financing until the approval. And the first path to go from the lowest cost of capital is to take additional -- extend our loan facility a little bit more. We are in discussions with that. That will be our first opportunity. Royalty probably comes next. And if it goes too long, and then we have to take a little bit of equity, that will be the last and the most expensive one, which we are trying to avoid at any cost and trying to get it as more non-dilutive first. Does that answer your question? Mani Foroohar: Yes. So a follow-up. That would imply that, relatively speaking, we should expect you guys to wind down/use ATM much less going forward? Like how does that fit into the strategy? Vikas Sinha: Yes. Obviously, our first objective is to work with the loan facility and expand upon that. And ATMs are put in place just to take some small augmentation of the capital at an opportunistic view. And we did take it down in the last quarter. Because we are only $50 million loan facility available. We're expanding that loan facility as we discussed. And as soon as we have the new facility in place, will share it with all of you. David Hallal: And then, Mani, regarding the second vialer, a couple of bottlenecks I've shared with you and others in the past. One of the big ones I highlighted in the call was obviously finding a commercial line that is available, that is -- got the ideal configuration for our vial and our team under the leadership of Lisa Wyman, our Chief Tech and Quality Officer just did an extraordinary job in accelerating our second vialer progress to secure commercial capacity in Q1 and commenced tech transfer in lightning speed since that middle of October timeline when the OAI hit, we thought that, that was really important. Now to get there and to get there quickly, you want to change as little as possible in your second vialer as in your primary vialer, whether or not it's vial configuration, analytical testing, like -- so that actually helps you with speed as well. And those are the things that we'll be focused on. And then the impact in the marketplace really should be almost seamless whether or not we are distributing our apitegromab from the Bloomington facility or the new second vialer, it should really be quite seamless operationally to the marketplace, and we would expect it to be that way. Operator: Our next question comes from the line of Eric Schmidt from Cantor. Eric Schmidt: Congrats on the progress as well. David and team, for those of us who've kind of been reading the Gory play by play around the Catalent facility in Bloomington, and know some of the prior history and all the past issues. How do you kind of provide confidence that this remediation effort is on good footing and that the inspection will prove positive? And then maybe secondarily, do you expect that to be a Class I or Class II acceptance for the resubmission? David Hallal: Thanks, Eric. And no doubt, there is a history in the facility. We think the history is really anchored around the quality system, the quality culture and the facility. I think importantly, it largely links back to ownership that did not include sort of the steady hand of Novo Nordisk and their commitment to quality and compliance. And so one of the things that I've been saying often, and certainly, the gory details are gory, right? We got the observations, and we notified you all of those observations back on August 6, our last earnings call, which feels like a lifetime away now. And then we've kind of been riding through the CRL and the OAI. But what we have had a front row seat to is the collaboration with Novo, the commitment from the top of the organization, the changes in the staff that they are making. The integration of the Novo quality system into that facility and then the substantial progress that they've been making on a robust remediation plan, which as they noted to the FDA on Wednesday, they feel like there -- the facility is going to be reinspection ready by the end of this year. We don't think that Novo takes that lightly. We think that they are going through a series of internal exercises to make sure that they are reinspection ready. We would imagine that they'll continue to communicate with the FDA and gather feedback on what might be missing from their remediation plan that they would then need to tweak before any reinspection would take place, but we are surely been pleased with the seriousness and the urgency that from the top of that organization right through that facility, they are taking the remediation plan. Regarding Class I or Class II, I'll turn that over to Akshay for his thoughts as he was presiding over our team in person in Bethesda on Wednesday, and the team just did a fantastic job. Akshay? Akshay Vaishnaw: Thanks, David. Eric, I just want to reiterate that it was a very constructive and collaborative meeting. And I think the agency, as you might expect, shares, the need for urgency as we all work together to try and get apitegromab to patients. So it's not for us obviously, to second guess and say, will it be Class I or Class II. But we were very heartened by the comments they made and the approach they committed to, to help effect the [indiscernible] to patients. So we need to work with Novo to get their work done. Let's wish them the best get the site reinspected, resubmit the BLA. And I'm confident the agency is going to act with urgency and commitment to this community of patients, which they've always shown when it comes to SMA. Operator: Our next question comes from the line of Tess Romero from JPMorgan. Tessa Romero: So to be clear, the BLA that you plan to submit in 2026 for apitegromab will include Catalent as your primary fill/finish and you plan to file the sBLA for the additional fill/finish facility later in 2026 following the potential approval of the BLA. Why is that the right path versus using an additional fill/finish only? And then a follow-up is just on the EMA review. How is that going with respect to manufacturing-related items. David Hallal: Thanks, Tess. Yes. I mean I think given where we are, given the tone and tenor of the meeting that Akshay presided over this week and again, the progress that Novo has been making which really enabled them to