加载中...
共找到 39,813 条相关资讯
Operator: Good afternoon, ladies and gentlemen, and welcome to the Fossil Group Third Quarter 2025 earnings call. [Operator Instructions] This conference call is being recorded and may not be reproduced in whole or in part without written permission from the company. Now I'll turn the call over to Christine Greany of the Blueshirt Group to begin. Christine Greany: Hello, everyone, and thank you for joining us. With me on the call today is Franco Fogliato, Chief Executive Officer; and Randy Greben, Chief Financial Officer. Before we begin, I would like to remind you that information made available during this conference call contains forward-looking information and actual results could differ materially from those that will be discussed during this call. Fossil Group's policy on forward-looking statements and additional information concerning a number of factors that could cause actual results to differ materially from such statements is readily available in the company's Form 8-K, 10-Q and 10-K reports filed with the SEC. In addition, Fossil assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During today's call, we will refer to constant currency results as well as certain non-GAAP financial measures. Please note that you can find a reconciliation of actual results to constant currency results and other information regarding non-GAAP financial measures discussed on this call in Fossil's earnings release, which was filed today on Form 8-K and is available in the Investors section of fossilgroup.com. With that, I'll now turn the call over to Franco. Franco Fogliato: Thank you, Christine. Good afternoon, everyone, and thank you for joining us today. I'm pleased to open this call with the headline that we have successfully transformed our balance sheet, marking a major milestone under our turnaround plan. We announced today the completion of our bond restructuring, which extend our debt maturity to 2029 and brings more than $32 million of new capital to the business. Strengthening the balance sheet was one of the 3 pillars under our turnaround plan and has been a major focus of our team over the past year. After months of hard work and with the support of key stakeholders, we now have the financial flexibility needed to drive the business forward and turn the page to our next phase of long-term value creation. Another noteworthy achievement I want to highlight is Fossil's second consecutive year on Time Magazine list of World's Best brands. For 2025, Fossil made every country list survey, ranking as the #1 watch brand in Germany, #2 in the U.S., #5 in both the U.K. and Mexico. We're incredibly proud of this recognition by consumers around the world, which speaks to Fossil rich manufacturing and storytelling heritage. Importantly, this achievement comes against the backdrop of a strengthening watch market globally. U.S. Circana data from Q3 highlights indirect market growth versus last year of low single digits with the department and specialty store channel up low double digits. For the Fossil brand in Q3, we saw traditional watch sales trending better than the market, up high double digits in these channels. This fundamental industry and brand strength underpins the ongoing success of our turnaround plan. Moving now to our Q3 results. We're pleased to have delivered another quarter of strong financial performance. We narrowed our sales decline to 7%, reflecting year-over-year improvement in both the wholesale channel and our Fossil retail stores. Global growth in the wholesale demonstrates continued strength from our strategic initiative as well as a shift in the timing of certain shipments from Q4 into Q3. A key call out this quarter is the quality of sales. Average unit retail is higher in both our wholesale and direct-to-consumer channels, reflecting a strong combination of lower promotional activity, product mix and pricing architecture. Third quarter gross margin remained strong, notwithstanding the recognition of minimum royalty deficit, which Randy will cover during his remarks. Our focus on full price selling has fundamentally changed the margin structure of the business, positioning us to return Fossil Group to a best-in-class gross margin profile in the mid-50s this year. During Q3, our disciplined approach to promotion and strict cost control translated to the bottom line, where we substantially narrowed our adjusted operating loss year-over-year. The improvement on a year-to-date basis is even more pronounced, moving from a loss of $58 million in the first 9 months of 2024 to nearly breakeven for the same period in 2025. For full year 2025, we expect to achieve a breakeven to slightly positive adjusted operating margin. Our teams are continuing to deliver sharp execution across our 3 turnaround pillars: refocusing on our core, rightsize our cost structure and strengthen the balance sheet. Looking at the strategy under our first pillar, refocus on our core. Over the past 9 months, we have reignited our design and storytelling engines to build a robust Fossil brand platform for the future. In Q3, Nick Jonas officially took the helm as a Fossil global brand ambassador. Since the August launch, the worldwide campaign has generated nearly 6 billion impression. We kicked off with a 1-day event for fans and Media in New York City, which included a surprise appearance by Nick, followed by regional events in major cities, including Berlin, Manila, Mumbai and Paris. Simultaneous with the campaign launch, we partnered with Nick to introduce an exclusive product line for Fossil. This bold and nostalgic collection has exceeded our expectations in the first few months. Also compelling, some of the best-selling items sold for $300, $400, a much higher price point for Fossil, which is driving higher average unit retail. Additionally, Nick's global reach and influences is attracting a younger male democratic to Fossil. Together, the campaign and product launches fueled brand heat, generated positive global press coverage and drove incremental traffic to both our website and stores. In addition to the success of our new collection with Nick Jonas, Fossil collaboration with Fantastic Four and Galactus have been standout performance in key markets globally. In the U.S., Fantastic Four sold out during our early access event online as was out of stock in stores within week 1. In EMEA, the collaboration sold out online within 3 days. Galactus was also a tremendous success selling out online in both the U.S. and EMEA on day 1. For the upcoming holiday season, we will continue to amplify the Nick Jonas collection and position Fossil at the center of key shopping moments. Initial trends in our DTC channels indicate that our holiday collection is resonating with consumers with momentum building week-over-week. We will be extending that energy globally with initiatives like our immersive pop-up in Le Marais in Paris during December, which is designed to showcase Fossil gifting spirit in a culturally relevant way. Across markets, we're staying committed to brand investment, working closely with media and PR partners to build awareness, desirability and brand heat. Turning now to our co-licensed brand, Armani, Kors and Diesel. We continue to generate improved performance in key markets across the Americas, EMEA and Asia, driven by product innovation as well as our investments in point of sales and in-store presentation. From a brand perspective, Kors, Armani Exchange and Diesel all demonstrated year-over-year growth in the wholesale channel during the first 9 months of the year, while the Armani brand remained pressured by the macro environment in China. Next, we continue to make progress towards optimizing our global wholesale footprint, which can be seen in many of our leading indicators. During the third quarter, the wholesale channel increased mid-single digit globally with notable strength in the EMEA and Asia region. In the U.S., traditional watch performance was up slightly in wholesale, while the Fossil brand grew double digit. Within Asia, both India and Japan grew double digits. We recently strengthened our team in Asia with the appointment of Davin Leong as a General Manager of the region. Davin is a seasoned leader who will advance our global commercial strategy to drive an enhanced market presence and accelerate growth across the region. In EMEA, the transition to a distributor-led model in select European markets is enabling us to simplify our operation while driving increased sales and profitability. Most recently, we signed a new distribution agreement with Morellato Group in Italy, which takes effect January 1, 2026. Morellato brings decades of expertise in watches and jewelry, along with a deep understanding of local markets, which is expected to help us extend our reach and fuel long-term profitable growth in this key geography. Thus far, we have transitioned 6 European markets to a distributor model, and we'll continue to evaluate opportunities to drive scalable growth in highly relevant markets going forward. As I mentioned earlier, our initiatives to strengthen channel profitability are returning the business to a healthy gross margin profile. This is primarily being driven by our commitment to a full price selling model, which was one of the first major initiatives we put into place when I joined the company a little over 1 year ago. This discipline is driving improved traffic quality at both our Fossil stores and e-commerce website while also generating higher average unit retail. Traffic and conversion trends in our Fossil retail stores improved notably in Q3 with particular strength in the U.S. as our new clientele initiatives started to gain traction. Our Store of the Future, which we discussed in our Q2 earnings call, has been rolled out to all of our U.S. stores and over a dozen EMEA locations. The mission behind this new concept is to deliver a standout experience for the customer. We have reimagined retail to meet the evolving needs of today's guests, empowering stores to shine as a distinctive experience-driven destination where personalized service leads, community matters and strong results follow. We believe we can unlock profitable sales growth by blending lifestyle selling, data-informed decision and a purpose-driven strategy with the goal of creating meaningful impact beyond the sale. The initial results are compelling for driving increased traffic to our store, winning higher average order value and attracting new customers. Looking now at our second turnaround pillar, rightsizing Fossil group cost structure. We've taken these actions to strengthen our operating model and continue to act with financial rigor to position the business for long-term profitable growth. Year-to-date, we have generated over $60 million in cost savings and reduced our SG&A by 260 basis points on a 10% sales decline, achieving better leverage on our cost structure as we transform the business. Lastly, I'm happy to reiterate that we have delivered on our third key pillar, strengthening the balance sheet. These week marks a significant turning point of our business and sets us up for the long-term success. Randy will share more details with you in just a few moments. Entering the final months of the year, we are reiterating our financial guidance and remain confident in our path to drive profitable growth. We have strengthened our core, return to healthy gross margin profile, rightsized our cost structure, improved working capital management and fortified our balance sheet. While there are a number of successes to celebrate, we are clear about what we have yet to accomplish. Our teams are energized by the opportunity in front of us and committed to delivering flawless execution as we strive to build a stronger Fossil Group and deliver value to all of our stakeholders. Now I will turn the call over to Randy to review the third quarter financials and discuss our outlook. Randy Greben: Thank you, Franco, and good afternoon, everyone. We delivered strong Q3 performance, reflecting another quarter of progress and momentum under our turnaround plan. Third quarter net sales totaled $267 million, down 7% in constant currency versus prior year. This is slightly ahead of our expectations, reflecting ongoing traction from our turnaround initiatives as well as a shift in the timing of some wholesale channel shipments from Q4 into Q3. Gross margin in the third quarter came in at 48.7%, that's down 70 basis points versus last year and more meaningfully on a sequential basis. There are so many positive proof points with respect to our turnaround, taking root that were offset by the minimum royalty shortfall true-up I spoke about on our last call, but I'd like to take a moment to talk about them. Our focus on full price selling has fundamentally changed our margin architecture with the reduction in discount rate of more than 50% versus last year on Fossil brand e-commerce sales in Q3 being just 1 example. Our sourcing initiatives resulted in improved product margins in our core categories, driven by optimization of our supply chain and successful negotiations with key suppliers in all categories. We have retooled our open-to-buy process, distorting our investments deeper into bestsellers and driving more efficient inventory turns and productivity. We implemented targeted price increases and to date, have not seen any meaningful reduction in purchase behavior or any notable volume shifts. And lastly, we drove an increased mix of higher-margin traditional watch sales. All of these actions helped us mitigate expected tariff headwinds in the quarter. However, the aggregate benefits from these moves was offset in Q3 by the impact of licensed brand minimum royalty payment true-ups. As we discussed on our August earnings call, from an accounting perspective, we have historically recognized any minimum royalty deficits in the second half of the year, the majority of which were recorded in our third quarter. Because of our smaller sales base, this year, the impact was more pronounced. It's worth noting that underlying gross margins improved in Q3 compared to the prior year, but the improvement was offset by the impact of royalties. It's also worth repeating my comments from our August call. While we did receive some minimum royalty reductions with our key license partners that benefit us moderately in 2025, we have agreed on significantly more meaningful reductions for 2026 when we expect to materially reduce the Q3 minimum royalty guarantee shortfalls that we've experienced as our license business has contracted. Our turnaround initiatives are foundational and have resulted in a structurally higher margin business. Therefore, we continue to expect full year gross margin to be in the mid-50s, caveating, of course, that the tariff environment remains quite fluid. Turning now to operating expenses. We continued to demonstrate exceptional expense management in the quarter. We lowered SG&A expenses by 10% versus prior year, primarily driven by our cost reduction initiatives. As a percentage of sales, SG&A leveraged by 160 basis points versus prior year coming in at 54.3%. The year-over-year improvement can be traced to 47 fewer stores in operation versus a year ago and lower compensation and administrative expenses. During Q3, we closed another 10 stores bringing us to 44 closures year-to-date, all occurring at natural lease expiration with minimal closing costs. Our teams are continuing to act disciplined enabling us to deliver meaningful SG&A savings of over $60 million year-to-date in 2025. Looking now at earnings. As we anticipated, the impact to gross profit from the minimum royalty deficit resulted in an adjusted operating loss for the quarter. Nevertheless, we substantially narrowed Q3 adjusted operating loss to $15 million from $22 million a year ago. Moving to the balance sheet, we ended the quarter with $102 million of liquidity, including $80 million in cash and cash equivalents. Liquidity was down sequentially from Q2, reflecting the planned ramp-up in marketing spend and the normal cadence of seasonal working capital movements. That said, comparisons to prior periods are somewhat distorted by the transition to the new ABL facility reported on our last call and entered into during the quarter. This new structure is more efficient and purpose-built to align with the scale and seasonality of our business. Importantly, the facility carries a 5-year maturity. Quarter end inventory totaled $167 million, down 26% year-over-year, consistent with our expectations. Cash conversion performance remains on track, supported by ongoing initiatives aimed at reducing structural cash volatility and driving more consistent free cash flow generation. Overall, working capital discipline continues to improve. Global net working capital declined by approximately $90 million year-over-year, reflecting lower inventory levels and tighter management of receivables and payables across the organization. Turning now to our balance sheet transformation. To echo Franco's sentiment, we are thrilled to have reached a major turning point with respect to the capital structure of the company, delivering on the third pillar under our turnaround plan. We successfully completed the exchange of our 7% senior notes due 2026 for new 9.5% notes due 2029, which extends the maturity of our debt by 3 years, and comes with $32.5 million in incremental new money financing. Further, the completed exchange gives the company expanded access to availability under our $150 million asset-based credit facility, which have been partially restricted pending the completion of the exchange offer. With the completion of the refinancing, we believe Fossil Group has the balance sheet fortitude necessary to advance the business on the path to profitable growth and positive free cash flow. Our refinancing was an all-hands effort by our internal teams and our collections of world-class advisers. We're thankful for the conviction that our noteholders and lenders have in our company and are excited to have completed this critical turnaround pillar. Based on our ongoing business momentum and strong execution of our turnaround plan, we are reiterating our full year guidance. Worldwide net sales are expected to decline in the mid-teens, which includes approximately $40 million of impact related to store closures, and adjusted operating margin is expected to be breakeven to slightly positive. Importantly, in the fourth quarter, we anticipate gross margin will be similar to last year, which combined with ongoing expense control is expected to drive positive adjusted operating margin. We're pleased with the meaningful progress we've made year-to-date and remain focused on driving durable growth and building long-term value for our shareholders. Now I'll ask the operator to open the call to Q&A. Operator: [Operator Instructions] And your first question comes from the line of Francesco Marmo with Maxim Group. Francesco Marmo: Congratulations on the quarter and on the bond exchange. Three quick ones for me, if I may. So first of all, your wholesale grew 3% in constant currency, while store comps was down 22%. Can you please help us understanding what is driving that gap? And I was wondering if you guys could give us some color around any regional difference, maybe there some regions that might be more retail heavy than others. Randy Greben: Francesco, thank you for the question. We missed the first part of it. Could you please repeat it? Francesco Marmo: Sure. So the wholesale channel grew 3% in constant currency. while store comps fell 22%. I was hoping you guys could help us understanding the difference between the 2 channels. Randy Greben: Yes, absolutely. I just want to correct one point. When you talk about the store comps declining, that's not store comps, that's our full direct-to-consumer. We're actually quite pleased with the performance of our physical fleet. Our stores are performing quite well. As we've talked about in prior calls, the company has intentionally shrunk its e-commerce business as we've changed the full promotional strategy to drive really better margin architecture and more sales. So you have to look at it -- we have to look at it really on a channel-by-channel basis. To your point, wholesale is performing quite well. And then when you deconstruct direct-to-consumer, we're very pleased with our store performance. And our e-commerce business is performing absolutely in line with our expectations which was to be smaller. With respect to regions, I'll hand it to Franco. Franco Fogliato: Yes. Look, Francesco, I think let me recall probably one of the first call I did when I joined the company. We clearly said that our retail direct-to-consumer was very promotional, was driving the entire AUR marketplace price down. And we took since, I would say, towards the end of quarter 4 last year, we changed completely the policy. And we said that we're going to reduce dramatically the promotional activity. We've been performing very well to the point, honestly, that the wholesale came back probably faster than what we were expecting. Our retailers, our customers and partners have been very pleased with our policies, very encouraged. I remember the first time I met with them and they were like, oh, we already heard that story, and now they're seeing that we're very consistent with what we said to the point that they are growing the business with us and are very willing to invest with us going forward. Our DTC will continue, I think it is performing well from a comp perspective. We are driving AUR higher. We're driving -- we're converting better than what we use because we have initiatives like Store of the Future and we're pretty pleased with that. Now performances have been very different depending by region. I think from a DTC perspective, our store have been performing better than what we anticipated in the U.S. We still see a little weakness out of some of our retail in Asia, while in general, India remains strong. So those are kind of trends we see probably common to the watch industry with really U.S. coming back. Asia is still pretty challenging, even we said we've seen some improvement, but India continuing to perform strong. Francesco Marmo: Okay. That makes a lot of sense. This is great leading to my next question. Asia actually this quarter I would say, positive growth in constant currency, I think it was like flat overall in reported currency. There was strength in traditional watches, there was strength in jewelry and even gross margin expansion for the region. I was wondering whether you guys could give us some color around what's happening in the region. Randy Greben: Sorry, Francesco. Once again, we missed the first part of your question. If you could please repeat it. Francesco Marmo: Okay. Sure. And I was asking about Asia. The Asia region seemed particularly solid this quarter with positive constant currency growth, strength in traditional watches and jewelry and gross margin expansion. I was wondering if you guys give us some color, you already mentioned India, but anything else would be appreciated. Franco Fogliato: No, thanks for asking. It's a great question. Look, we're pleased the region performances have been led by India. We continue to be extremely positive not only about our leading position in India, but we have a very strong team, very strong recognition. Our retail performed well and the market is growing. So it's really a combination of the perfect storm from that perspective, and we are one of the leading company there, no doubt about that. We've seen, I would say, maybe -- I wouldn't -- we still are shrinking in China, honestly. The market hasn't -- is better, but still not into positive growth. And we've been also taking a policy of being less promotional, to drive improving gross margin. And I think that's also helping. And I would say the other market, which has been pretty pleased has been Japan. Honestly, Japan was one of the question mark we had 12 months ago when I joined the company. We have a strong team there. Our brands are performing well. We -- in particular, Diesel is very strong in the region, and we're very encouraged about the opportunities there. We have a new leader for the region, Davin Leong joined early October. We're very excited because we needed that leadership to come from the region. He's got -- is a very strong leader, and we're very encouraged. So look, we -- it's good to see Asia performing better and performing well. It's definitely led by India, but also pleasing to see Japan doing well and China maybe seeing some better selling. Francesco Marmo: Okay. Great. And then if I may, one last question that has to do with your inventory position. Your inventory appears leaner every quarter, which is great. I was wondering whether you guys could give us a sense for what initiatives driving this improvement and also how this tighter inventory position fits within your broader distribution and promotional strategy? Franco Fogliato: It's a great question. Let me take a general view, and then I'll let Randy and Jeff can either. Look, we're very pleased. I think the -- we are very -- I made it clear, we're going to be a smaller company, but we're going to be a lot more profitable than what we used to be. And I think the working capital position, the inventory control, we had the sales down 7% in the quarter, but inventory was down 26%. We've reduced the number of SKUs. We're focusing on what matters. We're really driving stories that count. All of this comes together with a higher gross margin, comes together higher AUR and drives the company in a better position. Would I expect this to continue forever? No. We will invest going forward. We believe we have performed a very clean inventory, both on what we own and what sits in our retailers. We manage inventory together with them. Our sales are performing well. We're very encouraged. And the fact that we fixed the balance sheet is also helping a lot to drive our investment from a strategic perspective. I will ask Randy maybe to comment a little more into the details. Randy Greben: Francesco, I'm so glad that you asked the question because it gives us an opportunity to acknowledge the work that the organization has done really across the globe to manage working capital in a significantly tighter fashion. We're proud of the work that we've done as it relates to overhauling the way we think about open to buy, the way in which we think about where we lean in on product investment and the wonderful byproduct of all of this is not only as working capital become quite more efficient, but we've managed to increase availability of products at the same time. So we're ordering the right inventory, getting it to the right place, and it's a comprehensive effort that is nice to be seeing bearing fruits. Operator: At this time, there are no further questions. I will now turn the call back over to management for closing remarks. Franco Fogliato: Thank you, everyone, for joining us today. This has been an exciting earnings call, an exciting week. We have announced a new milestone, the company with a stronger balance sheet. We're looking forward to meet everyone to -- for the quarter 4 earnings call, and we wish everyone happy holidays. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Hosting today's call are Grove's CEO, Jeff Yurcisin; and CFO, Tom Siragusa. Some of the statements made today about future prospects, financial results, business strategies, industry's trends and Grove's ability to successfully respond to business risks may be considered forward-looking, including statements relating to the technology platform, migration resulting in an exceptional customer experience and stronger economics at scale, future advertising spend and circumstances that will result in this increase, the impact of the headcount reduction, future business plans, priorities for the remainder of 2025, future investment in Grove and guidance for 2025, including guidance relating to full year and fourth quarter 2025 revenue and adjusted EBITDA. Such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those risks discussed in Grove's with the Securities and Exchange Commission. All of these statements are based on Grove's view today, and Grove assumes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. During today's call, Grove will also discuss certain non-GAAP financial measures, which adjust GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP items to the most directly comparable GAAP financial measures in Grove's earnings release, which is also available on Grove's Investor Relations website. I would now like to turn the call over to Jeff Yurcisin begin. Jeff Yurcisin: I want to begin with where we're headed. Grove's focus is on driving long-term shareholder value by building a stronger, more resilient business, one that delivers consistent profitability and sustainable growth. Our mission remains clear, to be the leading destination for clean, sustainable nontoxic products for every room in the home. I recognize that some investors remain cautious, questioning whether a D2C business can actually win in a marketplace dominated by Amazon and other digital giants. But I believe there's a $1 billion opportunity ahead for Grove in the long term. How? We must deliver a customer experience that is meaningfully differentiated, one that combines transparency, performance and sustainability, while achieving the unit economics to scale profitably. We also need to reach those customers efficiently at scale and deliver compelling paybacks. We continue to believe that the migration of our eCommerce platform was necessary to deliver on this vision. The migration has though been marked by a series of customer experience challenges. Issues we've worked quickly to resolve and even as new ones have emerged. During the third quarter, we faced new challenges related to the mobile app experience, subscriptions and payments, which collectively weighed on our results. Even with these pressures, revenue was roughly flat sequentially, down just 0.7% quarter-over-quarter and declined 9.4% year-over-year, our smallest decline since the quarter of 2021. But here is the important part. Our engineering and product teams are more energized and confident today than they've been at any point in the past year. We've identified the issues. We know the fixes and we're executing with urgency. There's still a lot of work to do over the next 1 to 2 quarters. But once the transformation is complete, Shopify will enable faster iteration, deeper personalization and access to best-in-class tools that will help us deliver an exceptional customer experience and stronger economics at scale. While this period of learning and troubleshooting has led to quarterly results below our expectations, it has also clarified the path forward. Our near-term focus is improving the mobile app and subscription experience. Two components of the user experience that directly drive engagement, retention and lifetime value. At the same time, our transformation continues to be guided by 4 key pillars: balance sheet strength; sustainable profitability; revenue growth; and environmental and human health. These pillars provide the framework for every decision we make, ensuring that even as we optimize the customer experience, we're building a stronger, more resilient business positioned for long-term success. We are protecting liquidity and profitability, the first 2 pillars of our transformation. We pulled back advertising in September, and that discipline will continue through the fourth quarter. We'll only step up investment once the technology is optimized and new cohorts meet clear hurdles on paybacks and projected lifetime value relative to customer acquisition costs. We also rightsized SG&A to reflect our current scale, completing a reduction in force in November that is expected to deliver roughly $5 million in annualized savings. While near-term cash benefits will be offset by severance and related costs, the action was a necessary step to align our cost structure with current revenue levels and improve operating leverage as growth returns. We're also leaning into AI, automation and technology to increase efficiency across the organization. This restructuring will pay dividends both in the near term through lower operating expenses and over the long term through a faster, more data-driven organization. We've continued to execute against our third pillar, revenue growth, even as we maintain discipline around profitability and liquidity. Last quarter, we expanded our third-party assortment meaningfully with a number of brands up 50% year-over-year and individual products, up 61%. This expansion is concentrated in high potential categories such as clean beauty, personal care, pantry, wellness and baby. With the baby category in particular, showing encouraging early growth as we broadened our offering. We believe Grove is the curated marketplace for clean, sustainable and nontoxic products across the essential categories where customers seek [ mission-aligned ] brands and high-quality alternatives they can trust. Curation is central to that vision. We don't aim to be everything to everyone. Rather, we focus on being the trusted source for the customer who values transparency, performance and environmental integrity. That said, our near-term focus is shifting from adding incremental new assortment to enhancing e-commerce discovery and the mobile experience, areas that directly improve customer engagement, conversion and retention. Our leadership in environmental and human health remains our fourth pillar and a defining part of Grove's identity. During the quarter, we advanced our leadership by becoming one of the first companies to measure and disclose our AI-related carbon footprint through an expanded partnership with Gravity Climate. We believe innovation and sustainability must advance hand in hand and that transparency is essential for meaningful industry progress. Alongside our focus on execution, we continue to evaluate strategic options. Our plan and our priority remain building a durable, profitable stand-alone company. In parallel, as stewards of shareholder value, we are assessing opportunities that could accelerate our path to scale, strengthen our competitive position or unlock additional value for investors. These may include additional acquisitions or partnerships, divestitures and other strategic options consistent with our mission and long-term vision. We are working with advisers to assess these opportunities. Any action we take will be guided by the same principles that shape how we operate the business every day, sustainable shareholder value creation, capital efficiency and customer focus. Today's consumer faces a fragmented marketplace with limited transparency. And our mission is to make that journey easier to set a higher standard for safety and sustainability, stand behind it and help families shop with confidence. We believe Grove sits at the intersection of 2 powerful tailwinds, the growing shift towards cleaner, healthier products and the increasing consumer demand for transparency and trust. Our contribution profit per box remains differentiated in the CPG space. Our NPS scores continue to reflect deep customer loyalty, and our team is aligned and energized the opportunity ahead. 2025 has been a year of meaningful transformation. The path forward is clear, optimize our technology and customer experience, protect liquidity and profitability while we do the work and then scale responsibly and profitably. That's the plan in front of us. We are committed to executing it with urgency, discipline and confidence. Before turning it over to Tom, I am pleased to share that the Board and I have formally appointed him as Grove's permanent CFO, effective at the beginning of October. Tom has been an exceptional partner and thought leader throughout this transformation, bringing financial discipline, operational rigor and a deep understanding of our strategy and culture. I'm grateful for his partnership and excited to continue this next phase together. Tom, over to you. Tom Siragusa: Thank you, Jeff, and welcome, everyone. Before I get into the numbers, I want to share how excited I am to formally step into the CFO role. Over the past several months, I've had a front row seat to the transformation underway at Grove. I'm encouraged by our path forward and the discipline with which we are executing it. My focus as CFO will be to keep us relentlessly disciplined on cash and support profitable growth into the future. Now turning to the financial results. Starting at the top line. Revenue for the third quarter was $43.7 million, down 0.7% sequentially and 9.4% year-over-year. This marks our smallest year-over-year decline since the fourth quarter of 2021. The decline versus last year primarily reflects the effects of reduced advertising investment in prior periods, which led to a smaller active customer base entering 2025 as well as the friction from our eCommerce migration that began earlier this year. Sequentially, fewer orders were partially offset by higher net revenue per order. Total orders for the quarter were 619,000, a decline of 12.5% year-over-year, while active customers ended the quarter at 660,000, down 7% versus the prior year. These declines are consistent with what we've discussed previously. Lower advertising investment in 2024 and prior years has resulted in fewer new customers and therefore, fewer repeat orders due to the recurring nature of our business, along with headwinds related to the e-Commerce migration. DTC net revenue per order was $66.76, nearly flat year-over-year, but increased 2.4% sequentially. The sequential improvement was driven by an increase in units per order and lower discounting activity. Our gross margin was 53.3%, and up 30 basis points compared to 53% in the third quarter last year. The improvement reflects more targeted and improved promotional strategies, resulting in lower discounts, partially offset by a more favorable product. Turning to advertising. We invested $3.2 million in the quarter, an 11.8% increase year-over-year. Spend was higher in the first half of the quarter, but we made the strategic decision to reduce spend in the back half as we shifted our strategy to preserve liquidity and drive profitability. We plan to scale spend more meaningfully once the core customer experience has been optimized. Product development expense was $1.6 million, down 66.1% year-over-year. This decline reflects our decision to streamline our technology organization as well as lower amortization costs following the e-Commerce platform migration. SG&A expense was $21.3 million, a 14% decrease versus the prior year. The reduction was driven by lower stock-based compensation, lower fulfillment costs from fewer orders and broader cost optimization across the organization. As Jeff mentioned earlier, we executed a head count reduction earlier this month that aligns our cost base with current scale, while preserving the talent and capabilities needed to complete the transformation. These actions are difficult, but necessary, and they reinforce our commitment to operating with financial discipline. Adjusted EBITDA was negative $1.2 million or a negative 2.7% margin, compared to breakeven in the third quarter of 2024. The year-over-year decline reflects lower revenue, partially offset by cost structure improvements. Net loss was negative $3 million compared to negative $1.3 million in the prior year. The variance primarily reflects the absence of a noncash derivative gain of $7.8 million recorded in Q3 2024, partially offset by lower interest and operating expenses. Turning to the balance sheet and liquidity. We ended the quarter with $12.3 million in cash, cash equivalents and restricted cash, down from $14 million at the end of the second quarter, primarily reflecting the quarterly net loss, net of noncash adjustments. Turning to our outlook. For the 12-month period ending December 31, 2025, we expect full year revenue to be $172.5 million to $175 million, at the lower end of our previously communicated guidance range of down approximately mid-single digit to low double-digit percentage points year-over-year. For the fourth quarter, we anticipate revenue to remain roughly flat sequentially. For full year adjusted EBITDA, we continue to expect results within our guidance range of negative low single-digit millions to breakeven. Importantly, we expect fourth quarter adjusted EBITDA to be positive, benefiting from our pullback in advertising spend and the structural SG&A reductions executed earlier in November. To summarize, we are tracking towards the low end of our revenue guidance range, and we no longer anticipate year-over-year growth in the fourth quarter. The revision to our outlook is consistent with the choices we made to prioritize fixing the core experience, protecting liquidity and ensuring that when growth returns, it is from a more durable foundation. In spite of lower revenue, we are maintaining adjusted EBITDA guidance as cost actions and disciplined operating execution flow through to the bottom line. In closing, our priorities for the remainder of the year are clear. Protect liquidity and maintain financial discipline as we optimize the customer experience. We are prioritizing cash flow and profitability over short-term revenue growth to maintain balance sheet stability through the transition. These actions are laying the foundation for a healthier, more efficient business as we enter 2026. With that, I'll turn the call back over to Jeff for closing remarks. Jeff Yurcisin: Thanks, Tom. As we close out the third quarter, I want to bring us back to what's most important. Grove is rebuilding for the long term. Over the past several quarters, we've done the hard work, migrating to a modern platform, reshaping our cost base and refocusing the organization on the customer experience. Our priorities for the next phase are clear. We're fixing the core experience while operating with tight financial discipline. We're protecting liquidity and profitability as we complete the transition, ensuring that investments we make meet our standards for payback and lifetime value. And as those improvements take hold, we expect to return to investing in measured growth built on a more efficient cost structure. We've learned a lot this year, and those lessons have sharpened our focus. 2025 has been a year of transformation. We know what needs to be done and we're executing with urgency and discipline to deliver durable, profitable growth. Our focus on disciplined execution and efficient growth is how we will rebuild long-term shareholder value and reestablish Grove as the category leader. With that, we're happy to answer any questions you have. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Susan Anderson from Canaccord Genuity. Alec Legg: Alec Legg on for Susan. I guess, can you start off by just talking about the puts and takes of what changed in reaching this year's sales expectations, kind of just bucketing how much was due to digital disruption, if you're seeing any changes in consumer spending with the macro environment? Or I mean, it might be hard to parcel out, but the pullback in advertising as well? Jeff Yurcisin: Of course. The revision to near-term outlook is a reflection of us prioritizing liquidity, protecting profitability and fixing the core experience. If I were building a bridge for why we came up short, we are not giving any -- we're not seeing any trend from a macro environment perspective. It really is driven by the intentional pullback in advertising. And then secondly, the impact of the customer experience, where we had these hiccups with payments in our mobile app. 100% of the bridge is from those 2 variables and not from the macro environment. Alec Legg: Understood. And then on the customer disruption, are you able to -- I guess, where are we with resolving it? Is it already resolved? Is it something that might be resolved this quarter? Just a time line on that? Jeff Yurcisin: Great call. I think the exact phrasing we use was intentionally 1 to 2 quarters of our focus. The reality is in these migration, new issues emerge. All this seems like almost every month. It almost feels like whack-a-mole for our product and engineering team. What I can say, and I know this is forward-looking, but like from -- our product and engineering team today is more excited about our road map and our path out than they've been at any other time in the last 12 months. So it depends on which of these issues, but we seem to be closing the gap every single week, and we are heads down fixing that core customer experience over the next 3-plus months. Alec Legg: And just on the core business of the customers, we've talked a lot about cohort curves in the past and seeing that stabilize. I guess how close are we to seeing that stabilize? Do you see that potentially even picking up in the next 1 to 4 quarters? Jeff Yurcisin: It's a good call. So I think from a cohort perspective, these cohorts are behaving as we expected, except for the issues we've had with the app and subscription in some of our payments where we've been able to isolate the issues. So I think that flattening of the cohort curve has played out as we expected. There were just some bumps down the cohort curve a little bit more in Q3. I think as we look forward, what we're rallying our company around is we're going to fix the core experience. And then as soon as the core experience meets our expectations, we expect to see paybacks really accelerate. And so while you're going to see revenue growth as if you're projecting a model out 4-plus quarters, like we're not here to just beat this microcap company. We are focused on profitable growth in the long term. We can't give an exact kind of date but like what our belief is as those cohorts are really flattening. And when we start seeing the paybacks, which will be a natural result of fixing the core experience, we'll be able to put more advertising dollars on top of it, which will drive future growth. Alec Legg: Understood. That's very helpful. And then just turning on to M&A. You mentioned potential acquisitions, even divestitures. On the topic of acquisitions, you added 2 brands earlier this year. If you're looking to still add brands, I guess, what type of categories are you looking at? The potential size of these potential brands? And then how do you potentially plan to fund these acquisitions? Would you use cash on hand, other types of financing. Jeff Yurcisin: Yes. It's the right question. So first, let me emphasize our focus. The team's focus remains on building this durable, profitable stand-alone company, okay, period. In parallel, we are talking to advisers to assess where these opportunities may make sense that could either accelerate our scale and our revenue or strengthen our overall competitive position. So again, there are a few different paths here. One is you look at acquiring subscale businesses that when attached to our platform, especially in this one-plus quarter outlook that we have when we fix the core kind of customer experience, it could be incredibly accretive. Your next follow-up question was how would you fund it? Like, look, I think we would either use cash or we look at raising. We would look at potentially raising some money to fund it, but like the core here is we would only do this if it really does make sense. And we are just seeing a bunch of opportunities that present themselves on a monthly basis in front of us. So we're assessing with discipline, the lens we have on paybacks. It doesn't just extend to how we use capital in advertising, but also in M&A. You've also asked if there were particular categories we would be interested in? I think we've spoken a lot in the last few quarters on the wellness and supplements category, very intrigued there, but we're also seeing great success within baby, which could also be a nice fit or within some of the beauty and personal care. So we are like seeing opportunities in each of those spaces. So look, I think I would just end with, investors should know we're are guided by a handful of principles, sustainable shareholder value creation, capital efficiency and what drives both of those things is delivering this extremely differentiated and superior customer experience. And that's what we're focused on. Alec Legg: That makes sense. And then I guess my last question it's somewhat related to -- you just mentioned the vitamins. So I saw that the VMS category, there's more net revenue per order. I guess, how far along are you with your SKU expansion plan this year? How much more opportunity and brands do you think you could add to the platform in fourth quarter and heading into 2026. Jeff Yurcisin: Great question. What is marvelous about Grove, is our brand matters not just to end consumers, but also to other brands. And almost every wellness brand that we call is interested in selling to us. And so -- because they know that we will deliver incremental customer group to them and 1 that is truly looking for the highest ingredient standards. So we are in talks with many brands, we've been launching some in the last few quarters, and there are some more significant ones in the next 100 days. But I will -- I should emphasize to investors, like selection has been a big part of our growth strategy. But right now, we are focused on shifting energy more towards fixing that core experience. It's almost like selection has outflanked our discovery and shopping experience. So that's where we're pivoting. Operator: And we have reached the end of the question-and-answer session. And I would like to turn the floor back to Jeff Yurcisin for closing remarks. Jeff Yurcisin: Great. Thank you. I want to thank everyone again for joining our call. I hope you have a great night. Thank you. Operator: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Bionano Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kelly Gura from Investor Relations. Please go ahead. Kelly Gura: Thank you, Didi, and good afternoon, everyone. Welcome to the Bionano Third Quarter 2025 Financial Results Conference Call. Leading the call today is Dr. Erik Holmlin, CEO and Principal Financial Officer of Bionano, and he is joined by Mark Adamchak, Bionano's Vice President of Accounting and Principal Accounting Officer. After market closed today, Bionano issued a press release announcing its financial results for the third quarter of 2025. A copy of the release can be found on the Investor Relations page of the company's website. Certain statements made during this conference call may be forward-looking statements. Actual results may differ materially from such statements due to several factors and risks, some of which are identified in Bionano's press release and Bionano's reports filed with the SEC. These forward-looking statements are based on information available to Bionano today, November 13, 2025, and the company assumes no obligation to update statements as circumstances change. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release and slide deck. An audio recording and webcast replay for today's conference call will also be available online on the company's Investor Relations page. With that, I will turn the call over to Erik. Robert Holmlin: Thank you, Kelly, and good afternoon, everyone. I'm excited to update you all on the third quarter results and key highlights, as well as provide an update on our expectations for the remainder of the year. At Bionano, our focus is on transforming pathology, which is the medical discipline that investigates disease, including its causes, developments and effects. This transformation is from pathology's analog past to a digital future. Our digital pathology solutions include optical genome mapping systems, the Ionic system for nucleic acid isolation and our VIA software. These solutions address significant unmet needs in cytogenetics and molecular pathology through simplification of workflows. Over the last year, we have taken decisive steps to transform our business model away from one based in aggressively growing the installed base toward a model that's driving utilization of our solutions within a subset of our existing OGM and VIA software user base, we call this subset of users our routine users. These routine users are characterized by having an established flow of samples coming into their labs. And therefore, we believe they can generate significant consumables and software revenues and will drive most of our revenue growth in the near-term. To succeed with this strategy, we're executing against 4 strategic pillars. First, we're focused on supporting and sustaining our installed base of routine OGM and VIA software users. Second, we are aiming to drive utilization through the adoption of software across the routine users of OGM. And that way, we can facilitate their menu expansion. Third, we're building support needed for optical genome mapping reimbursement and inclusion in medical society guidelines, recommendations and different schedules for reimbursement. Fourth, we intend to improve profitability and scalability with lower costs and higher volumes. We believe our performance in the third quarter and year-to-date validates that focusing on these routine users is restoring growth in our core business. At a high level, this quarter, we achieved solid gross margins, remain disciplined with our operating expenses and increased the utilization from these routine users. It's increasingly evident that optical genome mapping solutions are providing valuable insights to our customers and that these customers are expanding their utilization. Taking a closer look at this performance, total revenue for the third quarter of 2025 was $7.4 million, reflecting an increase of 21% compared to the third quarter of 2024. When adjusting for a write-down of $0.5 million in revenues from discontinued clinical services in 2024, core revenues increased by 12% year-over-year in Q3 2025. We sold an all-time record 8,390 flow cells in the third quarter of 2025, which reflects a 7% increase compared to the same period last year. And we're pleased with the strong growth in flow cells again this quarter. It reflects increased utilization within this routine use customer group. Non-GAAP gross margin for the third quarter of 2025 was 46%, which was significantly higher than the 26% non-GAAP gross margin reported for the third quarter of 2024. Third quarter 2025 non-GAAP operating expense was $9.7 million, which is a 40% reduction compared to the $16.1 million in operating -- non-GAAP operating expense in the third quarter of 2024. We installed 7 new systems and brought 1 back for a net increase of 3 to 384 for the installed base as of the end of the third quarter of 2025. And year-to-date through September 30, 2025, we have installed 23 new systems. We ended the quarter with $31.8 million in cash, cash equivalents and available-for-sale securities, of which $10.3 million was subject to certain restrictions. In September, we completed a $10 million public offering of common stock, bolstering our balance sheet and extending our cash runway into the third quarter of 2026 and potentially longer depending on the execution of our growth and cost savings initiatives. Now taking a closer look at our first pillar, which is supporting the utilization across our routine user base who repeatedly purchase and use consumables and software at higher rates. Overall, flow cells grew to 7% -- grew 7% in the quarter compared to last year, achieving this new record. After removing the flow cells that were sold to new customers since the third quarter of 2024 and those sold in this quarter, flow cells sold to the remaining existing customers grew by 6% on a year-over-year basis. Flow cell purchases by existing customers in the first 9 months of 2025 compared to the same customers a year ago grew by 7%. Our year-to-date performance suggests that our strategy of focusing on driving utilization within this routine user base is working and customers are using our product at higher volumes. Now when looking at the revenue contributions from consumables and software together, these sales grew 15% on a year-over-year basis in the third quarter and 10% year-over-year for the first 9 months of 2025. As a percentage of the total product mix, consumables and software represented 72% in the third quarter of 2025 and 76% in the first 9 months of this year, whereas in 2024, it represented 76% in the third quarter, but just 62% in the first 9 months of 2024. So this shift in product mix is also a result of our change in strategy. Beyond supporting our OGM users, we're also making good progress with our second pillar of integrating VIA into customer workflows and upgrading our software and software and compute platforms to make analysis of OGM, microarray and next-generation sequencing data easier, faster and more accurate. Last quarter, we announced that upgrades were released in a first wave and that we are pleased to remain on track for the full commercial release of this software in the coming months. Now moving down the P&L to discuss our pillar of improving profitability and scalability. We have made steady progress in reducing our non-GAAP operating expenses over the last few years, and we have remained disciplined with this approach throughout this year. In the third quarter, our non-GAAP operating expense was $9.7 million, and that represents a 40% year-over-year reduction. Turning to gross margin. Cost reduction along with improvements to our product manufacturing costs and volumes have enabled expansion from 22% on the non-GAAP core gross margin in the first quarter of 2023 to 46% non-GAAP gross margin this quarter. While we expect to see continued margin expansion over time, we believe that the levels that we have seen in the last few quarters is representative of where we will be in the near-term. With the shift in product mix towards consumables and software, we see a benefit to gross margin as well. Importantly, these adjustments and improvements in cost and margin are strong indicators that we are meaningfully improving the financial profile of Bionano. Now lastly, turning to our final emphasis on building the support needed for OGM reimbursement, where we believe a growing number of publications illustrate the utility of OGM in cytogenetics and clinical research, as well as the number of clinical research genomes published. Taken together, we see these as positive leading indicators of future adoption of optical genome mapping. In the third quarter of 2025, there were 97 new publications demonstrating the value of optical genome mapping, and this represents a 10% growth over the same period the year before. And the OGM community has now published on a cumulative basis, nearly 11,500 clinical research genomes. These publications provide the support for new customers to adopt, existing customers to expand their applications and third parties to support OGM in reimbursement and consideration for medical society recommendations and guidelines. Now looking closer at some of the key studies presented and presentations over the last few months. First, we had a strong presence at the ASHG Annual Meeting in Boston last month, where there were 9 studies presented, including oral presentations and posters that demonstrated both growing interest in key -- in existing geographies for optical genome mapping as well as in new regions, and we were impressed to see a strong contribution from Japan. We're excited to see this interest in optical genome mapping continue to grow on a global basis. Second, a new publication from the MD Anderson Cancer Center at the University of Texas, which was recently published, shows how optical genome mapping can overcome key limitations of targeted RNA-Seq for cytogenetic investigation in acute leukemias. This paper represented the first benchmark comparison of optical genome mapping directly to RNA-Seq in cancer. It supports our overall digital pathology strategy by tying OGM to methods that are commonly used in molecular pathology and represents an important expansion outside of cytogenetics for us. Third, multiple studies highlighting the OGM utility for analysis of cancer -- of the cancer biomarker chromoanagenesis were published in a book addition of molecular methods in -- sorry, methods in molecular biology. Chromoanagenesis refers to a catastrophic genomic event frequently associated with complex karyotypes and extensive clonal heterogeneity, treatment resistance, poor prognosis, and it includes events such as chromothripsis, chromoplexy and chromoanasynthesis, all of which play significant roles in cancer development and are hard to sort out using existing tools in cytogenetics. Optical genome mapping provides a genome-wide view of structural variations at high resolution, which enables precise identification and characterization of the genome variation underpinning this chromoanagenesis. The 4 chapters published in this series highlight the use of optical genome mapping and the expansion into new cancer types for OGM such as multiple myeloma and chronic lymphocytic leukemia, or CLL, as well as the proliferation of novel workflows such as something new called DAM-assisted fluorescent tagging of chromatin accessibility, which is a hybrid method for highly detailed spatial analysis of chromatin assemblies. And so, this is one of the first times that we're seeing optical genome mapping being integrated into spatial analysis. Now on our last call, we shared that the editorial board of the American Medical Association established a second Category I CPT code for optical genome mapping. This one in the evaluation of constitutional genetic disorders. And that represented another incredible milestone for the OGM community. I'm pleased to share that in mid-September, CMS posted the preliminary payment determination for this CPT code, which is based on a crosswalk to a previously established OGM code priced at $1,263.53. Pricing at this level, which is higher than what microarray codes are priced at is consistent with the needs of laboratories today seeking to move forward from the legacy methods. We believe this CPT code builds on the evidence that OGM can outperform these legacy methods across a number of applications and may pave the way for more routine use of OGM across oncology and clinical genetic research communities globally. So to wrap up, I would like to provide our outlook for the remainder of the year. We are reiterating our full year 2025 revenue guidance of $26 million to $30 million. We expect the fourth quarter of 2025 revenues to be in the range of $7.5 million to $7.9 million. And given that we've reached 23 new OGM system installations in the first 9 months of this year, we now expect to exceed the prior range of 20 to 25 systems, likely surpassing the high end of that. So with that, Didi, please go ahead and open the line for questions. Operator: [Operator Instructions] And our first question comes from Yi Chen of H.C. Wainwright. Yi Chen: My first question is with respect to increasing utilization of routine use customers, can you talk about what is the potential peak level of utilization for these routine use customers? And how soon do you expect to have these customers achieve the peak level based on the current trend? Robert Holmlin: Yes. It's -- I think it's a key question, and important topic. Thank you, Yi, for joining the call and for the question. What we feel confident about, first of all, is that, in general, the labs are not sample limited. So they have an abundance of samples. Those samples are distributed across multiple different indications. And so, the sort of process of expanding utilization involves the laboratories developing and validating an assay for 1 application and then running that for a while and then beginning to grow the menu by developing an assay for another research indication and so on and so forth. That's really the primary mechanism of growth. And what we see across the user landscape is that, the average utilization across these routine users that are running on a regular basis is about 4 samples per week. But at the highest end of the spectrum, it's as high as 40 samples per week. And so, our view is that, a reasonable target for us to shoot for is maybe the midpoint between the 4 and the 40, so getting up to in the low-20s on average across all of the routine users. And so, that's what we're going to try to make happen. Yi Chen: Got it. And with respect to the Japanese market, can you tell us how many -- what is the current installed base in Japan? How do you think the market could ramp up in comparison to the U.S. market? Robert Holmlin: Yes. So we have really only 1 system installed in Japan, and it's at a laboratory of a service provider. And so, different academic customers, industrial customers can send samples to this laboratory, have them processed and get data. And so, that's what's going on. And what we see is that, the interest in Japan has evolved over time. So initially, when this services lab first got going, they were primarily focused on nonhuman applications actually. And now in the last couple of years, that has changed. And so, the evolution is much more consistent with what we see in other areas, work in genetic diseases, leukemias and lymphomas. And so, we would expect that market to evolve similar to what we see in the U.S. for those applications. I think that there's also a significant opportunity in Japan around cell and gene therapy development. And so, we're seeing some of these pharma companies begin to access this service provider. And so, there's tremendous potential in Japan. I do think for the types of clinical research applications that we're doing in other regions such as hematologic malignancies and constitutional genetic diseases that it will take some time. They're going to want to build up a kind of war chest of local data in support of optical genome mapping, but that's ongoing. I think that the pharma can accelerate. And so, we're paying attention to all of these, and we're quite happy to see some presentations or posters actually at ASHG last month. Yi Chen: Got it. And with respect to operating expenses, do you expect it to remain relatively stable going forward? Robert Holmlin: Yes. Yes. I think this is the range that we're intending to be in. We're in the process of putting together our detailed operating plan for next year. And we see some areas where we might like to invest. But I think that our overall intention is to keep things as flat as we possibly can, except where opportunities justify it. Operator: I show no further questions at this time. I'd like to turn it back to Erik Holmlin for closing remarks. Robert Holmlin: Great. Very good, Didi. Thank you, and thank you to everybody who joined the call, and we look forward to updating you on our full year results next year. Thank you very much. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good evening, ladies and gentlemen. Welcome to Companhia Paranaense de Energia COPEL's video conference call to discuss third quarter 2025 earnings results. This video conference is being recorded, and the replay can be accessed on the company's website, ri.copel.com. The presentation is also available for download. [Operator Instructions]. Then we will start the Q&A session when further instructions to participate will be provided. Before proceeding, I would like to stress that forward-looking statements are based on the beliefs and assumptions of COPEL's management and on information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, should be treated as forecasts dependent on the macroeconomic environment, the country's economic situation, the performance and regulation of the energy sector in addition to other variables -- such forward-looking statements are therefore subject to change. This video conference will be presented by Mr. Daniel Slaviero, CEO of COPEL; and Mr. Felipe Gutterres, CFO, as well as officers of the subsidiaries. They will be available during the question-and-answer session. I would now like to give the floor to the CEO of COPEL, who will begin the presentation. Please proceed, Mr. Slaviero. Daniel Slaviero: Good morning, everyone. I would like to thank you all for joining us in this video conference call. I'd like to start highlighting the healthy operating and financial performance of the company in this third quarter. We posted recurring EBITDA of BRL 1.3 billion, up almost 8% over the same period last year and a recurring net income of BRL 375 million. These numbers show the -- how solid and consistent COPEL's results are. Another point that deserves to highlight is the strong investment made in the period, BRL 981 million in CapEx in the third quarter alone, totaling BRL 2.6 billion in the 9 months of 2025. This level of investment reflects our commitment with quality of service expansion and modernizing our asset base and ensures that we are preparing for a historical tariff review in the distribution company in 2026, in line with our commitment to continuously optimize our portfolio. This month, we completed the divestment of 4 photovoltaic solar plants totaling 22 megawatts peak in distributed generation in a deal evaluated at BRL 78 million. This follows our commitment to simplify our portfolio. Additionally, with the completion of the Mashigua Sue HPP divestment in the start of October, our leverage ratio is at 2.8x net debt over EBITDA ratio, well on target of our optimal capital structure. This fact reinforces 2 things. Firstly, our excellence in executing the commitments that we set forth with the market. And secondly, this [indiscernible] deal with its characteristics, it represents the essence of this new phase of COPEL, a company that is agile, attentive to opportunities and focused on creating value. On the operational side, we recorded sales of almost 5 gigawatts and the build market of DISCO grew 1.7%, still comparing with a very high base recorded in Q3 2024. These indicators reinforce the resilience of our business, the abundance of our concession area and the trust of our customers. On the side of generation, it is important to put things into context. The results obtained by [indiscernible] were recorded in a very challenging scenario. In this quarter, we had a GSF of approximately 65% and a curtailment of almost 35%. Fortunately, these assets subject to curtailment are very small in the structure base of COPEL. On the positive side, we had an increase of PLD spot market of close to 50% compared to Q3 '24, totaling about BRL 250 per megawatt hour. The intelligence of our strategy and trading structures led by Rodolfo and risk mitigation, coupled with the positive effect of optimizing our portfolio and special the modulation of the hybrid source made all the difference. To end the slide in this period, for the first time, we had a consolidation of the results of Mata de Santa Genebra, the transmission company and [indiscernible] ensuring a more robust and efficient portfolio, which contributed to better results. This reinforces our differential, the fact that we are an integrated company with a solid presence in all 4 segments where we operate. I take this moment to give you an update on the process to migrate to Novo Mercado. The structure of the deal is already known to all of you, but I would like to record the steps that have been completed. On August 22, we had the approval of the common shareholders in the special general meeting, and we got waivers of debenture holders in all of the necessary issuances, and we have handled the unification of preferred shares, Class B to Class A. Lastly, we had the approval conditioned by B3 to migrate to Novo Mercado. And now next Monday, November 17, at 11:00 a.m., we will have the Special General Meeting and the agenda is to ratify the conversion of preferred shares into common shares in a rate of 1:1 plus a new Class B preferred share redeemable. I would like to invite all preferred shareholders to take part in this special meeting and to give us their vote. This is a decisive step for us to consolidate a simpler, more transparent shareholder structure and one which is more aligned with the best practices of the market. In parallel, unification of shares into one single class will bring more liquidity to our security to our share, which is a relevant factor to attract new investors. Should this measure be approved, we will be prepared to end or to complete the whole process by year-end, which will open up a path to distribute part of the dividends referring to the first event of the exercise as set forth in our dividend payout policy. This will be a historical moment in our journey to create value at COPEL. Last Friday, we launched to our employees the new element of the COPEL culture. Reason of existing ambition and our values. The T-shirt that myself and my partners are wearing today is part of the -- of this event and part of the internal communication process. This year, we revisited the company's strategic planning and thus built a vision for COPEL 2035. We cannot think about strategy if it's not coupled with culture and vice versa. A strong culture is a central pillar to sustain a long-term vision and a very bold one, I should say, more than a concept. We believe that our culture is a competitive differential for COPEL. All these elements of culture as well as strategic planning will be presented to the market in our COPEL Day. By the way, before I give the floor to Felipe, who will detail the financials of the quarter, I would like to reinforce the invitation for you to sign up to our COPEL Day, which will be held next Wednesday, November 19, directly from Rio de Janeiro, the wonderful city with an online broadcast starting at 9:30 a.m. It's going to be a big event. Thank you very much. Felipe Gutterres: Thank you, Daniel. Good morning, everyone. I'll start highlighting the consistency of our results, COPEL's discipline in capital allocation and the operating efficiency of our business, which is proven by the robust numbers we posted in the quarter even in a more challenging business environment. In the quarter, our recurring EBITDA consolidated grew 7.8% over Q3 '24, reflecting the health of our operation and the efficacy of the measures adopted for efficiency. COPEL [indiscernible] was responsible for 53% of this result [indiscernible] 49%. I will give you more color on COPEL Generation and Transmission in a minute. Recurring EBITDA of COPEL Genco grew 11% over Q3 '24, driven by a combination of factors, better performance of assets, integration of new enterprises or endeavors and consolidation of strategic asset results. In the transmission company, the highlight was the increase of BRL 119.4 million in EBITDA with the consolidation of Mata de Santa Genebra and the average increase of 2.2% in RAP of the transmission companies. In the Generation segment, we were able to mitigate the impact through a smart trading strategy, optimization of the portfolio captured the positive effects of hydro modulation despite an adverse event with GSF of 64.9% and curtailment of 34.4%. The result was positive, especially given the BRL 23 million increase in short-term market sales, 21% up in volumes sold, incremental BRL 10 million in bilateral contracts, BRL 7 million coming from revenues of regulated contracts. I highlight the startup supply of Jandaira in the consolidation of the Mashigua Sue HPP. These results were partially offset by greater curtailment, which generated a negative effect of BRL 39 million more in the generation deviation in the quarter. Now moving to COPEL [indiscernible] Distribution presented a recurring EBITDA 7.2% up in this quarter. This result is the result of a 1.7% growth in the build grid market with an average adjustment of 6.8% at TUSD occurring in June in RTA and the efficient management of costs, highlights going to 16% reduction in personnel year-on-year. Now moving to trading. COPEL com EBITDA recurring posted a drop of BRL 7.3 million in the margin, mainly due to the effect of legacy contracts of electricity starting from intermittent sources as well as a 39.1% increase in the PMSO expenses, a reflects of the advancement of the process of restructuring the trading company. On the other hand, sales volume for 2026 to 2030 grew 96.2% in relation to Q2 '25, adding an amount sold of 431 megawatts, which shows the potential of expansion of the business. So ending the analysis of, I highlight the advances obtained in operating efficiency in Q3. PMSO expenses, recurring ones totaled BRL 718.7 million, a 4.1% reduction over the same period last year. This is a reflection of the discipline in cost management, which is a priority across the company. Main highlight was an 18.4% reduction in personnel and administrative expenses driven by structuring measures such as the voluntary severance program, which contributed to adjusting the headcount. We also saw a reduction of 8.5% in costs with pension plans and health plans, reinforcing the positive impact of rationalization actions. In addition, we reduced 3.6% of expenses with materials, while third-party services posted a 4.7% increase, reflecting the hiring of specialized services for maintenance and operation. The others line, the 10% basically related to the write-off of the activation of assets, especially in DISCO, given the high level of investment in the period. We reduced cost of preserving safety of the operation and quality of services provided, which reinforce -- reinforces our commitment to operating efficiency and excellence. In Q3 '25, COPEL presented a recurring net income of BRL 374.8 million, down 36.5% over the same period last year, which is a result of a 7.8% EBITDA increase, offset by an increasing negative financial results, driven by robust investment cycle funded by the company within the parameters of an optimal capital structure. In addition, in the comparative period, we had in cash BRL 4 billion, which we used to pay the granting bonus for the renewal of generation assets for another 30 years. Another highlight is the CDI increase year-on-year, which negatively impacted the cost of debt. Income tax and social contribution was higher than past year as a result of interest on equity that we executed in '24 and have now been executed in '25. In other variation, I highlight the impact of reduction of equity income of Mata de Santa Genebra that started be 100% consolidated. Now talking about investments in this quarter. On the slide, we can see consolidated CapEx totaling BRL 981.4 million, maintaining the planned rhythm and aligned to the company's plan. Year-to-date, investments totaled BRL 2.6 billion with a focus on assets that broaden the remuneration base, modernize the infrastructure and ensure quality of service. Most of the resources was directed to the segments of distribution and generation, highlights going to projects that strengthen the reliability of the energy system, increase installed capacity and promote operating efficiency gains. We continue with a disciplined capital allocation, prioritizing projects with attractive return and aligned with the long-term strategy of the company. Coming to the end, I speak about the capital structure. Net debt over EBITDA ratio was 3x in the quarter within the range established in our study of optimal capital structure. But if we consider the sale of Mashigua Sue HPP completed in October, this ratio would have been 2.8x, reinforcing our financial discipline. Net debt totaled BRL 16.6 billion with a diversified makeup among financial institutions and market insurance debentures and securities. This diversification is strategic, reduces risk and improves the forecast of predictability of the financial flow. Important to mention that the company has a AAA rating, reflecting the solidity of our balance sheet and the dimension of our manifest of capital allocation. As for the CDI equivalent cost of debt, we had a debt costing 98.46% of the CDI to 88.7%, showing our efficiency in funding and managing our debt. We continue to pay attention to market dynamics, and we remain committed to maintaining a healthy capital structure that would allow COPEL to continue to invest with safety, competitiveness and a focus on value creation for our shareholders. With this, I come to the end of the presentation, and we can now start the Q&A session. Operator: [Operator Instructions]. Our first question comes from Guilherme Bosso with Goldman Sachs. Guilherme Bosso: I have 2 actually. First, I believe it has been partly addressed in the presentation about the migration to Novo Mercado. I just want to clarify, I'd like to confirm if the expectation of completion remains at the end of December? Or can you tell us when this is expected to happen? And in that regard, what is the company thinking about dividend payout -- are you expecting an announcement for this year after you complete the migration process? Or can we expect something before? That's the first question. Secondly, I'd like you to elaborate on the cost efficiency agenda. In this quarter, we saw again manageable costs dropping year-on-year. So I would like to understand if for next year, the company still sees room to reduce costs. And if so, the extent of these cuts. Daniel Slaviero: Well, I'll answer part of your question, and then Felipe will speak about efficiency gains. It is exactly as you -- and then as we said, our idea is on Monday, the 17th, if we get approval by the preferred shareholders, our expectation is that we will complete the operation -- the migration by year-end. It will be towards the end of the year because if we have approval on the 17th, we have 30 days of recess as determined by law. And then the operational time line, the notary public [indiscernible] and our expectation is to end to complete the migration still this year, but more towards the last week of December, but still in 2025. And then we have a commitment regardless of the -- regardless but linked to the migration, which is our base scenario, we expect to announce dividends, dividends payment for the first event of the year as set forth in our policy with a minimum of 2 events. So it will be the first year consolidating the result of the first half and according to our financial analysis of the company. So we're quite excited, and we are working hard. The process to obtain the waiver with several debentures being very polarized. It was very hard work led by Felipe and the whole team. By the way, I'd like to publicly thank them for the efficiency. We have the support of many financial institutions, which helped us access the huge amount of shareholders. So this is moving on, moving forward smoothly, and it's all conditioned to next Monday. Thank you, Daniel. As regards to the process of cost reduction, we continue in an attempt to capture more efficiencies. Please remember that our goal is compared to 2023 annualized until 2026. So there is an effort to reduce costs in 2026 with an important move concentrated in some business units as status quo, but also there are other moves which are more geared by supply, the shared services center. So there are a number of initiatives and the value creation levers that are actionable expected in 2026. We'll give you more on that at COPEL Day. And just to add to that, Guilherme and everyone, we are completing this phase of structuring efficiencies and operating excellence in cost reduction. As Felipe mentioned, during COPEL Day, we'll give you more detail of the 10 promises that we took on at the follow-on time by Novo Mercado, we need 3. So we have also the tariff review in mid next year and the completion of this phase of structuring efficiency gains. And then we'll speak a lot about this at COPEL Day. Then we'll turn the page. You've heard me tell you over and over that no company creates value sustainably in the long term, just cutting costs and selling assets. We have to finalize the cycle throughout 2026 and then turn the page, change the chapter and focus on efficiencies, profitability indicators. And Felipe will have a session dedicated to this in his presentation on November 19, COPEL Day. Operator: Next question from Raul Cavendish with XP. Mr. Cavendish, go ahead. Raul Cavendish: My question has to do with the Genco, GMT generation and transmission. What we saw this quarter was a portfolio strategy that was very well performed by the company. We can see this at a much lower cost of energy [indiscernible]. So my question is, in terms of the strategy of the trading company, taking one step back to understand the process to build this portfolio hedge strategy for the year. And what is the [indiscernible] for next year in terms of price, market and strategy to continue to maximize the value of the GEN portfolio? Daniel Slaviero: Well, excellent question. We have worked to develop an internal expertise with Rodolfo and the whole team to add this competitive edge, this market intelligence and this trading strategy. So Rodolfo, perhaps you can share with Raul and the investors our macro strategy, -- remembering that our competitors also join our calls. And then that's why, you can add whatever you want. So Rodolfo? Rodolfo Lima: Excellent. So let's divide this into 2. Let's speak about the hedge strategy for this year, and then I'll speak about the market currently. In the mid-2024, we had some windows of good opportunities of low prices. Before materializing the need of power with the increasing price in September, we had good windows to purchase energy. And that's when we purchased most of the energy. And coupled with that, we had a lot of swaps. We know the need for electricity in Q3 and have some excess at the end. So much of advantage of this moment to have this kind of swap using these more competitive prices in Q3. And that's why we were successful in our strategy vis-a-vis the spot market. Now speaking about the market currently, the market is at very high levels. We understand that there's still a lot of room to increase. And what matters is with a lot of liquidity. We have high demand in the market. We are weighing our speed of sale. You could see that we have good sales, but quite contained compared to the amount we have available. So overall, I believe these are the 2 main insights regarding our strategy for short term, Q3 and mid- and long-term thinking about the future electricity prices. Brittol, any comment? Unknown Executive: Yes. Good morning, everyone. Well, I think Rodolfo spoke well about the strategies. The strategies are executed by the TradeCo, but it's all discussed with COPEL generation and transmissions led by Daniel, and we execute the strategy. We posted good results this year given the opportunities mentioned by Rodolfo for the price window for energy purchases. And during this period, we had a strong result regarding modulation of the hydropower plants, which accounted for quite a lot of our results. So this is a solid articulated strategy executed by the TradeCo based on the analysis of COPEL Genco. I can just to final comments, Raul and everyone. Brittol mentioned an important point about the benefit of hydro modulation and the role it has played and how it has been better priced here in this environment. Given the role it has to sustain the hydroelectric system, in addition, [ AMP304, SMP304 ] that is to be approved to bring some positive elements in our view in terms of ancillary operational services. And coupled with all that is the fact that the bulk of our portfolio, especially our hydro plants are in the South region, and we see an appreciation of price. I guess this reinforces the unique characteristic of COPEL's portfolio. In broader terms, what have we seen? And this is our strategic approach. Firstly, we see pricing structures that are much better than 2, 3 years ago, but still below the price potential that we envision, particularly if we consider marginal cost of expansion for 2028, '29 and 2030 and beyond. So we'll see and you will see that we have some room here regarding prices. So what is our strategy? We don't want to put all eggs in one single basket. So strategically, we sell some small blocks along A plus 2, A plus 3 so that we can ensure an average price. But clearly, with the price volatility we have seen hourly prices and also with the need that the system has for power, and we are going to talk a lot about that at COPEL Day. So we will need to work with more uncontracted energy, plus 1, plus 2, so that we can capture these better energy prices greater than BRL 250, BRL 280, which is what we have seen. This is the fact that COPEL has 64% stress, 64% of its EBITDA linked to the grid distribution and transmission grids. This gives us comfort in our balance sheet to be able to execute these strategies quite easily in trying to capture better price opportunities. Raul Cavendish: Perfect. It is clear. If I may ask another 2 quick questions. Because there is, in terms of looking forward and turning the page in terms of cost cuts and efficiency gains, the strategic vision in addition to the auction of capacity reserves and now including batteries, I would like to understand how does the company see the opportunity in batteries? Does it make strategic sense for the company or given the structure, this is a kind of a [indiscernible] business that will not add so much value to the portfolio. And in terms of prices, if I may ask another question, we have seen some small complex elements that have pushed prices down. Nothing transformational, but kind of a weaker load given the climate in the end of Q3, beginning of Q4, slightly better rainfall. In your view, do these elements would [indiscernible] downside for 2026? Or have you priced this? Daniel Slaviero: All excellent points. So let's start with the end. Rodolfo, perhaps you could give us more color on the second part of the question, and I will answer the first question, and Felipe can help me. Rodolfo Lima: Well, excellent. I think that you raised the main variables that can impact price. But we see this happening in a one-off basis. There is 1 month with more rain perhaps. The trend is that the prices will be higher. Why do we say this? If again, how the system is being operated this year compared to last year with the same scenario of storage and rainfall, the prices are different. We're talking about a floor versus BRL 300 in March. So I can't have a specific month when it rains a lot, and I don't have the need for thermal dispatch and the prices can be lower. And that's when we take the opportunity to hedge the operation, as I mentioned. But in the midterm, the need for thermal dispatch is abundant. So I think it is almost impossible to have a scenario where it will rain a lot throughout the year to the point that we can only serve the system with hydro. And that's why we believe that prices will be higher in the mid- to long term. Very well put. And Raul, looking forward, I think it is important to highlight that the efficiency agenda remains. It is permanent. Cost, it's like nails, you trim them, they grow back, you trim them, they grow back. But the centerpiece is that previously, we had structuring inefficiencies, either due to the hiring process, materials, bidding forces, everything we know about. I just want to make this clear. The centerpiece of our agenda will lose some momentum and this other agenda focus on efficiency. Good, correct disciplined capital allocation will gain more relevance. To that end, [indiscernible] CAP in our view is a strategic point with 2 products in 2030, 2031. Of the 5.5 gigawatts recorded for both auctions, 2 gig COPEL project, Foz do Areia and Segredo. We've been repeating this, but this auction was expected to happen has been postponed. And now it has been set for March also because there are very important needs from the system. So I guess it will arrive with very competitive projects. We'll analyze size, product size, capital price. There are some elements that are not yet very clear, but we are going to be very disciplined. Although we do like the project, although the projects are competitive with all necessary licenses ready, it is at the moment of the auction that theory will meet practice. Having said that, as for batteries, well, we're looking into that. We have a due diligence for that. But I think that this entails an assessment of the level of competitiveness that we can have, that we can add to these auctions, considering that most of it is linked to the battery acquisition cost. If you have easier access to the inputs, they might be more competitive. But we believe a lot in the elements of power and need. This can be supplied in different ways. Hydro -- reversible hydroelectric power plants that exist around the world, China with almost 90 gig, Japan and others, this can be a path forward, and we will address this in the future based on this work front, where we have know-how, knowledge, engineering expertise of decades, which is the management operation and construction of hydroelectric power plants. And also Raul and everyone to end, I think we will speak a lot about this. We have to work towards a scenario where prices will reflect the operation. There's an effort by ONS to move to this kind of model, and we will need to discuss greater progress so that the price signals will be correctly aligned with the effective cost of generation. Where else we're going to see what has been happening in Brazil over and over the explosion of cost subsidies and so on and so forth. But anyway, this is a different discussion, and we can talk about this later at COPEL Day, we'll speak more about this. And mainly then regarding attributes of the hydro source. This needs to be done. Operator: Next question from João Pimentel with Citi. João Pimentel: I would like to build on Raul's question and also saying that [indiscernible] Always talks about. Daniel Slaviero: Can you hear me? My thoughts and my connection has crushed. And you normally said that the company cannot create value over time just paying dividends that eventually you need to look at opportunities for growth and so on and so forth. And now talking about [indiscernible] And the batteries auction, this is kind of mapped already. So beyond that, I'd like to understand what are you looking at beyond that? Are you considering any other segments in addition to the ones you operate in or in the segments where you operate, do you see any opportunities in terms of inorganic growth? We see a number of players of renewable sources facing difficulties given curtailment. They don't have such an integrated portfolio with COPEL. So I'd like to understand how do you see this dichotomy between I'm going to grow, I'm just going to pay dividends or I'm going to grow and I want to transform COPEL in a much bigger company than it is today. So I'd like to hear your take on growth. Rodolfo Lima: Well, you have an excellent point actually. And just to clarify, what I normally say is it has always been and will continue to be, given my own belief and the partners' belief that the company does not create value in the long run, just cutting costs and selling assets. Paying dividends is a good and interesting option for us and one that we intend to materialize either paying dividends or through a share buyback program. We have a minimum payout in our policy of 75% as a consequence of an optimal capital structure as is with the current base of 2.8. In addition to being the boldest in the sector, it is a big competitive edge for us. Daniel Slaviero: And we see an appreciation of compressing our return rate. You know this better than a lot of people. You know this dynamic of how things work. But I think that our case and Felipe has been saying this that we can balance both. We can be a good company, paying good dividends because we have mature assets, a solid cash generation, a lot of depreciation. So we are not just fixed on net income, although it is a fundamental reference for any dividend payout policy. But we look at the whole context of the company being a cash cow in the context of good opportunities. Good opportunities in our view, do not appear every year. So we have to be prepared with a well-behaved disciplined capital structure so that as opportunities arise, we can make structural moves. And to address another point of your question, which was excellent, by the way, we are actively -- whether we are actively looking at an asset. I can share this with you. We are not also because we are still in the phase of digital transformation of looking internally. And next week, we're very much focused on COPEL Day because it is our big event. We're preparing for it. And we are going to announce the CapEx plan of the distribution company for the next cycle and also for the generation company. So we still have a lot of room to invest organically, which is low risk with super attractive returns. In addition to the regulatory walks that [indiscernible] and Genco have, these bring efficiency gains with this [indiscernible] to create with the operation with cost reductions. We had an event last week. You will follow that. We had an event a tornado of climate events. We are having extreme climate events, and this has required a new model of operation. [indiscernible] is also going to give you more detail on this at COPEL Day. And this has to do with our CapEx planning, with our -- it has to do with our operations, number of crews and so on and so forth. And this is a strategic view. And I think that COPEL in that episode and in others has shown to be a benchmark in the sector. Operator: The next question from Giuliano Ajeje with Citi. Just a correction. I'm with UBS. Giuliano Ajeje: Okay. I have 2 questions. Daniel, we're getting to the end of the year, and that's the moment when we start looking at 2026. And next year, we have a super important event for the company, which will be the process of tariff review. And this is going to be the first tariff review process with the company having been privatized. So what do you expect from next year's tariff review process? What is the company doing differently? My second question has to do with [indiscernible] I think it brings 2 points that kind of change the long-term horizon of the company. The first is [indiscernible] contracting of energy. Could this reduce the size of [indiscernible] next year? And what could the company do with its current project? And secondly, [indiscernible] under the possibility of renewal of hydroelectric power plant? And if your base case continues to be a [indiscernible] process or given that there's a possibility of renewal could this quite inorganic growth in jeopardy with more possibility of the hydroelectric power plant assets. Daniel Slaviero: Excellent points. Very important structuring questions, which I think. Let me try to address them. First tariff review. I think that this is a milestone. It's going to be a historical tariff review. [indiscernible] is dealing with this firsthand, but we have our regulatory VP, the whole team, accounting. We are all working together. We hold weekly meetings. I, myself, lead a working group following this on a monthly basis, given the importance it has in this expertise and the freedom that a private company has, of course, it makes us look at all opportunities. But this is a regulated sector. And COPEL has a track record of good tariff reviews. In the last 2 cycles, the denial that COPEL had resumed [indiscernible] a good track record. But of course, there is always room for improvement. [indiscernible] and how we can optimize things. And Ajeje, you have your reports and you have talked with us, have approached us on this before. And I think you know that we have the right conditions to exceed the consensus of the market, which is around EUR 18 billion or slightly above EUR 18 billion. And this is our commitment. Felana, would you like to comment on this? And then I can speak about the [indiscernible] 304. Unknown Executive: Yes, we have a working group with several departments involved with full attention on the tariff review event, which goes beyond the investment plan. We are looking at the regulatory standards of [indiscernible] indicators. We are looking at losses, recovery of unrecoverable revenues [indiscernible] and also to complete the main works of the investment plan by December because we know that whatever goes or stretches to the next year will only remunerate in the next cycle. So we meet on a weekly basis. We follow all the works and all of the process of the tariff review. And [indiscernible] all of the people on the call, the market consensus is close to EUR 18 billion, as I mentioned, given the relevance and our track record of fulfilling our promises. It is very important for us to be able to achieve this number or perhaps exceed it or deliver. Having said that, tariff review is at the top of our agenda. This will change the game for COPEL, this point COPEL. [indiscernible] Well, Ajeje, we could have an earnings call just to talk about that. But I'll go straight to the points that you raised, this compulsory contracting. Of course, it tends to affect the dynamics of the LR cap. But in our view, it will not be that structuring also because of thermal power plants in the Eletrobras law, fortunately, they were left out to run the risk of analysis of [indiscernible] That's a big risk. I don't know how many gigs it will be 5 or 8 gig is flexible in the sector from the technical standpoint, it does not make any sense. And this would be the most deleterious effect in our view. Fortunately, the Congress had common sense and didn't take forward this point. And the second point is that we're very confident in the hydric products because they're unprecedented. We recognize [indiscernible] M&E was and everyone involved with the auction. They made an effort to include 2 hydro products because they are national technology, renewable and with a totally national industry. This will be the cheapest product compared with any other thermal product with all respect. But the hydroelectric plants have the conditions to offer an end price to consumers that will be lower -- always lower. So there will be some impact. But it is not going to be that relevant, and we believe that the characteristics of the hydro products tend to perform better. As regards to renewal of the HPPs, I think that a lot of expectations were created. But what the text of [ BNB ] says is basically part of the legal framework with the exception of the quotas. And when [ BNB ] [indiscernible] talked about the possibility of renewable and concession that will be in the hands of the breaking power. In our view, this was the base scenario, one of bidding process. We at COPEL do not envision a scenario without a competitive process. Given what is happening in other sectors, what's happening in highways, renowned [ DS ] highway and all the other highways, they all go through a bidding process, given the auction of GSF by [ CCE ] 60% margin. So this competitive process shows the appetite that the operators have. They have an inherent advantage. Of course, they know it's better than anyone else, but that other competitors can bring. In our base scenario, the law didn't change anything. Actually, brought a benefit, which is not allowing the renewals to be by quotas. But in our view, I don't think it's very likely. I think it's highly unlikely that there will not be competitive processes given what's happening in other infrastructure segments in the country, either by the granting power or by resolution of the Federal Court of accounts. Operator: Next question from [indiscernible] with Santander. Unknown Analyst: Congratulations on the results. I have 2 quick questions. First, still on MP1304. [indiscernible] Understand the company's view, what were the most relevant points that were left out in the text and that should be discussed in the short to medium term if you need a quick resolution of the issue. And another quick question about the possibility of extraordinary dividends with the possibility of taxation of dividends. What do you think about that? Daniel Slaviero: [indiscernible] all right. Let me try to slice your question. Let's start with the dividends. Felipe, you've been studying this -- could you give us more color on what we're thinking and our studies to address this? And then I will answer about the 1304. Felipe Gutterres: We cannot disregard the phase in which we are migration to Novo Mercado and the current dividend payout policy. And the taxation environment, the taxation on dividends in 2026 still to be approved by the President. We haven't come to a definition yet. This is most likely happening in the coming weeks. We are studying the several scenarios and possible impacts using our shareholder base, here also supported by our external advisers and by our tax department. But of course, we will position the company with a defined framework and strategy in light of the current shareholder base. Daniel Slaviero: Excellent. And Felipe, you're leading this process in the coming weeks as you put it yourself, we will be announcing what we intend to do. But obviously, there is a new fact when you have a 10% taxation individuals for foreign investors, even if there are some [indiscernible] to sovereign funds and others, there is a new fact there that requires, as Felipe mentioned, some diligence with the company. We have to look into this. And we have to do the best considering the company's balance sheet. There we have a profit reserves, which is reasonably high. And also considering that in our trajectory, we are focused on attracting new investors. So we have to find the optimal point at sweet spot. And I'm sure that Felipe and the whole team will bring you something quite balanced until the end of the year. So that's the first. And secondly, this needs to be finalized whether this conflict with the corporate law, if this is going to be paid in 2027, '28, '29, which is not so likely or whether this is going to be paid only within the 12 months. So there are some elements that need to be more clear, right, Felipe, so that we and all publicly traded companies can position themselves. But after Novo Mercado, that will be the top priority in our agenda. And as for the MP1504, absolutely, the topic that was left out that should not have been left out and that shows how the pressure is important is the [indiscernible] distributed generation in the apportionment and the curtailment in terms of having a contribution of EUR 20, EUR 15 or whatever. So I think that the reality will impose itself if this is not addressed and it will be because the reality is physical. -- knows this is already causing terrible problems for the system. This needs to be addressed because this has become big. It doesn't make sense for this segment to carry the level of subsidies that exist today. So I think that [indiscernible] Pedro, this is the more pressing matter to be addressed in this initiative by ANEEL in terms of tariffs, white flags, that could be a mitigating path. And I think that this will help remove the perverse incentive of the subsidies in the electric system [indiscernible] . What could improve the separation. We have several initiatives, LR contracting capacity in the form of voltage. We should have the separation of ballast and energy as expected in [indiscernible] that was being discussed at Congress. It was not addressed. And now we have to wait for the approval of MP1304 and wait for the regulation and see what will happen in terms of modernizing the electricity, the [indiscernible] Operator: Last question from Victor [indiscernible] with Itaú BBA. Unknown Analyst: I'm sorry to go back to this [indiscernible] Could you could tell us what they included in terms of curtailment and also the definition that should come in the next 3 weeks, 21 days regarding what is renewable versus oversupply, renewable oversupply, if this can have a significant impact and what will be considered curtailment that could be reimbursable looking forward, depending on the definition by the Ministry of Mines and Energy, MME and whether the totality of curtailment could be reimbursable. Could you give us more color on that specific point that would be much appreciated. Daniel Slaviero: Victor, I think that is an excellent point. We are monitoring this, not just in the press, but the discussions of several sectors about that. I think that we have to look at the glass as being half full. A half full glass means that it is possible. It is consolidated that the electric part and reliability is of value of the pure renewables, the wind plants and the solar power plant. They will have the right because this happened independent of [indiscernible] . The big problem, as you mentioned, is the energy piece. In my view, when we have the original tax and the amendment of the tax, in my view, that's a sign that one of the 2 will be too. And I think that this is a legitimate discussions on both ends of the generation companies trying to address this by saying that this will not have an impact for the consumer in terms of charges or not reducing tariffs. This is undeniable. There will be an impact. This is a structural decision. This is about what the government wants, what the Ministry of Mines and Energy and the central government understand. This is a risk of the entrepreneur, which is one thesis or if this could be reimbursed if they choose. If they choose this path, think that this will not have an impact on consumers, well, this is not sustainable. But we're monitoring this closely because, of course, curtailment is something that needs to be addressed in the future because it is indeed a topic that has made this segment of wind and solar power feasible specifically. I think that we are going to be seeing what's going to happen next, and we'll see what the government -- how the government will interpret the policy and understanding how to reconcile these 2 arguments, which are legitimate for both sides. Operator: The Q&A session is closed. I would like now to give the floor to Mr. Daniel Slaviero for his final statements. Daniel Slaviero: Well, I can only thank all [ COPELLIONS ] for another quarter of solid, stable results. They show how COPEL is a predictable company that has been performing well and delivering consistent results quarter after quarter. I think this is the first element. Secondly, I'd like to thank all of you for joining us your questions that were very relevant. The sector is going through a transformational moment and the regulatory and legal framework will undoubtedly have many impacts in the coming months and over 2026, some regulations will be necessary. But I think that we are moving forward with some structural changes. We have some positives, some not so good things, but we are moving forward. And I always stress the price signaling. If we have adequate price signaling, that's the best way. Whenever the government chooses certain segments or categories, I think that this causes future long-term deleterious effects. And we've seen this not just in the energy sector, but in several sectors. Once you give players benefits to remove them, it is very hard to remove them. And I'd like to close with the elements here on the T-shirt, it's about the culture, the cultural transformation that we are living at COPEL. As I mentioned on the 19th, we will share with you these elements about our culture, our ambition, our bold ambition, one that is relevant value generation, value creation for the company. Myself, all of my partners and all [ COPELLIONS ] are enthusiastic and very engaged with this new moment of COPEL, a moment that we are building together. We are building together a company that is and will continue to be a big benchmark in the Brazilian energy sector. Thank you very much. Have a good day. Operator: COPEL's video conference call is closed. Thank you very much, and have a good day.