communicate to the FDA that they are on track to be reinspection ready by the end of this year. We just think that, that is the absolute right path for us. We would expect that our BLA would be resubmitted with Catalent as our primary filler. And we would expect a second filler to be added to our file, which was frankly always going to be our plan anyway given the fact that Novo wants that facility for internal purposes. And so that is the path that we are following, obviously, everything that we are doing to accelerate our second vialer is a great insurance policy for us no matter what would happen and I was really gratified by our team's efforts over the course of just the past month with the major progress that they have made to secure commercial capacity at a second vialer and already have tech transfer underway, and of course, we'll be expecting the commencement of our commercial capacity to be leveraged beginning in Q1 of 2026. Regarding the EMA, I'd love to have Akshay comment on that. Obviously, quality and compliance is important to all regulators, including them. Akshay Vaishnaw: Indeed. And just to review the status of the MAA, the question and answers that go back and forth have proceeded well. So the review continues in exactly the timeframe you'd expect. And as we guided on the formal comments, we expect a decision by the middle of next year. Now vis-a-vis the Catalent manufacturing status and the EMA, there is a mutual recognition procedure. And so there is an interdependency. And I think we obviously agree with that. Though I would point out that everything we're doing for the 2026 resubmission, we, Novo and all our collaborators for the 2026 resubmission of our BLA here in the U.S. launch following approval by the FDA is in line with supporting our MAA. So there's not much more I can say right now, and obviously, we'll keep you updated. But let's stay, on track and as we proceed with the BLA, we hope that supports the EU approval as well. Operator: Our next question comes from the line of Tazeen Ahmad from Bank of America. Tazeen Ahmad: Thanks for the detailed update. So can I ask when is the latest that you can have this reinspection for Catalent to be completed and given the green light in order to meet your expectations for a 2026 launch? And then just to play the scenarios for a second. And for whatever reason, the second inspection for Catalent doesn't resolve all issues. How quickly could you pivot to make any application with your second fill/finish? And how would that impact your timelines for 2026. Like would you be able to switch that sBLA filing to a BLA filing and keep the timelines the same as you just mentioned? David Hallal: Yes. Thanks, Tazeen. It's again, a good question, getting back to what -- or targeting back to Eric's point, there's a history at the facility. It was under prior ownership. They've had a few difficult inspections that have led to Form 483s and in this case, some repeat observations. So I understand and we understand that everybody could share some level of concern and/or skepticism that just getting a reinspection is not the objective. It's a successful reinspection. And we share with Novo Nordisk that, that is the objective. And to really put their own team through not only the remediation plan, but rigorous exercises to be reinspection ready, and we know that they are doing that. Related to your point about what if it doesn't resolve all issues, I think there's 2 ways to look at this Tazeen. Are there still observations in the facility and -- but yet do those observations warrant or not sort of a reclassification of the facility because that's really what we're playing for, a reclassification from OAI to either VAI or NAI. And for that, certainly, that is what the objective is. I think regarding your timeline, I think a reinspection could technically go pretty well into 2026, and we would still be within a frame of our guidance of resubmitting our BLA and then the U.S. launch upon approval. We're obviously pleased that the tone and tenor of our Type A meeting led by Akshay with the FDA with all the key decision makers, all the key groups, I think was constructive. It was collaborative. And there really was a shared understanding of the unmet need and a shared understanding that urgency is necessary to serve a very important patient population. And so we're hoping that all of the steps that would be required that gets us to a reinspection would be done in an expeditious way within the regulatory framework that exists and that Novo will do their part. We don't think that they take lightly indicating to the FDA that they will be reinspection ready by the end of this year. We don't think that, that's a low bar. We think they're holding themselves given the commitment to quality and compliance in the culture of Novo Nordisk, we think they say that with a pretty high hurdle in mind. But back to your question about should like a media right hit that facility. In other words, should the inspection not go well. Then what role would the second vialer play? Well, everything that we've done to accelerate that second vialer would be obviously extremely important for us in terms of should we need to pivot, and it's not an addition of this vial on an sBLA, but it's actually our primary resubmission strategy. There are a number of ways that the FDA, and we expect they've done this in the past. And given the shared urgency would understand some level of potential pathways to expedite adding a second vialer as your first vialer in the form of a BLA. And everything that we're doing to expedite this process, we think, will aid us in case the impact of the inspection is not what we all expect it to be, which is a successful reinspection. And as we continue to work with that second vialer, we can provide further guidance to you as we progress from tech transfer, which is now underway directly into the filling lines that we will be executing in Q1 and Q2, and we'll provide those updates over time. Operator: Our next question comes from the line of Kripa Devarakonda from Truist Securities. Kripa Devarakonda: Congratulations on all the progress. Thanks for all the details. So in terms of timelines for resubmission of BLA, I feel like we're all asking the same question, but is the plan to wait for the reinspection and for the OAI to be resolved before you submit the BLA and I understand that Novo has said that they're going to be inspection ready by year-end, but could Novo request an inspection? And finally, would you be able to address whether Novo hired any outside consultant to help with this process? David Hallal: Yes. Maybe related to the timelines on resubmission. I think that Akshay can comment on our thinking and recognizing that with the collaboration with the FDA and the shared urgency, it's a little dynamic. We don't have our Type A meeting minutes yet, but Akshay can share at least our go-forward plan with respect to that. Akshay Vaishnaw: Yes. I mean I think base case, Chris, it's safe to say that the reinspection would have to resubmit after that. But as David said, it is a dynamic situation, and we'll do everything possible to resubmit in a fashion to expedite the approval of this drug, which patients need so badly. And we were heartened by the degree of support from the agency during our Type A meeting. So a lot is going to happen in the coming weeks and early part of next year, and we look forward to resubmitting this BLA. David Hallal: But, for sure, Kripa, given that, again, it's reiterated our sole and primary issue is the classification of this facility and their state of compliance. I think it's a safe assumption that we'd like to see that clear. And be ready to go immediately with a resubmission. That's sort of our go-forward plan at this point. Akshay Vaishnaw: And I think it's worth adding, David, that resubmission is really compared to the initial BLA resubmission. It's a very different asset. It's a much more contained effort around just the safety update and the CMC aspects of the file. So it's very -- we're ready to file that resubmission at very short notice. David Hallal: Kripa, related to the -- could Novo request a reinspection. I think in a way, they're signaling that they're ready. We would imagine that Novo and the agency still has some wood to chop. Just how do we feel about the remediation plan? Is there anything left before reinspection needs to be done? I would expect that to be happening, okay? That would be an expectation. But in a way, they put themselves on notice with the FDA that they stand ready to be reinspected toward the end of this year. And we think that, that is really, really important. But as you know, this reinspection will not be announced. It would be like your typical unannounced inspection. And so that you can put yourself on notice and communicate with the Office of Compliance that you're reinspection ready. As they notified at our Type A meeting at the end of this year, but we would expect the FDA to -- when they do reinspect the facility, it would likely be an unannounced inspection. And then your final question about like third parties, I think Novo is really looking very broadly, and they have been working with outside experts and helping them through all of these things, including the remediation plan and the progress with the remediation plan. And we have been pleased with the level of quality and urgency that they are applying to this remediation plan, and we're thankful to them for that. Operator: Our next question comes from the line of Etzer Darout from Barclays. Etzer Darout: Just because investors have sort of been circling this September 2026 date in terms of sort of timing for a potential approval, David, maybe if you could help us understand what could -- maybe the FDA minutes unveiled to you on the type of resubmission that you have to make, maybe their timelines around the decision once you have filed -- refiled the BLA? David Hallal: Yes. Thanks, Etzer. It's a great question. And again, something that I think Akshay wanted to have some robust conversations with the agency on at our Type A meeting. We're obviously not -- we don't have meeting minutes in hand, and we certainly want to allow the agency to do their work. But Akshay can comment on how we're thinking about the resubmission timing and again, whether or not it would be Class I or Class II. Akshay Vaishnaw: Yes, as far as the minutes are concerned, I think it's always good to get the minutes in hand and reconfirm the impressions that we're conveying to you this morning that they're documented in the minutes of the progress that Novo has made of commitment that everyone is showing to the agency of the matter, Novo's comment about being ready for reinspection and everything we've discussed so far. So we await those minutes, and we're confident that they'll reflect what we're conveying this morning. Now as far as the resubmission is concerned, we just discussed that with the last question. And of course, we'll resubmit as soon as the inspection is done or earlier, if possible. But we'll be guided by the agency through all of that. And we'll also be guided on the review timelines. Now the minutes we get won't spell out the nature of the review timelines for the resubmission. That's not their practice. They await resubmission of the BLA before that's done. But one thing I can tell you is that David emphasized the tone and tenor of the meeting that there was support to act with urgency to get on all parties, including the agency to get this drug to patients as soon as possible. Operator: Our next question comes from the line of Marc Frahm from TD Cowen. Marc Frahm: And all the detailed disclosures around this meeting. Maybe in that light, just as you move forward and Novo hopefully is, in fact, in position to be reinspected. Just what do you expect to be able to disclose and kind of on what timeline, particularly given that it isn't even your facility directly, but it is a partner. Will you be able to disclose right when it gets inspected not until maybe some 483s are received? Just what are the disclosure plans there? David Hallal: Thanks, Marc. I think our disclosure plans will really kind of look in the mirror and focus on us and the things that are material to us that we think are important this year. Obviously, the reinspection timeline when it happens, the outcome of it is really important. So I think we want to be open to sharing the important information with