Operator: Good afternoon. Thank you for attending today's Q3 2025 Marchex Earnings Conference Call. My name is Shayla, and I'll be your moderator for today. [Operator Instructions] At this time, I'd like to pass the conference over to our host, Frank Feeney, the COO. Please proceed. Francis Feeney: Thank you. Good afternoon, everyone, and welcome to Marchex' Business Update and Third Quarter 2025 Conference Call. Joining us today is Russ Horowitz, our Chairman of the Board; Troy Hartless, our President; and Brian Nagle, our Chief Financial Officer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance, and actual results may differ materially from those contemplated by these forward-looking statements. Risks and uncertainties that could cause these results to differ materially are set forth in today's earnings press release and in our most recent annual or quarterly report filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release is available in the Investor Relations section of our website. At this time, I will turn the call over to Russ. Russell Horowitz: Thanks, Frank. I'm going to start with a few introductory remarks and then hand the call over to Troy, Brian and then Frank. The main item I'd like to share is that we feel the company is at a very positive inflection point, both strategically and operationally. There's always more to accomplish, but we've come a long way with expanding our customer and opportunity footprint, evolving our product capabilities and starting to create real sales momentum. With this progress and deeper strategic understanding, which is against the backdrop of the very real and very massive AI revolution, we have gained proprietary insight into what we believe may be a much bigger market opportunity, one where we evolve beyond mainly providing strategic analytics to vertical market-leading companies to one where we accelerate delivering more comprehensive solutions that address higher value impact needs across the entire customer acquisition and optimization journey. At the end of the day, our customers fundamentally rely on our AI-driven strategic insights to more efficiently drive growth-oriented customer acquisition. We believe there is a significant opportunity for us to rapidly expand into highly measurable AI-powered bundled solutions, which provide the strategic insights our customers need, the automated actions those insights inform and the outcomes those actions achieve. We believe that there are significant untapped opportunities with our customers and solutions within each of our current verticals. We believe selling such bundled solutions across the entire customer value chain can accelerate our business and make us much more valuable, sticky and scalable. And with that, I'll hand the call to Troy to briefly discuss the third quarter. Troy Hartless: Thank you, Russ. The third quarter represented continued progress with launching new products and accelerating sales bookings to our highest levels this year. While we did see some additional revenue migration dilution as we near completion of our technology platform migration at this year's end, we still saw meaningfully improved sequential adjusted EBITDA, showing the magnitude of our operating leverage. Based on this overall progress with accelerating sales bookings, which we anticipate can continue and compound, we believe we are gaining visibility on increased sustainable sales growth moving into 2026. We have a core focus on select very large vertical markets where the combination of our unique capabilities, combined with first-party data, create unique solutions for world-class market-leading companies. To that end, we deliver industry-specific AI solutions for automotive, auto services, home services, health care and advertising and media as well as other industries and subverticals. Overall, our AI-driven products revolve around the mission of understanding and capitalizing on customer conversations and leveraging first-party data for our customers' strategic and financial benefits. Our AI-driven conversational intelligence platform integrates universal and industry AI models with extensive API integrations and industry-specific applications. The Engage platform is driven by agentic AI and enables any client to easily understand their insight to action path, allowing business leaders across multiple business functions to make complex decisions, leveraging prescriptive analytics across the full customer journey. All of the new products and features we have launched or anticipate launching in the course of 2025 are key components of our go-forward growth strategy. With that, I'll turn the call over to Brian to provide an overview of the third quarter financial results. Brian Nagle: Thank you, Troy. Revenue for the third quarter of 2025 was $11.5 million, which is down from $11.7 million for the second quarter of 2025. We saw favorable impact of new sales and existing customer upsells benefit the company in the period. We also saw some offsets to that growth due to migration activities from our legacy platforms onto our new Marchex Engage platform. For operating expenditures, we saw efficiencies throughout the business as we had a full quarter of benefit from the realignment of the organization that took place in the first half of 2025 following the completion of certain technology platform initiatives. We anticipate that our gross profit margins can continue to improve over time as we are carrying an overall lower cost structure going forward, which could enable meaningful future operating and financial leverage for the business as new products and features sell through. On the balance sheet, cash decreased to $10.3 million from $10.5 million at the end of the second quarter of 2025. The decrease in cash was primarily due to the timing of customer payments at the end of the quarter. Moving to guidance. As previously communicated in the second quarter of 2025 earnings announcement, based on typical seasonality and the revenue migration dilution associated with migrating more than 1,000 customers onto the new technology platform, we currently anticipate that both revenue and adjusted EBITDA will be sequentially lower in the fourth quarter of 2025, as compared to the third quarter of 2025. That being said, as Troy previously noted, in the third quarter of 2025, we saw meaningful increases in sales bookings. With this and the ongoing launch of our various new products, we believe we can continue to see sales levels increase going forward, which will, in turn, drive increased revenue growth. So with the sales expansion currently underway and the primary platform migration completion by year's end, we currently believe that in the course of 2026, we can see revenue growth on a run rate basis in the 10% range from year-end levels. We also believe that in the course of 2026, the combination of increasing revenue growth, combined with lower overall operating expenses can lead to adjusted EBITDA margins of 10% or more. With that, I will hand the call to Frank. Francis Feeney: Thank you, Brian. I would like to take a moment to walk through today's announced agreement in principle to acquire Archenia. While the details regarding the potential transaction are included in today's earnings press release as well as certain Archenia estimated financial metrics, at a high level, Marchex has entered into an agreement in principle to acquire Archenia for consideration, consisting of a $10 million convertible promissory note and an earn-out in the 2 years following closing of up to 4 million shares to the extent Archenia's revenue and adjusted EBITDA exceeds thresholds to be agreed to in the definitive agreement for the transaction. A special committee of Marchex' Board of Directors consisting solely of independent directors has approved Marchex entering into the agreement in principle because certain of the sellers are related parties. The parties have agreed to promptly commence the negotiated definitive purchase agreement relating to the transaction. Conditions to entering into the definitive agreement, including receipt of audited financial statements of Archenia for such periods as required by SEC rules, and receipt of a customary fairness opinion by a financial adviser selected by the special committee. Conditions to closing the transaction shall include approval of the transaction by a majority of Marchex' disinterested stockholders and the closing date in the event a definitive agreement is entered into and the transaction is approved by disinterested stockholders is anticipated to occur in the first half of 2026. For your reference, Archenia is a performance-based, customer qualification and acquisition company, which transforms consumer intent into AI verified outcome-based results. Leveraging advanced AI signals, natural language analytics and automated decisioning, Archenia detects consumer intent and advertiser value in real time, optimizing customer acquisition campaigns dynamically across channels. With machine learning models that continuously refine qualification accuracy and ROI, Archenia enables its customers to pay for verified AI-validated outcomes such as appointments, sales and high-intent conversations. We believe that Marchex' potential combination with Archenia, if successfully consummated, we create a vertically focused AI-driven customer acquisition and outcome optimization platform, integrating deep insights, automated actions, and verifiable outcomes. Additionally, we believe that the expanded AI-driven product offerings across insights, actions and outcomes could create more ways to win new business and the bundling of solutions could create greater customer value, stickiness and risk mitigation. We believe that the potential combined company could have the opportunity to achieve greater revenue scale and growth higher margins, expanded market reach and enhanced strategic flexibility, which could include: first, a potentially expanded addressable market with opportunity to cross-sell and bundle. Marchex believes the combined ability to sell insights, actions and outcomes would meaningfully expand our addressable market into new large vertical markets. Additionally, we believe we would have the ability to relatively quickly offer or bundle Archenia's outcome-based solutions to many of Marchex' insights-based enterprise customers. Second, greater potential revenue, scale and growth. Marchex believes that revenue run rates for the potential combined company are approximately $15 million quarterly or approximately $60 million annualized, which could grow in the 15% to 20% range in the course of 2026. Third, we see the potential for adjusted EBITDA expansion. Marchex believes that our adjusted EBITDA margins are anticipated to trend up to 10% or more in 2026, and that Archenia could contribute additional positive adjusted EBITDA beyond these levels. And finally, Rule of 30 to Rule of 40 trajectory. For reference, the Rule of 30 to 40 metric represents the combination of annual revenue growth rates plus adjusted EBITDA margins. If we are able to achieve the anticipated revenue run rate growth in the 15% to 20% range and combine this with improving adjusted EBITDA margins in double digits, the combined company could be positioned to potentially achieve these Rule of 30 to 40 metrics over time, which we believe helps highlight the unique opportunity of the combined company if consummated. With that, I will hand the call back to Russ for closing remarks. Russell Horowitz: Thank you, Frank. We've already covered a whole lot today. So I simply want to close out by thanking all of our investors, partners and other stakeholders for all of your ongoing support. Additionally, I want to deeply thank our employees for their unique expertise, sense of urgency and continued commitment while we execute on what we believe is an increasingly dynamic opportunity. And with that, I will hand the call back to the operator. Operator: [Operator Instructions] Our first question comes from Ross Koller with company Koller Capital. Ross Koller: Congrats on the proposed acquisition. I have a couple of questions on what the go-forward business looks like. Russ, first, can you discuss how you view the TAM for the combined solutions? Russell Horowitz: Good question. Yes, we think the opportunity and addressable market, when you look at the combined company's ability to sell insights, actions and outcomes is multiples of our existing one, we're predominantly selling insights only. Our insights, we believe, are tied to meaningful 9-figure customer acquisition budgets, and we get used strategically to inform those. And our ability to continue to deliver more capabilities across that insights, actions, outcomes value chain translates to a significantly larger TAM, one we believe could be multiples of what we're operating against today. Ross Koller: Okay. Great. And can you talk about how you're thinking about the trade-off between growth and profitability as you scale up the business? Russell Horowitz: Definitely. It's -- obviously, it's an internal focus when we think about arbitrating, validating that the investments we've made are translating into growth. We're pleased that on the back end of the migration, we're at an inflection point on a stand-alone basis where we believe we're seeing that happen now, and we can build on that. But net-net, as we look at the acquisition and our ability to accelerate growth potentially to the extent it gets consummated, we're just focused on maximizing the revenue growth and maintaining some baseline positive adjusted EBITDA margins in that 10% or more range. We believe emphasizing customer penetration and really scaling up while prioritizing our growth rates is going to be the best approach for us for now. Ross Koller: Perfect. And lastly, can you discuss how you view the growth breaking down between new versus existing customers? And also, how big a business can you build just inside your current installed base? Russell Horowitz: Yes. Look, I think the best way to frame it is you've heard us say historically that we believe we have a $100 million revenue opportunity over time. But on a combined basis, this deal closes, we really believe that $100 million in revenue is way more tangible and way more achievable much sooner even just with the existing or installed base. We look at the verticals we operate in, and we look at the market-leading companies that we work in, in those verticals, and we look at the opportunities even within the subverticals, and call it the virtuous cycle of the expertise that we're putting together, combined with the unique first-party data that we have that -- informs our expanding set of solutions. And we think there's other customers we don't have that look like them, and we're going to be more relevant to with more capabilities that are easier to say yes to. But on kind of a stand-alone basis with existing installed base, yes, the combined company is well positioned in a more tangible way to get to $100 million rate much sooner. Operator: At this time, there are no more questions registered in queue. I'd like to pass the conference back over to our hosting team for closing remarks. Russell Horowitz: Look, I appreciate everybody's interest in Marchex. Obviously, we're excited about where we are and what our possible opportunity can look like as we move forward. We've got a lot of congruency and clarity around what that looks like. And we just appreciate all your ongoing support and look forward to keeping you posted as we execute and hope we make that happen. Thank you, everyone. Operator: That will conclude today's conference call. Thanks for your participation, and enjoy the rest of your day.
Operator: Greetings, ladies and gentlemen. Thank you for standing by, and welcome to the Star Equity Holdings Third Quarter 2025 Results Conference Call. Please be advised that the discussions on today's call may include forward-looking statements. Such forward-looking statements involve certain risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Please refer to Star Equity's most recent 10-K, 10-Q and other filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events or otherwise. Please note that on this call, management will reference non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share, which are all financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most recent comparable GAAP financial measures in our earnings release issued this morning. If you do not receive a copy of the earnings release and would like one after the call, please contact Star Equity at (203) 489-9500 or its Investor Relations representative, Ms. Lena Cati of the Equity Group at (212) 836-9611. Also, this call is being broadcast live over the Internet and may be accessed at Star Equity's website via www.starequity.com. Shortly after the call, a replay will also be available in the company's website. It is now my pleasure to introduce Mr. Jeff Eberwein, Chief Executive Officer of Star Equity. Please go ahead, sir. Jeffrey Eberwein: Thank you, operator, and welcome, everyone. We greatly appreciate your interest in Star Equity Holdings, and thank you for joining us today. As a reminder, on August 22, 2025, the company completed its previously announced acquisition of Star Operating Companies, formerly known as Star Equity Holdings, pursuant to the agreement dated May 21. Effective September 5, the company changed its name to Star Equity Holdings from Hudson Global and our trading symbol on NASDAQ from HSON to STRR. Following the merger, we are now operating as a diversified holding company with four divisions: Building Solutions, Business Services, Energy Services and Investments. I'll begin by reviewing our third quarter results for 2025 at the holding company level. After that, Jake Zabkowicz, Global CEO of Hudson Talent Solutions, will give us an update on the performance of our Business Services segment. Finally, Rick Coleman, our Chief Operating Officer, will provide additional insights into the performance of our Building Solutions and Energy Services segments. Third quarter results reflect the impact of our recent merger with revenue, gross profit and adjusted EBITDA, all showing year-over-year growth. These increases were largely driven by the inclusion of Star Operating Companies beginning August 22. For the third quarter of 2025, revenue totaled $48 million, representing a 30% increase from the same quarter in 2024. Gross profit rose 11%. The company reported a net loss of $1.8 million or $0.54 per share, compared to a net loss of $800,000 or $0.28 per diluted share in the third quarter of last year. On a non-GAAP basis, adjusted net income per share was $0.02 compared to an adjusted net loss of $0.13 per share in the prior-year quarter. Importantly, on a pro forma basis, which includes the full third quarter's results from Star Operating Companies, adjusted earnings per share were positive $0.19 versus negative $0.54 in the third quarter a year ago. Adjusted EBITDA increased to $1.3 million from $800,000 in the third quarter of last year, reflecting improved operating leverage following the merger. Pro forma adjusted EBITDA was $3.1 million versus $600,000 in the third quarter of last year. Total cash, including restricted cash, was $18.5 million at the end of the quarter. I'll now turn the call over to Jake to discuss our Business Services segment. Jacob Zabkowicz: Thank you, Jeff, and good morning. Our Business Services segment continued to demonstrate solid performance in the third quarter despite the challenging macroeconomic environment impacting many industries. While the broader talent acquisition market has contracted in 2025 compared to 2024, our HTS business has been able to maintain its profitability and even saw a slight increase in gross profit for both the third quarter and year-to-date. This resilience highlights the robustness of our business model, our ability to adapt to market shifts and the strength of our long-standing client relationships, which continues to drive repeat business and steady demand for our services. I'm particularly proud to recognize our team has received in the marketplace. HTS was named to the prestigious Bakers Dozen for the 17th consecutive year, a testament to our consistent delivery of high-quality talent acquisition solutions. What's even more notable is that we achieved our highest-ever overall ranking, reflecting the strength of our service offering and our commitment to excellence. Additionally, HTS was recognized as the #1 provider in the Asia Pac region, further underscoring our global reach and our trust in our clients place in us. For the third quarter of 2025, Business Services revenue was $37 million, slightly up from $36.9 million the same period last year. Gross profit remained flat at $18.6 million compared to the prior-year quarter, again, speaking to the quality of our operations despite external challenges. Adjusted EBITDA for the segment was also flat at $1.7 million. This performance reflects our ability to effectively manage costs, sustain margins while continuing to deliver value to our clients in a difficult market environment. Building on our momentum from the first half of the year, the third quarter, we continued to execute our land-and-expand strategy. This strategy, which emphasizes expanding our geographical footprint and broadening our service offerings to both existing and prospective clients, has proven to be highly effective. As a result, we secured approximately $39.8 million in gross profit from renewals and extensions at existing clients, reflecting the strong relationships we have cultivated by our ability to deliver ongoing value. Additionally, we have secured approximately $11.1 million from new logo wins over the past 4 quarters. Looking ahead, we're focused on creating a more resilient, agile and growth-oriented business for the long term. By continuing to invest in new technologies such as our digital offering, we are confident in our ability to drive sustainable growth and create lasting value for our clients and stakeholders. Our commitment to execution and operational excellence will continue to guide us as we seize new opportunities and expand our market leadership. Now I'll turn the call over to Rick, who will discuss the financial and operational performance of our Building Solutions and Energy Services segments. Richard Coleman: Thank you, Jake, and good morning, everyone. Our Building Solutions segment delivered strong growth during the third quarter, capitalizing on the rebound in commercial construction demand while managing through softness in residential markets. In the third quarter, Building Solutions revenue totaled $9.6 million with a gross profit of $1.7 million and adjusted EBITDA of $600,000. On a pro forma basis, which includes results for the entire third quarter beginning July 1, Building Solutions revenue was $21.4 million, up from $13.7 million in the third quarter of 2024. Pro forma gross profit rose to $5.3 million compared to $2.8 million in the prior-year quarter, while pro forma adjusted EBITDA grew substantially to $2.6 million from $700,000 a year ago. The segment ended the quarter with a $20 million backlog of committed orders and the trailing 12-month book-to-bill ratio remained solid at 1.01, reflecting a healthy pipeline and sales dynamics heading into 2026. By focusing on higher-margin projects and ensuring rigorous project management, we've been able to maintain healthy profit margins and strengthen our existing client relationships. Our reputation for high-quality, on-time and within-budget deliveries is key to our continued success and positions us well to expand our footprint across key markets. Our Energy Services segment also achieved strong results despite a broader slowdown across the energy sector impacted by lower drilling rig counts in all oil-producing basins but offset somewhat by growth in natural gas and geothermal drilling activity. As a smaller company in the drilling arena, we believe our growth opportunities are outsized versus our larger competitors and expect to drive future growth through strong sales execution, disciplined operations and targeted capital investments. These initiatives have not only improved sales and utilization rates but have also enhanced customer satisfaction and strengthened our overall market position. In the third quarter of 2025, Energy Services revenue was $1.3 million with gross profit of $300,000 and adjusted EBITDA of $100,000. On a pro forma basis, which includes results for the entire third quarter beginning July 1, revenue increased to $3.7 million, gross profit reached $1.5 million and pro forma adjusted EBITDA rose to $1 million, underscoring the segment's strong overall performance. I'll now turn the call back over to Jeff for closing remarks. Jeff? Jeffrey Eberwein: Thank you, Rick. Following our recent merger, we are operating from a much stronger and more diversified platform, which has significantly enhanced our scale, expanded our exposure to a broader range of end markets and improved our operating leverage. The integration has been progressing smoothly, and we are already beginning to realize efficiencies across shared services. This will continue to improve our cost structure and streamline operations as we fully integrate the businesses. Across all our operating segments, we remain highly focused on operational excellence, ensuring we optimize every facet of our business for improved performance. At the same time, we're committed to prudent capital allocation and a disciplined approach to growth, which will allow us to maximize shareholder returns while maintaining financial discipline. In line with this strategy, we believe our stock price remains undervalued. In recognition of this belief, during the third quarter, we repurchased about 8% of our shares outstanding, demonstrating our confidence in the intrinsic value of the company and our commitment to enhancing value per share. Furthermore, our Board of Directors has authorized a new $3 million share repurchase program, which underscores their confidence in the long-term growth prospects of the company. Looking ahead, we are well positioned to drive shareholder value through a balanced strategy that combines organic growth, disciplined capital allocation and accretive acquisitions. As part of this strategy, we continue to evaluate acquisition opportunities that complement our diversified holding company model. Our focus remains on identifying scalable cash-generating businesses that align with our long-term growth objectives, particularly those businesses with strong local operating management teams and sustainable competitive advantages. By executing this strategy, we believe we'll strengthen Star Equity's foundation for sustained profitable expansion to deliver meaningful value to our shareholders. Operator, can you please open the line for questions? Operator: [Operator Instructions] And our first question for today will come from Theodore O'Neill with Litchfield Hills Research. Theodore O'Neill: For Rick, on the third quarter on a pro forma basis, that looks like a record for the quarter, at least in my book here. Richard Coleman: Yes. Thanks, Theo. I appreciate you noticing that. We're enjoying the throughput from a lot of projects in the Building Solutions division that were held up in 2024. I think we talked about that in prior calls. But throughout the year, we didn't have jobs being canceled, but they just weren't making it through the pipeline as builders and architects and others were kind of daunted, I guess, by interest rates and other things. So we kept pushing jobs to the right, further out in time, and they finally started coming through. Theodore O'Neill: And looking at seasonal patterns here in the last couple of years, your fourth quarter has been higher than your third quarter. Do you think that seasonal trend will continue? Richard Coleman: It's really hard to say, Theo. The fourth quarter is really dependent on a lot of weather patterns. If we have difficulties in Building Solutions, for example, with builders not having the sites ready for us to build on, then there could be delays. But as long as weather holds, we're optimistic. Theodore O'Neill: And when you talk about softness, I know that part of what you had cited as strength was workplace housing and low-income housing. Is that still the view? Richard Coleman: It is an important aspect of what we're doing. Our strategy is more diversified than that, but those are still good opportunities for us. They might be impacted somewhat by government programs shrinking over time, but I -- we expect that will come back. Operator: The next question will come from Michael Mathison with Sidoti & Company. Michael Mathison: Congratulations on the revenue performance, you guys. Just a couple of questions from me. First of all, looking at Business Services and going through your slide deck, it looks like the adjusted net revenue as a percentage of sales is much higher in the Americas versus APAC. I wondered if you could just explain what's behind that. Jeffrey Eberwein: Jake, do you want to walk him through that? Jacob Zabkowicz: Yes. And I'm sorry, can you repeat that question? I apologize. Michael Mathison: No problem. It just -- it looks from your slide deck like the adjusted net revenue as a percentage of sales is higher in the Americas versus APAC. And I'm just wondering why. Jacob Zabkowicz: Yes. We saw some significant growth in our Americas business this last quarter through our land-and-expand strategy, and that has driven some of the uptick for us. And we're really excited to see that as we also launch our digital product, as I mentioned last quarter, and we are seeing the clients really gravitate towards that as agentic AI takes over -- or not takes over, it adds enhanced value to our clients and our partnerships. Jeffrey Eberwein: Michael, this is Jeff. So if we compare that business by region, like if you were to look at some of the old Hudson results, and you'll see this in our 10-Q when it's filed that there's really two different businesses there. There's the RPO business. And in the RPO business, adjusted net revenue or gross profit equals revenue. So there's no cost of sales. All the costs are down in SG&A. In the contracting business, which is about half the revenue, all of the contractors show up as cost of sales, which causes us to have a really low adjusted net revenue and makes the margin percentage really, really low. So that's why we always focus people on adjusted net revenue or gross profit as the real revenue because that kind of ignores that pass-through effect. So contracting is -- our contracting business is heaviest by far in Australia, we -- and Asia Pac. We do very little of it in the Americas. So said another way, RPO as a percentage of revenue is much higher in the Americas than it is in other geographic regions. Michael Mathison: Terrific. I just wanted to confirm that it was the impact of contracting. Just as long as we're on the Hudson business, I think the one region we didn't speak of yet is Europe. How does that look? Jeffrey Eberwein: Jake, do you want to talk about what's going on with Europe? Jacob Zabkowicz: Yes. Europe, we are definitely going through a transformation. And the transformation is looking at not only our land-and-expand strategy, but also geographies that we're entering into. So the Middle East, as I mentioned a couple of quarters ago, we entered the Middle East last year, and we're starting to see signs of that business continuing to pick up. Europe is our smallest region when you look at -- when you compare Europe to the U.S. or the Americas and also to APAC. One of the things, though, that we are looking in Europe is the overall macroeconomic impact that's happening in that region. We did see a downturn in the European market for us this last year. We had a couple of our clients take some of their business in-house, which has impacted revenue. But at the same time, our land-and-expand strategy is picking up in some other geographies in that region as well. So Europe is going to continue to be a focus for us. But when you compare Europe versus our APAC or the Americas region, it is our smallest region so far to date. Jeffrey Eberwein: Michael, I would add, we do have a new management team there that we're very excited about, and we're very optimistic about the Europe segment doing much better in next year than this year. Michael Mathison: Okay. Just one last question from me. Looking at Building Solutions, revenue was significantly higher than I had expected. So again, congrats on that. The gross margin was a little less than I had forecast, though. Is this gross margin sort of what we can expect going forward? Jeffrey Eberwein: Yes. We -- yes, we shoot for kind of mid-20s. And I think that's the best number to use over the medium and long term. In any one quarter, it can be higher than that. It can be lower than that due to business mix and also the vagaries of construction accounting where on some of the big projects, we recognize -- the simple way to think about it is that we recognize expenses more aggressively than we recognize revenue. Sometimes the revenue recognition is delayed. And if we've already recognized all the expenses, that very last piece of revenue that we recognize after we finish the punch list, for example, on a big project, can be at 100% margin effectively because we've already recognized all the expenses. So quarter-to-quarter, it can be a little lumpy, and I wouldn't read too much into it. I think mid-20s on a trend-line basis, rolling 4-quarter basis is what we expect. Operator: [Operator Instructions] Our next question will come from [ David Siegfried ], investor. Unknown Attendee: So just a number of questions. First, regarding Building Solutions. I noticed KBS on September 1, they completed that 10,000-square-foot project in Nantucket. Are there more contracts like that in the pipeline? Jeffrey Eberwein: This is Jeff. I'll take that. There are. I'll just answer it in two ways. We -- on our slides, if you look at Slide 9, we do show our backlog and the backlog did start to improve about a year ago as some of those larger projects, that Rick was talking about that were on hold or frozen, got unfrozen. So we have had a string of projects that we've announced, some of which we've completed, some of which are still in our backlog. And then in terms of our sales pipeline, we continue to have a lot of those opportunities. So we're trying to win them and get them started. But we do have more projects like that one that are -- that will happen in the future. Unknown Attendee: Okay. Good to hear. I noticed you've indicated that you're looking for bolt-ons. Would you be looking for bolt-ons in the region or outside the region? Because you do have that facility in Oxford, Maine that's empty, would you fill capacity -- yes. Jeffrey Eberwein: Yes. Good memory. So I think the short answer to that is kind of D, all the above. Our highest priority is to add more size to our existing businesses. We feel like we have some good operating management teams across all of our businesses. And so we would like to give them more to manage. And so that could be an acquisition in their geographic region. Yes, you're right, we do have an idle factory in Maine, and we constantly explore different ways to reopen that and have more growth. And then the bar is a little bit higher for what we would call an adjacent acquisition where, let's say, it's a business we're in, so we know the business well, but it's in a new geography. We do look at those, but I'd say that's priority #2 after adding to what we have in an existing geography. Unknown Attendee: Okay. Question on the public investments that you have. I think is most of that in Gyrodyne? You have like 150,000 shares. What do you see as a catalyst to get -- to monetize that investment? Jeffrey Eberwein: Yes. So yes, all that is public, our holdings in Gyrodyne. So they are -- if you look at their public filings, they are in the process of liquidating. They have a long history of selling the remaining real estate assets and dividending out those proceeds. And it's very cheap on NAV. I think just based on their publicly-stated NAV, it's got 50%, 60% return to stated NAV. And their plan, per their public documents, is to liquidate their remaining real estate holdings and distribute that out as cash and wind down the entity by the end of, I believe it's 2027. Unknown Attendee: Okay. All right. Good. And then, let's see, so regarding Hudson, I noticed they moved to a larger office in Edinburgh this past quarter. What was behind that change, move? Jeffrey Eberwein: Very good question. I'll let Jake answer that one. He was there for the grand opening of that new location. Go ahead, Jake. Jacob Zabkowicz: Yes, David, as you know, Edinburgh is a hub for us, for our European market and actually, it also supports many of our clients across the globe. One of the things that we like about Edinburgh is the talent there is very dynamic. You get language capabilities, you get a great cost basis and it's a great culture to be a part of, right? So what we did is, over the last year, we really looked at our footprint. And we did this in Tampa, where we actually moved from a previously shared office space into our own office space that we lease. And we did the same principle in Edinburgh this last time around. And so we were in a shared space. We had shared common area, and it wasn't really conducive to the company that we turned into, being Hudson Talent Solutions. So the team has found a unique office space, right off of Princess Street in Edinburgh, great location. It's going to allow us to drive the talent that we need to bring into the -- to our clients, but also, it's going to allow us a spot and place that we're proud of to bring our clients and our potential clients in to see not only the culture, but the quality of team members that we have. So really excited. We just did a ribbon-cutting. Edinburgh is a beautiful area to visit. And like I said, great talent, great culture and we're proud to be there. Unknown Attendee: Yes. Okay, good. What about -- I noticed from Q3 last year, the new logo and expansions and renewals was up considerably from if you look at quarters. So what was behind that uptick? Jacob Zabkowicz: Yes. David, great analysis. As I mentioned before a couple of times, our land-and-expand strategy is really working. And what I mean by that is really looking at the clients that we service today and how do we continue to support them in other geographies and other business lines and making sure we're having those conversations. So we're seeing a pretty significant tailwind with that and allowing us to build on to our existing client portfolio. Not to mention adding the digital offering and our different solutions and our different products, with boutique executive search as well, we are seeing clients gravitate more to that one talent solution. So all of that is allowing us to gain more market share with our clients and provide a better level and a higher quality of level service to them. Unknown Attendee: Got it. Okay. Now last quarter, I think Jeff had mentioned with the AI rollout, there was one company that was interested just in the AI offering. And then it was -- you're hoping that it would expand to other services that you offer. Is there any follow-up on that? Was there any expansion or any other success stories along the lines with the AI offering that you have? Jacob Zabkowicz: Yes, David, we are actually -- we have some clients that now have -- let me take a step back. We've embedded our digital offering into our RPO solution, RPO suite, right? So whether it be TalentIQ, whether it be [ Hudson Flow or Hudson Core, ] every single one of our clients has a different demand, and they're on a different journey. And sometimes that journey takes them to -- they want a full agentic AI solution. Sometimes it takes them, no, they don't want a full agentic AI solution. They want pieces of the puzzle, right? And so we're able to offer that to them. One thing that has been taking off is, as I just mentioned, our TalentIQ solution, which provides real-time market intelligence and market data to our clients so they can make better talent decisions. We have a couple of partners that are on that now. So it's more than one now, and we're getting very good feedback. And the best part about that solution is it's a global solution, right? It's not just looking at the Americas or EMEA or APAC. Clients can come to us and say, we need to understand where is the best area to put an offshore finance facility or manufacturing facility for FMCG. We can help drive and help inform some of those decision-making capabilities with that. Unknown Attendee: Okay, good. And then the goal... Jeffrey Eberwein: Yes, this is Jeff. Sorry. I would encourage you to follow and all of our shareholders really follow the Hudson Talent Solutions website. They sometimes have news and announcements that you wouldn't see on Star's website or might not be a Star press release, but they will have more to say about what they're doing on the digital side going forward. Unknown Attendee: Got it. Okay. Question about the partnering with private equity or growth capital. If someone were interested at some point, how would that impact Star as a company? Would there be like would they have to buy equity in Hudson Talent or in Star Equity? Or I'm just trying to figure that out. Jeffrey Eberwein: Yes, I'll take that. David, it's a great question. The short version is we don't know exactly what that's going to look like. But our first priority is to get back to the levels we were at in 2022. But this time around, do it with a more stable foundation. So if I go back to 2022, the Hudson business was about 70%, we would estimate what we would call enterprise RPO, and that's where it's with a Fortune 500 company. This next time around, we'd like that to be a lot closer to 100%. So when we get back to those 2022 levels of, let's call it, $100 million of gross profit and $20 million of EBITDA, we think it will be more sustainable and a stronger, more stable group of clients. So that's kind of point one. And then if we think about everything going on with this business with all of our clients asking about AI, how is AI going to affect talent procurement, talent assessment. We -- it's just hard to know where that's going to go. So like one of the things we've talked about is, let's say, there's some really interesting investments to make on that side, digital, AI, tech. You're just -- you're not going to see Star invest tens and millions of dollars in something that isn't producing revenue, isn't producing immediate cash flow, but it could make sense to partner with somebody who has that expertise, maybe even somebody that has other investments in digital AI type of companies. So they bring expertise and capital, and they would fund that investment. So there's just so many different ways that could go. I would just tell you to stay tuned. It's not something that's going to happen in the next few quarters, but I'd put a high probability on something like that happening at some point in the future. And I guess the short -- another way to say everything I'm saying is that we're transforming the business from being a very people-oriented business to one that is much more of a tech-enabled, tech-plus-expertise type of a business. And there could be people who could be very interesting to partner with when the time is right. Unknown Attendee: Yes. Good. I know there's value in that division because a much larger company, Heidrick & Struggles, just was bought out this past quarter with similar type services that are offered. So what about the preferred shares? I know you utilize that as a tool for acquisitions. But is there a point where you see interest payments becoming unsustainable for the company to carry? I mean, you can't just offer preferred shares endlessly, correct? Jeffrey Eberwein: Very good question. The way we think about that, if we're going to use preferred shares in an acquisition, the preferred shares, if you just think about it on a multiple basis, it's a 10x multiple if you think about the par value being $10 a share and the annual dividend being $1 a share. So if we can acquire a business like we did earlier this year, that has a cash flow stream that is growing over time, and we can buy that cash flow -- that business and that cash flow stream at 3 or 4 or 5x cash flow, then it's highly accretive to do that acquisition. So in other words, the cash flow from the acquisition should more than cover the dividends that we would issue in an acquisition. Unknown Attendee: Got it. Okay. One last question regarding the mutual funds that were selling since the Star merger was announced. Like you took out 8% of the shares back in September. We're still in the $9 range. Jeff, you were buying at higher prices. Do you -- I know that you feel the company is still undervalued, but I still kind of sense like there's maybe an overhang, maybe there's still a seller out there. Do you think you could do another big block transaction, take those shares out? Jeffrey Eberwein: We're always open to that. We -- I think the most effective share repurchases we've done have been a negotiated transaction with a block seller that is by far the most efficient and effective in terms of how to buy back stock. So if there is an overhang, as you say, or remaining block out there and they want to sell to us, we will certainly entertain that. And as far as we know, there are no longer any holders -- any institutional holders who are above 5%. So if there is a remaining seller out there and they do have a block for sale, it's going to be a block size that's less than 5%. Operator: The next question will come from [ William Kim ] with Presidio Asset Management. Unknown Analyst: So with the merger now closed, I guess, is there any update on the expected synergies that you plan to achieve? Jeffrey Eberwein: Yes. Great question. We still believe that we'll deliver the $2 million in synergies. And that target could be higher over time, but that's the number that we're comfortable using. And where you're going to see that is in the corporate line. So if you look at the pro forma table in our press release, you'll see EBITDA from each one of our four business segments, and then you'll see a column for corporate. And in Q3, that total was $2.6 million for the quarter. That's a pro forma number. And so as we start to realize some of those synergies, you're going to see the corporate costs decline. And so our goal is to get that number down more to like $2 million a quarter or $8 million on an annualized run rate. So that's really where you're going to see the synergies show up if you're going to be tracking it quarter-to-quarter. Unknown Analyst: And do you think that's achievable in the near term? Or is that kind of a year out? Or what kind of timing are we looking at? Jeffrey Eberwein: Yes. It's a gradual -- it kind of comes in steps. We -- I'll put it this way. We have high confidence we'll be at that run rate. I would say, at some point next year, so maybe 6 months from now, we should be at that run rate. So said another way, the $2 million of synergies should be fully realized, I would think, 6 months from now. Unknown Analyst: Great. A couple of more questions on the corporate side before going to the RPO. Could you just clarify for us what the quarter end share count looks like with the repurchase? Jeffrey Eberwein: Yes. You'll see the number on the cover of our 10-Q. I think it's -- I think you'll see it's right at 3.4 million shares, maybe a little bit higher than that. Unknown Analyst: Great. Great. Okay. And then is it fair to say there was a little bit of debt paydown this quarter as well? Jeffrey Eberwein: We have debt at -- on two of our businesses, the Building Solutions and the Energy Services have debt at the sub-level. And on Building Solutions, we have an acquisition loan that we took out when we acquired Timber Technologies, and that loan is amortizing. So we're making principal payments on that every quarter. Same thing with the seller note there at Timber Technologies. So over time, everything else being equal, you'll see our debt decline as those two debt pieces decline. Unknown Analyst: Great. And then last one on the RPO business. I think you previously mentioned the '22 numbers and the kind of environment that we've -- the company has been in the last year or so with very low attrition. Where in the cycle do you think we are now? Jeffrey Eberwein: We are bouncing along the bottom. So we had a very painful decline from 2022 to, say, a year ago. And so it seems to us that we've bottomed and have not seen a strong recovery, but we think it's coming partly because the attrition rates are abnormally low at the Fortune 500. So if you were to have -- if you had attrition statistics available at the Fortune 500, you would have seen it be abnormally high coming out of COVID, so starting in 2021, into 2022, the beginning of 2023. So it was above normal. And now we've had a period where it's been substantially below normal levels. Some people have called it the no hiring, no firing job environment. We are seeing the attrition rate start to return to a more normal level, but it is a very gradual return to normal. So I hope that answers your question. Unknown Analyst: Right. Yes. So if we -- if the business got to a more normal environment, is that where you're getting the $100 million in gross profit, $20 million EBITDA number? Or is that -- are we looking at kind of back to peak type of attrition rate numbers? Jeffrey Eberwein: No, I think getting back to that level would be mid-cycle, not peak. Just in the last 2 years since Jake joined to head up that division, we have -- we now have an offering in the Middle East. We are -- have launched services in Latin America and we did an acquisition in Japan. So those are three pretty significant geographic areas that we weren't in before. And so I guess the significance of the 2022 numbers and the reason why we bring those up is that $100 million of gross profit and $20 million of EBITDA is a 20% margin. If you go back to, say, 2018, we were at a 10% margin. And something I've talked about quite a bit is that once we're at steady state, as we grow, we should have a 30% incremental margin. And so we view getting back to $100 million of gross profit and $20 million of EBITDA as kind of a mid-cycle normalized level, not a peak level with the business that we've built and what we have today with those three new geographic regions and with our digital offering. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Eberwein for any closing remarks. Please go ahead. Jeffrey Eberwein: Well, thank you all for participating in our call and for listening in. We appreciate your interest in the company and really great questions. And -- so appreciate those. And if you want to get in touch with us, the contact information is on our press release, and you can also look at our website, starequity.com, and we'll be available to answer any questions you have. So reach out. Thanks again for your time today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Mattr Third Quarter 2025 Results Webcast and Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Meghan MacEachern, Vice President, Investor Relations, External Communications. Please go ahead. Meghan MacEachern: Good morning. Before we begin this morning's conference call, I would like to take a moment to remind all listeners that today's call includes forward-looking statements that involve estimates, judgments, risks, and uncertainties that may cause actual results to differ materially from those projected. The complete text of Mattr's statement on forward-looking information is included in Section 4.0 of the third quarter 2025 earnings press release in the MD&A that is available on SEDAR+ and on the company's website at mattr.com. For those joining via webcast, you may follow the visual presentation that accompanies this call. I'll now turn it over to Mattr's President and CEO, Mike Reeves. Michael Reeves: Good morning, and thank you for attending our third-quarter conference call. Today, Meghan and I are joined by our Senior Vice President of Finance and CFO, Tom Holloway. Q3 was the first full quarter following the conclusion of Mattr's 4-year fundamental transformation, which included the divestiture of 9 businesses, the reshaping of our North American production footprint, and the onboarding of our recently acquired AmerCable business. With these complex strategic activities now complete, the organization is focused on leveraging its high-value portfolio of critical infrastructure products to enable progressively greater free cash generation and profit expansion. During the quarter, Mattr delivered year-over-year revenue growth of 39% and adjusted EBITDA growth of 16%, primarily driven by the addition of AmerCable to our Connection Technologies segment. The company also continued to benefit from strong demand in Composite Technologies, with the segment delivering further progress on key technology development and operational efficiency initiatives during the quarter. Our teams remain nimble, resilient, and cost-conscious in the face of a challenging near-term business environment, and we continue to focus on those variables we can control. Across Mattr, we are consistently prioritizing those actions and investments necessary to enable sustained technical differentiation, production flexibility, and progressively greater operational efficiency. Near-term business performance is likely to be impacted by continued economic weakness in certain key geographies, which we anticipate will incrementally moderate customer buying behavior during the seasonally slow year-end period, particularly in the Canadian, European automotive, and energy extraction markets. As a consequence, we anticipate a typical fourth-quarter lowering of revenue, and adjusted EBITDA will be more pronounced than normal, representing a low point for the year. Consistent with our historical approach to balance sheet management, the company expects to primarily allocate capital to debt repayment in the near term. Tom will have some further comments on capital allocation later. Turning to review the performance of each segment during the recently completed quarter. Connection Technologies delivered year-over-year revenue and adjusted EBITDA growth of 105% and 62%, respectively. Wire and cable revenue moved modestly higher sequentially, with relatively stable AmerCable revenue enhanced by increased Shawflex sales, which set a new quarterly revenue record, accelerating delivery of backlog from its recently relocated manufacturing site and offering an early demonstration of the new location's productive output and efficiency potential. Wire and cable margins moved sequentially lower on a less favorable revenue mix, primarily the result of reduced sales into Canadian mining and global oilfield applications, partially offset by higher sales into data center and utility applications. In early Q3, U.S. tariffs were introduced, which directly impacted the primary copper supply chain at both Shawflex and AmerCable. Moving quickly and creatively, Mattr's wire and cable team rapidly converted this supply chain from tariff to non-tariff sources. Although this conversion led to less favorable payment terms and an associated increase in working capital during the quarter, it avoided tens of millions of dollars in annualized tariff expense. Revenue from the segment's DSG-Canusa business was relatively flat sequentially. The business experienced sequential margin compression, driven primarily by higher freight and tariff expenses as the finished goods inventory proactively built prior to the relocation of the business's North American manufacturing footprint near exhaustion, and output from the new Ohio site required supplementation with internationally produced products. While tariff and economic impacts remain a near-term concern for the segment, our talented teams have demonstrated their ability to mitigate external effects with speed and agility. Our commercial teams continue to offset slowing Canadian mining and industrial and global oilfield activity by successfully capturing additional sales in utility, data center, and international mining markets. In parallel, we continue to closely watch for incremental copper-related tariff announcements, which could impact our business. The company expects fourth quarter revenue and adjusted EBITDA within the segment will move sequentially lower as stronger DSG-Canusa performance, driven by rising production from the Ohio site, is more than offset by significantly lower demand for wire and cable in the Canadian industrial stock and project sectors. These sectors have been hit particularly hard by the contraction of Canada's economy, with broadly lower industrial activity compounded by an aggressive inventory reduction drive from distributors serving the sectors. We anticipate Canadian industrial demand will remain similar to fourth quarter levels for several quarters. Looking past the near-term disruption of tariff-induced headwinds, we maintain our constructive long-term outlook for electrification-driven demand across the segment and are pleased with the progress of our strategic actions intended to improve operational efficiency and enhance exposure to utility, nuclear, global mining, data center, and broader U.S. industrial end markets. Turning to Composite Technologies. The segment's third-quarter revenue and adjusted EBITDA decreased by 4% and 2%, respectively, year-over-year. Flexpipe revenue and adjusted EBITDA moved lower sequentially as underlying oilfield activity levels continued to decline in the face of a depressed oil price. Mostly offsetting this weakness, Flexpipe continued to drive customer adoption of new technology with larger diameter products nearing 50% of North American revenue generation during Q3. This continued share gain enabled Flexpipe to limit year-over-year North American revenue contraction to 3% despite a reduction in well completion activity of 16% during the same period. Productivity expansion from Flexpipe's new Texas site remains on schedule, and the business continues to anticipate the release of additional larger diameter products around the year-end, expanding Flexpipe's addressable market by 50% or more over time. Xerxes's revenue in the third quarter was modestly lower sequentially as lower-than-planned production from new and newly refurbished manufacturing sites during Q2 impacted the volume of tanks available for Q3 shipment. These production constraints continue to improve as workforce proficiency across the Xerxes network rises, with Q3 total tank production rising by over 10% compared to the prior quarter. Customer demand for Xerxe's market-leading solutions remains high, with orders for products serving retail fuel, data center, fire suppression, and broader infrastructure markets exceeding revenue generation throughout the first 3 quarters of the year. At the end of Q3, the Xerxes order backlog stood at a new record high. During the third quarter, Mattr acquired an intermediary, which had historically facilitated the supply of metallic components to the segment. This acquisition secures a multi-decade exclusive supply agreement with the ultimate manufacturer, significantly reducing costs, lowering tariff exposure, enhancing supply chain control, and lowering business risk. The transaction involved minimal integration or onboarding activity and is expected to deliver an after-tax internal rate of return significantly above the company's 20% target. We anticipate segment revenue and adjusted EBITDA will move sequentially lower in the fourth quarter as unfavorable oil prices prevail and the normal holiday season slowing of U.S. onshore activity reduces the shipment of FlexPipe products, while the onset of winter season ground conditions will lower the number of Xerxes tank shipments approaching year-end. Looking beyond the fourth quarter, we believe the Composite Technologies segment is positioned to outperform its markets in the coming years as efficiency and increasing output from its newly established and upgraded Xerxess' facilities, combined with the introduction of new Flexpipe technology, are expected to create significant growth opportunities for the segment in the mid and long term. Tom will now walk us through some additional financial details. Thomas Holloway: Thanks, Mike. Third quarter's revenue from continuing operations was $314.9 million, 39% higher than the third quarter of 2024, while adjusted EBITDA from continuing operations was $34 million, a 16% increase from the comparative period in the prior year, primarily attributed to the inclusion of AmerCable results in 2025. The Connection Technologies segment delivered a new third-quarter revenue record of $184.2 million, which was 105% higher than the third quarter of 2024, with segment adjusted EBITDA being $7.5 million higher than the prior year. Both outcomes are primarily driven by Amer Cable's results being included within the segment's reported numbers. Despite the higher segment revenue, the sales mix in Amer Cable was less favorable sequentially, and elevated freight and tariff-related costs in the DSG-Canusa business impacted profitability. Composite Technologies segment revenue was $130.7 million, a 4% decrease compared to the third quarter of 2024, while adjusted EBITDA only decreased by 2% over the same time period. This decrease in revenue was primarily attributable to year-over-year declines in North American oilfield well completions, which were partially offset by FlexPipe's larger-diameter technology sales gains. Segment adjusted EBITDA in Q3 2024 included $1.5 million of MEO-related costs that were not present in the current year. Turning to cash flow. Cash provided by operating activities from continuing operations in the third quarter was $6 million. This was heavily impacted by an increased investment in working capital due to a significant shift in the copper supply chain within our wire and cable businesses to mitigate tariff impacts, which resulted in shorter supplier payment terms. This unfavorable change in the working capital cycle was more than offset by the tariff savings achieved. Cash used in investing activities in the third quarter was $33.1 million, which included capital spending on property, plant, and equipment of $14.6 million and the $22.5 million business acquisition discussed previously, partially offset by a receipt of a modest working capital settlement related to the AmerCable acquisition. During the quarter, cash provided from financing activities was $13.2 million, primarily driven by $21.7 million of net borrowings on the company's credit facility, largely related to funding the acquisition. Cash outflows also included the repurchase of 445,000 shares under the company's normal course issuer bid and lease liability payments. At quarter end, the company's net debt to adjusted EBITDA ratio was 3.9x or 2.8x if lease liabilities are excluded. This reflects the impact of higher working capital tied to tariff mitigation, modest borrowings to fund the small Q3 acquisition, and a sequentially lower trailing 12-month adjusted EBITDA. We remain committed to returning to a normal course ratio of 2x or below, and we'll be prioritizing debt reduction in the near term to ensure maximum future balance sheet flexibility. While we anticipate pausing activity under our share repurchase program in the short term, this does not represent a change in long-term strategy. Capital expenditures recognized in the quarter were $14.3 million, with $14.6 million of cash deployed, including $7.8 million of cash outflow tied to capital expenditures previously accrued. Q3 capital expenditures included $10.8 million related to growth projects, primarily associated with new product readiness and production equipment intended to increase manufacturing capability and efficiency within both segments. Full year 2025 capital spending expectations have been revised down to $50 million to $60 million from our previously communicated range of $60 million to $70 million. This is driven by spending reductions and efficiencies and does not represent costs that will move into 2026. We anticipate that 2026 capital spending will be within the company's previously communicated normal run rate range of $40 million to $50 million. I will now turn it back over to Mike. Michael Reeves: Thank you, Tom. Over the last 3.5 years, we have fundamentally enhanced our ability to efficiently develop and deliver highly differentiated critical infrastructure products from an optimized footprint. Across the matter organization, we are tightly focused on accelerating workforce proficiency and operational efficiency to enable margin and cash flow enhancement. In parallel, we continue to exercise tight spending control, adjusting our cost base as needed to appropriately reflect activity levels. As previously noted, given our current view of likely market conditions and customer demand, we expect our reported business performance in the fourth quarter will be below the third quarter of 2025. Our outlook for 2026 remains cautious, given the impact of ongoing macroeconomic and geopolitical uncertainties experienced during the second half of 2025 and the potential future impact such factors may have on certain markets the company serves. The company remains optimistic regarding the benefits of recent investments to develop new technology, enhance manufacturing capability, improve operating efficiency, and acquire AmerCable. We also remain optimistic that robust near-term demand for the company's products in U.S. infrastructure applications, including fueling network renewal, water management, data center construction, utility expansion, and mining, will persist for an extended period of time. In parallel, the company is experiencing significant declines in demand for wire and cable in the Canadian industrial and mining sectors. Expects depressed commodity prices to weigh on oilfield sector