you. Obviously, the way this would work is an inspection takes a week to a couple of weeks. There's generally a closeout meeting. At that closeout meeting there's generally some kind of preliminary assessment when a Form 483, as we've noted in the past, I think, again, it's hard to believe when we first disclosed these Form 483 observations was only last quarter because it feels like for me, it's been a long time. But as you know, a Form 483 usually travels 75% of the time with any inspection. But of course, we wouldn't expect a Form 483 to result in an OAI most of the times. And I think that's what startled all of us. But I think that all along Novo has been approaching this very aggressively. So I think we'll just maintain as we have open lines of communication with you all when we have important information to share, we'll certainly do that. And I think what we've done in the past is even if it wasn't something for us, what we did learn of, let's just say, the classification of the facility as we did just last month in October. We tried to get out in front of that and disclose that and have some dialogue with you all on what that meant. And we'll continue to make a commitment to do the same here as we continue on this journey to an eventual resubmission and U.S. launch upon approval. Marc Frahm: Okay. That's helpful. And then maybe just on the idea of waiting for the reinspection to kind of happen in the reclassification before filing. But also in your prior answer is, you noted this would be kind of like an unannounced reinspection once they've communicated that they really are in position to be ready. But kind of a forcing mechanism to that at some level, it could be a submission of a BLA from anyone using this facility. So maybe is there some value of maybe filing ahead to kind of try to force the timeline on the inspection? Or is your expectation that there are just so many other products flowing through this facility that that's kind of going to happen on its own without you guys being the forcing? David Hallal: Well, Marc, a couple of the things you said are really important. One is that we've heard this too, right? I mean the thing that creates urgency are pending applications. And right now, we don't have a pending application. We have a pending resubmission. At the same time, I would note that we were generally pleased with how constructive and collaborative, the in-person Type A meeting was and that there was this shared understanding of the unmet need and shared urgency. So while we're not on file, I would say a lot of the things, and you're absolutely right on your last point, that there are other pending applications at that site, and that can serve us well. We do think our Type A meeting serves as a really good central point of highlighting while we're not on file, there is real urgency here for a community that is desperately wanting to benefit from the world's first and only muscle-directed therapy. And so we have to continue to work with the agency, be collaborative with them find everyone's right footing on what the right thing to do is, and that is really our go-forward plan. And we think we've built sort of a foundation and framework with the agency frankly, all the way through the initial priority review period up till September 22 and even through Wednesday, a really strong foundation for collaboration for us to work together to resolve this issue. Akshay Vaishnaw: Yes. Thanks, David. And I just want to reiterate the importance of that collaborative approach. And you mentioned forcing function, so to speak, by resubmitting ahead of the reinspection. I don't know that that's wise. We want to be working closely with the FDA and be guided by them now. as we said, it's a dynamic situation. And if they invite us or they support any kind of resubmission in a particular timeframe in and around the reinspection, we will, of course, we are ready and we can resubmit very efficiently. But this is not about a forcing function. We have to collaborate with the FDA. Operator: Our next question comes from the line of Evan Seigerman from BMO Capital Markets. Evan Seigerman: With the delays for apitegromab, can you talk more about what your sales or market research team's efforts are to identify patients ahead of the launch? You had mentioned efforts to work with centers of excellence to understand the patient journey better. But do you feel you are developing a more robust number of patients which you could target for therapy following approval, potentially leading to a little bit of a faster uptake than people were probably initially expecting? David Hallal: Yes. It's a great question. Keith was highlighting it earlier in the call, and I'll turn it over to him for further comments on launch prep. R. Keith Woods: Yes. Thanks for the question. I guess I'd say first of all, when the September 22 date occurred, that was after 2 months of the team being able to spend time out in the field. And now with the extended time, we're getting to not just visit with the physicians, but we're also getting to meet the SMA treatment teams and getting that full feel. And what is that additionally, not just the SMA treatment teams, we're spending more time with patient advocacy events and getting to speak with patients and their families. And I can tell you what we're hearing is that there's a clear understanding of the unmet medical need and the approach of attacking this disease from a dual modality no longer just the motor neuron but also directly targeting the muscle, and this is being well accepted as we get the opportunity to meet with more people in the community. You add to the fact of the safety profile that apitegromab has demonstrated. And quite frankly, all of our studies, not just our SMA studies, but if you take a look at EMBRAZE, that was also all adults all treated with 10-milligram per kilogram and exceptional safety results. I guess I would end with the fact that at the end of the day, we're offering the world's first muscle-targeted therapy, and in the event, if you have a choice to either be in a situation of having experienced muscle loss or the potential for muscle gain, why wouldn't you want to use apitegromab. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.