activity for the foreseeable future, and cannot yet determine the potential for direct tariffs on Canadian-made wire and cable products sold into the U.S. utility market. Consequently, the company will not be providing an outlook for the full year 2026 at this time, but anticipates providing such an outlook when it reports Q4 2025 results. Despite the near-term turbulence associated with macroeconomic and geopolitical uncertainty, we retain high conviction that our differentiated technologies, which support increased generation, movement, and use of electrical power and the ongoing transition to composite materials and fuel and water management applications, provide Mattr with substantial long-term growth and profit expansion opportunities. I'll now turn the call over to the operator and open it up for any questions you may have for me, Tom, or Meghan. Operator: Certainly. And our first question comes from the line of Tim Monachello from ATB Capital Markets. Tim Monachello: I just want to try to calibrate the level of change in the outlook across business lines. It sounds like you're taking a more conservative stance around capital allocation, and the outlook has probably become weaken relative to where you thought it was in the last cycle. So, maybe can you talk a little bit about under-absorption trends across the 4 facilities when you expect to hit normalized capacity in each one? And then I guess, the range of growth trajectories that you think you might achieve in each business line in 2026? Michael Reeves: Yes. I'll certainly address some of that. Obviously, we've been clear that we'll speak more about '26 when we report Q4 results. I think we need a little more time to see how certain things will unfold, but I'll speak more about what those items are. More specifically, in the new facilities, very happy with the progress of the Flexpipe facility in the Dallas area; the Xerxes facility in South Carolina is continuing to ramp up. And the Shawflex facility that relocated within Toronto allowed that business to deliver a new record revenue quarter in Q3. So those 3 sites either are already at or will absolutely be at a normalized level of production as we roll into the first half of 2026. Where we've had more challenges here recently has been the DSG facility in Ohio, which is a relocation of production activity from Canada into the U.S. We faced a number of challenges there, which I spoke about on the last earnings call. And those challenges persisted in the first part of Q3, which led to that facility falling below our expected production output levels and required us to import products made in our German and Chinese facilities to meet North American demand at levels that were above our expectations for the quarter. So we did incur some incremental freight logistics and tariff expenses associated with plugging that gap. The production in that facility has ramped substantially as we go through the tail end of Q3 and into early Q4. It has already surpassed the productive output of the Canadian facility that it replaced. So we are well on the way to being back on track for that facility, and I would expect that we will be at a normalized level of production there in the first half of '26 as originally anticipated. So some short-term pain, but not something that I expect will linger for an extended period of time. I think when we talk about our outlook, really the one thing that has meaningfully changed from our last earnings call to today is the effect of the Canadian economic slowdown on industrial demand for wire and cable in Canada. We have seen that the demand level has dropped quite substantially from the middle of Q3 to today. And I think it's likely to stay at a relatively low level throughout Q4 and probably well into 2026. The underlying industrial demand has absolutely lowered. And our distribution partners are, as you would expect, working hard to reduce their inventories, which further compounds the challenge. So what you'll see from us in the wire and cable space is cost reduction actions that have effectively already been taken and an aggressive reallocation of resources to drive incremental growth of sales of wire and cable products into U.S. utility, data center, and other applications as we attempt to overcome the shortfall in Canadian industrial demand. So I know that doesn't give you everything you've asked for, but hopefully, it gives you enough. Tim Monachello: And understanding that it's probably difficult from your perspective to have a view on '26, but Q1 is not too far away. There are some seasonal factors that are impacting Q4 on a sequential basis and probably overshadowing some of the absorption improvement that you might see in Q4. So, when you think about margins in Q1 and seasonal trends and filling up those facilities, is it a reasonable expectation to think that margins should improve sequentially in Q4? Michael Reeves: I think there is a wildcard in there that I cannot tell you the answer to right now, and that is the potential levying of tariffs on Shawflex Canadian-made wire and cable shipped into the U.S. As you may recall, there was an expectation that the U.S. government would make further announcements on its copper-related tariffs on the 28th of October. That date has signed on. There have been no announcements, although that could well be due to the government shutdown. So we are waiting to see if there's something announced there and if that something impacts us. So with that one caveat, we normally see similar degrees of seasonal impact in Q4 and Q1. The businesses that are seasonally affected are largely in the composites business, where ground conditions tend to be a factor in both quarters. So I would say I don't see macro conditions or seasonality being materially different from Q4 to Q1. There are some upside opportunities. There is this tariff thing that we're waiting to see how that settles. And at this point, I think that's about all I can tell you. Tim Monachello: I guess the one segment where you might see some upside for seasonality would be Flexpipe, just given the exhaust in Q4? Michael Reeves: Certainly, the potential. I think we also need to see where oil prices move to. They sit in the high 50s today, with some potential that they could move lower. So that obviously is an effect that we need to be thoughtful around. Right now, I would expect activity levels would follow a normal seasonal track, which means we're slower as we go into the holiday season, and then we start to see activity move up as we roll into, let's say, the second half of January. So we'll have to see how the customers respond to oil prices. I doubt there will be a material movement provided oil price stays where it is now. Tim Monachello: And just on Canadian industrial demand for wire and cable, is that isolated to like lower-margin stock products? Or are you seeing that across some of the higher-margin product lines as well? Michael Reeves: We've seen it across the industrial sector. So projects and stock products have been impacted very similarly. Obviously, we don't have perfect insight into other suppliers in that space, but we can tell by quoted lead times that I think everybody working in that space is seeing exactly the same effect. Operator: And our next question comes from the line of Ian Gillies from Stifel. Ian Gillies: Can you talk a little bit about the margin dynamics in Connection Technologies and Composite Technologies sequentially? Just revenue is reasonably flat, and margins are down. Is it solely due to product mix? Or is there product price inflation? I'm just trying to reconcile that. Thomas Holloway: Yes. So I mean, I think I'll take the first stab at that. Are you asking Q2 to Q3, Ian? Or are you asking Q3? Ian Gillies: Yes. Yes, specifically Q2 to Q3. Thomas Holloway: Yes. I mean I think if we look at Connection Technologies, we had let the market know that we thought AmerCable's margins would be down quarter-over-quarter given the mix, and that played out about how we expected. We saw some good data center orders, which are great. They fill the pipeline, and it's good business, but it's slightly lower margin than some of the oil field or mining activity that we see in that business from time to time. So that played out about how we expected. I think the big wildcard here and the big impact was the DSG business, the Ohio facility. And in Mike's prepared comments and mine, we talked about the fact that because of production struggles in that facility, we have to augment it with German and China production from our other facilities, get that across to North America to meet customer demand, which is great. But the cost of doing that is that we had expedited freight costs and tariffs on those products to get them over here at a much higher level than we anticipated. That we do not anticipate persisting, which is why you will likely see DHT margins move up in Q4. But that's the biggest dynamic that was playing out in that particular Connection Technology space. Ian Gillies: And then stepping back, looking at the balance sheet, do you feel the need to pursue asset sales or any other discrete financing to plug the balance sheet? Or do you think you can work your way through this? Thomas Holloway: No. I mean, we feel very confident with our ability to plug our way through this. I mean, our secured net debt covenant ratios are well within range. Obviously, you see the interest coverage ratio getting a little tighter as you get EBITDA shrinking a little, but we feel very confident in our ability to manage through this. The capital allocation pause on the NCIB is really more of let's really focus on that ratio and get it down so that we can be more aggressive in the future with allocating capital in other areas. As I said in my remarks, that is not a long-term change. That is something we're just doing in the short term to make sure that this market dynamic that is causing the macros and therefore, our results to be impacted, doesn't create further issues. So just trying to get in front of that. But we don't see any significant issues or concerns. No asset sales would be required there. Operator: And our next question comes from the line of Arthur Negorny from RBC. Arthur Nagorny: I just want to touch on the large-diameter pipes within Flexpipe. I guess that's now at 50% in North America, as you mentioned. I know you've previously outlined that as being the target. But now that we're here, is there any indication that you can get that number maybe above 50%? Michael Reeves: Yes, absolutely. I think the market continues to evolve. Customers generally are migrating to larger and larger products. And I think what started out three years ago as that business representing about half of our revenue as a potential is now, I think, considerably greater than that. So as we roll forward, I think we would expect that we can continue to grow share with the current large diameter products, and they will likely move to north of 50% of our revenue generation in North America. And then, of course, we will be supplementing that with additional large-diameter variants that we introduced early in the new year, which will open up a substantial new market opportunity that we would expect to grow into over a period of years. So while the underlying market for Flexpipe in North America has obviously been challenging conditions, 16% year-over-year decline in well completion activity, the business has performed extremely well. Our revenue is just barely down year-over-year, entirely due to the success of the sales team capturing incremental share, deploying new technology, which will be enhanced as we roll into 2026. So I think in almost any market environment, Flexpipe is going to be an outperforming business as we roll forward. And if we can see some stabilization of underlying activity levels, then obviously, the business can start to deliver some meaningful growth. Arthur Nagorny: On Xerxes, I guess, last quarter, you disclosed that you, I guess, had a backlog going into mid-2026. Just curious where that stands now? And separately, could you maybe touch on how demand is trending with data center customers specifically? Thomas Holloway: Yes. So over the last 12 months, Xerxes has added approximately $100 million to its backlog. The backlog at the end of Q3 stood at an all-time record and represented somewhere north of six months, somewhere a little south of nine months of forward revenue. So the business is facing sustained and growing demand, which we believe will persist for many years to come. Hence, our very strong focus is on enhancing productive output. As I mentioned in the prepared remarks, productive output rose by more than 10% from Q2 to Q3. Obviously, Q4 will be a little slower because of the ground conditions. It limits some of the shipments that we'll see. But the business will exit this year with a productive capacity that is materially above the level that it entered this year, which sets us up for that business to have some strength in 2026 and beyond. Data center demand continues to be very robust. We're able to take incrementally more orders as our very large molding for the tanks that data centers require continues to expand, and that's mostly in the Blythewood facility in South Carolina. So I think Berks is all in all positioned to have good performance as we roll forward. We're still working on operational efficiency. While we've got a new site and a fully refurbished site, we still have 4 sites that have existed for nearly 40 years, with limited investment until recent years. So the opportunities to extract incremental efficiency and production output from those sites are still there, and the teams will be incrementally extracting that as we roll through the next several quarters. Arthur Nagorny: And then on AmerCable, I know you shared a little bit of color there. It sounds like things are progressing more or less as expected. Would you say that acquisition is still on track with the guidance that you previously laid out, I guess, specifically on the adjusted EBITDA front? Michael Reeves: Yes, great question. I would say, Arthur, that AmerCable has performed extremely well despite the market challenges in some of the end markets; they've replaced those orders with other orders as we talk about the data center piece. And for the full year, we expect them to perform at or above their initial expectations that we had communicated to the market. So very, very pleased with the execution and the integration process and onboarding process, which is effectively complete at this point. Arthur Nagorny: And then the last one for me. Is there any way that you can help us with the direct tariff impact, what that looked like across the business this quarter? And maybe what the outlook for that is going forward, given some of the mitigating actions that you've undertaken? Thomas Holloway: Yes. I think last quarter, we had signaled that we expect it to be roughly $1 million to $2 million per quarter per segment. That's generally in line with our expectations going forward. As I talked about the DSG dynamic going on, there were a little more tariffs in the third quarter than we anticipated. And so there might be a little uptick in that. So if you were to say $1 million to $2 million in the Composites business per quarter, I think that's in the right range. If you were to say maybe on the upper end, closer to that 2 number for the fourth quarter in the Connections segment, and then getting back to normalized, probably 1% to 2% going forward after that. But that's how we see it. And obviously, we're trying to bring that down as much as we can, but that's effectively what we expect. Michael Reeves: Yes. The other element that's worth noting here is that with the announcement of tariffs on certain copper products that were issued in early August, had we not rewired our supply chain following that announcement, I think we would have been facing an annualized tariff cost on our copper supply chain that could easily have been $50 million a year. So very, very proud of the teams within Shawflex and AmerCable that worked within a matter of weeks to rewire that supply chain. Obviously, we're carrying a little extra net working capital as a consequence of some less favorable payment terms, but that's a small price to pay to avoid up to $50 million of annual tariff costs. So I'd say, broadly speaking, we're doing a very good job of mitigating the direct effects of tariff announcements on the company. Where we are struggling is customer effects from tariffs and knock-on economic impacts, particularly in the Canadian industrial market right now. Operator: And our next question comes from the line of Michael Tupholme from TD Cowen. Michael Tupholme: Tom, can you talk about how we should be thinking about changes in noncash working capital in the fourth quarter, as well as any initial thoughts around the 2026 full year for that? Thomas Holloway: Yes. So, as Mike was just referring to the copper supply chain piece, we did see the third quarter move negatively, almost entirely because of that. And that negative working capital piece was really just that. So our previously discussed trajectory for Q4 should be intact, where Q4 is an unwind quarter. We should see working capital move favorably. Our DSOs are in a good place. We're working to get inventories down, and our DPOs are in a pretty good place. So I would expect the fourth quarter to be a release of working capital as we had signaled before. As we go into next year, our general trend over the course of the quarters is that the first quarter is our worst working capital quarter as we invest working capital for future quarters' orders. The second quarter is trending a little bit better than that. And then the third and fourth quarters generally are more of an unwind quarter this year, being the exception because of that copper supply chain. And just to say, that supply chain has now been adjusted, so we don't anticipate significant moves unfavorably because of that. What we're hopeful about is not committing to this yet, but what we're hopeful to be able to do is actually improve those payment terms and make that a little better over time. Michael Tupholme: And then some of the commentary around the balance sheet and leverage and pausing buybacks, focusing on debt repayment. How should we be thinking about the evolution of the leverage ratio here, and when you would expect to be getting back within your target range, and then sort of freeing up capital to be deployed to other alternative uses? Thomas Holloway: Yes. I think if you look at what's happened in '25, I mean, we've had a couple of down quarters as you're noting here, that's what's really impacted our ratios. So the business is still generating good, healthy working capital and cash flows, other than that. As we go into '26, again, as Mike touched on in his commentary, we see the impact of '25 moving into '26. And so we're, therefore, being cautious with the way we're managing the balance sheet. I would tell you that the seasonality in the first quarter will mean the first quarter is a lower quarter over the course of 2026, which is normal. That's what happens in our business every year. So, as you look at our use of cash during that period, we want to put as much as possible into reducing that debt. That's the reason for that change. I think from a trajectory, depending on where the fourth and the first quarter end, you could see that ratio tick up just slightly because of the EBITDA numbers and then start to decline as we move through the course of 2026. Given what we know from the macros now, it's going to take us most, if not all, of '26 to get back to a 2x ratio, and it could take us slightly longer depending how these tariffs impact our customer behaviors and those sorts of things. But as I said previously, we don't see any need to do anything drastic here. We're just taking precautionary measures to make sure we're being proactive, getting that interest down, getting that debt down to ratios that we're comfortable with. Michael Tupholme: And then just the last one. I don't know if I missed this earlier, but the small acquisition you did, which sounds like it was really to help on the tariff side of things and supply perspective. But can you maybe quickly speak about that, unless you've already covered that, and I can go back and review that. But secondly, like there is mention about the possibility of sort of future acquisitions and being opportunistic? And how do we think about that and when you would have appetite and be potentially looking at something further on the M&A side? Michael Reeves: Yes. Maybe I'll address the acquisition, and I'll pass to Tom to talk about the future. We have historically purchased metallic components to support the composites business. We don't use a huge volume of them in the big scheme of things, but they are an important component of the supply chain for both Flexpipe and Subsea. We made a number of changes in our supply chain over the course of the last 18 months to lower our reliance on Chinese origin products and migrate that reliance to other lower tariff, lower cost environments. In that process, we were working with an intermediary, which was very helpful. But now as we start to see particularly Flexpipe larger diameter products come to market and the expected consumption of these metallic components rise, we felt it was a good moment to take advantage of an opportunity to acquire the intermediary, simplify the supply chain, enhance our margins, lower the tariff costs that we will have to pay going forward and take some risk out of that. So that's the decision we made midyear, relatively modest acquisition, but one that was strategically important for the Composites segment and will pay back very healthily over the course of the next two, three, four years. So feeling good about that decision. Tom, do you want to speak about M&A? Thomas Holloway: Yes. On the M&A front, obviously, with pausing the buybacks and putting money into debt, you shouldn't expect us to be active in the M&A space other than filling our pipeline, which we will continue to do because obviously, it takes years to do that sometimes we get good deals on the table. But I would not expect to see anything in '26. Again, we're always opportunistic and looking for things. But from a balance sheet perspective, we really want to get that ratio down and get back into a comfortable level before we are really active again. So likely a pause in '26, again, filling the pipeline, but not doing a deal and closing anything unless something changes materially in the market. I do think you should expect us to try to be active again as we get into '27. Again, things have to go right, but our ratio should be getting into a range at that point where we'd be comfortable looking at something and again, expanding this business. Operator: And our next question comes from the line of Zachary Evershed from National Bank Capital Markets. Zachary Evershed: So just continuing on the question about the small acquisition there. Internalizing a supplier obviously comes with a little bit of margin accretion. Do you think that will be noticeable on the P&L? Michael Reeves: I do. But I think it will take until we are working our way through 2026 before we start to see the full benefits of that. Obviously, there's certain inventory already in our system that predates the acquisition. But as we draw that down and start to see full advantage of the acquisition, we should see it in both Xerxes and Flexpipe margins. And obviously, as Flexpipe becomes an increasingly bigger consumer of these metallic components with larger and larger diameter products and as that revenue stream starts to ramp up, we will see incremental benefit from the acquisition. So maybe low single-digit EBITDA millions of incremental margin in 2026, perhaps a little better than that, but probably in that range. And I think we can get into double digits as we roll into '27. Zachary Evershed: And then, since we're talking about the larger diameter Flexpipe products, can you speak to your most recent expectations for the sequencing of sales for the addition of those additional large diameter products and the higher [indiscernible] Flexpipe products? Thomas Holloway: Yes. So I think the likely growth path for the new products that we will introduce right around the end of the year is probably going to follow a similar curve to that, that we experienced with the 5-inch and 6-inch products, which were released somewhere in that '21, '22 time frame. So I think we would expect that revenue is, let's say, $10 million or perhaps a little less in 2026, but ramping quite aggressively from there as we roll forward. Obviously, there's substantial demand in the market. We believe that we are well positioned to take that. Obviously, you have to ramp up production. And in many cases, customers will want to try it once and evaluate performance before they try it for a second time. So there will be a gradual roll into the revenue contribution from this one. But nonetheless, the products, I think, are going to prove themselves to be very robust. I think customer pool will be significant. And in 12 months or 18 months from now, we will find that these new products make up a material percentage of the revenue of the business. Zachary Evershed: And then on Xerxes with a two- to three-quarter backlog, why do ground conditions for installation limit your output? Couldn't you be working with customers on terms around taking ownership so you can just be cranking out tanks during the off-season as well? Michael Reeves: We did. So the physical installation of tanks, obviously, is impacted by the ground conditions. We produce at full capacity all year long because we, quite frankly, are still not in a position to meet 100% of our customers' demand. So there is no incentive to back away from production at any point in the year. Tanks that we produce during periods where customers can't physically install them will, in most cases, get invoiced upon completion and then will be stored on our own land until the customers can take them. There is a number of accessories that are billed to customers when tanks are shipped to their final installation location. We don't get to charge for those items until we physically ship them. So if you go back and look historically at the revenue of Xerxes and how it was really very seasonal, it is far less seasonal today because we've managed to migrate most of our customers to a bill upon completion agreement. But there's some seasonality because not every customer has agreed to allow a bill upon completion. And if we don't ship a tank, we don't get the bill for the accessories. So that's why you see some modest but still noticeable seasonality in that business. Zachary Evershed: And then, I guess if we set the potential for incremental tariffs aside, do you think you're being overly negative in your outlook here? Michael Reeves: Try not to be overly negative. I think we are trying to be realistic, given what we have seen unfold over the last 2 quarters. It takes time for tariffs to work their way through supply chains and all the way to customers, and ultimately have an effect on customer behavior. And we are seeing now the effect of tariffs that were implemented in the first half of the year on the Canadian industrial market. We've seen Canadian economic activity slow, actually turn negative in Q2. And we are seeing the effects on the industrial infrastructure in Canada. So that is the biggest area where I am cautious looking into 2025. There's some element of the slowing in industrial demand in Q4 that is related to distributors lowering their inventories. How long it will take them to get to a point where their inventories are in balance is not yet clear. Whether we will see any positive impact from the recently announced Canadian federal budget and the investments into capital projects is also not yet clear. If we see federal dollars start to stimulate industrial activity at some point in 2026, then obviously, that would pose an upside opportunity. If we see something approaching a return to balance in the oilfield markets and we see oilfield pricing move up, that would present an upside opportunity. I'd say while there are these macro elements that obviously we are keeping a close eye on and are not necessarily favorable for the business, there are also bright spots. We've spoken about Xerxes and the overwhelming demand that business has. I think Xerxes will enter 2026 with lots of opportunities. We talked about Flexpipe's large diameter. We talked about the success that Abberable has had in penetrating the U.S. data center market. We continue to see strong demand from U.S. utilities. We continue to see strong demand for mining outside of Canada, nuclear, and water. There are a lot of areas where we see strong demand and think that will prevail throughout '26. The areas where we are facing some challenges are substantial enough that they are worthy of conversation. So I am trying not to be overly negative or overly positive. Hopefully, we're presenting a balance. Operator: And our next question is a follow-up from the line of Tim Monachello from ATB Capital Markets. Tim Monachello: Quick follow-ups. On the freight costs from Europe on DSG, how much that contribute to the margin weakness in Q3 projections? Thomas Holloway: Yes. I mean, I would say it was an order of magnitude, a couple of million dollars. So you can probably do the math on that. But that's the order of magnitude. And as I said, we don't anticipate that continuing at that level going forward. But yes, that's the impact for the quarter. Tim Monachello: And then on the intermediary position, I'm just curious, strategically, what prevented you from just going straight to the... Michael Reeves: So obviously, you have to, I think, be mindful of what experience and skill sets you have in an organization and what you don't have. In this particular case, we were not perfectly positioned to organically execute the establishment of a production footprint and the output of these products in the case of Vietnam. So we chose to work through a party that had that experience, and I'm very pleased that we did. The pace at which we were able to set up that footprint, have access to those products and those costs and those quality levels has been very beneficial over the course of the last 12 to 18 months. So we chose a pathway that we thought would yield the highest value for the business. And at this point, I think that's going to prove to be the case. Tim Monachello: And does that intermediary have any other customers, or are you the sole customer? Just curious if there's any other revenue that comes out of this acquisition. Michael Reeves: We did not acquire anything that involved us supplying to a third party. So this is entirely supplied to our own business. Tim Monachello: And do you get exclusivity? Michael Reeves: Yes. So we have a multi-decade exclusivity arrangement, which obviously we believe will have that. Tim Monachello: Is that one of the strategic rationales? Like, are you cornering the market on this component from Vietnam, I guess? Michael Reeves: So I would describe these components as being proprietary components to us. But in the way we've structured the deal, we can ensure that our competitors don't get similar products from the same source. So I think we have protected ourselves in terms of intellectual property, having a pricing advantage, and, of course, now gaining some tariff advantage as well. Tim Monachello: And in the event that these tariffs go away, does the accretion of this deal also go away? And does it make sense if there are no tariffs? Michael Reeves: The accretion does not go away. Obviously, if there are no tariffs anywhere in the world, then the calculation would change a little bit, but the value associated with securing this incremental margin by removing the intermediary and having direct access to the end producer is something that would have made sense regardless of the tariff environment. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Mike Reeves for any further remarks. Michael Reeves: We appreciate everybody's time and attention here this morning. We look forward to speaking to everybody when we release our Q4 earnings results next year. Have a great rest of the day. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Lluc Sas: Good morning, and welcome to Sabadell's results presentation for the third quarter and first 9 months of 2025. Today, we are joined by our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow a similar structure to previous quarters. Our CEO will start by sharing strategic priorities and then discuss the key developments of the quarter. Next, our CFO will provide a detailed review of financial performance and the balance sheet before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session to address your questions. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc. Good morning, everyone. Before sharing the results of the third quarter, I will start my presentation today with a reflection on Sabadell's evolution since '21 as well as the prospects for the upcoming years. In Slide 4, in early '21, we launched a strategic plan focused on transforming each one of our businesses through specific levers for each one. This transformation would support the financial turnaround of the group. Since then, we have executed the strategy in a decisive and accelerated manner. We have talked about this many times. I won't elaborate into the details now. As a result of our transformation, a solid financial turnaround has been delivered. Return on tangible equity has jumped from 0% in 2020 to the current double-digit figures, which are above our cost of capital. By the way, our transformation process and financial turnaround has not been affected by the hostile takeover bid, and we have been dealing, which we have been dealing with over the last 1.5 years. In July 25, we presented our new strategic plan. An important milestone is the sale of TSB at very attractive multiples, which crystallizes the value created since we acquired TSB in 2015. The sale was signed with Santander and approved by our shareholders last August, and we expect the closing early next year. The new strategic plan is focused on growth and shareholder remuneration as Sabadell has not reached its potential. In terms of profitability, we expect return on tangible equity to keep growing and reach 16% by 2027. We reaffirm all the objectives of the strategic plans in terms of return on tangible equity, growth and shareholder remuneration. On Slide 5, we have a quick reminder of the key elements that underpin our equity story. First, Spain. Following the sale of TSB, the vast majority of our businesses is now in Spain, one of the fastest-growing economies in Europe. Second, growth. Our approach is clear: prudent market share gains while preserving asset quality and pricing. Third, execution. We have a solid track record of delivering results since 2021. We are confident we will deliver on our current targets. And fourth, shareholder remuneration. We have a proved and strong ability to generate capital while growing our lending book. We will leverage on this to offer an attractive shareholder remuneration in the upcoming years. In Slide 6, we are reminding the financial guidance for 2027, which we announced in July and we confirm today. To summarize, our return on tangible equity for '27 is 16%. We also announced cumulative shareholder remuneration between '25 and '27 and we expect it to amount to EUR 6.3 billion. And in September, we actually improved our expectations on shareholder remuneration from this EUR 6.3 billion to EUR 6.45 billion. In Slide 7, we provide more color on shareholder remuneration. The expected EUR 6.45 billion includes recurring distribution based on a 60% payout ratio. This is executed through two interim cash dividends per year plus one final cash dividend. On top of the 60% payout, we are planning to distribute excess capital above the 13% core Tier 1 threshold. Finally, we will distribute the extraordinary dividend from the sale of TSB once the deal is closed. As you can read in the bottom right-hand slide -- of the slide, we reaffirm that yearly cash dividends per share in '25, '26 and '27 will be higher than cash dividends per share paid in 2024, which was EUR 0.2044. And now let's move to the third quarter results highlights. In Slide 9, the key messages of the quarter. Third quarter results are on track to meet 2025 guidance. Our recurrent return on tangible equity, that is excluding one-offs, and extraordinary items stood at 14.1%. Core Tier 1 reached 13.7%. We kept generating capital in the quarter and in line with our strategy. I will later elaborate on this. Commercial activity continued to accelerate, both performing loans and customer funds grew by around 8%, excluding TSB. Core revenues remained in line with expectations. NII is on track to meet the EUR 3.6 billion target for 2025. Fees grew by 3.7% year-on-year. Asset quality continues to improve. Total cost of risk stands at 37 basis points, decreasing by 18 basis points year-on-year. Finally, we are pleased to confirm a second interim cash dividend of EUR 0.07 per share payable on December 29. Let me remind you that 2025 shareholder distribution amounts to a total of EUR 1.45 billion. On Slide 10, we turn to volumes. One more quarter, we delivered strong growth, both in loans and customer funds. Performing loans ex-TSB grew by 1.2% quarter-on-quarter, even with expected third quarter seasonality. On a year-on-year basis, loans ex-TSB grew by above 8%. On the right-hand side of the slide, total customer funds ex-TSB grew by 1.5% in the quarter and by 7.8% year-on-year. This is mainly driven by off-balance sheet funds, which grew by more than 15% year-on-year. Regarding TSB, volumes in euros were impacted by sterling depreciation, but remained fairly stable at constant FX, both quarter-on-quarter and year-on-year. All in all, at constant FX, group performing loans grew by 5.9% and customer funds increased by 6.4%. If we move to slide origination, and we talk now about loan origination in Spain, let me start with new mortgages. Origination in the first 9 months of the year increased by 26% compared to 24. Mortgage origination in Q3 decreased by 12% quarter-on-quarter, driven by seasonality. Our volumes of new mortgage origination remain reasonable. Our new lending market share is in line with our stock market share. Furthermore, we keep managing risk-adjusted return on capital rigorously for new mortgages to make sure growth is delivered in a profitable manner. Moving to new customer consumer loans. We continue to perform well, growing origination by 19% in the first 9 months of the year versus previous year. In new loans and credit facilities to SMEs and corporates, there was the expected quarterly seasonality. Year-on-year, evolution has been broadly stable. Finally, Third quarter origination of working capital finance declined slightly compared to Q2. However, it increased 3% year-on-year. Yearly cumulative origination in SMEs and corporates remains broadly stable compared to '24. All in all, current levels of new lending in all products allow for growth of the loan book. On Slide 12, performance of Payment systems remains strong. On the first 9 months, cards turnover increased by 6% and point-of-sale turnover rose by 2%. We can see a slower growth in point-of-sale turnover. Taking into account our already strong market share in this business, we are now focused on pricing and profitability. This approach has resulted in a reduction of certain exposures with very low margins, but we have increased total fees coming from this business. In the bottom half of the slide, you can see the evolution of savings and investment products. They grew by EUR 4.8 billion in the year, driven by an increase of EUR 6.8 billion in off-balance sheet products. On Slide 13, we show the breakdown of performing loan book ex-TSB across segments and geographies. In Spain, our performing loans were up by 0.9% quarter-on-quarter and by 7.6% year-on-year. All segments and products keep growing. The stock of mortgages grew by 5.6% year-on-year, consumer loans by 19% and SMEs and corporates grew by 6.2%. International operations were equally strong with performing loans by -- up by 11% year-on-year. In sum, performing loans ex-TSB grew by 8.1%. In Slide 14, I will elaborate on our strategy to enhance capital generation while growing loan book. I think this is a crucial element of our strategy, which we have shared before. We keep growing our book significantly, yes. But on the left-hand side of the slide, you can see that the probabilities of default of new lending originated in '25 are much lower than those of new lending originated in previous years. These are the result of our approach to credit growth, as we explained in the presentation of our strategic plan in July. In the last few years, we have been working very significantly on improving our risk models and processes. We have done this on a portfolio-by-portfolio basis. Once the risk origination capabilities of a given portfolio were improved, we fostered lending growth in that particular portfolio. Furthermore, the quality of the risk we are granting after improving our models and processes is much better as we are able to skew new lending towards lower-risk segments in each portfolio. On the right-hand side of the slide, you can see a simplification of the implications of our strategy. In each portfolio, we might be obtaining lower loan yields, but at a lower cost of risk as the resilience of our franchise improves and we generate more capital. As a matter of fact, we have already generated a very handsome figure of 176 basis points of capital year-to-date. This is fully in line with guidance that we shared in our Capital Markets Day of 175 basis points per year. And this is for the first 9 months of the year, the 176 basis points. Let's turn now on Slide 15 for the U.K. business. As expected, volumes remained broadly stable in the quarter. Net profit of TSB reached GBP 59 million in the quarter, which translates into almost GBP 200 million in the year. That brings its contribution to Sabadell to EUR 242 million year-to-date, up by 44% year-on-year. Stand-alone return on tangible equity was 13.8% despite having a high solvency that remained strong with a core Tier 1 of 16.3%. Finally, the TNAV increased by GBP 104 million between April and September. This will be included in the final proceeds coming from the sale of TSB to Santander, ensuring TSB continues to contribute to Sabadell until the transaction closes. On Slide 16, we can see a summary of our Q3 results. Net profit ex TSB amounted to more than EUR 1.1 billion in the first 9 months of the year. Net profit of the group reached almost EUR 1.4 billion. This implies a recurring return on tangible equity of 14.1%. This level of profitability allows us to grow our loan book while accruing a 60% dividend payout and still generate capital. We have already, as I said before, generated 176 basis points of capital year-to-date. And indeed, this is a high capacity to generate capital and it is a key factor supporting our high shareholder remuneration. And with this, I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance. Sergio Palavecino: Thank you, Cesar, and good morning, everyone. Let me start by showing the detailed P&L for the quarter and for the first 9 months of the year. As always, we have prepared the full group P&L as well as the P&L ex TSB, which will be the relevant perimeter going forward once we close the TSB sale. The performance of the different lines of the P&L is aligned with our year-end guidance, and we will review them in a minute. Whilst we are on this slide and before going into the detail of each of the lines, I'd like to point out that on the trading income line, this quarter, we recorded an extraordinary gross expense of EUR 23 million. This reflects mainly two items, minus EUR 8 million one-off related to liability management and minus EUR 15 million related to FX hedging on the entire proceeds from the sale of TSB, which will be quarterly incurred until the transaction is closed. We will now go through the different P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 19, I'd like to highlight that the net interest income is broadly stable this quarter and future growth will be primarily driven by volumes. Excluding TSB, NII closed at EUR 899 million in Q3, reflecting a marginal quarter-on-quarter decline of 0.8%. Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right. Customer NII had a negative impact of minus EUR 5 million. Within this, the customer margin decreased by EUR 24 million, mainly due to lower loan yield. However, quarterly average volumes of both loans and deposits had a very positive impact in the quarter, contributing EUR 8 million and EUR 12 million positively, respectively. The FX effect was marginally negative, subtracting EUR 1 million due to the depreciation of the U.S. dollar. The excess liquidity and other items had a combined impact of EUR 19 million adverse. This reflects the combination of reduced excess liquidity used to finance volume growth invested at a lower ECB deposit facility rate. Wholesale funding costs contributed positively with EUR 14 million, supported by lower funding needs, the maturity of early amortization of expensive instruments and the benefits of the floating rate hedges. And finally, one additional business day in the quarter had a marginally positive impact of EUR 3 million. Overall, we can see that the positive contributions from larger volumes and lower wholesale funding costs helped to offset the drag from lower customer margins and reduced liquidity contribution. TSB added EUR 303 million, in line with Q2 as the higher contribution from the structural hedge was fully offset by the depreciation of the sterling. All in all, we are on track to meet our 2025 NII ex TSB guidance of EUR 3.6 billion. Let's now move on to the fees on the next slide. For Sabadell, excluding TSB, the quarter saw a decrease of 4%. This was mainly due to the usual seasonality in the quarter, particularly in credit risk as well as service banking fees, which were lower during the summer season. However, year-on-year performance remains positive with fees growing by 3.7%. This growth reflects strong contributions from asset management and insurance products, which continue to support fee income. Based on this going forward, we confirm that we remain on track to meet our guidance of mid-single-digit fee growth in 2025, excluding TSB. Now moving on to costs on Slide 21. Total group costs remained contained, reflecting disciplined cost control and supported by depreciation of the British pound. On a year-on-year basis, costs remained broadly stable, increasing by just 0.5% year-on-year. In this context, we confirm again our guidance of low single-digit growth in cost, excluding TSB. On the next slide, we cover cost of risk and provisions. The cost of risk continues to evolve in line with our year-end targets or even better, reflecting prudent credit risk management. Looking at the bridge on the top right-hand side of the slide from left to right, we booked EUR 88 million of loan loss provisions, excluding TSB, during the quarter, which leads to a credit cost of risk of 21 basis points in the year. Next, a positive of EUR 5 million in provisions driven by foreclosed asset provision releases, along with capital gains on real estate assets. NPA management costs and other provisions, mainly related to litigation and other asset impairments in line with the usual run rate. Finally, TSB provisions contributed EUR 16 million this quarter. All in all, total provisions equate to a cost of risk of 37 basis points when excluding TSB. And looking ahead, we expect the total cost of risk, again, excluding TSB, to remain in line with our full year guidance or a touch better. Slide 24 provides a closer look at nonperforming loans, which continued to improve both quarter-on-quarter and year-on-year. The NPL ratio for the ex TSB perimeter declined further to 2.75%, representing a quarter-on-quarter reduction of 6 basis points and a year-on-year reduction of 96 basis points. Meanwhile, the coverage ratio remained broadly stable during the quarter and increased by 5% points over the year, reaching almost 70%. This once again confirms that our cost of risk is improving, but not at the expense of our coverage ratio. Looking at the exposures and coverage level by stage on the right-hand side, we can see that Stage 2 and Stage 3 exposures at ex-TSB level decreased by circa EUR 1.8 billion and EUR 1 billion, respectively, over the last 12 months, which I believe are remarkable figures. Moving on to the next slide. We can see that the stock of foreclosed assets continued to decline quarter-on-quarter, quarter after quarter. This is virtually a runoff portfolio with very limited entries and sales over the last 12 months of 20% of the stock at an average premium of 11%. Total NPAs, which include both NPLs and foreclosed assets, decreased by 19% year-on-year. To sum up, over the past 12 months, we have seen a strong improvement across all the 3 pillars of asset quality. Firstly, NPAs are down by around 20%. Secondly, the coverage ratio has improved by 4 percentage points. And all this has been done provisioning less. Turning now to liquidity and credit ratings. All indicators show that we ended the quarter with a very solid liquidity position, as you can see from this slide, with the loan-to-deposit ratio ex TSB showing a slight increase to 94%. Moving on to the credit ratings. Moody's upgraded Banco Sabadell's long-term rating to Baa1. This upgrade reflects the bank's improved solvency supported by the continued enhancement of both asset quality and profitability compared to past performance. Also, Fitch affirmed our long-term rating at BBB+, giving it a stable outlook once the hostile takeover bid is over. On the next slide, we present our current MREL position. We are comfortably meeting our MREL requirements in terms of both risk-weighted assets and leverage ratio exposure. In addition, we have built a solid management buffer across all requirements, which is our funding plan needs and will help to reduce wholesale funding costs in the coming quarters. For the last quarter -- sorry, in the last quarter, we issued one senior nonpreferred and one SRT transaction. And for this fourth quarter, the last one of the year, we expect one more SRT transaction to take place. Turning now to capital. At the end of September, our CET1 ratio reached 13.74%, reflecting an increase of 18 basis points during this quarter. Looking more closely at the quarterly evolution, we recorded 49 basis points of capital generation per dividend accrual. This includes 60 basis points from organic CET1 generation after deducting AT1 coupons. Zero impact from fair value reserve adjustments, minus 11 basis points from risk-weighted assets growth. Then the accrual of a 60% dividend payout represents an impact of minus 31 basis points. Now looking at the right-hand side of the slide, in terms of available capital to meet the announced shareholder remuneration, we already have EUR 3.7 billion of accrued and unpaid dividends plus excess capital above the 13% CET1 ratio on a pro forma basis. This means after the sale of TSB. This capital has already been generated. Now let's talk about the expected distributions on the next slide. We expect to distribute EUR 3.6 billion in the next 6 months, which is equivalent to more than 20% of our current market cap. This amount is the result of a second interim dividend of EUR 350 million already agreed by the Board, and that is EUR 0.07 per share in cash, which will be paid on December 29. This will be followed by the final dividend plus the excess capital of 13% CET1 to be paid after the Annual General Meeting. The estimated amount is around EUR 750 million and its composition, which may combine a cash dividend and a share buyback still needs to be defined by the Board of Directors. Finally, the extraordinary cash dividend of EUR 2.5 billion that will be paid on the last day of the month following the closing of the TSB sale. As we have seen in the previous slide, the capital required for this remuneration has already been generated. I will now conclude my part of the presentation by highlighting our shareholder value creation and the impact of TSB sale on Sabadell's multiple -- current valuation multiples. Sabadell continues to deliver strong value creation for its shareholders. This is reflected in a 17% year-on-year growth in tangible book value per share plus the dividends distributed over the last 12 months. And finally, given the importance of the extraordinary dividend related to the sale of TSV, let me share one aspect about the valuation. When we look at the 2027 consensus estimates, the Sabadell perimeter obviously already excludes TSB. Therefore, in order to accurately compare that figure with the current market cap, this extraordinary dividend for the sale of TSB must be adjusted for. So when adjusting for the EUR 2.5 billion extraordinary dividend, the market cap is EUR 14.5 billion. This adjustment obviously does affect the valuation metrics, particularly price to earnings ratio. When using the adjusted market cap as of November 11, Sabadell's P/E is below 9x and compares to an average of more than 10x for Spanish peers. And with this, I'll hand over to Cesar, who will conclude today's presentation. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. To conclude, I would like to review our financial targets ex TSB for '25. We are on track to delivering these yearly targets. Starting with NII, we have delivered EUR 2.7 billion in the first 9 months of '25. So we are well positioned to achieve the full year target of EUR 3.6 billion. Fees and commissions have grown by 3.7% year-on-year consistent with our mid-single-digit expectations. On the cost side, total expenses remained under tight control. We are well within the low single-digit range. Risk metrics remain robust with total cost of risk at 37 basis points, in line with our guidance and close to -- that is close to 40 basis points. In summary, all P&L lines, ex TSB, are on track to meet the year-end guidance and we remain confident in delivering a group return on tangible equity of 14.5% by year-end. Finally, let me highlight that shareholder remuneration is projected at EUR 145 billion for 2025. reflecting an improved outlook. And with this, I will hand over to Lluc for Q&A. Lluc Sas: Perfect. Thank you, Cesar. We will now begin the Q&A session. As we have a limited amount of time, I would kindly ask you to limit the number of questions to no more than 2. Operator, could you open the line for the first question, please? Operator: First question is coming from Maks Mishyn from JB Capital. Please go ahead. Maksym Mishyn: Thank you very much for the presentation and taking our questions. Two questions for me. The first one is on cost. Could you confirm if all the costs related to the tender offer have been booked already? Or is there anything else left for the first quarter? And if so, in what line? And then on medium-term growth, do you expect the strong trend to continue in 2026 if the loan book grows faster than the mid-single digits you have put in the plant, can this have any implications for the capital distribution? Cesar Gonzalez-Bueno Wittgenstein: Okay. The cost related to the tender offer have all been booked provisioned and paid or paid, except the new that will come on Q4, which is related to the shares to be granted to employees. And as you know, it's 300 shares per employee. And this will come as extraordinary in Q4. All the rest are already taken care of. In terms of the medium-term growth, I think we remain exactly on the guidance that we give -- that we gave and therefore, for sure, no implication, and we see no risk in terms of our capital distribution versus the guidance. Anything to add? Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: My first one is on NII. I would like to refer to Slide 19 of your presentation. So here, the quarterly bridge of NII, I see that new volumes are contributing with EUR 20 million NII in the quarter, loans and deposits. But then there is the column liquidity, which are negative of EUR 19 billion, so most largely offsetting the new volume growth. So it seems to me that redeploying liquidity positions out of the ECB or elsewhere is not accretive to the group with the new volumes. So I wonder how can you reassure us that you are not chasing volumes at the expense of pricing? So that's my first question. And my second question is regarding NII also. So you are targeting NII of EUR 3.6 billion in '25 and EUR 3.9 billion in '27. So that was based on mid-single-digit growth in volumes, but you are growing high single digit in Tier 1. However, the guidance for '25 probably anticipate flattish NII again in Q4. So what shall we expect going forward? If you can share with us some color for NII in '26 that you can share with us at this point? Do you think that there is upside risk to your '27 guidance, assuming you keep on growing mid-single digit for the remaining of the plan? Or do you see margin headwinds. Cesar Gonzalez-Bueno Wittgenstein: Okay. Let me start. I will give you some color, but certainly, Sergio will complete the explanation. I think you're spot on. I think Slide 19, which reflects that there is a EUR 19 million negative in liquidity and others. This is mainly driven by the fact that although we have grown significantly in customer liabilities, the deposits part and is lower than the growth of the asset part. And this is very clearly explained by a very simple reason. We are -- we have been below and we will continue probably being slightly below our expectations for new customer acquisition on all fronts, because of the result of the hostile takeover. We have delivered approximately 75% of our target in terms of growth of new customers and volumes on the -- on-balance sheet deposits and liabilities, which is below our target. If I look at it at face value, what is quite extraordinary is that we did the 75%, given the uncertainty and the difficulty for new customers to join the bank in such a period. But this going forward should improve, and we should again rebalance the growth of our on-balance sheet growth of deposits with the growth of assets. And therefore, that would affect positively that EUR 19 million that you're seeing there. I think I'll leave it at that and pass it on to Sergio. Sergio Palavecino: Yes. Thank you, Cesar. Paco, I think you need also to take into account that the liquidity part is affected by rates as still looking at the third quarter, rates at the ECB were invested at a lower rate than in the second quarter. So that does affect. Then on that part of the breakdown is also the others, which includes some hedges related to the fixed income -- sorry, to the fixed rate mortgages that have been brought to floating because the amount of fixed rate mortgages that we have is a lot and part of them are hedged. So the rates part is also affecting that component. So going forward, we -- as rates stabilize, we will expect not an adverse -- not so big adverse contribution from that portion. And then the volume component to be present during 2026. So we expect NII to start growing during 2026. With this, we will basically reconfirming our expectation that this year, we will end that NII at EUR 3.6 billion. NII will start growing during 2026. And for 2027, our estimate is that this EUR 3.9 billion that comes with -- after mid-single-digit growth of both loans and customer funds. Related to your mention of high [ yield ] on the loan book, that's at the end of the -- that's at the very end of the period, which typically has a peak in terms of loan demand. When you look at the average volumes for the loan book, we are rather on the mid-single digit that we expected. So far on volumes, I think things are progressing in line with our expectations. And if anything, we're lagging a bit in customer acquisition, as Cesar described, which, for sure, I'm sure that the hostile tender offer affected a little bit in that part of the business. Now luckily, the hostile tender offer is over, so we don't have that going forward. Cesar Gonzalez-Bueno Wittgenstein: Although we will have it for the beginning of the next quarter because, of course, the tender offer ended mid-October. If I may make a general comment on the NII. And I think although we've said this many, many times, I think it's important to repeat it, because it's at the core of our strategy. First, the NII is in line with our guidance. And the improvement of the credit quality of new lending, of course, partially dilutes also loan yields. We are growing with lower yields but with better credit quality. And this is a strategy. Because it means lower cost of risk and higher capital generation and it furthermore makes the franchise significantly more resilient. So when you look at line per line, sometimes it's difficult not to realize this underlying shift in strategy, which I think is very positive and at the core of our endeavors. Sergio Palavecino: Yes. So I think that answers also, Paco your comment that if we make sure that growth is not done at the expense of margins. And that's not the case, Cesar explained that we focus on returns, and we have a very strong discipline of allocating all cost, cost of risk and capital to all the lending. So we will only grow as long as it makes sense to do it. Operator: Next question is coming from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: The kind of follow-ups from the previous questions on loan spreads. So we've seen in the press and it looks like some of your competitors repricing mortgages up and repricing loans up last few weeks. Are you -- can you comment on what you're doing on new production? Do you recognize those comments? And I know you're also repricing up. And related to that, Seth, you mentioned that contrary to some of your competitors, you do hedge and you do swap those mortgages. Can you give us a feel of what the spread is post once the mortgage are swapped, what the spread is at the moment? . And I guess sort of related to that, in your 2027 NII target 3.9, what spread on loans, does that have factored in, what should we think about on the loan spread when we put everything in, where should it stabilize? I realize in the short term. Obviously, there's some repricing to lower Euribor still going on. But once during 2026, where do you think the loan spread can stabilize? Cesar Gonzalez-Bueno Wittgenstein: I'll take just the first part of the mortgage question. I think we are following very closely all the comments also from our competitors and following the market. And it's very clear that we are growing in mortgages at our market share. And that means that, of course, the market is competitive, has always been. But what has transformed dramatically the way we look at mortgages is that we are now fully rail rock-based. The average rate rock of new mortgages is around 20%. And that means that we price correctly, but we also include -- it's based on the segmentation approach, and we are aiming and attracting high-value clients. And the pricing includes and the RaRoC, the impact of cross-selling. That is, if a mortgage offer discounts when customers are also purchasing other products that increase their overall contribution. What has changed also is that before that was only set at the time of the issuance of the mortgage. Now that is a condition. So for example, if there's an insurance attached to a mortgage, it has an improved pricing. But if that insurance is canceled, then the price is automatically adjusted as per agreement with the client. So I think it is very clear we are all focusing very carefully. The market is growing. There's a lot of demand for mortgages, but we are all focusing on and certainly, we are on not increasing our market share on this segment growing with -- and that is our strategy, and that's what we have executed and measuring very carefully what is the value generation. Sergio Palavecino: Yes. And Alvaro to your question related mortgages and its ALM related mortgage, the origination of mortgages is fixed rate in the vast majority, more than 80% of our origination is coming in fixed. And it's been the case now for, I think, the last maybe 7 or 8 years. So the book is definitely turning very much on to the fixed rate. That is also combined with the fact that in the last quarters, the origination volumes are higher. So it's a pretty good amount of fixed rate loans. So yes, we do swap of that part connected with our ALM policy. We're swapping between 30% to 50% of the new entrants. And after swap, it depends on the different portfolios, but the final spread after swapping stays at 30 to 50 basis points. But please take into account that all the business we do, we do with customers. So the mortgage profitability is assigned in connection with other products that the customers take. So we make sure that the RaRoC all in all, makes full sense. Alvaro de Tejada: And as for the total loan book, where do you think the spread could stabilize consistent with that EUR 3.9 billion? Sergio Palavecino: Yes. The spread for the asset -- the loan yield currently in the ex TSB perimeter is at 3.68%. So when compared to ECB or Euribor, it means that in average spread is at above 150 basis points. We think that, that kind of spring is sustainable over time. So when I see maybe a little bit of additional reduction, maybe but then the mix and the rates we think that spread is sustainable over time. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: Can you hear me? . Cesar Gonzalez-Bueno Wittgenstein: Yes. Borja Ramirez Segura: I have to two. Firstly, on the capital distribution. I would like to ask if you could provide more details on the cash dividend growth. if that applies every year, the EPS will be higher year-over-year. And also, I think your capital distribution target does not include the potential capital from the payments JV. So that could be upside to your target? And then my second question would be on the NII, I would like to ask if the customer NII has bottomed in Q3. And also, I think you have a competitive advantage compared to domestic peers because I think you still have tailwinds from lower cost of hostile funding to come. I think you quoted EUR 200 million of upside after 2027. I'm not sure that, that's in consensus. Cesar Gonzalez-Bueno Wittgenstein: Okay. In terms of the capital distribution, I think that what we are guiding and we are guiding with confidence is that the cash dividend per share and that includes also numerator and denominator. So the number of shares will be higher in '25, '26 and '27 or equal than the one of '24. and that is what that's how we are guiding. And of course, it does not include Nexi. Sergio Palavecino: Precisely, exactly. And regarding your question on NII, I think the third quarter might be the bottom or sort of a valley as we expect the last quarter of this year to have similar levels of NII. And then as mentioned before, we expect NII to start growing in 2026. When you discussed the -- when you mentioned Borja, the wholesale funding savings that we expect, and we touched on them in our Capital Markets Day, we were comparing, I think, 2027 to 2024, there were meaningful expenses. But that was a combination of 2 things. The lower -- maybe 3 lower rates, lower spreads in the market for us in connection with our ratings. That's clear. That's structural. That's a strength going forward for sure. But there's another component, which is that the sale of TSB is going to reduce our wholesale funding needs. But that is connected to some income that we get in the ex-TSB ALCO book because in the ex-TSB ALCO book in the asset side, we also have the MREL from TSB. So I think it's not fully that sort of benefit that goes into NII, because it will be somewhat offset by the MREL bonds in the ex-TSB ALCO book. Cesar Gonzalez-Bueno Wittgenstein: That will be sold to Santander. Operator: Next question is coming from Carlos Peixoto from CaixaBank. Carlos Peixoto: A couple of questions from my side as well. There was a small decline in the... Cesar Gonzalez-Bueno Wittgenstein: Carlos, sorry to interrupt you, but could you -- Yes, much better. Thank you. Carlos Peixoto: So as I was saying, there was a 3% to 4% decline in deposits and overall balance sheet customer funds in the first Q stand-alone in -- excluding TSP. I just wondering whether you see that mainly related with the impact that you mentioned before or whether there's something else that explains this decline? And then on trading gains, well, you have the Tier 2 impact in the quarter and the hedge cost, still underlying trading would actually be slightly negative. I was just wondering whether you see this as being the trend for upcoming quarters in trading as well. And then sorry, just to overstep, but if I may, just on other provisions, if you could also give us a on how sustainable these levels are? Should we look at this adjusted by the EUR 5 million that I believe it was EUR 5 million from a recovery write-back in terms of provisions. If you adjust for that, should we see there more or less a recurrent level of provisions or just your outlook on this? Cesar Gonzalez-Bueno Wittgenstein: I'm going to try to answer the first question, but I'm not 100% sure. I understood that fully. So if I missed the answer, please come back. I think you were referring to customer funds growing less than our asset side and if that was perturable over time. And I think that what we already tried to explain is that, that difference in growth between assets and liabilities on balance sheet from clients, it's mainly due to a weaker acquisition of new customers versus our expectations due mainly to the tender offer. Therefore, we expect that to be reverted over time and to come back to our original plans with the new ones that would not happen fully during Q4, because the transaction ended at mid-October. I don't know if that was your first question, and if I answered it to your satisfaction. Carlos Peixoto: Well, actually was between June and September, you had a decline in overall stock of deposits, but I guess... Cesar Gonzalez-Bueno Wittgenstein: Deposits, you mean. Carlos, or just are you... Carlos Peixoto: Overall stock of deposits. Cesar Gonzalez-Bueno Wittgenstein: Term deposit. Carlos Peixoto: Excluding TSB. Sergio Palavecino: Term deposits. Cesar Gonzalez-Bueno Wittgenstein: Yes, yes, the EUR 2.5 billion, yes, that is a mix, and that's a shift. If you see the growth in the slide, I think it's more than EUR 5 billion growth, excluding capital appreciation on mutual funds. I think we have always pursued a greater growth in our mutual fund strategy in our off balance sheet. And part of that is cannibalization so that minus 2.5 of term deposits is also a significant shift towards mutual funds. And that's overall, what yields the growth of close to circa of 8% year-on-year on our overall funds from customers, both on balance sheet and off balance sheet. And it is the mix of the on balance sheet that I was explaining previously that has had some impact on our NII together with all the other elements that we already commented. Sergio Palavecino: Yes. Despite that -- let me also highlight the very -- the remarkable growth in the off-balance sheet products growing at a very nice double digits. So very successful, I think, part of the business. And then Carlos, your other questions, the second one was related to trading. In the trading line, the way we see things are, of course, it's probably the most volatile line. However, if we were to say a recurrent path, could maybe be between EUR 5 million to EUR 10 million per quarter. And as we have explained, we are hedging the entire proceeds coming from the sale of TSB, and that is going to have a cost of EUR 15 million every quarter during this process. And this is up to, as in our expectation, the first quarter of next year included. So those are the numbers, and we will be, I think, in that range. And regarding provisions, yes, we think that this is sustainable. This is in line with our longer-term expectations that we shared with you in the Capital Markets Day. We guided to also 40 basis points cost of risk in 2027. When we look at all the portfolios are doing a little bit better than expected, that's why we are actually below 40 basis points of cost of risk this year. And I think it's important to take that in connection with the important transformation that Cesar has described it, where we focus all the organization in originating better quality portfolios that might have not such a big spread, but it comes with lower cost of risk. And at the end of the day, we are seeing that the capital generation is actually higher. So quite happy with the transformation and the story. Cesar Gonzalez-Bueno Wittgenstein: And at risk of becoming too repetitive. I think the probability of default reduction is very, very significant. It's around 50% the first 9 months of the year versus '23 new lending. That flows through the balance sheet over time because it's the new production that improves. But after that comes the book improvement overall, depending on the maturity, term maturity of every product, and then the models in which you calculate risk also are adjusted. It all takes time, but it is in the right path. But immediately, it is producing exactly as Sergio was saying the improvement in capital generation. Loan growth is not at the expense of credit quality. On the contrary, it is based on 3 pillars. The first is risk, the preapproved loans by limiting the probabilities of default, both on average and taking away the queues. The second one is pricing. And sometimes, it yields to lower NII, but it is with higher RaRoC considering everything. So the quality of the metrics has improved dramatically. And third, it also comes at the expense of processes. I think one thing that is undervalued usually in banking is that the way you conduct your processes in the sales have a significant impact in your growth or the rest being constant. It is what we call the funnel. The focus on funnels. There's now an obsession around funnels here. And that means that chatter is parable all the rest being constant, you can have with the same pricing or equivalent pricing, the same risk, you can have higher growth. These are the 3 pillars of growth, and we are focusing very much on the execution of the 3 of them. Operator: Next question is coming from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: So I've got one actually on the mortgage yield discussion. So if you can tell us on your standard mortgages, if you on how much yield you're adding on cross-selling? And how is that broken down between different products. And then the second one, if you can remind us the breakdown of your Miami book, and if you're seeing any deterioration based on, I mean, the developments on private credit, U.S. credit quality in general. Cesar Gonzalez-Bueno Wittgenstein: Unfortunately, I don't think we are able to respond to the first question. I don't think we have that breakdown or that we are sharing that breakdown. And it's changing game continuously, and we would show you averages, but that would also not mean a lot, because it's based on every mortgage one by one and the pricing is based on a RaRoC product. It basically only includes the RaRoC the elements that are contractual. On top of that, you have an additional tailwind, which comes with higher liabilities, higher payrolls and a number of things. But that's as much as we can share. And on the breakdown on Miami. . Sergio Palavecino: No deterioration at all in our Miami book, is not in the activities that might be more affected, but we are seeing no deterioration at all. It's a very high-credit quality book. Operator: Next question is coming from [indiscernible] from Autonomous. Unknown Analyst: The first one is on the Nexi deal. If you could provide any update on the negotiations with Nexi, if this is still a priority by management? And when shall we expect any news on this? And then my second question is on the customer spread. So on the loan side, you commented that 150 basis points is sort of sustainable. Now I wanted to ask you about the deposit spread ex-TSB, -- where do you see this landing once repricing stabilizes? And just one final clarification on the CET1. You mentioned that there should be another SRT in Q4. If you could provide any expected basis points impact from that? And if you also expect any operational risk inflation in the last quarter? Cesar Gonzalez-Bueno Wittgenstein: Okay. On the Nexi deal, I think both sides have been very, very clear that has been a very long time lapse and the market has changed significantly since the prior agreement. So what we have engaged is that on first that there is more ongoing obligation. And second, we are both engaged in continuing exploring if there's a way to come to a new agreement or not. We haven't given us each other a fixed date or we haven't given each other fixed commitment. We just have mutually agreed approach to continue to exploring opportunities. Certainly, if that happens, it will be in probably very different terms and scopes than the original one. And we'll see how this evolves in the following months. Sergio Palavecino: Yes. And regarding customer spread, we are now not expecting major movements as mentioned before, maybe some basis points less in customer yield, but also some basis points less in customer funds, in the cost of customer funds. And overall, customer spread that should get stable or very close to these levels and very soon. And then relating to your last question on... Cesar Gonzalez-Bueno Wittgenstein: On a general view on the capital solution for Q4 and certainly, you can be much more explicit on the SRT. But I think for capital evolution in Q4, you should expect, as you know, we have shown already that we have covered already more than covered our commitments for the year in the first 3 quarters. But nevertheless, we expect a positive contribution to capital in Q4, although it will be more moderate than the one that we have seen in the previous quarters. And the headwinds are seasonality of the quarter because we should expect volume growth and also an impact on operational risk, maybe around 7 basis points or something of the sort. But the tailwinds will be the retained earnings and certainly the SRT now 230. Sergio Palavecino: No, I think you answered perfectly. I think the -- it's going to be in all the moving parts of the last quarter, which typically is not the strongest in capital generation, but still we expect some capital generation, because you're spot on Luis with the risk-weighted asset inflation coming from operational risk in the quarter, but the SRT will offset this. SRT benefit in the quarter will probably around 8 basis points, 8% to 7%, so offsetting that risk-weighted asset inflation and the conclusion is what Cesar said, that we expect another quarter of capital generation, probably not as strong as this one, but some of that. Operator: Next question is coming from Hugo Da Cruz from KBW. Hugo Moniz Marques Da Cruz: I just wanted to ask, so the TSB dividend, the one-off dividend I think you have a slide where you say that so far already generating $2.65 billion, and the target for the dividend is EUR 2.5 billion. So if you end up generating more capital than the dividend that's been promised so far. Will we get that with a one-off dividend? Or would it be later in the year with as you kind of excess capital. Cesar Gonzalez-Bueno Wittgenstein: That's one of those -- sorry, that's one of those mysterious questions because it is for the Board to decide. At this point in time, what we are just saying is that we have already replenished in terms of capital generation to fulfill 100% and even a little bit more of our commitments to the market. What the decisions of the Board will be in the future remains to be seen, and it's for their capabilities to address that in due course. Lluc Sas: Yes. I think we've -- a couple of analysts have just raised their hands. So operator, if we could include them in the list. So let's jump to the next question. Operator: Next question is coming from [ Tetra Romero ] from [indiscernible]. Cesar Gonzalez-Bueno Wittgenstein: Can you hear us? Please check that you are not on mute. If not, we can jump to the next analyst. Unknown Analyst: Can you hear me now? Cesar Gonzalez-Bueno Wittgenstein: Yes, yes. Yes, we can. Unknown Analyst: So my question is related to the last 1 on the dividend related to TSB. I was just wondering, you were mentioning that TNAV has already improved by EUR 100 million. You were targeting around EUR 200 million for the period up to April. So if this progressing according to better than planned and could this represent upside risk to your distribution? And also wanted to know if the timing of the closing of the transaction is on track for April? And then my second question is regarding the SRT that you were mentioning that it's going to be 8 to 7 basis points, where is the cost of that SRT showing up? Is that NII, is that included in your guidance? Sergio Palavecino: The TNAF, as you have seen, has increased by EUR 104 million. And as we guided for roughly EUR 200 million increase of TNAF in 1 year. So it is progressing absolutely in line with our expectation. That TNAF is basically the increase in the book value coming from the net income in the period, and that is flowing into the group results, where the extraordinary dividend is connected with the capital gain and the risk-weighted assets release, which is basically the sort of picture that we had when we cut off as of March 31. So the TNAF is not affecting the capital release, the -- and therefore, the extraordinary dividend is well connected with that. And then for your second question regarding the SRT cost. SRT are done in 2 different ways, synthetic on cash. In the third quarter, we closed a cash transaction. There was a securitization of consumer loans, auto, in particular, auto. So those -- that transaction is SRT and that is a cash bond, so that is going through NII. The synthetic SRT transactions, the cost is going into the fee line, because it's a fee that we pay for the guarantee. So it's going into the fee. And all of that is taken -- is considered in the guidance. Lluc Sas: Okay. So we can now jump to the final question. So operator, please? Operator: Last question is coming from Fernando Gil from Intesa Sanpaolo. Fernando Gil de Santivañes d´Ornellas: So my question is regarding the asset management business and the Amundi deal. Can you just remind us of the main terms of a deal, I think it was 2020 to 2013 -- sorry, '30, so has there been any voluntary breakup clause from Sabadell? And if so, what are the cost to notice periods and some details that you can share, please? . Cesar Gonzalez-Bueno Wittgenstein: Fernando, yes, it was a 10-year agreement for distribution in 2020 where we sold our asset management company to Amundi. That period, therefore, ends in 2030. And we're very pleased with the agreement. We're very happy. The business is done. It's working very well. So there is nothing that we can add at this moment on this. It's going well. Lluc Sas: Perfect. So that concludes our presentation today. Thank you, Cesar and Sergio. As always, the Investor Relations team remains available for any additional questions or follow-ups. Thank you, everyone, for participating and for joining us this morning. Have a nice day. Cesar Gonzalez-Bueno Wittgenstein: Have a nice day. Sergio Palavecino: Thank you.
Operator: Good afternoon, ladies and gentlemen. This is the Chorus Call conference operator. Welcome, and thank you for joining the results as of the end of September of the ACEA Group. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Dario Michi, Head of Investor Relations of ACEA. Dario Michi: Ladies and gentlemen, good afternoon, and thank you very much for joining the presentation of the results as at the end of September 2025 of the ACEA Group. Francesco Ragni, CFO; and Ms. Valentina Bracaglia, Deputy CFO and Head of Planning, will go through the presentation. I will give the floor now to Pier Francesco for the presentation. Pier Ragni: Good afternoon, ladies and gentlemen. As usual, we shall start our presentation by considering the regulatory and market environment. In Water business, we point out the update of the -- 2-year update of the tariffs, whereas in the Electricity business, we would like to point out the lack of activation of the trigger with reference to the remuneration rate of the capital for 2026 remains at 5.6%. As to the price of commodities, the price of electricity and gas in the first 9 months of 2025 recorded an increase of 14% and 20%, respectively, versus the same period last year. As to the interest rates, I'd like to confirm the trend which was recorded in the first 6 months of the year with a decrease of rates versus 2024, both in the long and short term of the curve. Let's now move on to Slide #4 of the presentation. As to the main highlights of the first 9 months of 2025, the results show a strong growth of economic items and confirm the soundness of the financial structure of the group. First of all, I point out that in line with IFRS 5, the results of ACEA Energia, which is subject to disposal have been reclassified as discontinued operations. For purposes to have the possibility to compare data, we have shown pro forma results simulating the deconsolidation of discontinued operations and of Acquedotto del Fiora in the first 9 months of 2024. Pro forma EBITDA reaches EUR 1.84 billion in -- growing by 8% versus the first 9 months of 2024. The increase of recurrent pro forma EBITDA adjusted to the changes in the perimeter, which you see later on, stands at 10%, which is driven mainly by the growth of the Water Italy business, grids and public lighting and generation. The contribution of regulated activity of the consolidated EBITDA is 95% of the total. The net profit of the first 9 months of 2024 is EUR 415 million, up 46% and among other components is driven by the capital gain of the disposal of the high-voltage network for about EUR 109 million. The recurrent net profit grows by 8% year-on-year following the dynamic recorded at operating level. CapEx growth of grants grew by 6% versus the first 9 months of 2024 and now stand at EUR 1 billion. The operating cash flow is positive for EUR 19 million allowing us to maintain a sound financial structure with a P&F financial structure EBITDA pro forma ratio equal to 3.39x. The ratio takes into account the future cash in of the disposal of ACEA Energia and the cash in of the disposal of the high-voltage network, which occurred in September. Slide 5, we recorded the main indicators of the dynamics recorded in the first 9 months of the year, which, as I said, showed a strong growth trend. As to the EBITDA, ACEA recorded a growth of 10% versus the result of 2024 adjusted for one-offs and change in the scope. CapEx net of grants are EUR 843 million, of which EUR 67 million related to activities of businesses which are disposed net of the perimeter of ACEA Energia which is to be disposed of, and investments CapEx, regulated CapEx represented 95% of the total net profit, which, as I said, includes the contributions of businesses that we disposed, grows by 8% on a recurring basis and reflects the very good operating performance. The net financial position moves from EUR 4.944 billion as at 31st of December 2024 to EUR 5.083 billion at the end of September 2025. I do apologize, but I can no longer hear the speaker. I do apologize, but I do not hear the speaker. The net financial position pro forma to take into account the asset rotation as described in the footnote moves from EUR 4.343 billion as at the 31st of December 2024 to EUR 4.693 billion as at 30th of September 2026 (sic) [ 2025 ] with a ratio debt to EBITDA, which is 3.39x. The EBITDA in the first 9 months of 2025 has grown, which is due to tariffs and the operating activities of water, and it was also driven by the grid operations driven by the RAB and the growth of the results of generation and also because of prices. On the right of the slide, you see the main one-offs and changes in the scope and these amount to EUR 27 million for 2024 and relate to mainly past tariff items related to period 2022, 2023. In 2025, changes in perimeter amounted to EUR 15 million and related to the incentives for a quality in the Water business. Now Mr. Ragni is reconnected. As to the recurrent net profit, on Slide 7, the growth versus the first 9 months of 2025 is due to the operating performance, which contributes positively for EUR 26 million. That effect is partly offset by the financial management because of lower financial proceeds because of the reduction of rates. As to the EBITDA on the right, you see the detail of the one-off components. As to Slide #8 of the presentation. Now considering also the contribution of ACEA Energia in the first 9 months of 2025, we have invested around EUR 1 billion, up 6% versus 2024. Such investments for about 89% is related to regulated businesses of water, grids and environment. The net of ACEA Energia which is subject for disposal, the contribution of regulated businesses to CapEx amounts to 95%. Out of that EUR 1 billion of investment, EUR 167 million were financed by the cash in of the grant. On the slide, you see the activities carried out in each sector like the widening and update of water pipes and sewers and the upgrade of the grid for general electricity distribution. Slide #9. Here, you see cash absorption of the first 9 months of 2025, which is around EUR 140 million and is negatively affected by the changes in working capital related particularly to higher receivables and the network balancing, which we expect to be absorbed in the last quarter. And then also, it is affected by regulatory receivables, which is to be absorbed in the fourth quarter. We have to underline referring to working capital that in the third quarter of 2025, ACEA generated cash for about EUR 66 million, thanks to the efficient management of commercial receivables and payables. To be more transparent as we did when we presented the results of the first 6 months, we represented in a distinct manner the contribution of the company's consolidated equity contribution is EUR 30 million versus EUR 9 million in 2024. This clarifies better the dynamic of the changes in funds, which reflects the reclassification of ACEA Energia among discontinued operation. I will not dwell on CapEx charges, taxes and dividends as these items can be directly interpreted. As to M&As, we need to underline EUR 210 million represented by the cash in from Terna for the disposal of the high-voltage network equal to EUR 227 million. Now let's move on to Slide #10, the financial structure. Here, you can see that the average cost of debt as at the 30th of September 2025 stands at 2.04% versus 2.16% at the end of 2024. The cost of debt is positively affected by the reduction of variable rates connected to the Euribor for the part of debt which is variable and which is equal to 20% of the total at the end of the third quarter. Moreover, let me tell you that in the third quarter 2025, we took out three bilateral bank lines for a total of EUR 350 million, which at the end of September was reimbursed the bond -- green bond amounting to EUR 300 million that was issued in 2025. I'll leave the floor to Ms. Bracaglia. Valentina Bracaglia: Slide #11, we see the main KPI of the Water Italy business. Let me remind you that the results of the first 9 months results were expressed pro forma so as to have the possibility to compare the data. In the first 9 months of 2025, the recurrent EBITDA adjusted mainly because of the incentives for contractual and technical quality goes up by EUR 42 million, plus 8%. That is due to tariff growth guided by CapEx and the increase of results of consolidated -- company's consolidated at equity and also because of operating efficiency. Net of public grants investments grew by EUR 29 million, up 7% year-on-year and related mainly to operations on Acque del Sud and water cleaning plants and maintenance of grids. Net of investments related to Acquedotto del Fiora, growth year-on-year is EUR 61 million, that is up 15%. Let me now move on to Slide #12. Here, you see the main KPI related to the grid and public network. Despite the reduction of the WACC by 40 basis points as of the 1st of January 2025, the recurrent EBITDA of the business goes up by EUR 29 million, up 9%. Such an increase is due mainly to investments made that is growth in RAB and also this is due to the update of the revaluation of the RAB starting in 2025. Investments net of public grants around EUR 210 million are slightly decreasing versus the previous year, whereas investments growth of public grants are growing. In the environment area, net of one-off, the EBITDA is slightly increasing because of the greater margins associated to WTEs. The investments decreased by EUR 28 million versus the previous year. And this is mainly due to the revamping operations on the WTE of Terni out in 2024. Let me now move on to Slide 14. You see here the results of the Generation business unit results. The recurrent EBITDA grows by EUR 17 million, and this is due mainly by the favorable energy scenario and the greater generation mainly to the Hydroelectric and Photovoltaic business. In detail, the energy produced rose by 24% from 485 to 602 gigawatt hour, thanks to an increase of 42 gigawatt hour in the hydroelectric production and -- plus 71 gigawatt hour in the photovoltaic production. Investments in the first 9 months of 2025 amounted to EUR 21 million, growing by EUR 6 million versus previous year. I will give back the floor to Mr. Ragni for the updating of the guidance. Pier Ragni: Thank you very much, Valentina. Now considering the strong growth experienced in the first 9 months of 2025, we have reviewed, as you have seen from the press release, the guidance of the EBITDA for 2025. The new guidance shows a growth of the EBITDA pro forma 2025 between 8% to 10%, starting from the restated result of 2024 of EUR 1.281 billion versus plus 6% and 8% announced in June 2025. The restated 2024 result was calculated starting from the 2024 EBITDA of EUR 1.428 billion communicated last March, adjusted to exclude the contribution of ACEA Energia on disposal. And on the contrary, the contribution of the high-voltage network [indiscernible] help the term, but included here for the first 9 months of 2024. Now as to CapEx, the guidance is EUR 1.6 billion, of which EUR 1.2 billion net of public grants. As to debt -- as to pro forma debt-EBITDA ratio, the guidance is confirmed and expect a range between 3.4 and 3.5x. Such range has been determined, including the debt and the cash in of the price of ACEA Energia expected in 2026. This is the end of the presentation. Operator: [Operator Instructions] The first question is by Francesco Sala with Banca Akros. Francesco Sala: Congratulation for your results. A couple of questions. The first one on the working capital. Can you tell us where is going to be the change for the full year? You said that you expect a reduction in the fourth quarter. Can you tell us something about it? Now I'd like to know something about the closing results after the disposal of ACEA Energia to Plenitude. And how can this change the results? The third question, I'd like to have an update of the incinerator in Rome. Any piece of news there? I'd like to know whether in the next few months, you are going to give us an update of the business plan. Unknown Executive: Let me answer these questions. As to the update of the business plan, we are working on it. The goal is that of providing an update within the first quarter of next year. As to the WTE, we are going on. We now own the land. As to ACEA Energia, we expect the closing as of the beginning of the year, next year. The company is already among the discontinued operations. So there will be no impact on the EBITDA. There will be an impact on net profit, which will be offset by the money that we cash in and the capital gain that we cash in from this transaction. And we will give you the details after the closing of the deal because there are a number of calculations which are to be made and will be defined at the moment of the closing of the deal. As to the other question, I will hand the floor over to Valentina. Valentina Bracaglia: As to the net working capital, we expect a neutral trend, a neutral dynamic. In the last quarter, we expect a similar trend that we observed in the last quarter of 2024. And also as to the equalization receivables or equalization credits, we expect them to be absorbed by the end of the year. And this is the view that we have for December. Thank you very much. Operator: The next question is by Javier Suarez with Mediobanca. Javier Suarez Hernandez: I have a couple of questions to ask. First of all, the 2025 guidance, I have a question which is more strategic in nature. When you presented your last business plan, you talked about a growth of the company around 5%. Now looking at the results, the company is going through a stronger structural growth versus what you indicated in the business plan. So I'd like to know something about it more qualitatively rather than quantitatively. As to the guidance, I'd like to have an indication for 2026 guidance. Maybe you can tell us something about 2026. But in 2025, your guidance for net income, what will it be? As to the working capital, I'd like to know something more strategic. What are the management actions that the company is adopting to reduce the net capital -- net working capital absorption? Unknown Executive: Thank you very much for these questions. I'd like -- I try to answer the first two questions together. Now versus the business plan expectations, we are experiencing a stronger growth. And with the new business plan, we shall update the figures. As to the trend that we expect for 2026 is that in the Water business, considering the consultation document that was published, which doesn't show strong WACC changes and also tariffs have already been approved. We expect tariffs to be in line with what we have experienced or have seen in 2025. In the Energy business, there was no activation of the trigger, and therefore, the regulated return is stable. As to the growth trend of the EBITDA and the update of the numbers, we shall provide indications when we update the business plan. As to the guidance, we do not provide a guidance on the net income, but we can say that we do not expect changes, big changes for recurrent operations. And therefore, the net income should not basically be -- will fall in line with the guidance that we have given for other items. Now as to other activities, we are working on credit collections on customers, activation of all of the capabilities and levels that we have to cash in the money. And then what affects the net working capital are the profiles of cash in of the [indiscernible] bills or equalization bills. And now in the first 9 months, we see the normal results related to the network equalization. So here, the regulatory factor has an effect. Let me also tell you that we are seeing a greater stability of the net working capital in the year, and I think it's going to be stable, stable going forward is what I can tell you, generally speaking. Thank you very much. Operator: The next question by Roberto Letizia with Equita. Roberto Letizia: I'd like to have an update on the electricity or energy distribution concessions. I'd like to know something about it. Do you have indications about it? Do you know something about the timing when this is going to occur? I'd like also to have an update on the -- update of the debt rating on the part of agencies. Is there a moment when you will rediscuss the rating with the agencies? And what are the priorities in that case? What are the main interventions, CapEx, M&As, remuneration of shareholders, all of the three, can you give us indications about it? And then considering the reorganization and after you get out of the Retail business, what are the priorities? What is the focus of the management team? Is there going to be a review or a change in the governance of the company? Are there options opening up in the Water business, for instance, I don't know, Acquedotto del Fiora. So I just want to know what's next for ACEA in terms of its structure. A couple of technical questions. First, why is the tax rate higher, which is now 32.5%. What kind of considerations are to be made going forward? And then are there going to be possible contributions for ACEA in relation to data centers? Unknown Executive: Well, thank you very much, Roberto. Now as to the extension of the concessions for energy grids, well, this is a recurring question, which is usually asked when we meet. We are waiting for the authority to decide. As I have always said, whatever is decided by the authority is something on which we rely on the asset rotation that we made after the disposal of the high-voltage network and the disposal of ACEA Energia to come allows us to focus on our own main business, increasing investments in the Water business and in the environment sector. As to M&As, when we speak of M&As, we do not look at M&As. Of course, if there are opportunities, we shall pursue them, but we have a growth trend, which is related to our own businesses. You know very well that Water business requires constantly investments due to the fact that there is a low supply of water and higher demand of water and networks are to be constantly maintained and updated. As to the energy grids, you need to work on the resilience of such grids. Look at what happened in Spain, in Turin, in Bergamo. Hence, we shall focus our efforts there. As to the dialogue with the rating agency, this dialogue is ongoing. Of course, they would want to see the new business plan. And considering that our business now is 90% regulated, we shall use the greater financial leverage to focus constantly on our RAB and on the environment. Now as to the governance, I don't know what to say. The disposal of the Retail business doesn't change anything in terms of our governance. And of course, we shall see, but I don't have much to say about this. Valentina Bracaglia: As to the tax rate, this is Valentina speaking. The tax rate is in line with the data of December 2024, which was 32.6%. The tax rate are affected by nonrecurrent items, disposals and one-offs. And so we expect a realignment of the tax rate to what we had in our business plan, which is also in line with our historical data. As to the question about the data center, well, I can say that as a manager of the distribution network in Rome, we see the opportunity to strengthen the network and to, of course, serve the needs and demand stimulated by also the data center, and this is part of our plans. Now as to further opportunity related to the Data Center business, we are assessing or looking to see whether there are opportunities, but we do not see for the moment specific developments. Now the Data Center business at the moment is more concentrated in the north of Italy, where there is greater demand whereas our Water and Energy business is more focused in the center and south of Italy. But of course, we shall use our competence and our infrastructures. But this is something that we shall evaluate on a case-by-case basis. Operator: [Operator Instructions] Ladies and gentlemen, at the moment, there are no other questions. No, there is one follow-up question by Roberto Letizia with Equita. Roberto Letizia: Now, I do apologize, I have a follow-up question to ask something about the JV with Versalis. Can you tell us something about this, the timing, the size of the operation? Unknown Executive: Now this JV is for us an opportunity to extract more value from our plants, recovery and recycling of plastic. Now we are focusing on mechanic recycling and on the -- and on polypropylene for food use in terms of recycling. And in this case, we are using the chemical recycling processes. Now we are studying the potential of this partnership, and we hope that this will have further developments in the future. Operator: Ms. Bracaglia, ladies and gentlemen, at the moment, there are no other questions from the conference call. Valentina Bracaglia: Well, thank you very much for joining in. And if you have any other questions, you can call us directly. Thank you very much. Operator: This is the Chorus Call conference operator. The conference is now over. You can disconnect your phones. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and welcome to the Tantalus Systems Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Deborah Honig, Investor Relations. Please go ahead. Deborah Honig: Thank you, operator. Thank you for joining us to discuss Tantalus Systems' financial results and operating performance for the 3-month and 9-month periods ended September 30, 2025. Tantalus issued these results, including their financial statements, management's discussion and analysis and press release yesterday after market close, which are also posted on the company's website. Joining me today on the call from Tantalus Systems, herein referred to as Tantalus or the company are Peter Londa, President and Chief Executive Officer; and Azim Lalani, Chief Financial Officer. During the call, we will make forward-looking statements about Tantalus' business. These statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Tantalus refers conference call participants either today or in the future to the company's forward-looking statements contained in the investor presentation on our website at www.tantalus.com. Statements made on this call reflect management's analysis as of today, November 13, 2025. Management does not assume any responsibility or obligation to update forward-looking statements made during this conference call unless required by law. Please note that the financial information referenced on today's call is stated in U.S. dollars and in accordance with IFRS, unless otherwise stated. The company is also presenting selected non-IFRS financial measures, including gross profit, gross profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, recurring revenue and annual recurring revenue referred to as ARR. Tantalus believes these non-IFRS measures provide meaningful information to investors. However, they do not have a standardized meaning and are not likely comparable to similar measures presented by other issuers. We'll now turn the call over to Peter Londa, President and CEO. Please go ahead, Pete. Peter Londa: Thank you, Deborah. Good morning, everyone. On behalf of our Board of Directors and employees, Azim and I are pleased to provide a business update through September 30, 2025. I'd like to commence today's comments by thanking the entire team at Tantalus for their contributions in delivering another quarter of milestone achievements and record financial results. The progress we continue to make on behalf of our shareholders is a testament to their hard work and dedication to our company, our customers, our shareholders and to each other. Based on the results we issued yesterday, we remain optimistic about the trajectory of Tantalus. To highlight a few items that Azim will address in more detail. Our team set new high watermarks for revenue generated in the third quarter of the year, revenue generated over a trailing 12-month period and orders converted out of our sales pipeline. The favorable financial and commercial results are a function of the urgency we are witnessing from utilities to modernize the distribution grid, particularly within the public power and electric cooperative market segment. The need to upgrade the distribution grid remains paramount as utilities struggle to improve resiliency and reliability, while simultaneously addressing affordability and accessibility. From our perspective, Tantalus’ data-centric approach is resonating with utilities that are seeking to prioritize their investments to address specific outcomes while also extending the life of existing infrastructure. Our ability to meet utilities where they are and provide them with the flexibility to go at their own pace has put Tantalus in an excellent position to gain market share and expand our user community. In the interest of time, I'll turn it over to Azim to walk through financial results in more detail and then provide a few additional operating updates before taking questions. Go ahead, Azim. Azim Lalani: Thank you, Pete. Good morning, everyone. I would like to remind everyone that we report our results in U.S. dollars. The company increased revenue to $14.2 million, reflecting 22.5% growth year-over-year. Revenue from our Connected Devices and Infrastructure segment increased by $2.2 million or 30% and revenue from our utility software Applications and Services segment increased by $500,000 or 10%. The increases in revenue are a result of higher sales volumes to our existing customers and the conversion of new utility customers that are commencing projects with Tantalus. Recurring revenue recognized in Q3 increased to $3.4 million and represented 24% of total revenue in the quarter. As an aside, our annual recurring revenue, which we report on a rolling 12-month basis, grew by over 11% year-over-year and now stands at $13.5 million. This is a high watermark for us and demonstrates that recurring revenue continues to scale. The company delivered another strong quarter of gross profit margin at 55%. Margins within our Connected Devices segment increased as lower provisions for customer accommodations, warranty and inventory obsolescence were recorded in the current period compared to last year. The gross profit margin in this segment includes the impact of tariff-related expenses. If you recall, Tariff decided -- sorry, excuse me, Tantalus decided to absorb 5% of tariff-related charges in partnership with our customers. Our Software and Services segment delivered gross profit margin of 74%. It should also be noted that our Software and Services segment is not impacted by tariffs. The slight decline over the prior period in this segment was due to a higher amount of revenue generated from installation services during the quarter. As a reminder, we offer installation services through third-party partners when a utility needs additional support to deploy our connected devices in the field. The company generated net income for the period of $384,000, reflecting an improvement on a comparative basis from the prior year period when we generated a loss of $361,000. The positive net income translated into a diluted income per share of $0.01, which compares to a diluted loss per share of $0.01 last year. We delivered positive adjusted EBITDA of $1.2 million during the quarter, reflecting an improvement compared to $585,000 in the prior year. The improvement in positive adjusted EBITDA is a result of strong revenue growth, resilient margins and disciplined cost management. We used $1.3 million of cash flow from operations with year-over-year changes resulting from changes in working capital balances. The working capital changes were offset by higher operating income. As at September 30, 2025, Tantalus had available liquidity of approximately $18.3 million, consisting of $9.8 million in cash and full borrowing availability of $8.5 million under our revolving line of credit facility. The company's operating expenses increased during Q3 2025, as a result of continued investments in sales and marketing and G&A to drive commercialization of the TRUSense Gateway. In addition, there was a reallocation of personnel-related costs for our customer operations team from the research and development category to our sales and marketing category. We believe this reallocation properly aligns to our internal reporting and oversight of the customer operations team. Based on the favorable results so far in 2025, we hit several new milestones on a trailing 12-month basis. including our revenue, which hit approximately $52 million compared to $42 million at September 30, 2024. The strong growth on a comparative basis from the trailing 12-month period from a year ago is a reflection of the continued momentum in our market segment and the urgency with which utilities are upgrading their distribution grids. Recurring revenue generated over the trailing 12-month period was also a record for the company at $12.7 million or 25% of total revenues. The aggregate growth of recurring revenue is a function of our business model and tied to the deployment of connected devices that lead to the activation of software licenses and opportunities to deliver analytics for as long as the devices are in the field, which is typically between 12 to 15 years. Gross profit margins remained strong at 54%. The continued strength of our margins is tied to the revenue contribution from software and services. We delivered positive adjusted EBITDA of $3.5 million, reflecting an adjusted EBITDA margin of 6.7% over the trailing 12-month period. As previously stated, the improving performance of adjusted EBITDA is tied to strong revenue growth and the completion of our research and development efforts to deliver the TRUSense Gateway. As we transition into the commercialization phase, our model affords us the flexibility to invest in sales and marketing as well as advancements in our predictive AI-enabled data analytics offerings. Beyond the reported numbers, I thought it would be helpful to reference that approximately 88% of our revenue generated in the quarter came from existing customers. This reflects our strong visibility with our existing customer base while improving our ability to convert and drive growth from new customers. Overall, we witnessed a very strong quarter and continue to make progress towards our objectives for 2025. I'll now turn it back over to Pete to address a few remaining topics. Pete? Peter Londa: Thanks, Azim. As referenced, we continue to absorb 5% of tariffs on our connected devices that are manufactured in the Philippines. The feedback we're gathering from our customers in absorbing that 5% validates the value and importance of our approach, particularly as we seek to invest in long-term relationships with each utility. While we have not witnessed a slowdown in our deployments or a change in the urgency across our market segment to modernize the distribution grid, we are mindful that higher prices resulting from tariffs may eventually impact the pace at which utilities deploy technology and/or allocate their investments across the distribution grid. To the extent we begin to witness a slowdown in activity or extended deployments, we'll adjust our plans accordingly. Despite the impact tariffs may have on overall economic conditions and investments in the electric grid, we see the pressure from tariffs as a means to further differentiate Tantalus given our commitment and technical capability to support reverse compatibility and support multiple protocols from a variety of devices already in the field. Our data-centric approach and commitment to support reverse compatibility is geared to maximizing the value of existing infrastructure. We believe that message is resonating with utilities and provides utilities with incremental flexibility as they allocate dollars. As some utilities may need to pause efforts to rip and replace metering infrastructure or other assets, the ability to surgically pinpoint the most vulnerable sections of the distribution grid and extend the life of existing assets with Tantalus' technology is critical. At the core, our approach helps utilities achieve the most valuable outcomes with the most relevant insights no matter where the underlying data comes from. We refer to this as unified intelligence across the distribution grid, which covers data and integrates data from the substation all the way to intelligent and controllable devices located behind the meter. Our approach is unique relative to other vendors in our sector and one that is translating into continued growth of our business. I believe this approach directly correlates to the record results we delivered on conversions from our sales pipeline through the first 9 months of this year and a very strong book-to-bill ratio of 1.37x. To that end, our commercial team has set a new record for our organization through the first 9 months of 2025 by converting $54 million in orders. Not only have our orders grown by almost 35% over the prior 9-month period, but the $54 million in orders is also the highest amount Tantalus has ever converted during an entire calendar year, and we still have the fourth quarter to convert additional opportunities from our pipeline as we begin to turn our attention to 2026 planning. Bolstering the commercial progress and conversion of opportunities out of our pipeline, I am pleased to share that the number of utilities placing orders for the TRUSense Gateway expanded to 52 as of September 30. This is up from 45 utilities that we reported as part of our Q2 results and far surpasses our internal estimates for 2025. We're witnessing strong interest from existing customers that are focused on deploying the TRUSense Gateway to expand and accelerate their grid modernization journeys with Tantalus. For existing customers, the TRUSense Gateway is a path to upgrade their communications network by leveraging fiber or cellular, coupled with the gateway's ability to serve as a collector. Power quality measurement and analysis is also a high priority for our existing customers, particularly as they look to protect transformers and other critical infrastructure deployed across the distribution grid. It is our view that our existing customer base will lead the way in deploying the TRUSense Gateway, providing us with an increasing number of use cases that can be shared across the industry in the coming months. With respect to utilities that are new to Tantalus, the flexibility of the TRUSense Gateway and its ability to support multiple use cases is a clear point of differentiation from our competition. We are witnessing the inclusion of the TRUSense Gateway in many of our new deployments, which is a key component of a utility decision-making process when evaluating vendors in a competitive dynamic. While the primary use cases that supports a utility's decision to include and deploy the TRUSense Gateway may vary, we're witnessing interest in all aspects of the gateway's capabilities. The ability to optimize asset management by upgrading legacy metering infrastructure without having to rip and replace those meters is gaining momentum. The ability to access power quality measurement at a level that has not been available at the electric meter socket previously is getting the attention of every utility we speak to. The anticipated need to manage and control load as power capacity constraints materialize in various regions of the United States and Canada sets us up for extended growth as we think about leveraging all aspects of the TRUSense Gateway and its behind-the-meter capabilities. The ongoing rollout of the TRUSense Gateway is on schedule and continues to gain momentum as we plan for year-end in 2026. In summary, we are extremely pleased with the progress that our team has made through the first 9 months of 2025, and we continue to see favorable conditions to support our growth trajectory moving forward. With that, operator, we can open up for questions. Thank you. Operator: [Operator Instructions]. The first question comes from Nick Boychuk from Cormark. Nicholas Boychuk: You mentioned the strong conversions and adds to the pipeline of utilities who are demoing and piloting the TRUSense up to. A lot of those though have now been in the pipe for a little while. I'm curious if you can add a little bit of color on the staging and breakdown of those that are early, mid or advanced and what you're seeing in terms of feedback of them converting now into commercial orders? Peter Londa: Yes, Nick, thanks for the question. I'd say at a high level, the scaling of utilities placing orders is coming both from our existing customer base as well as new utilities that have been evaluating Tantalus for our TRUConnect AMI capabilities. Where there's a nuance there, Nick, is on the new utilities or new to Tantalus. We have some circumstances where we have been pursuing a sales process for an extended period of time and now able to also incorporate the TRUSense Gateway as a part of our solution or design and capabilities. I'd say, from my perspective, the ability to include the TRUSense Gateway, especially now that we have devices in the field and an increasing number of utilities deploying, it adds not only credibility to the capabilities, but also an example of how we can provide as much flexibility to a utility when they're really trying to think through where to prioritize their investments and what to do first. It's a little hard to specifically disaggregate relative to the question that you've asked. I'd say, we continue to have -- it's not a precise percentage, but of the 52%, 70-ish percent of those utilities are existing customers, meaning utilities that have already fully deployed and/or are migrating to new capabilities, about 30% of those utilities, it's not exactly, 30%, but that ratio still applies from a few months ago of utilities that are buying something from Tantalus for the first time. I hope I've answered your question. Nicholas Boychuk: Yes. I guess I'll kind of take it in a different way. Given that you do have some new utilities to the Tantalus ecosystem, is it fair to assume that budget either constraints or time, are impacting some of these decisions? If you've gone to a new utility now and now proposed an additional solution that includes the TRUSense and so it's more encompassing, are they reviewing their entire budgetary process and maybe going to wait for the calendar to flip in order to place that order? Peter Londa: We have not seen that, Nick. No, I'd say the -- we haven't seen the inclusion of the TRUSense Gateway either in a sales process where we're pursuing an opportunity in an unsolicited manner, meaning no RFP or responding to an RFP that's in the market with the TRUSense Gateway. We have not seen the inclusion of the gateway necessarily push out decision-making or change budgeting process. Example, in many circumstances, we are using the TRUSense Gateway not only as an edge device, but also a collector, and so what it's doing is it's modifying the approach and the system design on the communications network relative to other collectors that we may put in the field or repeaters, but it's not impacting, I think, timing of decision. I'd say, if anything, I think we're seeing some utilities move a little faster as a result to try to get access to the device and get it into the field, access the data and from there, prioritize other investments that they may be looking that go outside of what Tantalus does. Nicholas Boychuk: Now you mentioned that a lot of these utilities, 30% of them are brand new to the Tantalus ecosystem. Are you able to quantify how much of an impact your increased spend in sales and marketing has had on that? Or are those 30% more word of mouth and you're expecting that investment in sales and marketing to have an even greater impact in bringing new firms into your ecosystem? Peter Londa: Yes. The investment in sales and marketing is twofold, Nick. Some of it's headcount. I'd say the additions certainly in a new role for Tantalus, business development, senior business development managers that are professionals that we've been able to add to our team. I'd say the ramp-up for new hires in a business development capacity or regional sales manager capacity, it takes time before they can hit the ground sprinting with some of the opportunities already in the pipeline, but building out the pipeline, building up their messaging, accessing their network, getting in front of customers, that takes time. I'd say the conversion -- the increase in orders year-to-date and the increase in the number of utilities that are placing orders for the TRUSense Gateway is a combination of word of mouth and I'd say some marketing collateral. We are certainly starting to see acceleration with the additional headcount, but I think there is more velocity on a per person basis as our investments in headcount for sales and marketing really get acclimated into the organization and really start firing on all cylinders. Our hope is we can accelerate further based on the investments that have been made. Nicholas Boychuk: Then last one for me, just on the legacy business. Thinking about the Riverside deal that was announced last quarter, are you seeing any change in the organic growth within that legacy hardware area? Or are we still comfortably in that 10% to 15% year-over-year kind of volume range? Peter Londa: Yes. I think, Nick, I'd say we haven't seen anything change. We're fortunate. We've got a robust and substantive user community that are at a variety of different stages of their grid modernization journey with Tantalus. Riverside, a great example of the utility that started with us years ago and wanted to maximize the life and return on some legacy infrastructure that we were able to support without a full rip and replace. Then as their budget dollars became available and as they prioritized investment, it's now where they are migrating their entire infrastructure to advanced capabilities with us. There are a number of utilities within our user community similar to Riverside that started with us on what we refer to as our ERT overlay capabilities, meaning upgrade ballpark 20% to 30% of their metering infrastructure and then leveraging that investment to read installed legacy encoded receiver transmitters, ERs. I think there are multiple opportunities within our user community to replicate what Riverside is doing to drive that growth trajectory. I'd say it's year-over-year, it might vary a little bit. We've seen that historically, but yes, based on the opportunities within our existing customers to help upgrade and/or complete deployments and/or refresh legacy deployments, I think lends itself to a fairly attractive growth rate for the core business. We don't see any change in that, Nick. Operator: The next question comes from Daniel Magder from Raymond James. Daniel Magder: Congrats on a fantastic quarter. Just a couple from me here. You continue to add utilities to the user community. Are they generally coming to you with an interest in a single part of the platform? Are they evaluating multiple? Any color you can provide on that would be appreciated. Peter Londa: Daniel, I'd say not to sidestep, but it depends. I'd say overall, if we take sort of a holistic view of it, utilities evaluate technology and Tantalus with a specific set of outcomes in mind, and so historically, it's automating metering infrastructure and/or automating the broader distribution grid. I think most utilities come to market looking to invest in a specific area. That landscape slide that we included in our investor deck is -- it's a good visual from my perspective because it demonstrates the number of entry points where we can start to activate with the utility, whether that's focused on the substation and trying to help automate some of their heavy equipment in the distribution grid to metering infrastructure to now behind-the-meter capabilities. I'd say it's still common that most utilities are focused on one specific area. As our sales organization digs in, as our commercial organization has pulled behind that, I think we're able to expand horizontally across the utility, and it is the flexibility of not only solving today's problem that might be the priority and where the dollars are being spent, but having the flexibility with a unified platform that not only supports our stuff, but also is truly driven towards interoperability with third-party capabilities. I think that's what's differentiating us and leading to an increasing success rate with utilities converting out of our pipeline. Daniel Magder: In regards to the Gateway, I know you mentioned there's multiple use cases that utilities are evaluating. Are the individual connections tied to those use cases, whether it's per home group of homes? Or is it really just utility dependent? Peter Londa: At this point, Daniel, it's utility dependent. I empathize on trying to model it out and what things could mean on a ratio basis or a scalability basis. What I'd say is we'll continue to evaluate and we'll continue to share information as we see additional numbers of those 52 utilities, now 52 activate and then plot out their deployments. I think that visibility will continue to improve as we get into 2026. As I think about -- nothing is viral in the utility industry, and so when we think about growth and scale, we're always mindful of the time and the deliberate nature of how utilities move forward with innovation, right? They are risk-averse animals. They just are, and so navigating the timing of that risk aversion is kind of thread the needle a little bit for us as we think about it on a quarter-to-quarter basis. But overall, I see consistency across utilities that are leveraging the TRUSense Gateway and where that consistency ties to the very granular market-leading power quality measurement capabilities. Every system operations and engineering team that I think our sales team and certainly that I've had a chance to interact with, the TRUSense Gateway resonates with them. The access to that data resonates with them. Even though we may start a process, to your first question, tied to helping upgrade a legacy PLC system or a legacy drive-by metering system, as soon as we demonstrate what the TRUSense Gateway is capable of to not only support that effort, but then also deliver power quality measurement on top of it, it's a force multiplier. For us, I like to use the expression, the TRUSense Gateway helps us demonstrate and build a communications network, which is vital for all utilities to access data from devices. It's a communications network with a purpose. This isn't just about sending and receiving data any longer. It's about actually using the communications networking capability of the TRUSense Gateway as a power quality measurement device. I think that is very unique in today's landscape. I see consistency not only with our existing customers that are looking to upgrade their networking capabilities with us with the TRUSense Gateway, but a clear path for us to differentiate ourselves against competition. Operator: The next question comes from Gianluca Tucci from Haywood Securities. Gianluca Tucci: Congrats on the quarter. Just at a high level, could you perhaps speak to what you're seeing in the industry from a customer perspective in adopting smart grid technologies given all the noise around the data center and AI, right now? Peter Londa: Yes, Gianluca, and not a day goes by without something in the press about it. It's a great example of the pressure utilities are under. To avoid confusion, we're not focused in on solving the problem of a data center or the power that's needed to support a data center. Where the opportunity surfaces for Tantalus is twofold. How do we help an electric utility improve the power quality metrics of their existing distribution grid to be in a position to attract the commercial entities that are looking to establish data centers in different geographic areas. As we think about where data centers are surfacing, there's obviously real estate costs, there's construction cost. There's human capital access and hiring, but working with a utility that has high power quality and attractive rates is a big component to the decision-making process from our view of where a data center surfaces. I think we can help utilities certainly with the TRUSense Gateway and the robust capabilities around our analytics and TRUSync offering to fundamentally improve the resiliency, the reliability and the quality of their grid, improved power quality and lower rates equals economic development and an opportunity to bid for those types of investments in data centers. Secondarily, depending on the size of data centers, obviously, the largest ones get the attention in the news and there is circumstances where utilities are building dedicated substations and/or dedicated sources of power just for that data center itself. From our perspective, as you think up the chain from that and down through the broader distribution grid, it's what's the power quality to and from? How does the utility throttle peak demand as those data centers potentially create capacity constraints for them over time, and so the TRUSense Gateway, we're still working on it, but there is a long-term opportunity for us to help utilities truly control load behind the meter and use that load in an aggregated manner to shift peak load and potentially improve their reliability and delivery of power down to a data center, which is paramount. I think it's -- as you see those -- as you see data centers surface in certain regions of the U.S., it's indicative of where investment is going into the grid. I think we get the benefits of those tailwinds because the investments are really made at the distribution grid level to support those data centers. I think the power quality measurement capability of TRUSense Gateway and the analytics tools that we are deploying today and continuing to enhance and expand, I think that's where we can distinguish ourselves and put ourselves in a very good position where utilities are scrambling to try to both attract and then support those data centers. Gianluca Tucci: Perhaps one for Azim. Just on the balance sheet, things look pretty good over there. Are you comfortable on a working capital perspective as you head into a new year here, given the expectations of a nice ramp on the TRUSense side of things? How are you feeling about the balance sheet on a working capital perspective, Azim? Azim Lalani: Certainly, we're comfortable with a couple of things. Number one, our liquidity certainly allows us to flex the balance sheet to support development of the TRUSense Gateway. Secondly, our negative cash conversion cycle certainly provides additional support in working towards supporting TRUSense Gateway. Operator: The next question comes from Gabriel Leung from Beacon Securities. Gabriel Leung: Pete, I know you're currently working on your 2026 budget, but just generally speaking, given the pipeline, given the environment, how are you thinking about revenue growth for next year? Do you think you're going to be sort of in line with what you've sort of done year-to-date? Or is there an opportunity to accelerate that growth? Then concurrently, how are you thinking about sort of margins going forward? They've obviously been improving every quarter this year. How are you thinking about margins -- growing your margins versus sort of the land grab opportunity in front of you? Peter Londa: Thanks for the forward-looking question, Gabriel. I'd say -- so the -- at a high level, I think our team is -- as you recall, we don't provide guidance looking forward, but consensus numbers for 2025, I think, remain a very good bogey for our company. I think we're comfortable as we sit here mid-November. The consensus numbers for 2026, I think, are still a very good bogey for Tantalus, both revenue and adjusted EBITDA as it's yet another strong year of growth year-on-year. I don't see us flexing that model too much or changing it, Gabe. I think our approach right wrong or indifferent, has been measured to the extent where the balance sheet is in good shape, no doubt. The liquidity is available to support our growth trajectory. We continue to try to time investment in headcount and broader investment in the company as we increasingly gain confidence in the growth profile of the revenue. That's partly conditioned on a long history at Tantalus of not having a robust balance sheet and liquidity. I'd say we're somewhat crumoginally in that capacity. With that said, as we think about 2026, the progress that we're making justifies an incremental investment in this business. When we look at on a trailing 12-month basis, to see almost 7% adjusted EBITDA start to materialize and Azim highlighted on a trailing 12-month basis, positive cash flow from operations, positive free cash flow for the business, I think we've got some flexibility to invest. Typically, investments in sales and marketing take about -- if we're really lucky, 6 months, more realistically, 12 months to start to contribute and drive incremental revenue, and so I think that's part of the process that we're going through right now as a management team and then ultimately to our Board of Directors as we think about additional investment in the operating expenses of the business. To your question on margins, the gross profit margin is certainly continues to be strong for us. I think just the nature of our model supports that, and it reflects the absorption of the 5% in tariffs at this point. I think we're fairly confident and comfortable with where gross profit is. There might be some compression over time, but I think our long-range planning remains north of 50%. The EBITDA margin is a little bit harder for us to answer. There is opportunity to expand it. We are weighing that though, relative to land grab and market share. Beyond just 2026 revenue growth, how do we start making decisions today that are going to impact 2027 and 2028. I think we're getting -- I think we'll the #1 priority for this company and #1 goal for our team is profitable and sustainable growth. I think we're at a point with operating leverage in the business and where revenue profile is that we can continue to achieve both. I don't see us getting aggressive to stretch the EBITDA margin just yet in 2026. We've shared sort of a 15%, 17.5% bogey inside this organization. I still think that's 2, 3 years out because we're going to invest in this business. It's the right thing to do relative to the opportunity that's in front of us. That's my point of view, Gabe. I'd say that obviously, we've got to run through the budgeting process and then ultimately get direction and support from our Board of Directors. Gabriel Leung: Just as a follow-up, Pete, in your preamble, you talked about not seeing a slowdown in deployments or urgency of deployments stemming from the higher prices from the tariffs. I'm curious, is there a level where some of your utility customers may start to pause some of their investment cycle decisions? Are you getting that sense that there's some concerns around that? Peter Londa: We haven't received that feedback. At least the feedback hasn't surfaced and been shared at our exact level from utilities. We're continuing to see robust engagement not only with our existing customers, but we're not seeing decisions with utilities evaluating new technology. We're not seeing those decisions postponed or delayed or reduced. I'd say that the urgency that we see, both existing customer base and in our sales pipeline is consistent. Some of the parameters just in supporting Tantalus or being part of our team for now over 11 years, one indicator that I start to pay attention to is as economic uncertainty surfaces, consumer spending. It just seems to be a barometer of what's happened in the middle America where a lot of the public power and electric cooperatives sit. As consumer spending drops, at least over the past decade, a few times when that's happened, it's indicative of where dollars start to get crunched and that can then impact individual's ability to pay utility bills. That then has a cascading impact on utility decision. We saw that in COVID in black and white, very clear. We haven't seen a lot of sensitivity on that. We haven't seen or heard from utilities of we need to start pushing things out or can you push shipments out or can we pay over time. We just haven't seen it. I think the urgency to upgrade the distribution grid is that the return on investment is sound. It is proven. I think utilities are looking to accelerate on it to do everything they can to bolster their communities and put their communities in the best position possible. I think that's where we sit, mindful of broader sector messages, but we still see heavy investment in what we do. Operator: [Operator Instructions]. The next question comes from Daniel Rosenberg from Paradigm Capital. Daniel Rosenberg: My first one comes around the fiber application of TRUSense. I was just wondering if you could share any information on progress in your go-to-market and securing pilots or working with your channel partners in that regard. Peter Londa: Yes, Daniel, so Irby is our first and one of our key channel partners to chase after the utilities that are deploying fiber all the way to the home. It's a core competency within Irby. They have a broadband division that actually both weighs installs and then manages fiber networks. I'd say the initial progress that we made with Irby, a great example being Bolivar, which we had announced previously, [indiscernible] Tantalus fiber-to-the-home player or fiber-to-the-home utility. We are very close to completing the deployment with the city. I'd say, fortunately, between Irby, Bolivar and Tantalus, it's providing us with a terrific case study that will run through over each channel far and wide across the U.S. I think things have gone well, and we continue to make progress. I think we continue to have an individual swim lane to chase after those utilities. We are evaluating how we leverage additional channel partners that really specialize on the broadband side, Daniel, as a force multiplier to what the good progress that Irby is already making on our behalf. Daniel Rosenberg: Then outside of that use case, I was curious about any competitive changes to the landscape, anything you're seeing on pricing or go-to-market? Anything you could share there? Peter Londa: As it relates to the TRUSense Gateway, we have not seen a change in the competitive landscape, fortunately. I think continuing to validate our first-mover advantage and the opportunity in front of us. We have seen a few of our -- a few of the metering vendors some who we partner with today and also compete with, we have seen how they are trying to present their latest metering platform referred to as AMI 2.0 by a few vendors as an alternative to TRUSense Gateway. I think the distinguishing factor there is the TRUSense Gateway isn't about ripping and replacing all existing meters. It's about supplementing what's already in the field and then extrapolating data from a very specific location and area. The AMI 2.0 strategy requires a rip and replace of all meters or certainly meters in a specific area. It's not a one-to-one comparison, but we have seen some of that surface as it relates to the TRUSense Gateway. As it relates to pricing, we've seen vendors take some different approaches as it relates to tariffs. some just bundling it into their pricing and presenting a higher price that includes the tariff, some line iteming it out for transparency the way we have done to date. I think that's still case-by-case and company-by-company. We've seen a vendor that we think is a little bit further behind in technology, try to get more aggressive in pricing to secure business. That's not uncommon in our sector, and it's not uncommon in periods of time. I'd say nothing there that's surprising or changes the landscape for us. Daniel Rosenberg: Then just my last question. It seems like the software portion of the business is performing well. Your recurring numbers are up, and it seems to be having an impact on the margin profile. I was just wondering, as you think about '26, change your thinking in terms of what's the potential of this business in terms of gross margin? Peter Londa: Yes. As the TRUSense Gateway rolls out, Daniel, upfront, utilities are -- the model that we have today is utilities pay upfront for the connected device. They pay for a software license and then that software license kicks in the 22% annual maintenance on that software license. It starts at month 13 and continues as long as the device is in the field. Given the list price and the pricing of the TRUSense Gateway, I think aggregate dollars for software and service will increase. When we think about the life 12 to 15 years of a TRUSense Gateway being in the field, your first year, 1.5 years, it's heavily weighted to the hardware, the connected device because of how expensive it is or the price point. Then as years go on, that recurring revenue is collected every year, and so on a blended basis, your gross profit margin has upside. In the near term, as we roll out the TRUSense Gateway, the aggregate dollars, revenue, gross profit, revenue from software and services will go up. I could see margin compression in the aggregate because, right, the upfront dollar spend on the TRUSense Gateway is the purchase of the device, plus that initial software license. The percentage allocation and the contribution percentage is different. Does it make sense? I think long term, as we think about -- yes, as we think about gross profit over the life of a device, I think there is upside from where we are. In the near term, I actually think there may be some adjustment because the next 12 months, we're going to sell a lot of connected devices as we get TRUSense Gateways activated, and the connected device does not have the same margin profile as the software license itself. Aggregate dollars will go up, and I think that's where we're more focused. Then as we price things out and think about our return, what's the aggregate gross profit margin over the life of the device, and that's where I think there's upside. I hope that makes sense. Operator: Then we have a follow-up question from Gianluca Tucci from Haywood Securities. Gianluca Tucci: Pete, just last one from my end here on M&A. Tantalus has been quiet on M&A now for a couple of years. Just curious if there's anything that you're seeing out there that makes sense from a technical perspective as your valuation in the market improves. Peter Londa: Yes, you bet, Gianluca. Our focus has and continues to be executing on the organic growth that's in front of us and ensuring that we do our best not to disrupt the team from the task at hand, especially as we activate the commercialization of the TRUSense Gateway. I think as we turn the page into 2026 and start to have increasing levels of confidence in that commercialization, it will free up time for members of the executive management team. I think to put our heads up, Gianluca, and start to think about how we potentially accelerate that grid modernization journey strategy that we have, either through additional R&D organically and/or through some targeted M&A. I'd say there are -- in our sector, there are some smaller organizations that continue to make good progress, but may not necessarily have balance sheet, the investor base or the sales channel to really scale. I think as we start to get into 2026, and can free up some time from the task at hand on the TRUSense Gateway. It should afford itself to potentially start to think a little bit more broadly and contemplate another targeted transaction similar to what we did with Congruitive. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Peter Londa, President and CEO, for closing remarks. Peter Londa: I'd just say, well, Azim and to the finance team, thanks for all of the hard work to get organized for our quarterly results to the broader team Tantalus truly, truly appreciate the hard work at both the individual and team level. For our shareholders, we appreciate the continued support and patience as we activate and continue to scale the company. I'd say, based on the first 9 months of 2025, we really stand in a great position to have a historic year for our company. I appreciate everyone's time and attention today and continued interest in Tantalus. To the extent there are further questions or interest in additional information about our company and/or our financial results, please visit the Investor landing page on our website at www.tantalus.com. Operator, thanks for support today. I hope everyone has a good balance of the day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the Alstom Half Year Results for Fiscal Year 2025-2026. My name is George, and I'll be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]. I'd now like to hand the call over to your host, Mr. Henri Poupart-Lafarge, CEO; and Mr. Bernard Delpit, Executive Vice President and CFO. Please go ahead. Henri Poupart-Lafarge: Thank you. Good evening, everybody, and thanks for joining Alstom's first half results conference call. I'm Henri Poupart-Lafarge, Group CEO, and I'm joined by Bernard Delpit, EVP and CFO. I will first comment on the highlights of the first half before Bernard will walk you through the financial results. I will then comment on guidance before opening the floor for your questions. So let me start with the key figures for the first half. Orders reached EUR 10.5 billion with strong commercial momentum in Q2, particularly driven by Rolling Stock and North America. The book-to-bill ratio stood at 1.2, fully aligned with full year guidance. Sales came in at EUR 9.1 billion, reflecting 7.9% organic growth with all product lines and regions contributing. Adjusted EBIT was EUR 580 million, up 13% year-on-year, representing a 6.4% margin compared to 5.9% in the same period last year. Free cash flow was negative EUR 740 million as expected, reflecting typical in higher seasonality. The solid performance underscores the strength and resilience of our business model. Let me highlight 3 key competitive advantages that I believe will continue to drive commercial and operational success. First, the multi-local footprint is more relevant than ever in today's macroeconomic and geopolitical environment. It allows us to win business and execute projects effectively, and we are continuing to expand in this direction. Second, the integrated approach across Rolling Stock services, signaling and systems is delivering strong sales synergies. In particular, most of our Rolling stock orders are now linked to long-term service contracts, reinforcing revenue visibility. Third, the harmonization of the Rolling Stock portfolio is delivering results, particularly in high-speed rail. Progress towards the homologation of the Avelia Horizon platform is encouraging, and we have secured additional orders for the platform in the recent months. In the meantime, we continue to execute on our strategic priorities. With the Bombardier Transportation integration now complete, we are focusing on driving industrial and development performance. The transformation plan in Germany, in particular, is progressing well, and we are rolling out efficiency initiatives across engineering and manufacturing. Looking now at Page 6. Alstom's addressable market remained stable for the 3 fiscal year beyond March 2026 at around EUR 200 billion. Europe continues to stand as our first market, concentrating many Rolling Stock commuter and mainline signaling opportunities. American customers will tender train replacement opportunities in the North with mainline and urban network expansions being expected again in the South. Half of AMECA's EUR 31 billion pipeline will be made of turnkey projects, and Alstom stands ready to tap into those. In Asia Pacific, Australia and India will continue to be our main markets with India focusing on freight and urban developments, while Australia could see the exercising of several Rolling Stock optional tranches. Now turning to Slide 7, focusing on orders in the second quarter. The Americas region had a very successful semester this year with 2 landmark orders. This includes a EUR 2 billion Rolling Stock contract with MTA in New York, EUR 1 billion Rolling Stock option exercised by NGT in New Jersey. In Asia Pacific, commercial activity was also strong in the second quarter with key wins such as another metro project in India, confirming Alstom's long-lasting presence in the city of Mumbai, EUR 500 million Rolling Stock and maintenance contract in New Zealand in addition to the KiwiRail signaling project signed by Alstom in 2022, a signaling order in Singapore, enabling faster travel times from the Shanghai Airport. Together with other small order, Alstom recorded EUR 6.4 billion in total orders for the second quarter. This brings the book-to-bill ratio for the first half of the year to 1.2. Moving to Slide 8, highlighting large orders announced and booked since the start of the second half. Let me start with Eurostar. Eurostar has placed an order for 30 Avelia Horizon double-decker, very high-speed trains for a total value of EUR 1.4 billion. The agreement also includes an option for the purchase of 20 additional units. This is a strong validation of the Avelia Horizon platform, which is now close to homologation and has built a very solid order book of more than 170 trains, serving multiple clients, both in France and abroad. On the right-hand side, Polish operator PKP awarded Alstom a contract worth EUR 1.6 billion for the supply of 42 Coradia Max trains together with 30 years of maintenance. This award illustrates the strength of the Coradia platform as well as the increasing share of Rolling Stock contracts being bundled with long-term maintenance. The agreement with PKP also include an option for the purchases of 30 additional trains. Turning now to the backlog on Slide 8. The average gross margin in the backlog stands at 18% at the end of the first half compared to 17.8% at the end of the same time last year. This represents a 20 basis point increase compared to the end of the last fiscal year. Considering the weight of Rolling Stock orders in the first half, the increase in the gross margin in backlog demonstrates the quality of the order intake across all product lines. Our commercial wins this semester have shed a particular light on the North American rail market, as explained on Slide 10. We have seen over the recent years, ridership increasing closer to pre-COVID activity with Amtrak ridership in the U.S. already exceeding the pre-crisis level. The need for enhancing passenger experience and upgrading aging train fleets remain a powerful commercial driver, with 50% of the U.S. installed base needing replacement in the short to medium term. The U.S. railway supply market, as addressed by Alstom has witnessed further concentration with the 3 largest players accounting for about 3/4 of all orders in the last 3 years. Finally, in Canada, Alstom enjoys a unique position, thanks to 5 main sites and 5,000 employees. Continuing with North America on Page 11. On the delivery aspects, we celebrated in August the debut of the Amtrak's high-speed Next-Gen Acela on the Northeast corridor. These are the fastest and most technologically advanced trains in the U.S. that Alstom manufactured at its own hub. This facility in Upstate New York is the largest dedicated passenger rail manufacturing facility in the U.S. Hornell is also where the trains from the newly signed MTA's M9A order will be delivered with further investment made there to manufacture carbody shells. On the West Coast, the Bay Area Rapid Transit, BART in California accepted the 1,000th car from the fleet of the future. This railcar came from Alstom's Plattsburgh facility, where the group is also manufacturing the NGT multilevel 3 double-deck EMUs. Turning our attention to France on Page 12. The first MF19 Metro interlink service on Paris Metro Line 10 has brought the focus back on the widest generation of train innovations that Alstom has seamlessly matured. Within the time frame of only 5 years, no less than 5 new train platforms will have reached operational service stage, among which MF19, AriaNG and Avelia Horizon for high speed. The AriaNG, in particular, commuter trains have been running on the Aria E line since November 2023 and on Aria D line since December 2024. Combining single and double-deck cars, this train embarks numerous capacity, comfort and accessibility innovations. And last, the Avelia Horizon platform witnessed several further milestones with TGV M starting endurance tests in France following completion of certification test and with another high-speed commercial success achieved with Eurostar. On Page 13, we reflect again on car production levels, providing insights into the Rolling Stock business, which together with the train components represents about 50% of sales. Production volumes were broadly stable in the first half compared to last year. Some projects saw an increase in production, including our RER NG and TGV M in France, commuter trains for BART in the U.S. or several German projects where volumes are on the rise. At the same time, some large projects that contributed to volumes last year have now been completed. This includes some tighter metros in Paris, some metros in Sao Paulo, the Tren Maya project in Mexico or the Avelia Liberty for Amtrak in the U.S. In addition to a favorable mix of cars on sales, it's worth noting that more cars produced in the first half were part of projects in ramp-up phase compared to same period last year, which also contributed to Rolling Stock sales growth. Overall, we continue to expect stable production for the full year. Let me now pass it on to Bernard, who will comment the first half results. Bernard-Pierre Delpit: Thank you, Henri. Good evening, everyone. Let's start with the order intake as shown on Slide 15. We recorded EUR 10.5 billion of orders in the first half. The book-to-bill ratio that was 0.9 for the first quarter accelerated to 1.4 in the second quarter, resulting in a book-to-bill of 1.2 for the first half, of which 1.4 for Rolling Stock. The backlog reached EUR 96.1 billion, up from EUR 95 billion at the end of March. This increase was driven by the strong book-to-bill, but partly offset by negative currency effects. Looking at the regions, the Americas had their best semester ever with large orders from New York and New Jersey. Europe remains the largest contributor, supported by strong momentum in France. And the Signaling business had a solid start to the year with contract wins in Italy, Taiwan, Brazil and Singapore. Turning to sales on Slide 16. Sales reached EUR 9.1 billion in the first half, up 7.9% on an organic basis. All product lines contributed to sales growth. In particular, Rolling Stock sales totaled EUR 4.7 billion, reflecting 6% organic growth. This was driven by a strong ramp-up in Germany with double-digit growth across multiple regional train projects, continued momentum in France, notably supported by the RER NG program. In the Americas, increased production volumes for BART in San Francisco offset the completion of other projects, including Amtrak. In Asia Pacific, the locomotive business in India remains an important growth driver. Service sales reached EUR 2.3 billion with a 6% organic growth, supported by strong performance in Italy, the U.K., Australia and airport people movers in the U.S. Sales in Signaling came in at EUR 1.3 billion with 17% organic growth, driven by robust execution in France, Italy and Germany. Reported growth in Signaling was more modest at 4%, mainly due to the deconsolidation of the North American conventional Signaling business as of September last year. Finally, Systems sales totaled EUR 0.8 billion, representing 10% organic growth. Second quarter performance was impacted by the ramp down of the Mexico Tren Maya contract, which was not fully offset by ramp-ups in the Philippines, Taiwan and Brazil. The trend seen in Q2 will continue into the second half. Looking now at inorganic items. Foreign exchange was a 3.3 point headwind driven by euro appreciation against most currencies and scope had a negative 1.2% impact due to the deconsolidation of the U.S. Signaling business that I mentioned above. Scope will be neutral in H2. So as a result, sales grew 3.2% on a reported basis. Looking now at the P&L on Slide 17. Gross margin reached EUR 1.2 billion, representing 13.6% of sales, a slight decrease compared to the prior fiscal year. In absence of a scope and FX impact, the gross margin percentage would have remained stable. The improvement in project execution and industrial efficiencies was offset by regional mix headwind with, for instance, Asia Pacific being broadly flat at current FX rates, while Germany grew solid double digits in the first half, but at lower gross margin. Net R&D costs accounted for 2.7% of sales, notably due to cost discipline, project phasing, but also to the disposal of the North American Signaling business, which was more R&D intensive. Selling and administrative costs have reduced both in absolute terms and as a percentage of sales, now representing 5.7% of sales in the first half, demonstrating continued efforts on cost efficiency. We also benefited from a solid EUR 100 million contribution from the joint ventures. These demonstrate both the resilience of the Chinese market and the dynamism of the broader Asia region to which several of those JVs are exposed. Taken together, the adjusted EBIT increased by EUR 65 million, reaching EUR 580 million this semester. Turning to Slide 18 and the analysis of adjusted EBIT margin development in the first half. The 50 bps improvement to 6.4% is the combination of 40 bps headwind and 90 bps performance. On the one hand, adjusted EBIT margin faced a couple of inorganic headwinds. Scope had a negative 20 basis point impact, slightly less than the impact on gross margin due again to the higher weight of R&D for the North American Signaling business compared to the group average. FX had a negative 20 basis point impact from a translation effect. On the other hand, these headwinds were more than offset by progress on project execution and industrial efficiencies contributing around 20 bps to margin improvement. Fixed costs, looking at R&D and SG&A together contributed to a 50 basis point increase. Other elements, including the increase in net interest and equity investors pickup contributed 20 basis points overall. Looking at net profit on Slide 19. Nonoperating expenses have reduced further to EUR 37 million in the first half. Nonoperating expenses mostly relate to the impact of the German transformation plan and some legal costs. As a reminder, integration costs were nil in the first half of this year as Bombardier Integration program was concluded last year. Net financial expenses decreased to EUR 75 million from EUR 107 million as a consequences of deleveraging plan that occurred in H1 last year. Effective tax rate came back to a structural level of 28% compared to 37% in the same period last year. Finally, adjusted net profit increased by 51% to EUR 338 million for the half year, and net profit group share after PPA reached EUR 220 million, 4x last year net profit. Turning now to free cash flow on Slide 20. Free cash flow came at a negative EUR 740 million, consistent with expected seasonality. Let me highlight a few moving parts here. Adjusted EBITDA, including dividend payment from JVs reached EUR 800 million versus EUR 708 million last year. CapEx and CapDev together amounted to EUR 225 million or 2.5% of sales with some favorable phasing impact of investments that will reverse out during the second half. Financial and tax cash out together amounted to EUR 152 million, coming in close to the P&L expense. This results in a solid increase of funds from operation to EUR 411 million for the first half, up more than EUR 100 million compared to the same period last year, confirming the trajectory observed over the last 3 years. Finally, working capital was a EUR 1.2 billion headwind, slightly better than expected. Talking trade working capital on Slide 21. Trade working capital stood at 43 days of sales at the end of September, broadly stable compared to the first half of last year. The increase compared to March '25 represented a EUR 500 million headwind for cash generation in H1 this year. Inventories increased by EUR 315 million over the 6 months and stand at 87 days of sales, not very different in terms from September 2024. This is largely explained by the anticipated acceleration in Rolling Stock production during the second half of the year with higher value train sets to be manufactured this year. In comparison, days of payables progressed slightly less than days of inventories. Looking now at contract working capital on Slide 22. It went from a favorable 89 days of sales to 79 days at the end of September and stands at negative EUR 3.9 billion, so generating close to a EUR 600 million headwind during the half. Net contract assets and liabilities went from negative 59 to negative 48 days of sales, just below EUR 2.5 billion. The vast majority of the decrease in the net position was driven by Rolling Stock with 3 dynamics. First, the increasing share of projects in a ramp-up phase compared to last year. During this phase, when [indiscernible] cars are being built and homologation milestone is not reached, then Rolling Stock contracts pivot from a contract liability position to a contract asset position and therefore, consume working cap. Second, the phasing of down payments this year is very different to last fiscal year, less down payments in the first half, more to be expected in the second half. And third, a few large Rolling Stock contracts have only recently reached cash milestones, including, for example, Amtrak with the launch of commercial service in August and cash-ins to be collected over the next quarters. We anticipate the 3 dynamics will remain valid through the rest of the year, but the timing of down payment will largely drive the improvement in contract working cap in the second half. Finally, provisions are decreasing as expected with the execution of the legacy backlog. Net financial debt on Slide 23, it increased to EUR 1.4 billion at the end of September, up from EUR 434 million at the end of March. In addition to free cash flow changes, leases and dividends from minorities, combined with a EUR 44 million annual bond coupon paid for the hybrid bond amounted to nearly EUR 150 million total cash outflow during the first half. And the strong appreciation of the euro had a negative translation effect on cash balances held in non-euro-denominated currencies of EUR 65 million. This translation adjustment is, by definition, noncash, but does impact the net debt in euro terms. You will find in appendix of this presentation, the updated bridge computation from EV to equity value, reflecting these evolutions. Finally, looking at cash and debt profile at the end of September on Slide 24. Cash balances stood at EUR 1.7 billion at the end of September compared to EUR 2.3 billion at the end of March. The amount of short-term debt entirely through commercial paper stood at EUR 400 million, while the balance was nil at the end of March, leading to a net cash position, excluding long-term debt of EUR 1.3 billion. These moves are explained by free cash flow consumption as detailed in previous slides, the agreement with the rating agency to earmark a portion of cash to identify future debt repayments and the need to keep a certain amount of cash to run the business. This concludes the financial review. Let me pass it on to Henri for final remarks. Henri Poupart-Lafarge: Thank you, Bernard. So turning to the outlook with first taking stock of the assumptions that we laid out in May and that underpin the full year guidance. First, commercial momentum has been particularly strong, driven by robust underlying demand and some competitive positioning in key markets. Second, car production remained stable in the first half, and we expect this trend to continue through the full year. Third, innovation remains a strategic priority for the group. However, given stronger-than-anticipated sales momentum, we now expect R&D to represent around 3% of sales for the full year compared to slightly above 3% previously. Fourth, exposure to U.S. tariffs remains limited as most projects meet minimum U.S. sourcing requirements, and we have legal safeguards through change in law clauses. Year-to-date, the vast majority of tariffs paid have been agreed for reinvoicing with clients. On that basis and in light of our first half performance, we confirm the objective of a book-to-bill ratio above 1, both at a group level and for Rolling Stock. We now expect organic sales growth to exceed 5% compared to 3% to 5% previously. We confirm the adjusted EBIT margin guidance of around 7%, and we continue to expect free cash flow generation within the EUR 200 million to EUR 400 million range. Finally, as mentioned in the press release issued earlier tonight, medium-term ambitions are unchanged, including the 3-year free cash flow objective of EUR 1.5 billion. This concludes the presentation, and Bernard and I will now be happy to take your questions. Operator: [Operator Instructions] Our very first question this evening is coming from Akash Gupta calling from JPMorgan. Akash Gupta: I've got 2. I have one for Henri and one for Bernard. The first one I have is on the pipeline of projects that you show in the presentation. So we see European pipeline reduced by EUR 12 billion in past 6 months. And the question is, is this largely reflecting the awards that we have seen in the period? Or is there something else that has moved as well? And similarly, if I may also ask what is driving the increase in pipeline in AMECA region where you see EUR 9 billion increase in the next 3 years award. So that's the first one. Henri Poupart-Lafarge: No. Thank you, Akash. On the first -- on the pipeline. So first, let me reiterate that the market is extremely positive. As you know, we have still a long-term market growth, which is estimated around 3% by UNIFE. And that is the kind of macroeconomic view and the pipeline, which we look at, which is the sum of all the opportunities which we have in front of us, as you have seen, is still very positive. So you're right. On Europe, time goes, a lot of -- as you have probably seen in the press and the media, a lot of orders which have been allocated to Alstom, but not only in the recent period. And therefore, there is a slight decrease of the pipeline. On the growth -- the second part was on which region you were asking for the growth? Akash Gupta: It's AMECA region where your pipeline has increased by EUR 9 billion? Henri Poupart-Lafarge: On this -- so we have -- it's true in AMECA, therefore, particularly in Middle East, we have a number of turnkey projects which are coming and which have been rejuvenated, if I may say, Riyadh, for example, Line 7 of Riyadh and so on. So we have increasing turnkey jobs, which are coming in the region. Akash Gupta: Then the question for Bernard is on cash flow. So when you gave EUR 200 million to EUR 400 million free cash flow guidance in May, you had much lower visibility than what we have today. And now we have roughly 6 months gone and H1 outflow was much better than expected. You have already announced couple of large orders for Q3. So my question is, how do you feel about the range? And could we say that upper half of the range may be more likely? Or is it still too early to conclude that? Bernard-Pierre Delpit: Thank you, Akash, for that. Frankly, I will not refine the guidance that we have just reiterated of EUR 200 million to EUR 400 million. It's, by the way, a quite narrow range from my point of view. There is nothing really new. It's true that H1 was better than anticipated, but kind of phasing rather than anything else. All the good news that you have seen from a commercial momentum point of view were also in the initial guidance. So no change. I hope that by the end of Q3, I will be in a position to refine this assumption. But let's keep the EUR 200 million to EUR 400 million range, positive free cash flow as our assumption today. Operator: We'll now move to Mr. Andre Kukhnin of UBS. Andre Kukhnin: Could I ask about the margin first? You've put in a pretty solid H1 performance, and it looks like the revenue guidance increase is coming mainly from Services signaling judging by the beat in Q2 and that R&D intensity is slightly lower. So I was kind of thinking about the 7% now as a number that starts with 7% and could be something around 7%, but 7.12% as opposed to sort of high 6s. Is that -- would that be the right way to think about the way the margin is progressing? And then I've got another one. Bernard-Pierre Delpit: Okay. Andre, I will take this one. No, frankly, we keep the guidance absolutely intact. To tell you the truth, we have some headwinds coming from FX and we mitigate this negative with the R&D new guidance. But for the rest, we keep it as we issued it in May. And I think it's already good to mitigate the FX impact. And sales growth will have limited impact on our adjusted EBIT as well. So here again, I think it's good to keep the same line. I know that you guys are waiting for an upgrade. We have upgraded the sales growth. But when talking cash and adjusted EBIT, I mean, keeping the initial guidance was, I think, a good thing. Let's stick to what we said. Andre Kukhnin: Got it I guess I had to try. Can I just ask a quick follow-up? In terms of -- so you told us the backlog margin has improved by another 20 basis points. Could you comment on where your order intake margin is trending at the moment? Henri Poupart-Lafarge: Thank you for the question. I mean it's a very important and I would say very positive development in the first half. We had indeed a very nice gross margin in order intake in all our segments, in all our activities because as you have seen, as compared to previous years where we had a good gross margin in order intake, but which was supported by the mix, which was, I would say, more favorable to Signaling and Service. Here, we have recorded a number of Rolling Stock orders. And I would say, despite that, which kind of a mechanical negative mix impact, we have recorded a very healthy gross margin in the order intake, so which has enabled us to increase. It's always a slight increase because we are talking a very large order backlog. So of course, 6 months addition has only a relatively limited accretive impact, but still an accretive impact, which reflects a good level of order -- of margin in order intake. Bernard-Pierre Delpit: And if I may, on this. We have also a negative -- Andre, we have also a negative FX impact when we translate all those orders in euro. So having a 20 bps improvement in this environment, including the 1.4 book-to-bill for rolling stock, I think it's a great performance. Operator: [Operator Instructions] The question will be coming from that is from Gael de-Bray of Deutsche Bank. Gael de-Bray: Can I ask you again, I'm curious about the free cash flow performance. I mean, what surprised you to the upside in H1 and is not expected to be repeated in H2? Henri Poupart-Lafarge: Yes. This one is for me, Henri. Yes. So it's really a question of phasing. Things that were expected to be in H1 will be pushed to H2. And we have also some VAT phasing because some of the cash came later than expected. So we had no time to repay that to the treasury. It's limited, of course. But I mean when we are talking EUR 10 million here, EUR 10 million there, it can play. So nothing really changed our view. I remind you that, yes, we said upto and in July, I said I had no visibility to improve that. But there is absolutely no reason why the way we have described the year with seasonality will not happen like we described it. So it's very much like, call it, seasonality or cutoff, but as we planned initially, Gael. Gael de-Bray: Okay. And the second question is on the gross margin development. So you said it was about flat if we exclude FX and scope, but it is only not disappointing given the higher share of Signaling and Service revenues in the mix in H1? Bernard-Pierre Delpit: Well, I wouldn't say disappointing. It's a combination of many things. And maybe something that was not flagged. We have kind of regional mix impact as we have a strong growth of some LRV programs in Germany, and we have some more flattish situation in APAC, for example, it explains why we have this kind of impact on the gross margin. So I wouldn't say disappointing. It was much expected, but I suspect that gross margin will come back to a larger growth in H2. Gael de-Bray: So this regional mix impacts may reverse to a degree in the second half? Bernard-Pierre Delpit: I wouldn't say so, no. You'll see some improvement coming from performance, from volume, from different things, but the increase of our production for programs in Germany will continue in H2. Gael de-Bray: Okay. I guess there is no way you could separate the volume and the mix impact, the 20 bps you mentioned? Bernard-Pierre Delpit: No, no, difficult to refine it more than that. Operator: Next question will be coming from Daniela Costa of Goldman Sachs. Daniela Costa: I have 2 as well. One is kind of a follow-up actually on the topic of Germany and on the topic of the pipeline that Henri commented on, on the first question. Can you clarify that pipeline includes the potential opportunities going forward with German stimulus already? Or shall we think about a top-up to that once it becomes concrete what those opportunities are and what sizes should we think about in there? And then I'll ask the second one. Henri Poupart-Lafarge: Yes. So on Germany, it includes the orders and which are today, I would say, under submission and which are part of our actual commercial plan. But it does not include a kind of theoretical view of the German market, which will be triggered by the investment plan of Germany. So if it has not been translated into actual tender and projects, it's not been included. So the vast majority is not included of basically the EUR 10 billion, which will flow one way or another on the German market for infrastructure. Daniela Costa: Got it. And then the second point relates to Siemens at their Investor Day today was talking to about that being less interested in pursuing metro and CT opportunities given those weren't, I guess, as good on margin for them. Can you talk about sort of like how you view the attractiveness of those type of orders for yourself? And also, I guess, the market share you have and the opportunity that if Siemens pulls out more actively of that market, that could give for you? Henri Poupart-Lafarge: Sorry, I didn't get, what was dropped by Siemens? Daniela Costa: No, I think they were saying sort of that they were less interested in sort of actively pursuing the Metro and the city part and more focused on other segments in rail going forward? Henri Poupart-Lafarge: Yes. So first, thank you, it's a good indication. Yes, it's not new from Siemens time. I mean there's always the difficulties in metro. And their last order was, for example, in London, where they suffered a lot. And we've seen then -- and they were -- it was not their priority, the metro business. City, probably as you've seen, they are still in S-band, for example, in Germany. But they are not our main competitors in that area. As you know, we have different competitors depending on the market. If you are, of course, in India, you have local Indians. If you are in Europe, you have more people like CAF, Stadler just injuring into the metro market. So it's not a surprise to us, what you say. It will not dramatically change the picture. What is interesting is that, as you know, we are more and more in turnkeys in cities, so both rolling stock and signaling. So to some extent, Siemens may have some difficulties to sustain a Signaling business -- normal Signaling business if they totally withdraw from the metro one. So it's probably more complex. So I would say not totally a surprise, not a radical shift, but a confirmation that the market is consolidating around a few players. Operator: Next question will be from William Mackie of Kepler Cheuvreux. William Mackie: A couple, please. Firstly, on cash flow for the second half. I think if I heard you correctly, you said it remains highly dependent on the inflow of prepayments. So could you explain, first of all, how much visibility you have on that? And how you also expect the contract assets and inventories to develop in your working capital calculations in the second half? I'll come back to the second question. Bernard-Pierre Delpit: Will, I will take this one. So yes, definitely, we expect a strong inflow of -- coming from new contracts with down payments expected in H2. I would say that we have good visibility. We still some uncertainty about the amount and the timing of those. But we expect, as I said, a strong book-to-bill in H2. So there is always uncertainty, and it could be a couple of hundred millions by definition, considering the size of certain of our contracts, as you've seen for Eurostar or PKP in Poland. So I wouldn't go beyond those comments in terms of visibility, but it's true that there is uncertainty here by definition, but it was also the case last year, by the way. Contract assets will continue to grow as we are in the ramp-up phase for a lot of projects with some homologation dates that will create some contract assets, namely in Germany or for some local markets. So well, I don't expect the contract assets to go down in H2. Regarding inventories, it will depend on the quality of execution in our second half. We have a strong ramp-up as well. So we are ordering parts. It's what you've seen in H1. It will continue because we have also a strong Q4, but we expect we will consume part of those inventories. So as you've seen in H2, the last 2 years, we have consumed some part of our inventories. So I expect that in terms of turns, it will come back to what we've seen in the past. William Mackie: A couple of -- well, questions to clean up some points on the P&L and how you're building the budget and thinking. I note you've achieved a very good contribution in the equity pickup in JVs, particularly from the [indiscernible] JV. Just how are you thinking about the continuity of that in the second half? Should we expect a similar sort of performance the way that you've been speaking to your partners and the sense of how you expect that to develop? And then on the R&D, I'm just interested, I wasn't sure how you were communicating whether the change in R&D guidance relates to higher sales or whether there's an absolute change in the expectation for spend or provision on R&D? And if there's an absolute reduction, then what is it that's driving that against the backdrop of rising activity across the group? Henri Poupart-Lafarge: Thank you for the question. So 2 things. First, let me say that the joint ventures are doing extremely well on the Chinese market. Just one word on the Chinese market. We have seen contrasted trends on the Chinese market. The mainline market is going fast. The urban market is slower, and we are not -- in the past, I don't know if you remember, there were like 15 lines being opened per year. We are probably half this amount today. There are some extensions and so forth. So it's more than -- it does not mean that the market has halved, but it means that it has decreased. And as you say, the AST, which is our very high-speed joint venture is benefiting from this growth on the high-speed market. Having said that, the phasing of the profitability of the joint venture is such that H2 will be not as good as H1. But don't take it as a sign of any slowdown of the market. It's just a fading of the profitability in the year. For your second question, no, it's just a question of relative terms. So in absolute R&D is as expected, but sales are higher. So we have slightly revised downward the assumptions in terms of percentage of sales, but no change in terms of absolute number and investment. Operator: [Operator Instructions] We'll now go to Delphine Brault from ODDO BHF. Delphine Brault: Sorry, I've been disconnected. So I hope my questions have not been asked already. First, it relates to gross margin. Your gross margin in the backlog further improved to 18%. Do you plan this type of improvement, same kind of improvement by the end of the year? Bernard-Pierre Delpit: Delphine, well, the name of the game is not to grow it up to, I don't know, 20%. So at a certain point, the question is more on the execution of the backlog than growing it, growing it, growing it. So we think that will continue to grow the gross margin in the backlog. Now the magnitude of the growth in H2 might be a little too early to tell you because it will depend also on the mix. We have a large mix of Rolling Stock on the order intake. By definition, it has an impact on the growth of the gross margin. And then FX also, so it's a bit too early to tell you, but I think that kind of 10 to 20 bps improvement is what we could see in the next half. Henri Poupart-Lafarge: We have -- you have heard from us a confident outlook on the order intake. So we have a good visibility of the commercial momentum and orders which are already won but not yet booked and which are containing healthy margin. So this would support the growth. But indeed, some of the service orders are still being negotiated. So it would depend as well on the mix between Rolling Stock and service during the second half. But yes, it will continue to increase. The gross margin in the order intake for the first half is much higher than the gross margin in the backlog. So we still have some way to continue to improve the gross margin in the backlog. Delphine Brault: Okay. And my second question is the European Commission recently called for more standardization in the highway sector, including Rolling Stock. And I'm wondering if you believe that the European operators will follow this recommendation? Henri Poupart-Lafarge: As you have seen, there are several recommendations -- recent recommendations from the European Commission. We had also a long paper on very high-speed development in Europe and investment in Europe for interoperability. So the answer to -- for all these papers basically and also to your question is twofold. On one hand, what say the commission never occurs as planned. So it takes always more time, and it's not as -- I would say, as dramatic as they would like it to be. But at the same time, it pushes the needle in the right direction. And not only when they say they want standardization, it's not only the operators which are at stake, it's also all the national rules. And there is a huge program being made by the ERA, the European Railway Authority -- Agency, sorry, which is trying to make all national rules progressively converging. And this will help, and this is helping the standardization. Now there are some, I would say, some opposite directions because, of course, all the operators, they want to have their own trains, they want to have their optimized trains for 50 years and so forth. So they want to have their own dedicated trains. But at least, the main standards and the main norms are progressively converging. Operator: We'll now move to Martin Wilkie of Citi. Martin Wilkie: It's Martin at Citi. Just to come back to the question on revenue growth, and you touched upon it already. But just to clarify, the faster growth, I mean, normally, of course, you're delivering largely from the backlog and that's sort of defined by the customer schedule. So what drove the -- both the better growth in the quarter and the uplift in the year? Is it sort of alleviating bottlenecks, whether it's labor or supply? Or what allowed you to drive the growth in revenue faster than previously expected? Henri Poupart-Lafarge: You're right. On a number of projects, it's being driven by customer ability to take the trains. But on other projects, when we are delivering infrastructure projects in signaling, it's also our own speed, I would say. So we have some flexibility in some places where depending on our own speed, we can deliver more or less fast the backlog. So on that one, we made some progress. And also, we have some short-term orders, and we have put a lot of attention in the recent period on being much better into what we call gardening, i.e., to have very short-term orders. And this has been particularly positive during the first half. And this has led to also a positive move on the sales. Martin Wilkie: That's great. If I could just have one other question on the pipeline. I mean, obviously, you've announced the Eurostar order quite recently. Obviously, a lot in the press about additional operators using the channel tunnel and not just in London and Paris, but elsewhere. Is that included in your pipeline that, that line could potentially be a lot larger for that particular platform of train? Henri Poupart-Lafarge: We are very pleased because as you have seen, we have been awarded the Eurostar order. But as you've probably seen, it's a very technical decision, but this has quite important consequences. There was a decision by the ORR, so the regulator in the U.K. on the access to Temple Mills, which is one of the maintenance depot in the U.K. And this access has been provided to Virgin and Virgin being our partner also for the Paris to London route with high-speed trains are not coming from the same platform. So it's not a double-deck. It's a single-deck platform, which we are developing in Italy. We have high-speed single deck in Italy and high-speed double-deck in France. And this has been, I would say, awarded to Virgin, which was competing against other operators coming with other trains from competitors. So it's very good news. So yes, we have a particular success of our very high-speed platforms. And they are in the -- so this is in the pipeline. In the pipeline, you have also a number of operators wanting to go outside their domestic markets. You have SBB wanted to go outside Switzerland. You got Trinitalia with some ambition as well in Germany as well as in France. You have private operators trying to also establish new route, whether it's Dutch in the Netherlands, Dutch operators or another French operator. So yes, all that is included in the pipeline. Operator: We'll now move to James Moore of Rothschild & Co. James Moore: A number of my questions have been asked and answered. So maybe I could switch to Germany and German production. It looks to me like your car production in units is relatively stable in the first half, and you're looking for German production to potentially double this year. Could you talk a little bit about German production? Is that something that's more loaded to the second half? And how is that developing? Henri Poupart-Lafarge: So your analysis is correct. The German production is more loaded in the second half, definitively. There have been a start of increase at the end of the first half. So if you look -- I mean, monthly numbers, obviously, but the second quarter was higher. So we start to see the ramp-up. But it's true that the large ramp-up is during the second half. In Germany, we are, in general, at a stage where we are waiting for some homologation and certification. So we have projects which are what we call in the ramp-up phase. So it's after a start-up phase where we are just developing ramp-up phase. So we are starting to produce, but in parallel, we need to monitor very closely the speed of -- and the timing of the homologation and certification so that we adjust our production schedule to the actual ability to deliver the trains to the customer once certified. So we are in this delicate phase. But yes, it's H2, which we will see the growth in production in Germany. Operator: We have a follow-up question from William Mackie of Kepler Cheuvreux. William Mackie: I just wanted to dot the i's and cross the t's on a couple of points. There's a note where you talk, I think, about customer advances being revised from EUR 320 million to EUR 511 million within the half year period, but it's not well explained. Could you provide -- throw a bit of color on what that advanced payment reassessment is within the period that you've put as a note to the accounts? That was the first. And then secondly, with regard to the rating agencies, could -- have you spoken to the rating agencies recently in this interim period? And could you share any feedback from your perspective of the input you may have received? Bernard-Pierre Delpit: Yes. I will take the last one, giving time to my colleagues to look for this note because I can't answer on the top of my mind on this advanced payment scheme. On the rating agencies, by the way, we should say rating agency because, as you know, we are only rated by Moody's. Yes, we've discussed this print with Moody's. And I mean, they are -- I mean, it's up to them to react to our print, but nothing new. Nothing has changed as they've taken a 12- to 18-month view when they issued the last press release. So they are totally aware of the seasonality of our free cash flow, if it's the question. And there is nothing new on that front. And we'll come back to you on this note on prepayments from customers because I don't see exactly what you referred to. William Mackie: Okay. It's on Note 15.2, but I'll try something else then just to answer a follow-up from Andre's question and a couple of points you've made earlier. You've stated that the gross margins on recent order intake has been significantly better than the 18% in the backlog and that the change in the backlog is going to evolve slowly due to its scale. But can you give us a sense of what sort of differential there is between the average in the backlog and what you're typically booking now having changed the nature of your sales acceptance and the landscape of the competitive environment having shifted perhaps to a more consolidated and perhaps sensible or disciplined environment? Henri Poupart-Lafarge: Yes. So good question. So that's -- the scale is significant. We -- basically, this first half, we are again at a record high, again, despite the mix. And we are talking in the vicinity of 4 points. Bernard-Pierre Delpit: Well, on the question of advanced payments, I guess it's just an options or something like that. It's not really a down payment. It's maybe something like that. But we will refine the answer and come back to you. I've just read the note, and I will come back to you with more details on that. Operator: We will now go to Louis Billon of AlphaValue. Louis Billon: So just my question on the order intake. So signed orders were more weighted at the end of the quarter. And therefore, I guess, down payments are not yet reflected in the cash position. So should we expect these amounts to impact future free cash flow? And would it be significant? Henri Poupart-Lafarge: The phenomenon that you are describing is frankly, a nonsignificant impact, very small. We expect a larger amount of order intake during the second half than during the first half. I mean we said that it's book-to-bill above 1. But as you have understood from our comments, we are quite optimistic on this part. So we expect down payments to be higher during the second half on the back of larger orders in the second half. And the phenomenon that you are describing is insignificant. Louis Billon: Okay. And maybe another question. So what is the competition in the America? Do you see less competition with the tariff in place? And what is the competitive environment in North America? Henri Poupart-Lafarge: So the market -- and I think I said it a little bit in the text. The market has consolidated around a few players. So we have Siemens still being present. We have Kawasaki specialized on New York. Stadler has a few orders. So it's -- I would say, it's a classical competition. Traditionally, in the Americas, you have a Japanese player. So Kawasaki is there. And you had Nippon Sharyo in the past, but which is not very present anymore. What has changed recently is in Canada because as they have passed a kind of by Canadian Act, for example, in the metro of Toronto, they are now discussing a kind of direct negotiation with us because we are the only one to be able to provide local manufacturing capabilities. So this has changed the competitive landscape, of course. But in the U.S., I would say, the usual suspect, plus from time to time, some Japanese player that we don't see anywhere else. Bernard-Pierre Delpit: Okay. I come back well to the Note 15.2 to say that it relates to 2 contracts with Deutsche Bank in Germany that are included in a program of hybrid for fighting. So it has increased our progress payments in the first half. Operator: As we have no further questions at this time. Ladies and gentlemen, this will conclude today's conference. We thank you very much for your attendance. You may now disconnect. Have a good day, and goodbye.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Innate Pharma Third Quarter 2025 Business Update and Financial Results. [Operator Instructions] I will now hand the conference over to Stephanie Cornen, Vice President, Investor Relations, Communication, and Commercial Strategy at Innate Pharma. Please go ahead. Stephanie Cornen: Good morning, and good afternoon, everyone. Thank you for joining us for Innate Pharma Q3 2025 Business Update and Financial Results Conference Call. The press release and today's presentation are both available on the IR section of our website. Before we begin, I'd like to remind everyone that today's presentation includes forward-looking statements based on current expectations. These statements involve risks and uncertainties that could cause actual results to differ materially. To begin, I briefly cover today's agenda. Our CEO, Jonathan Dickinson, will discuss our strategic priorities and path forward. Then our CMO, Sonia Quaratino, will present clinical pipeline updates on IPH4502, monalizumab, and lacutamab. Afterwards, I will present the commercial opportunity for lacutamab before turning back to Jonathan with closing remarks, and we'll open the call for Q&A. With that, I'll now hand it over to Jonathan. Jonathan Dickinson: Thank you, Stephanie. Good morning to those joining from the U.S., and good afternoon to our European audience. Turning to Slide 5. I would like to start with the strong momentum around lacutamab, supported by meaningful regulatory progress and new commercial opportunity insights. A few days ago, we received FDA clearance to initiate the TELLOMAK-3 Phase III trial in cutaneous T-cell lymphoma. This is a major milestone for the program, positioning lacutamab to advance towards potential accelerated approval in Sezary syndrome, supported by robust Phase II data. We expect the study to initiate in the first half of 2026, with filing anticipated following achievement of key enrollment milestones. Our CMO, Sonia Quaratino, will provide additional color on the Phase III trial and the regulatory path. In parallel, we hosted a well-attended lacutamab KOL event in October, featuring leading experts in CTCL. The discussions highlighted the continued unmet medical need for new, effective, and well-tolerated therapies in this space and reinforced lacutamab's unique positioning. During the event, we also presented new real-world claims data underscoring the commercial opportunity in both CTCL, which we believe further strengthens the value proposition for this program. Stephanie Cornen, our Vice President of Investor Relations and Commercial Strategy, will review the real-world evidence-based commercial opportunities for lacutamab towards the end of our call today. Moving to Slide 6. As you know, Innate Pharma's core strength lies in applying our deep scientific expertise to advance life-enhancing cancer therapies. Through our years of pioneering work in antibody engineering, we have built a differentiated high-value clinical pipeline supported by compelling data, positioning us to deliver treatments with truly transformative potential for patients and for all our stakeholders. Moving to Slide 7. As we look ahead, our path forward is clear and focused. As you remember, at our half-year results, we announced the strategic decision to focus our investment on what we believe are our highest value clinical assets, including IPH4502, lacutamab, and monalizumab, to maximize impact and value creation. In parallel, we are advancing our next generation of ADC programs through research, building the foundation for future innovation. Finally, we are streamlining the organization to ensure we remain fit for purpose and aligned with our strategic objectives. I'll now hand over to Sonia, who will take us through the clinical pipeline progress. Sonia? Sonia Quaratino: Thank you, Jonathan. In this update, I would like to highlight the 3 clinical programs we believe hold the strongest potential to create significant value for Innate, IPH4502, monalizumab, and lacutamab. Starting with IPH4502, our differentiated ADC directed against Nectin-4. As a reminder, I would like to pinpoint the preclinical model where IPH4502 has demonstrated the 2 major feature of differentiation to an approved drug such as enfortumab vedotin. The first one is related to the payload of IPH4502, which is exatecan, a potent topoisomerase 1 inhibitor. Exatecan can induce a bystander effect, a phenomenon where it kills neighboring cancer cells in addition to the targeted cells. The exatecan is released from the antibody drug conjugate in the tumor and diffuses into nearby cells. This is beneficial for treating heterogeneous tumors where cancer cells may not all express the target antigens. The second point of differentiation is that in preclinical models, we have demonstrated that IPH4502 can induce potent tumor regression in PADCEV MMAE-resistant models, allowing us to target tumors that are or have become resistant to PADCEV. We have, therefore, built the study design of the first-in-human trial on the basis of these preclinical findings. First, we look for signals in tumor types where Nectin-4 expression may be low or heterogeneous, opening to a very broad opportunity. Second, we enriched the study of urothelial cancer patients in the post-EV setting, where IPH4502 may overcome resistance to EV. This represents an area of high unmet need with no approved drugs and the potential to move rapidly into later-stage development. With this hypothesis, the emerging clinical data will indicate the indication where IPH4502 can make the greatest impact. The first-in-human trial is guided by an adaptive design, and the main objective of this study are to assess the safety, tolerability, and preliminary efficacy of IPH4502 in patients with advanced solid tumors known to express Nectin-4. Enrollment in the dose escalation part of the study is progressing very well. We started the trial in January, and we have now reached already a pharmacologically active dose, and we have started to see early signs of clinical activity. We remain on track to complete the dose escalation by the first quarter of 2026. And after that, the dose optimization part of the study should commence. Now let's turn to Slide 10 to provide an update on monalizumab, which continue to advance in collaboration with AstraZeneca. The double-blind PACIFIC-9 Phase III trial aims to demonstrate improved progression-free survival of durvalumab in combination with either oleclumab or monalizumab as compared to durvalumab with placebo in patients with unresectable Stage III non-small cell lung cancer who have not progressed after platinum-based chemo radiotherapy. The PACIFIC-9 study builds on very strong scientific rationale, supported by earlier studies such as COAST, NeoCOST and NeoCOST-2 trials. This is a large global study that has fully completed enrollment with 999 patients randomized 1:1:1 across the 3 treatment arms. The primary endpoint is progression-free survival with efficacy comparisons for both combination arms versus durvalumab monotherapy. The study is fully recruited, and the independent data monitoring committee recently recommended continuation of the trial following a preplanned analysis, an important validation of the program progress. And we look forward to the data expected in the second half of 2026. Now moving to Slide 11 and to lacutamab. As we highlighted during our KOL event last month, our development strategy is designed to enable a stepwise approach, beginning with Sézary syndrome, an indication with the highest unmet medical need, especially in patients who have progressed after mogamulizumab, then progressing with a larger opportunity in mycosis fungoides, and finally, expanding to peripheral T-cell lymphoma. We are preparing a confirmatory Phase III study in an FNSS, which, once underway, opens the door for our filing of the biologics license application for Sézary syndrome post mogamolizumab based on the existing Phase II TELLOMAK data. This represents a potential path to accelerated approval with a key milestone expected in 2027. The confirmatory Phase III will also include patients with mucosis fungoidis, the largest CTCL subtype, where there remains a clear need for disease-modifying therapies. These results of the confirmatory Phase III trial will support a full approval in 2029 in NF and then full approval for Sézary and help establish lacutamab as a game changer in the therapeutic landscape across CTCL. Our goal is to position lacutamab within the NCCN guidelines as a preferred systemic therapy, not only for late-stage Sézary and mucosis fungoides, but ultimately for earlier-stage CTCL patients who continue to face limited treatment options. Now beyond CTCL, we are also advancing development of lacutamab in peripheral T-cell lymphoma, a particularly aggressive lymphoma subtype with few effective treatment options, and an ongoing Phase II study will help defining lacutamab role in this patient population. Turning to Slide 12. I would like to remind the data that will form the basis for the accelerated approval in Sézary post mogamulizumab. They are the long-term follow-up data from the TELLOMAK Phase II trial that was presented at ASCO 2025. Sézary is an aggressive subtype of CTCL. And post-mogamulizumab, there are no approved drugs that have demonstrated clinical efficacy. In heavily pretreated patients, all pretreated with mogamolizumab, lacutamab demonstrated an impressive global overall response rate of 42.9% with a median duration of response of 25.6 months. The median progression-free survival for the whole population was 8.3 months. Of note, lacutamab was very well tolerated with very favorable safety profile, underscoring lacutamab potential to deliver a meaningful clinical benefit in this aggressive and difficult-to-treat population. Turning now to mycosis fungoides. Long-term follow-up data from the TELLOMAK Phase II trial showed that lacutamab achieved a global overall response rate of 19.6% with consistent activity observed regardless of KIR3DL2 expression level. The median duration of response was 13.8 months, and median progression-free survival was 10.2 months, again, with no difference between the 2 subgroups. Also in MF, lacutamab was very well tolerated with an excellent safety profile that supports its potential use for long-term systemic therapy at an early-stage disease. Turning to the clinical development plan for the confirmatory trial. This is an open-label multicenter randomized comparative Phase III trial evaluating lacutamab in patients with cutaneous T-cell lymphoma who have failed at least one prior line of systemic therapy. In alignment with the FDA, the study includes 2 independent cohorts with distinct statistical analysis plans, one for Sézary syndrome and the other for mycosis fungoides. In the Sézary syndrome cohort, patients who have failed at least one prior systemic treatment, including mogamulizumab, will be randomized 1:1 to receive either lacutamab or Romidepsin, which is currently the only FDA-approved option for patients who progress after mogamulizumab. The primary endpoint is progression-free survival assessed by blinded independent central review, and the key secondary endpoint is overall survival. In the mycosis fungoides cohort, patients with Stage Ib to Stage IV disease will also be randomized 1:1 between lacutamab and mogamulizumab, which represent the current standard of care for this population. Here again, the primary endpoint is PFS, weak pruritus, and quality of life as a secondary endpoint. As the Sézary syndrome and MF study subpopulations are considered as independent cohorts, answering to distinct objective sample sizes are estimated to meet the primary endpoint in both SS and MF cohorts independently. From a regulatory standpoint, we have received clearance from the FDA about this clinical trial protocol. And therefore, we are well placed to initiate the Phase III trial in the first half of 2026. And with that, I will now hand over to Stephanie Cornen, who will walk us through the commercial opportunity for lacutamab and how we plan to unlock its full value across CTCL and beyond. Stephanie Cornen: Thank you, Sonia. Now looking at commercial opportunity an important parameter is about eligible population. CTCL is aware of this diseases and assessment incidence and prevalence remain a challenge, potentially underestimating its true burden. During the occurring event, associates presented the most up-to-date source based on U.S. TELLOMAK data Versus CTCL Patient population, which highlights the higher incidents and prevalence than previously described. So if we look into each of these opportunities, starting with Sézary syndrome, as discussed it should release near-term in U.S. based on the Phase II TELLOMAK data. Sézary syndrome may affect around 3x more patients than previously believed, with an annual incidence was around 300 patients, prevalence around 1000 overall Sézary patients. And according to U.S. TELLOMAK data, approximately 300 patients treated with mogamulizumab annually. Importantly, these opportunities clearly define and actual of approximately concentrating in special and referral centers which accessible with a focused commercial footprint. Our launch strategy will therefore target specialized centers already managing these patients, allowing for a near-term and derisk opportunity in the U.S. Now moving to mycosis fungoides, which represents a larger opportunity. Here again, the TELLOMAK data shows a higher incidence than previous reported with approximately 3,000 U&M patients diagnosed each year in the U.S., and about one in four of these patients received systematic therapy. The goal of our Phase III, TELLOMAK-3, is to establish lacutamab as the new second standard of care, and our primary market research supports the view that physicians would adopt lacutamab as a second line of treatment base. And again, importantly, Sézary syndrome enable a seamless expansion into mycosis fungoides since both indications are managed by sustainable network of prescribers. So in summary, we see Sézary syndrome as our first focused entry point into the CTCL market in the U.S., a manageable and concentrated launch opportunity that will also serve as the foundation for a broader commercial in MA. Turning to Slide 17. This slide illustrates the market potential for lacutamab in CTCL and how we plan to expand over time through a stepwise strategy that Sonia previously described. We expect an initial opportunity of up to $150 million in the U.S. with accelerated approval in Sézary syndrome, where the patient population is small but highly concentrated and addressable through a focused commercial footprint. As lacutamab moves into mycosis fungoides and secures full approval the opportunity could expand to around $500 million across the U.S. and Europe. And beyond that, we see additional upside as part of our life cycle management strategy. Lacutamab offers important standard care for early-stage patients, a segment where systemic treatments are less used today. And the unique profile of lacutamab that combines tumor targeting activity, improved quality of life, and a favorable safety profile makes it a compelling candidate to unlock earlier use of systemic therapy. While the Phase III trial is designed to support registration across all stages of Innate in the second-line setting, we see a broader opportunity in addressing the Innate medical need of patients who are currently managed only with skin therapy and may benefit from lacutamab. In short, lacutamab offers a clear derisk path to commercialization starting with Sézary syndrome, expanded into larger CTCL segment over time, and then an even larger opportunity in PTCL. And now I'll hand the mic to Jonathan for closing remarks. Jonathan Dickinson: Thank you, Stephanie. As part of our focused strategy, we are advancing 3 high-value clinical assets that form the core of Innate's portfolio. Starting with IPH4502, our novel and differentiated Nectin-4 ADC, we see a significant opportunity in bladder cancer, particularly in the post-PADCEV setting, as well as across other solid tumors with low to medium Nectin-4 expression. Enrollment in the ongoing Phase I trial is progressing well, with completion expected by late 2025 or early 2026. We've now reached a pharmacologically active dose level where we're beginning to see encouraging early signs of clinical activity. Monalizumab, partnered with AstraZeneca, continues to advance in Phase III for unresectable non-small cell lung cancer, where enrollment in the PACIFIC-9 trial is now complete. Top-line data are expected in the second half of 2026, and this collaboration remains a key value driver with up to $825 million in total milestones and $450 million already received to date. And with lacutamab, our anti-KIR3DL2 antibody for cutaneous T-cell lymphoma, long-term follow-up from the TELLOMAK Phase II study has demonstrated meaningful and durable clinical benefit in both mycosis fungoides and Sézary syndrome, leading to breakthrough therapy designation in Sézary syndrome. As you know, we've now received FDA clearance to proceed with the confirmatory Phase III TELLOMAK-3 trial, and we're on track to initiate in the first half of 2026, supporting the potential for accelerated approval in Sézary syndrome. To wrap up today's call, I'll remind you that we have several value-driving catalysts ahead across Innate's portfolio. In the first half of 2026, we expect Phase I data from IPH4502, our Nectin-4 ADC program. This will be followed in the second half of 2026 by data from the PACIFIC-9 Phase III trial of monalizumab in collaboration with AstraZeneca. Looking beyond to 2027 and onward, we anticipate multiple milestones, including a potential accelerated approval for lacutamab in Sézary syndrome, the monalizumab BLA filing, and IPH4502 expansion phase data. Finally, we ended the third quarter of 2025 with a cash position of EUR 56.4 million, providing runway through the end of Q3 2026 to deliver on these key milestones. Operator, we can now open the Q&A session. Thank you. Operator: [Operator Instructions] Your first question comes from the line of Christopher Liu with Lucid Capital Markets. Christopher Liu: So I have 2. For the first one, what would you need to get done in the near term for the potential lacutamab commercial launch in Sézary syndrome? And for the second question, for IPH4502 and the upcoming data set, could you give us a little bit more color on what we can see at that readout? Jonathan Dickinson: Okay. Christopher, I can take that. So from a commercial perspective, I think one of the key things that we would need to get done prior to Sézary launch is the work to ensure that lacutamab will be included in the NCCN guidelines. So what we're aiming to be able to do, and we've already started the discussions on this with KOLs, is to ensure that when the BLA is approved for Sézary, that we basically already have lacutamab included in those NCCN guidelines for Sézary syndrome, but also for mycosis fungoides. So that will be one of the key pieces of work that we believe we will need to have in place prior to the BLA. And then IPH4502, in terms of what we hope to have next year, I think we've communicated this on a number of occasions, but what we're aiming to have is a cohort of patients in the PADCEV resistant setting, probably 10-plus patients where we will hopefully see an interesting response rate and be able to show clinical activity as well as safety data. We also hope to have data in 1 or 2 other tumor types in a similar perspective. So 10-plus patients in 1 or 2 tumor types. What we're doing with the study, and I think Sonia mentioned this earlier, is we've set up the study in a way where we can basically chase signals. We can backfill cohorts. So when we see a signal in a particular tumor type, our objective is to backfill and to substantiate that signal. So hopefully, then in 1 or 2 other tumor types, you would have 10-plus patients. And again, hopefully, an interesting response rate that allows us to then move forward into the next stages for the development of the product. Thank you for the question, Christopher. Operator: Your next question comes from the line of Justin Zelin with BTIG. Justin Zelin: You've indicated that FDA views an accelerated approval pathway here for lacutamab as viable once the Phase III study is underway. Could you just expand whether FDA is looking for any additional supplementary analyses beyond the existing Phase II data set as part of that accelerated approval package? And then just second, based off of the feedback from the October KOL event. Do you have a sense of growing momentum from the KOLs for lacutamab to become the preferred second-line option here? And should we expect mogalizumab to naturally move later in the treatment paradigm? Jonathan Dickinson: Okay. So addressing the first part of your question, Justin. So from an FDA perspective, they have not given us an indication that we would require any further substantial analysis. So basically, the BLA approval will be based off the data we have in hand today from the TELLOMAK study and the results that we've already presented that led to the breakthrough therapy designation. So we see that as reasonably straightforward. The key thing to unlocking the BLA submission here is having the confirmatory study up and running and to have established an enrollment trajectory into that study that would satisfy FDA that this study will complete and will deliver the confirmation of the accelerated approval. So that's something that we're obviously working very hard to be ready to do that ASOP because that counts down the -- it's the countdown to the submission of the BLA. We hope to be able to initiate the confirmatory Phase III study sometime around the middle of 2026. We would anticipate potentially a 6-month enrollment period to get the right trajectory to satisfy FDA requirements. And then that would allow us to submit the BLA sometime in early 2027, leading to FDA approval of the BLA, hopefully, sometime in the second half of 2027. So yes, so that hopefully answers the first part of your question. Then in terms of KOL feedback, we do see very good KOL feedback on lacutamab, and we do sense a building momentum around that. I think if you were attending the KOL event, and I think the KOL used the word game changer, which was, I think, something that summarizes what lacutamab can potentially bring not only to Sezary syndrome, but also to mycosis fungoides. I think there's particular excitement around basically what can happen in MF. If we look at the 5-year survival, of patients with MF, we do see a dramatic decrease in 5-year survival when patients progress from Stage 2a to Stage IIb, it drops from 78% to 47%. And we know that physicians want to be able to prevent that progression. And lacutamab, based on its tolerability profile and the excellent quality of life data for patients, is incredibly well placed to be able to slot into that area and be able to treat those patients at Stage b, Stage 2a, and hopefully prevent that progression of the patients to Stage Ib when you see the reduction in 5-year survival. So that's clearly, I think, factoring into the thinking of KOLs and how they will use this drug. So I think particularly in MF, we anticipate that lacutamab will be used ahead of Moga. In Sezary, we're studying post-Moga. So our expectation is that the product will be used post-Moga. Based on the excellent safety profile, I think some physicians may choose to use it in the first-line setting off-label as well. But our main assessment and where we're targeting for positioning the product is post Moga and initially in the Sezary syndrome indication. Hopefully, I've answered your question. Justin Zelin: If I could just fit in a quick question with a potential near-term approval here, could you just comment on your CMC readiness as far as commercial scale manufacturing, PPQ run stability work for lacutamab? Jonathan Dickinson: Yes, I can comment on that. I think the answer is we're in a good place. We're basically ready to go. That won't be on the critical path to submission of the BLA. So we've ticked that box, and we're ready to go from that perspective. Operator: Your next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Swayampakula Ramakanth: So I appreciate your comments on how you plan to file the accelerated approval application by the end of 2026. So what -- does this mean you're still hoping to get a partner on board? And in your previous conversations with potential partners, how much stress was there in terms of getting a clear signal from the FDA and a protocol blessed by the FDA? Jonathan Dickinson: Thank you for the question, RK. So in terms of partner discussions, having FDA acceptance of the protocol was an important consideration. It was potentially one of those boxes that we needed to tick for a number of them for us to be able to progress with those discussions. So yes, it was an important clearing event to be able to move forward with some of those partnering discussions. In terms of partnering, commenting on partnering, I think what the company is looking to do is basically to keep our options open. We basically were continuously evaluating a variety of financial options to ensure we're appropriately positioned to support our growth initiatives and create long-term shareholder value. And we remain disciplined and opportunistic in our approach to capital management, and we'll pursue the opportunities that basically support where we're going here. So I think it's important that we keep the options open at this particular stage, particularly with the exciting news that we've seen more recently with lacutamab and the great path that we have forward. Swayampakula Ramakanth: Can I ask 2 quick follow-ups, one on 4502? What specific safety signals would you be looking out for, especially when you would like to see this differentiated against other TOPO1 inhibitor ADCs? And the second question is, so what's the thought process now for the ANKET platform, especially them taking a little bit of a backseat? What's the long-term plan for that platform? Jonathan Dickinson: So maybe I can take the first question, and then I will ask Sonia to take the question on the safety signals that we're looking out for. So -- on the ANKET platform, we are basically waiting -- we're actually finalizing the study for IPH6501. I think we mentioned previously that we've completed the dose escalation phase of the study, and we were basically exploring the MTD at this stage. We're still in the process of doing that. And we'll basically make any future decisions based on -- for IPH6501 based off clinical data. And that clinical data should come sometime in the first half of next year, and then we will be able to make the evaluations and the next steps. In relation to IPH6101, we have now basically have most of the clinical data for the Phase I and Phase II returned to us from Sanofi. So we're now in the process of evaluating that data and trying to understand what next steps could be for the ANKET platform. What I would really like to clearly emphasize, though, is from a prioritization perspective, we're putting most of our time and effort behind IPH4502, behind lacutamab and behind monalizumab, and making sure that we advance those 3 assets as quickly as possible because we believe we have the highest chance to win for those 3 assets. Sonia, if you can take the question on the safety signals we're potentially looking out for? Sonia Quaratino: Well, in terms of signal for IPH45, we try to establish a very well-tolerated and relatively safe drug. And in particular, we try to, of course, avoid all the MMA-specific adverse events like peripheral neuropathy, that is very often not reversible, and ocular toxicity. And so far, we did not see many adverse events or a specific trend in that respect. So the plan is to provide clinical efficacy in, let's say, unusual indication or indications where the Nectin-4 expression is not as high as urothelial cancer, with a very good benefit-to-risk ratio matched by a favorable safety profile. It's difficult to say a prior what you want to see, yes. Operator: Your next question comes from the line of Diana Graybosch with Leerink Partners. Daina Graybosch: Yes, Bill on for Dana. I change it up a little bit, just asking about monalizumab. So I guess I'm just curious, can you just give us some, I guess, expectations for the readout in the second half of '26? Sort of what gives you the confidence that monalizumab, I guess, and durva can actually win out against durva? Jonathan Dickinson: Yes. So maybe I can take that question. So basically, we have good expectations for the PACIFIC-9 study. And what that is based on really is the COAST study, which was the Phase II study, a randomized Phase II study that was replicating the PACIFIC-9 setting. If you look at the results and the Kaplan-Meier curves from that study, they are very interesting. When you added monalizumab to durva, you basically added 12 months median PFS on top of durva. So if we retain a proportion of that effect size going into the PACIFIC-9 study, there's a very high chance that we will have a positive study. So that gives us a, I would say, a relative sense of confidence that this will be a positive study. Hopefully, that addresses your question. Operator: There are no further questions at this time. I will now turn the call back to Jonathan Dickinson, CEO, for closing remarks. Jonathan Dickinson: Okay. I'd like to thank everybody for attending our quarterly earnings call. Thank you for your time and attention, and I wish you a great rest of the day. Thank you very much. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Colonial SFL 2025 Third Quarter Results. The management of the company will run you through the presentation that will be followed by a question-and-answer session. [Operator Instructions] I would now like to introduce Mr. Pere Vinolas, CEO of Inmobiliaria Colonial SFL. Please, sir, go ahead. Pere Serra: Thank you. Good afternoon. Good evening to everyone, and thank you very much for joining us today in this presentation of our results for the third quarter of 2025. I'm going to start with some introductory remarks, and then I ask, as usual, Carmina Ganyet, Chief Corporate Officer; and Carlos Krohmer, Chief Corporate Development Officer; to step in with additional comments and insights. The introductory remarks, I think that we are presenting again a good set of results. As you will see, the operational performance remains strong. Many different KPIs show very strong numbers associated to them. And this in the end shows that our strategic positioning in prime is set to deliver earnings and value growth. Our strategic positioning, as you know, is based in the prime asset class segment. I think that it's now a few years where we have been improving pricing power. Pricing power coming from high demand from best-in-class clients, where we are able to capture above-average rental growth. And as a consequence of this, strong earning growth as a result of our activity. There are 2 things that we can share that you will see. One is that we are proving superior growth capabilities. It's a 9% CAGR for the last 3 years that has been delivered. And it's not only looking at ourselves and other history is that regularly, you could see how our GRI like-for-like growth, it's relevant, but moreover, it's higher than those of our peers in the sector. So this positioning -- unique positioning of Colonial creates a difference. I'm going to start by looking at the main KPIs for this quarter. We could talk about cash flow. We could talk about operational performance. We could talk about capital structure. Just let me share a few numbers. This quarter, gross rental income ends at EUR 296 million. The revenue number here is a 5% like-for-like, well above inflation, showing strong rental growth. The EPRA earnings 6% year-on-year, EUR 156 million. The EPRA EPS, EUR 0.25 in line with the guidance for full year. Second layer operational performance, rental growth, 6%, measured as our growth in terms of signed rents compared to December '24 ERV, 6%, may be highlighting 9% in Paris, which again, is pretty strong and pretty ahead of inflation. Release spread 9%, 17% in Paris and occupancy 91%. As you know, we are just delivering some assets that create a difference without Madnum & Haussmann, our occupancy, which was -- were just delivered this year, our occupancy would be 95%. Finally, from a capital structure point of view, we keep our strong credit rating, BBB+, S&P, Baa1, Moody's, the rating confirmed in that particular case, September this year, loan-to-value 38%; financial cost, 1.9% for the whole of our debt. In Page 6, an overview that in my view, it speaks for itself about our core markets. Where are we in terms of individual occupancy. You can see how high it is. You can see also the number for rental growth 9% Paris, 6% Madrid, 3% Barcelona. And this is a result of beautiful signatures, EUR 1,200 per square meter maximum rent sign in Paris, EUR 43 per square meter per month in Madrid, maximum rent sign, EUR 30 in the case of Barcelona. So fantastic KPIs. Now as usual, we will enter into details, first, the financial performance, later on portfolio management that provides more insight about the future. And finally, some remarks from myself on future growth. So let's skip into section #2, financial performance. Carmina, welcome. Carmina Cirera: Thank you, Pere. So the first main KPI is the rental income, which as you can see here, it's growing through the core portfolio and the project deliveries. This is true drivers. The core portfolio shows a like-for-like growth of 5% and project deliveries of 3%. These 2 main drivers has been overcompensated the fact that on Condorcet & Haussmann have entered into refurbishment. If we look at the different components of this strong gross rental income in Page 9, mainly, you can see out of this 5%, 2% comes from the indexation impact, as you know, inflation in Spain and ILAT index in France, in our Paris portfolio. Another 2% comes from the rental growth premium, this pricing power from all our operational portfolio, an additional 1% from additional occupancy. So this 5%, as Pere has mentioned previously, it's outperforming our main peers in the European zone as usual. So this is another quarter that we are delivering a solid rental growth like-for-like both our peers in the European zone. If we look at the last bottom line in the EPRA earnings, Page 10. You can see how a strong operation are impacting positively in the EPRA earnings growth. 6% growing in a yearly basis. But basically, I would like to highlight this 18% coming from the operational portfolio. Additional EUR 5 million coming from the project deliveries that we have been able to do in the last year and additional positive EUR 9 million, basically the fact that we have converted into the Sika status, the remaining subsidiaries that we had -- we have in France, thanks to the merger. So this means that we are saving tax this year and for the future. This would be a structural positive EPS coming from this new conversion of the last subsidiaries that we had in Paris, thanks to the merger. All this positive impact has been, as you can see here, over compensating the negative impact coming from the Condorcet & Haussmann that has been entering into refurbishment. In terms of EPRA EPS, we delivered almost EUR 0.25 per share, considering the new shares in place after the capital increase that we did in July 2024. If we go to the balance sheet on Page 11, as you can see here. So we continue to deliver a very strong liquidity position. Our loan-to-value is in this quarter, 38.1%, but is -- I would like to highlight again. This level of loan-to-value is temporary. We are making progress in some disposals and capital recycling that has been not impacted yet in this loan-to-value ratio at the end of September 2025. In terms of liquidity, between cash and undrawn lines, we have a very strong position, EUR 2.8 billion, which is almost 2x covering the debt maturities for the following 3 years. And as you see, our cost of debt remains in a very competitive level. So we are taking advantage of the accurate hedge policy that we did in 2021 when the rates were very low. And in the appendix, you would see in more details the hedge and -- the hedge -- the existing hedge as of today, 93% of our existing debt are hedged with a fixed cost. And in the future, the profile of the future hedge, thanks to this pre-hedged position remains in a very solid position with above 50% of our future debt. Consequently, thanks to this strong position and thanks to this robust liquidity management and operational performance and forward-looking hedge strategy, Moody's has been confirmed our rating with Baa1 with a stable outlook. And as you know, this year, we have been tapping the market 2x, 1 in January, EUR 500 million 8x oversubscribed with a very competitive yield, 3.25%, but resulting an effective yield of 2.75% after the hedging that we took previously. And recently, in September '25, who have been gone again to the market with a placement of EUR 800 million. 6-year green bond, all of them has been a green bond issuance with 3.12% coupon, but rent, thanks to the effective -- the hedging attached to this debt, our effective yields are at the levels of 2.73%. So very strong liquidity position, very strong competitive cost of debt and confirming the rating by S&P and recently by Moody's again. Carlos? Carlos Krohmer: Thank you very much, Carmina. Now we're going to step to Page 14 on portfolio performance. First of all, we've signed year-to-date on 25,000 square meters that are equivalent to EUR 54 million of annualized spread. So we are signing a lot, and we are signing with high prices. This EUR 54 million are an increase of 26% in total contracts secured in economic value compared with the same period of 9 months of the year before. We go a little bit into the breakdown out of this EUR 54 million, EUR 20 million, close to 40%, has been signed in Paris and this EUR 20 million are equivalent to 14,000 square meters. At the end, this means that we've signed on average at a rent of EUR 1,400 square meter a year. So absolutely at the high end. If we go further analyzing the breakdown. We've seen that the Spanish markets are also -- our portfolio in Spain is progressing very, very well, close to 60,000 square meters signed in Madrid and more than 50,000 square meters signed in Barcelona. We go a little bit more into detail on Page 15. Here, you can see out of the EUR 20 million, EUR 13 million have been in 3 super prime premises. On Champs Élysées, we signed a contract at a retail rent of -- in excess of EUR 3,700 per square meter a year. This is 11% increase of rental growth increase versus the ERV of December 2024 and the 16% release spread. On Louvre Saint Honore office or the part that is the upper part of the Cartier premise, we've signed at levels well above EUR 1,000, EUR 1,100, EUR 1,200, 18% of growth versus the office ERV of this asset as of December '24, and quite a lot of rents, EUR 3 million in 2 contracts. And then we are progressing also on Haussmann, signing above EUR 1,000, 11% ERV growth, 16% release spread in terms of what the rents were of the previous tenant pre the refurb. If we now step on Page 16 to Spain, 57,000 square meters signed in Madrid, more than 20,000 signed in Madnum in one of the most relevant urban prime campuses in the city of Madrid. In Barcelona, 54,000, interesting highlight 40,000 square meters 22@. So momentum in 22@ is getting better. We are positive on Barcelona. We see this as a big opportunity. If we then go on Page 17, you can see one of the main flagship projects and assets that have been recently released to be delivered, that is Madnum. It is a large asset, close to 60,000 square meters. As of today, we have already close to 40,000 square meters signed with top-tier tenants, most relevant recent news just some weeks ago with 1 global leading telecommunication firms letting up 13,000 square meters for 1,800 employees. We have remaining space to be let of roughly 19,000 square meters. As of today, we have already visibility for close to 40%, 3,500 square meters already signed in October. So after this results cutoff, but already today at home secured and conversations for additional 5,000 square meters. This asset, just to remind you, has a yield on cost of 8% and we are signing rents at levels of EUR 27. This is well above the initial underwriting of ERV for this asset. It was around levels of EUR 23. If we go further, here we see a very important point of our recurring earnings and revenue growth is the pricing power that our prime asset class portfolio has. We have signed a release spread of 9%, strongly driven by Paris with plus 7% in Madrid plus 4%. Barcelona is slightly negative, but this is basically due to a secondary activity in the Q2. We would look isolated only at the Q3 numbers, the last 3 months, release spread has been positive of 1%. So it's a cumulative effect from previous quarters. So we are seeing there also a change in the trend. On the ERV growth, we have signed on average, 6% growth versus the December ERV. So in 9 months, 6% growth. This is beating the average indexation that we had in the portfolio in more than 300 basis points. So really our prime asset class is delivering an extra chunk of growth due to the benefit and the polarization impact of prime asset class assets, again, strongest market. Paris and Madrid, very strong and Barcelona, getting slowly but steady back to momentum. On occupancy, you can see it on the next page. Basically, we are at -- the portfolio is at a stable level of 95%. We had the entry into operation in terms of like-for-like comparison with the entry into operation of the full project of Méndez Álvaro and Haussmann. And this has put down temporarily the total occupancy at 91%. In these assets, as I told you, the 4.4% is concentrated in these assets with the contract signed already today in Madnum is 4.4% is already down to 3.2%. And if we look at the rest of the breakdown, as you see, our prime portfolio, Madrid, Barcelona and Paris, the super-prime assets have almost no vacancy, Barcelona 22@ at 1.7% and then we have a small -- very small procedural part of secondary exposure that explains 1%. Last word on sustainability. We had recently just rankings on GRESB and Sustainalytics. We are really absolutely at the high end at Sustainalytics for the third year in a row, the best company rating at total Ibex and we are the best globally across every sector among the best 22 among 14,000 companies. At the end, this is also a proxy of the high-quality assets that we have. Only if you have a high-quality asset with the best amenities, you really have an efficient energy consumption and therefore, low carbon emissions. So sustainability is a good proxy for high-quality assets in terms of features. Pere Serra: Thank You, Carlos. I think that if I had to summarize what we've heard from Carlos and from Carmina, well, first of all, this last point about ESG, I think that is an impressive leadership, the one that we have been showing regularly and again in this quarter. But if I had to summarize the presentation up to now, I will say 2 things. It's an outstanding letting volume activity, number one, which means that despite any views on the Paris market, not in our case. Then moreover, when you think about our volume in Barcelona and in Madrid, it's been impressive. In the case of Madrid, this year was the year of the test of Madnum, and we are approaching the end of the year and the homework is done with very high standards of rents. So number one, in emphasis is on volume. Number 2 is on rental growth. Again, you see these numbers on like-for-like, and we beat inflation. We beat our peers. We beat, obviously, the year before in terms of rental level. It's -- I think it's an outstanding number, the one-off rental growth. So I would summarize basically these 2 main features. And now let me enter into some thoughts about the future. On Page 22, we are reminding that our focus is on earnings growth that we've been delivering already this earnings growth at a path of a 9% CAGR in the last 3 years. And this coming from several sources from rental growth itself, from prime factory projects from capital recycling. This is the main focus of our strategy. And the conviction that I would like to share with you is that we are very well prepared to deliver additional EPS growth with double-digit IRRs in the next few years. Coming as we see on Page 23 from 4 different sources: From urban transformation projects, which have a significant impact in the EPS going forward; from the prime asset reversion that adds cash flow growth on top of previous one; from third-party capital initiatives that we started this year; and finally from capital recycling. Let me be more specific about each one of them. Page 24, driver #1, Urban Transformation. We expect EUR 100 million of rents coming up from these projects, year '25, year '28. The first column, which is the one regarding 2025, you can see that we already are delivering mainly in Madnum, which was the most relevant challenge for this year. Let me share you again that throughout 2026 to 2028, we expect additional rents that would mean that compared to 2024 EPRA EPS, EUR 0.11 would be added. That is a 33% on our EPRA EPS expected. I think that certainly, when anyone is looking at us is looking at Colonial, this has to be a headline. It's not so much about the current EPS, but what is expecting -- what we are expecting, what is waiting for us out there in the next 3 years. We have also a very good potential coming from the second driver. The reversion that we expect for a number of selected assets. If we add what we could expect from Prime Paris to what we would expect from Madrid and Barcelona, we see EUR 47 million that would come simply for the fact that we put -- signed contracts that come to maturity at today's ERVs. And so that's another source of cash flow growth. The third one is on our third-party capital initiative on science and innovation. Here, the comments that we'd like to share is that this is going on track. First of all, the seed portfolio is going through the expected milestones of occupancy and growth. We are today above 80% occupancies as expected. But on top of that, we are looking at additional pipeline and additional fundraising progress. Our assessment today would be that we have short-term visibility -- high short-term visibility to grow the assets under management from EUR 400 million to more than EUR 600 million at the same time that we have very interesting conversations for more than EUR 200 million. So in a way, this confirms a little bit the path that we were expecting for this particular track that would mean if we deliver what we expect would mean EUR 0.02 to EUR 0.03 additional of EPRA EPS in the midterm. And finally, another source of value is through active capital recycling. Maybe here, the message that I would like to share is in the first half of the year, we put the focus on the available opportunistic investment opportunities, mainly the one that we saw just a moment ago, the size and innovation portfolio. We would like to enhance and go further in the direction of capture opportunities in the European real estate cycle. But maybe at this time, what I would like to share is more the visibility and the focus that we are putting on the capital recycling in terms of disposals. We have a view that the disposals to navigate this capital recycling process with some fundamentals today could mean EUR 0.5 billion of disposals to come in the next 18 to 24 months. Maybe I would like to highlight that almost 2/3 of this would be based more on the short term with high visibility. So our view on capital recycling is that interesting opportunities may come. First half was about investment. Second half, it's more about divestment and initial of next year. And then we follow up with an opportunistic capture of activities in the market. Everything put together in terms of strategy and outlook. As I said, Colonial is focused in EPRA earnings growth, 9% CAGR in the last 3 years. We remain, by the way, with a full year guidance on track. We are a little bit more specific. We expect a range EUR 0.33, EUR 0.34 for this year. We remain on a strong business model that is generating a 5% like-for-like growth so far. And most of all, we have additional cash flow and value coming on the back of project deliveries and pricing power on the existing portfolio. This means a growth profile that can generate more than EUR 150 million of future rents through this new pipeline and reversion. And all of this focus in a strategy of relying our fantastic positioning on our core markets but together with enhanced urban transformation growth strategy with a certain example in the science and innovation field and based in the support of third-party capital. This is the message for today. We think that is a good set of results. Now we are available for any questions. Thank you. Operator: [Operator Instructions] And we shall start with the first question by Ignacio Romero from Banco Sabadell. Ignacio Romero: Thank you for the presentation. So I have a question regarding loan-to-value at 47% on an EPRA basis, you are now near the same level that you had when you announced the deal with criteria a year ago. So how do you see a loan-to-value evolving in the future? Would you expect to lower it by this capital rotation that you have just mentioned? Or do you expect asset revaluation to lower the ratio, maybe even a new capital equity capital injection. I would like to know your thoughts on that issue, please. Carmina Cirera: Okay. Carmina speaking, thanks, Ignacio, for the question. As you know, we look at the leverage in a very holistic approach, which means that different KPIs which are included in the rating. So our commitment is to maintain the rating, the investment grade. And it means solid ICR. It means that solid EBITDA, net EBITDA, it means liquidity and it means, of course, loan to value. These levels, as we said, are temporary because we are making progress on the capital recycling, but it's not a way of settle exactly a percentage of loan-to-value. It's a more, I would say, approach in the rating agency methodology. So it's true that after the capital recycling strategies and of course, still, this is based on the last price evaluation, which was in June and in the end it will be updated, we believe that the levels would remain as they were in the previous year. But as I repeat, after the capital recycling, we believe that these levels, this is why the rating agencies has keep and maintain the rating. Operator: Next question comes from Valerie Jacob from Bernstein SG. Valerie Jacob Guezi: I've got a couple of questions. The first one is -- maybe a follow-up on the question that's been asked on the LTV. I mean, you mentioned that you've got EUR 0.11 coming from the projects. Can you remind us how much you need to spend to deliver this EUR 0.11 and how is it going to be funded? Or what is the impact going to be on your LTV? That's my first question. And my second question is just looking at your earnings. I think in H1, it was EUR 0.17, and it's EUR 0.25 for 9 months. So there is a slowdown in your earnings growth. And I was wondering if there is any reason for that? And what does that mean for the guidance? Because I think at H1, you said you are likely to be towards the top of the guidance. So are you still there? Or are we more sort of in the middle or lower part of the guidance now? Carmina Cirera: Okay. So on the CapEx related to this 200,000 square meters in Page 24, you know you can see the details of the pending CapEx attached to this project pipeline, which would add this EUR 0.11 per share. So this is funded through disposals and through maintaining as well the ratings and the levels of the metrics for the rating that we have in place in the investment-grade BBB+ by S&P and Baa1 by Moody's. So considering that the valuation on the pipeline will -- it's not factor for value today. So it will be factor the full value after completion. And so when you consider this IRR expecting for this CapEx plus the pending CapEx plus the capital recycling, this is the reason why, as I said before, the rating agencies, maintaining with a stable outlook our rating and -- our credit metrics and our rating. Pere Serra: On the second part of your question, look, I think that we are more or less in line on what we -- with the vision we delivered throughout the year. We started with a wider spread because of the logical uncertainty on a business that just -- sometimes just for timing issues, you can go a little bit after or a little bit ahead of what you would expect. Where we see the earnings today, it's more focused on the 33%, 34% range. maybe still more biased towards the high end at the lower end, but this is too precise, not for us to give visibility at this moment. That's the number we can share today. Valerie Jacob Guezi: Okay. And is there any reason why it was lower in Q3? Pere Serra: That's just timing issues. I mean there are -- in the end, you don't have a stable perimeter throughout the year and we cannot be mathematically equivalent in all quarters. So just normal timing issues on the ordinary course of business, nothing exceptional happening. Valerie Jacob Guezi: Okay. May I ask a last question. Looking at the supply coming in Paris, if I look at what the brokers are expecting, they're expecting the vacancy rate in Central Paris to go up. And I was just wondering, what is your view on what effect it's going to have on rent? Do you think that prime rents can continue to grow in Central Paris? Or do you think that will put a halt to the growth? Pere Serra: Yes. Good question. No, we insist on the increasing polarization in the market. We are happy to be in a particular segment where there's so limited supply that is not enhanced with additional assets that come to the market that in our market, the fundamentals of supply and demand remain the same. We understand that the rest of Paris maybe more cyclical subject to a specific situation of each year in terms of supply and demand, but this is not affecting us and I think that the results that we are presenting today try to support this view. It's this vision that you're saying about the market is something it's been around for a while and look at our numbers. So we believe that no relevant difference should be happening in the markets that we are relying on. Operator: Next question comes from Ana Escalante from Morgan Stanley. Ana Taborga: I have two questions, please. The first one is on occupancy. I understand that this might be as, Pere, you said some temporary thing, but looking to your previous reporting and even going back to 2015, I think this is the quarter with the highest occupancy rate you've ever reported. Discounts at the time when the indexation impact is slowing down, particularly in France. So looking into 2026, are you expecting to sustain this strong like-for-like rental growth? Or how are you expecting both the lower impacts on indexation and the temporary albeit maybe significant occupancy decline to impact the like-for-like in 2026? Carlos Krohmer: Look, obviously, there is a general theme of indexation that is a general playing field for everybody, and it is what it is, and it's basically factual and then the contracts that go through indexation have the indexation level that is done in the market. However, having said this, and I think these results show very clearly, we've signed super strong retail contracts at super high levels, office contract at super high levels, progressing very well, a lot of square meters and moreover, economic value. And tying this to what Pere said, when you look today, the Grade A availability in Paris is below 1%, is 0.9%. So the segment where we are, that is really no product available. And for this type of segment, at least what we are seeing in our daily operations, the take-up is healthy, and we are signing with very strong release spread and very strong rental growth. And this is a very high component in our like-for-like growth. We have more than -- close to 500 basis points of extra chunk of growth in the portfolio that have been signed now and that are not part of the profit and loss accounts today because things that we signed today will flow into future quarter's profit. So we have part of the future like-for-like for the Paris site secured. Paris is strong, and Madrid is having quite significant acceleration and also in CPI, a little bit higher than expected as you know. So we think we can -- nobody knows the future, but we have the feeling that we can maintain these strong levels of like-for-like growth. And we have then also some occupancy spare capacity to be filled that also creates additional like-for-like. So we are positive. We don't know the future, but we are positive. We think our product really can achieve and maintain these levels. Ana Taborga: Okay. Very, very helpful. And then another question maybe on disposals and any other assets that you expect that will go under refurbishment in the next year? How dilutive you think that could be into EPS? Because when I look at consensus, we are anticipating, as you guided strong EPS growth in '26 and '27. But how dilutive these disposals are expected to be into that guidance? And to what extent that strong EPS CAGR for the next years is something that we will start to see maybe a bit later than we are expecting? Carmina Cirera: Ana, I think -- thank you, but you need as well to consider the future pipeline that will come into operation in the following year. So the 87,000 square meters from Madnum, Diagonal 197 and Haussmann that has been delivered this year. will be impacted, of course, in the due course after resell letting activity during 2026 and 2027. And then the scope, which is going to be delivered next year at 20,000, 22,000 square meters, again, will be impacting partially 2026 and 2027. So all in, it's what you can see the potential disposals, which we are disposing and valuation yields will be compensated. And of course, with the P&L with a positive impact on the -- coming from the program, the pipeline program that the yield on cost is much higher. This is the beauty of our business, this trade-off on yields and maintaining and keeping the EPS growth. Carlos Krohmer: Maybe just a last comment. We do not expect any major projects coming up in our portfolio. Everything that we had to reposition and that has really a value creation perspective is what we have today on the page where we show that EUR 100 million of rents on Page 24. And the rest of the portfolio is basically a stabilized portfolio. Here and there, sometimes a little bit of floor to be repositioned, but nothing really big. I understand your question because many people have asked me this also in one-on-ones because there are some other people in the market that have quite relevant things coming up. We have nothing. We have just to deliver what we have. This is EUR 100 million, and the other is business as usual, managing the stabilized [indiscernible]. Operator: Next question, Michael Finn from Green Street. Michael Finn: My first question, if I may, is on Slide 27. And I'm just curious if you could tell me, please, a bit more about the right-hand side of the slide. In terms of what you actually plan to do to capture the recoveries? Do you plan, for example, to stay in the same cities? Or are you looking at other cities? And if so, where? And then also maybe kind of connected to that also, I'm curious on the EUR 0.5 billion that you plan to sell, how do you balance the other uses of that cash in terms of the current debt level that you have in other things. So that's my first question. Pere Serra: Yes, Michael, it's -- I think that we -- what we are trying to do with this particular slide is to be a little bit illustrative, but it's -- maybe it's difficult not to pass the message in a very strict way. My view. My view is, look, on the disposals side, we know that we want to do this level of disposal because we know the kind of assets that we're talking about that we know how dry they may be and the opportunities that may be out there. So this is -- there's a level of certainty attached to that. At the other side, we have knowledge that the market is offering opportunities because the supply and demand of money is a little bit disrupted everywhere, but particularly in France or in Germany, not so much in Spain. And you don't see many people capable of coming not only with money, but with know-how to be involved in opportunistic investment opportunities that may come with very interesting IRRs associated to this. On top of that, we believe that not only the alpha, but the beta in certain markets may help. So what we're just trying to say is that our goal as a listed company is to recycle capital to divest to keep the KPIs on the -- at the balance sheet level strong. And then to invest, but this it will be based more opportunistically on the back of the beta opportunities that the market may give us plus the alpha that we see. That was -- that is what we're trying to illustrate here that we believe that is an interesting moment of the market if you are investing on a 5-year horizon. But that's what we just wanted to illustrate with this kind of chart. Michael Finn: Okay. Yes. And then maybe just in terms of the type of assets that you plan to buy. Do you think you would prefer to buy an asset that needs quite a lot of work or a standing asset that would yield from the first day? Pere Serra: Yes. The ones we like the most is the ones that with a little bit of creativity, you extract extra rents with very limited or nonexisting CapEx. In other words, we do not see ourselves investing in heavy CapEx in pipeline of things that have to be developed from the spread, totally refurbished. I think that the opportunity cost of capital is not exciting. On the other hand, when you are more kind of a professional player and you go out there, you see sometimes assets that you believe that just with a little bit of creativity with your goodwill in the know-how that you have with your clients, you could improve. You simply -- you see something that has rent of EUR 30 and you see with a little bit of ideas, I would put this on EUR 35. So it's more this kind of real estate expertise oriented investment, the one that we would favor, of course, leveraging a little bit on the fact that there's not a lot of, let's say, plain Manila money out there in the market. That would be more our focus in terms of investment. Michael Finn: Okay. Okay. Yes. And then a final question, if I may, on scope. I'm just curious over the course of the year, if your view on the effective rent there has changed. So that's the rent after all the rent freeze that you'll have to give to the tenant. I'm just curious if that has changed. Pere Serra: Yes. No, I think it's early stages. Yes, I understand it's -- in the same way that Madnum for us was the great adventure and challenge for this year, and we are super happy about the outcome. We see this more '26 kind of focused. And yes, I'm also curious about the answer as you. I totally share. But too much early stages, we don't have visibility. We remain with the same kind of underwriting note that we had on this asset by now. Michael Finn: Interesting, yes. Yes. And then sorry, maybe just to clarify on that, do you think at the moment, rent about EUR 720 and incentives probably in the high teens. Would you say that's fair in the current market? Pere Serra: We did not follow you completely, the quality of the sound -- can you repeat, please, Michael? Michael Finn: Yes, yes, sure. I just said, is it fair that the rent at the moment will be about EUR 720 and incentives would be in the probably upper teens. Is that fair in the current market? Pere Serra: I don't have enough visibility to provide with an answer. That doesn't sound illogical to me what you're saying, but I wouldn't like to come now with a specific assessment that I cannot provide right now. Operator: Next question, Celine Huynh from Barclays. Celine Huynh: My first question is on the guidance, please. Like Valerie, we also noticed a slowdown in earnings growth in Q3. So can you elaborate what led you to narrow that guidance? Because initially, you were guiding to the upper end on the previous call. And then my second question is on the disposal you've just announced. You're sounding quite confident to achieve those EUR 500 million. Can you tell us in which country you're planning to sell? What kind of assets? Is that offices, residential and what kind of yield. And my third question is on the opportunity you're seeing currently in the market. We've heard you mention Brussels, Germany, Italy before. Is that still the case? Are these still markets that you're looking at for acquisitions? Pere Serra: Yes. On the EPS, I think it's just as the year goes by and we are approaching the final end, we can be more precise. And in narrowing this from [indiscernible], what we see is just that we can be more precise. And we don't see anything similar to a slowdown in -- you've seen all of the KPIs. So if anything, some timing issues in certain specific things, but nothing specifically in terms of a slowdown. In terms of the disposals. Yes, normally, if we say high visibility is because we are working on specific assets with specific bidders. We always take some risk in saying this because high visibility means that you cannot announce certain transaction but you have good grounds. And you know in this sector that you cannot say that something is done till is done. But basically, as I said, in 2/3 out of what I said, maybe between half and 2/3. There are specific names of assets and names of bidders will give us that kind of confidence in delivering this. I cannot provide more visibility, maybe except that we are maybe taking advantage of the interest that the residential sector is having us showing in Spain. So one of the components of this may be residential. Besides this, I would not exclude anything. Spain, France, any kind of assets, but we cannot be more specific as of today based on where we are. And I think you said third thing or -- yes, opportunities. No, what we always say is that the main point -- main focus about our approach is to be opportunistic. And we don't work in a way of, let's say, preempting or having views about where we want to be or where we don't want to be to a level that we would be so specific, and we will be here, we'll not be there. We see opportunities a little bit everywhere. We see opportunities in France. We are looking at other countries, maybe Germany is the one with higher visibility as of today. But we cannot be more specific than this as of today because, as I said before, short-term focus, it's mainly on the capital recycling on the divestment side more than on the acquisition side. Celine Huynh: Okay. Can I ask you one last question, please? Pere Serra: Sure. Celine Huynh: I mean, you've heard a lot of the questions on the call being about LTV too high. You're saying that you've got EUR 500 million of disposals very likely to come through. So why is deleveraging not an option for you? Pere Serra: Why, sorry? Celine Huynh: Deleveraging, reducing your debt? Pere Serra: No. I think that we have been, let's say, confident traditionally that the level of our debt is a good one and based on several grounds. One is the kind of support we have been having on the debt markets. You've seen how we have placed the bonds in the past. You can see how the bonds are trading. You can see the level of support of rating agencies. So we've been traditionally confident on the level of debt that we've had. We are also committed to keep this and that means that if there is a temporary increase in LTV, we take the necessary measures to keep it in the safe zone on the zone where we want it to be. And -- so as of today, we see this more as a time issues, you cannot choose to invest and divest precisely everything at the same time, all of the time. So sometimes when you see that you've been able to divest and then you put focus in the investing, sometimes it's the opposite like now, and that's where we are. But coming back to the original point, if we are strong regarding debt markets, then the other question is what's the concern on the equity side, that the LTV, the concern can be because you think that you have a risk insolvency, let me put it this way. And I think that would be far away of anyone's concern. The other thing is from the point of view of providing the nicest returns to shareholders. Are you -- there is a common sense that is really ground to think that deleveraging you are working for your shareholders. While at the same time, you don't need to work for debt market based on the kind of support they are showing. What I want to say with all of this is that we are confident with our level of debt. We are also engaged in rebalancing the situation to remain strong. And we are confident in the fact that we will remain in this strong level as we have been in the past. Operator: Next question comes from Jonathan Kownator from Goldman Sachs. Jonathan Kownator: Two questions on my end, please. The first question, I wanted to come back to the topic again, I'm not entirely clear still. So the disposals that you're introducing now, is it the aim of disposing to reinvest the same volume? Or is it new disposals? And what is the impact you expect positive or negative, obviously, on the sort of EPS trajectory that you had announced earlier. So that's the first question, please. And the second question was on the science and innovation portfolio. You're now highlighting 80% occupancy. So can you help us understand a bit how this portfolio is going? Do you have more assets to be delivered? Or is that the full portfolio and then you just have to fill these? What are the prospects from tenants? I mean it's a space where we have seen some -- in some areas in respect, better lettings from the innovation space that the science area has been perhaps a bit tougher at European level. So if you can help us understand this, that would be great. Pere Serra: Yes. Thanks, Jonathan. On the first question, we are, let's say, certain about the goal on disposals because we want to have the deleveraging FX coming from this on the second half of the year after the leveraging company on the first half. We don't have the same degree of being specific regarding acquisitions. This is more opportunity-driven. When an opportunity comes, we balance everything. One is the return coming from the investment. The other is the risk -- the risk associated to this including spillover kind of effects on our balance sheet. So we have a much more restrictive view. So I understand that this is not an answer that is yes or no, what are we doing with the money? And do we want to spend it all of them? Do we want to spend nothing on them? There's no specific answer for this. What we are focusing is high priority on the divestment side and then being very opportunistic on the investment side. On the second question on seed, Carmina, you want to step in? Carmina Cirera: Yes. On the seed, it's -- today, we have 80% occupancy, but we have a small refurbishment that has been already pre-let. The kind -- Jonathan, the kind of tenants we have here, as you know, there are some kind of buyer as one of the big ones. We have as well innovation divisions from certain hospitals, innovation divisions from certain pharma companies. And the [indiscernible] world of today, it's almost 9 years, but we are recycling some tenants in a more, I would say, corporate tenants with more long-term contracts. So the expected stabilized yields are in the range of 6.5% stabilized. As of today, we are now in this recycling tenants, enhancing brands, increasing maturities and the profile of these 2 big campus are the ones that are more very exposed in the innovation and life science fields attached to the big pharma names. Jonathan Kownator: Okay. Very clear. So if I can just, sorry, resummarize the first question. So if I understand correctly, the EUR 500 million of disposals is now incremental to what you had previously said in terms of earnings growth trajectory. And obviously, your aim at some point is potentially to compensate for that, but there's a bit less visibility and it's more the capacity to remain flexible. Is that a fair summary? Pere Serra: Yes. I think that, yes, in a way, there's more certainty attached to divestments, there's more opportunistic approach to future investments, which means that any scenario is likely to happen, but the probability is more with the profile that you just mentioned. Operator: Now there are no further questions. I then give back the floor to Mr. Pere Vinolas. Pere Serra: Well, thank you. It's been a very interesting session, not only because of the results that we shared that I think that were very interesting, as I said, also because of your interest, support and interesting questions. Thank you very much for your time and looking forward to seeing you soon again. Thank you, and have a good day. Thank you. Bye-bye.
Operator: Good morning. Thank you for waiting. Welcome to the earnings release call of Ultrapar to present the results referring to the Third Quarter '25. Our presentation will be conducted by Mr. Rodrigo Pizzinatto, CEO of Ultrapar; and by Alexandre Palhares, CFO of Ultrapar. The Q&A session that will follow will also have Mr. Leonardo Linden, CEO of Ipiranga; Mr. Tabajara Bertelli, CEO of Ultragaz; and Mr. Fulvius Tomelin, CEO of Ultracargo. This call is being recorded and will be accessed later through the website, ri.ultra.com.br. After the initial presentation, we are going to start the Q&A session where further instructions will be provided. I would also like to tell you that the conference is being conducted in Portuguese and there is an option for simultaneous translation by clicking interpretation. For those listening to the earnings release call in English, there is the option of muting original volume. The presentation will be shown in Portuguese and there is a version in English to be downloaded through the company's website and through the chat. Before proceeding, we would like to mention that forward-looking statements made during this call refer to business perspective of Ultrapar. Forecast and operating and financial goals are based on beliefs and assumptions of the company management and on information currently available. Forward-looking statements are no guarantee of performance. They involve risks and uncertainties because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors can also cause results to differ materially from those expressed in such forward-looking statements. I would like now to hand the conference over to Mr. Rodrigo Pizzinatto, who will start with the presentation. Mr. Pizzinatto, you have the floor. Rodrigo de Almeida Pizzinatto: During this quarter, we recognized BRL 238 million in extraordinary tax credits at Ipiranga, resulting from the remaining portion of historical ICMS tax credits included in the PIS/COFINS calculation basis. Furthermore, we made significant progress in the fight against illegal practices in the fuel sector. We have been following with optimism that work carried out by the authorities in recent months, especially the Carbono Oculto Operation at the end of August. It represents a historic milestone in this fight, reinforcing the need for stricter legislation to fight crime and the legalities in the sector. We continue to support authorities and regulatory bodies in fighting crime, strengthening market integrity and ensuring fair competition. Another highlight of the quarter was the rapid reduction in leverage. After assuming control of Hidrovias and starting to consolidate its results in the second quarter, leverage stood at 1.9x. With the strong cash generation in this quarter and Ultrapar's EBITDA growth, we reduced leverage to 1.7x even after paying BRL 326 million in dividends in August. We also continue to advance our growth and strategic positioning agenda. In October, we completed the expansion of the Ultracargo terminal in Santos, adding 34,000 cubic meters of storage capacity. On November 1, we completed the sale of Hidrovias Cabotage operation for BRL 750 million (sic) [ BRL 715 million ] which will enable Hidrovias to focus on more synergistic and complementary businesses while strengthening its financial position. We announced the signing of an agreement to acquire a 37.5% stake in Virtu which operates in the LNG logistics for BRL 102 million. This transaction is aligned with our strategy to invest in sectors where Ultrapar can contribute to value creation with high growth and profitability potential. We also received CADE's approval for the LPG terminal in Pecém for Ultragaz in partnership with Supergasbrás. This project reinforces our commitment to safety and efficiency in LPG supply in the Northeast and North regions of Brazil. Finally, for those who were unable to attend Ultra Day 2025 held in September for the first time at Ultrapar's headquarters, please note that the presentation is available on our Investor Relations website. I will now turn the call over to our CFO, who will walk you through the quarterly results. Thank you. Alexandre Palhares: Thank you, Rodrigo. Good morning, everyone. Before starting, I would like to remind you of the reporting criteria and standards used in this presentation. Now let's move on to the results. Ultrapar's adjusted EBITDA was BRL 1.9 billion, including the recognition of BRL 185 million in extraordinary tax credits at Ipiranga representing a 27% increase year-over-year. Recurring adjusted EBITDA totaled BRL 1.8 billion, an 18% increase compared to the third quarter of last year driven by Hidrovia's record performance. Ultragaz also reported higher EBITDA, which together with Hidrovias, partially offset the lower results from Ipiranga and Ultracargo. Net income for the quarter reached BRL 772 million, an 11% increase year-over-year, mainly driven by the higher operating results and the recognition of tax credits already mentioned which were offset by higher financial expenses and higher depreciation and amortization, mainly due to the consolidation of Hidrovias. CapEx totaled BRL 756 million, 46% higher compared to the same period last year, highlighting the consolidation of investments in Hidrovias and increased investments in Ipiranga, especially for the expansion and maintenance of the service station and franchise network, in addition to investments in the evolution of the technological platform with the replacement of the ERP system. Operating cash generation was BRL 2.1 billion, almost 3x the cash generated in the same period last year, even with BRL 258 million for the settlement of the draft discount. This reflects a better operating result, the consolidation of Hidrovias and lower working capital investment at Ipiranga and Ultragaz. And now moving to the next slide. We ended the quarter with BRL 12 billion in net debt and a leverage of 1.7x compared to 1.9x last quarter. This improvement reflects the strong cash generation during the period, which more than offset the payment of BRL 326 million in dividends in August in addition to the impact of BRL 258 million from the settlement of the draft discount, as I mentioned earlier. Now moving to Ipiranga's results. The volumes sold in the third quarter was 1% higher compared to last year due to the increase in the Otto cycle, mainly in gasoline. It is worth noting that we observed the market recovery following the Carbono Oculto Operation, which has been tackling regular companies in this sector with an acceleration in sales volume in September. We ended the period with 5,812 substations. We added 70 new substations and closed 84 to our network throughout the quarter. Ipiranga's EBITDA totaled BRL 1.85 billion, 12% higher than the same period last year, reflecting the recognition of extraordinary tax credits of BRL 185 million. Recurring EBITDA totaled BRL 892 million in the quarter, a 5% lower compared to the third quarter of 2024. This result reflects a more challenging scenario given the irregularities in the sector, mainly due to the high level of naphtha imports for irregular sale as gasoline and inventory gains in the third quarter of 2024. These effects were partially offset by higher sales volume and lower expenses during the period with lower allowance for expected credit losses, marketing and personnel expenses due to a smaller head count. As a highlight, we also had cash generation zreaching BRL 1.453 billion, more than twice the BRL 723 million in the third quarter of 2024. This performance reflects working capital management, strengthening value creation for Ipiranga. For the fourth quarter, we expect a continued market recovery with volume growth and profitability similar to that observed in the third quarter. Now moving to Ultragaz. The volume of LPG sold in the third quarter was 6% lower than the same period in 2024, with a 3% decrease in the bottled segment and an 11% decrease in the bulk segment, reflecting the competitive dynamics of the market, which continued to be impacted by the pass-through of increased cost of Petrobras auctions. Furthermore, we are seeing signs of an economic slowdown with lower demand in the volumes sold to industries. Recurring adjusted EBITDA totaled BRL 463 million, a 3% increase compared to the same period in 2024, mainly due to pass-through of inflation and the positive contribution from new energies despite lower LPG sales volumes. The fourth quarter is seasonally weaker. We see a gradual recovery in volume and bulk segment is below last year's levels. We also expect EBITDA to be higher than that observed in the third quarter. Now moving to Ultracargo. The average installed capacity reached 1,097,000 cubic meters in the quarter, a 3% year-over-year increase, resulting from the addition of 23,000 cubic meters of capacity in Palmeirante and 7,000 cubic meters in Rondonópolis. The cubic meters sold was 12% lower year-over-year, totaling 3,845,000 cubic meters. This decrease reflects the lower demand from our customers for tanking services related to fuel imports, which resulted in lower handling in Santos, Itaqui and Suape. This impact is partially offset by the higher volume of handling in Opla. As a result, net revenue totaled BRL 243 million in the quarter, a 9% decrease compared to the same period last year, reflecting the lower volume even with better tariffs. Ultracargo's adjusted EBITDA totaled BRL 134 million, 20% below the third quarter of 2024, impacted by lower volumes and higher preoperational and initial costs at Palmeirante, which is still in its ramp-up phase, partially offset by better tariffs. For the fourth quarter, we see a recovery in demand from our customers and the effects of the expansion. As a result, we expect a recovery in EBITDA compared to the third quarter. Finally, going Hidrovias. The volume handled in the quarter grew by 30% when compared to the same period last year, driven by the normalization of navigation in the South corridor, which allowed higher handling of iron ore. Adjusted EBITDA reached BRL 332 million compared to BRL 169 million in the same period last year. Recurring EBITDA reached BRL 361 million, more than twice the BRL 169 million recorded in the third quarter of 2024. This record performance mainly reflects better navigation conditions in the South corridor, as I mentioned earlier, and a better sales mix. On November 4, the Cabotage sale was completed, which will affect the results of the fourth quarter and reduce the company's debt. It is important to note that there is also the seasonality of the fourth quarter, which significantly affects navigability in the corridors. We expect an EBITDA similar to the fourth quarter of 2022. With that, I conclude my presentation. Thank you all for the participation. Let's move to the Q&A session. To contribute to the dynamics of this moment, I reinforce that questions related to Hidrovias will be answered from the perspective of the controlling shareholders. Other operational details should be directed to the Hidrovia's IR team. Operator: [Operator Instructions] The first question comes from Gabriel Barra with Citi. Gabriel Coelho Barra: I have 2 questions. First, let me focus on Ipiranga and all the changes you've mentioned during the data presentation. We've seen a sequence improvement and when we talk with the industry at large, there is an expectation of sequential improvement for the upcoming quarters in terms of volume margin and fighting illegality. I'd like to hear about the end of the quarter and the trend for the fourth quarter, the new events that were observed probably they can be translated into better volumes, better margins. And I'd like to hear about the company's strategy. Would it be to recover the lost market share to the informal market? Or would you thinking about optimizing your margins? What is your strategy? Maybe Linden can help us out. Now looking from a broader perspective at Ultra, you've been making some investments in terms of capital allocation, which is a very important point considering Ultra as a vehicle of investments. So what are the next steps? You still have got a lot to deliver in Hidrovias, of course. But the company has already made all the incorporation of investments and all that. So what is the strategy for the future? Where would you consider future investments, exactly when, what would be the timing? Would you think about greenfield, brownfield, something that would bring results in the short term? So these are my 2 questions. Leonardo Linden: Good morning, Gabriel, Linden speaking. The first question is -- would be probably asked by others, so I'm going to answer it broadly. First, hidden carbon operation, Carbono Oculto has been a very positive movement to our industry. It has contributed to Brazil, to consumers, for those that make investments in the area. But we have to be aware of the fact that it's not over. Investigations have to move on. And we have 2 important projects, one of them of bad debt provision and the other one of the one single phase investment. And these are projects that really have to move on and become law. Similarly to hidden carbon there are 2 points, volume and margin. The volume is coming stronger, and you can see that there is an increasing trend. The end of the quarter was better. The first initiative of hidden occult operational was on the second half of August. And since then, we've been recovering volume. Not only volume really, but we can see selling our gasoline with additives being sold more with an increased share of it in the mix, meaning that consumers are aware of quality, positive news from volume. It's important to regain scale because of lost scale throughout months and months due to the irregularities of the industry. Margin is important, but it's not the only indicator. And the margin in terms of volume has been showing slower recovery, especially in B2B and highways, which is expected because these are markets exposed to problems that still persist, such as non mixing biodiesel. And they tend to be more resistant to changes in prices, at gas station levels, large consumer contracts have parameters. So it takes longer to have adjustments. That's all predictable, and we are okay with that. We have to keep on fighting illegality. We cannot simply assume that everything is solved. No, we have to keep on hitting the regular market because there is still a lot to be done, even though we have already observed significant improvement. For Ipiranga, it's important to recover scale. It's been a number of years with loss of volume due to irregular market, and we want the volume to be back, of course. Thirdly, margin is a consequence of the reaction of the market and how we work internally. We should stick to what we've always done, focusing on internal efficiencies, better processes and those who have been following our results know how much we emphasize that, especially in logistics and smaller operational expenses. Something that we've been working on, reducing and also emphasized by Palhares presentation. So very positive landscape, I have to say. We had been waiting for this action for a long time. But of course, it's not over, the problem is not over. Volumes are picking up, especially in Rio and Sao Paulo, where there was most of the irregular activities and margins are going to naturally be recovered, but of course, depending on market reactions as well. But of course, we are also endeavoring all our internal efforts. Rodrigo de Almeida Pizzinatto: Barra, Rodrigo speaking. Thank you very much for the questions. Capital allocation, our next steps, right? In general lines, we are going to try to look up for companies and projects that have similar characteristics to what we found in Hidrovias. In other words, a good potential to create value that depends on us. So what we can do with a company with an asset, unlocking growth, optimizing operations and assets. But if we don't come across good projects, that's okay, we just increased dividend sharing. We have these 2 options, either we come across good projects or we increase dividend sharing. That's it. Operator: Our next question comes from Gustavo Sadka with Bradesco BBI. Gustavo Sadka: My first question concerns cash generation, which was strong in the quarter, and we've seen deleveraging. Now considering the new taxation of dividends, and the profit reserve you have in your balance sheet, should we expect more dividends to be distributed this year? Second question about capital allocation. As the company has been showing interest and have had exposure to the Agro business, do you think about by a stake at Rumo because the partial investments of that can be offered in the market. Rodrigo de Almeida Pizzinatto: Good morning Gustavo. About cash generation, you're right, it was a very strong quarter. The second half of the year tends to be stronger and probably that's going to be repeated in the fourth quarter. It is following the constant discussion of legislation changes and the taxes on dividends. And yes, this is a possibility, anticipating dividends in the fourth quarter. Concerning capital allocation, I'll just repeat what I've just said. We are always looking for good projects where we can create value, unlocking growth and optimizing operations. If we find these assets, we are going to do that. If not, we increase dividend distribution. That's it. Operator: The next question comes from Bruno Montanari with Morgan Stanley. Bruno Montanari: Quick follow-up with Ipiranga. Could you please quantify in a ballpark figure of inventory variation so that we get an ideal about normalized margins. And could you please tell us more about CapEx, especially in the third quarter, CapEx tends to be high in the fourth quarter. You've anticipated somewhat in the third quarter. So I'd like to know what we can expect for the fourth quarter at Ipiranga? Second question about cash flow. It's been a year of a number of adjustments in working capital because of the draft discount. But in working capital, the level we've seen in the third quarter. Is it sustainable? Or is there still more to be done to unlock somewhat more capital to the company. Rodrigo de Almeida Pizzinatto: Good morning Bruno. Thank you for the question. About inventory levels, we don't talk about the levels of losses or gains because it's a result of our supplies policies. But I also remind you that there was a price oscillation in the third quarter of '24 and not '25. So the variation is more due to the fact that there was a change in '24. Concerning CapEx, in the year, the CapEx would be below what we had announced, probably 10% less than what was announced in our plan for 2025. Alexandre Palhares: Palhares speaking. Concerning working capital, this is a very relevant topic to all our businesses. There are some efficiencies which are captured and they are onetime possibilities included in the ordinary working capital of the company and some of them which result from market dynamics. These are the ones that we can repeat and maintain throughout upcoming periods. Operator: The next question comes from Rodrigo Almeida with Santander. Rodrigo Reis de Almeida: Good morning, Ultra's team. I'd like to talk about Ultragaz. Recently, there were new reference prices published. I would like to understand the net effect of this discussion, a lower reference price, some potential of gaining additional volume. Maybe you can tell us more and help us understand what is the net changes you expect in terms of volume and price? Can you also please tell us more about the compliance of -- with resellers because in the end of the day, prices change at the level of the resellers, right? Tabajara Bertelli: Hello, Rodrigo, Tabajara speaking on behalf of Ultragaz. Thank you for the question. The focus of Gás do Povo, Gas to People, it's a program of the government. I think it's the right program to direct the benefit to the population that really needs it, really fighting against the so-called energy poverty, things which are going into effect in a few weeks, starting in some cities and then being scaled up, but something very positive. We've been supporting the program. The model is direct payment to resellers. We are exactly at the level you talked about communicating the project and trying to get more and more compliance. If the resellers have some questions, we answer them. The government has been presenting data. The last one, there were over 3,000 resellers already on board, showing more and more companies join and it will be maintained until the first to second quarter next year. It takes time. It takes some learnings, but it's following the initial design that was imagined. And we see it very positively as a social benefit of addressing a very important issue to our country. And we believe prices and volumes are going to gradually increase. If the reseller is compliant with the program, they are committed with all the elements of the program and it's a product that is going to be picked up. It's pick and collect, not delivery not delivered at homes. Each reseller is considering how to operate, how the program works and how well it fits their operations. It's been doing and believe it's going to be maintained. In a nutshell, we still see the program with the same perspective. This is just step one of implementation. There are more things to come, certainly. Operator: The next question comes from Gustavo Cunha with BTG Pactual. Gustavo Cunha: My question is about Ultragaz as well. Trying to understand about the change in LPG. Ministry of Mining and Energy called an extraordinary meeting to talk about this issue. And I'd like to see your perspective on this topic and what do you expect in terms of time line? Tabajara Bertelli: Thank you for the question, Gustavo. There is still an ongoing process. You are calling it the reform or the regulatory review of LPG. In the beginning of the year, there were some initial inputs shared with the government. The national agency will probably launch a new review in upcoming months. And in the current schedule, it is expected to be completed in the first half of 2026. So there is still a lot to happen. Different players are getting on board, they're discussing. I think it's following the expected path. We are highly convinced of what is the best for society. It's a model of a high level of safety, well balanced, and that's what has been in place. But that's still an open-ended process inputs are being made, and there are still a number of steps until the final decision regardless of what it is to really change the regulations. Operator: Next question comes from Regis Cardoso with XP. Regis Cardoso: Good morning. Thanks all of you for your availability. In Ipiranga, I understood that you expect a similar level of profitability in the fourth quarter. Can you tell us about one-off effects, especially inventory levels, also the draft discounts of the margin, competitive improvement that we've observed in October. So reconciling really the development of the fourth and the -- third and fourth quarter. And finally, in Ipiranga, could you please tell us about the offenders that you still see to margins. Maybe you can make comments about direct sales to refining entities? And what about CBOIS? How do you see it? And how has it contributed to the operation? Leonardo Linden: Concerning the fourth quarter, the guidance is clear. And once again, it's market dynamics. This is what we've been observing happening in the market. As I pointed out, there is volume impacting the fourth quarter and margin picking up slowly. I don't think I have much to add. In terms of offenders, part of the offenders are still irregular activities that we observed throughout the market and have been covered by the hidden occult operation, Biodiesel, CBOIS, certainly still a problem. But once again, the perspective is better now. We know there's still a lot to be done. And I emphasize once again about bad debt provision and single-phase taxation, which are both essential to address the root of the problem. But we are doing our work as best as we can, fighting irregularities together with the market. But that's it. No big news there. Regis Cardoso: Let me see if I got that straight. There hasn't been any relevant losses of inventory levels, right? Leonardo Linden: Yes. Right. None. Operator: Our Q&A session is completed. Now I would like now to hand it over to Alexandre Palhares for his closing remarks. Alexandre Palhares: I would like to thank you once again for your interest and participation. Our Investor Relations team is here to answer any questions that we might not have answered. Thank you very much. See you next time. Operator: Well, the earnings release call of Ultra is finished now. Thank you very much for your participation. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Rajeev Sethi: Sure. Thank you, Christopher, and good afternoon, everyone. And thank you all of you for joining in today. Today is an important day. It's the first full quarter of XLSMART's journey. Just to remind you, our merger happened 15th of April -- 16th of April. So the last quarter was 2.5 months of combined operations. This time, it's the first full quarter, and the numbers which we are reporting are a result of that. And I'm pleased to share that the momentum continues to build across our businesses. We've delivered a strong performance. Revenue -- reported revenue is up 38% year-on-year, 9% quarter-on-quarter, underpinned by very strong subscriber quality, improving ARPU and good progress which we are making on the integration. Network integration specifically is progressing well. As you would know, national roaming for Smartfren customers was completed in record time. The MOCN rollout continues to expand, improving both coverage and quality for all our customers. Financially, we are seeing a very healthy growth, underlying growth. Normalized EBITDA and PAT reflect the strength of our core businesses, though the reported results still include temporary one-offs, which are normal for a merger, and they are related to integration and asset optimization. Synergies are taking shape. We'll speak a bit more about that in the next few slides. And we are accelerating value creation across operations, procurement and infrastructure. These initiatives are moving us steadily towards our ambition to become the industry's most efficient and agile service provider. Overall, I believe this quarter demonstrates resilience and strong execution as XLSMART continues to unlock long-term value from the merger. If I move to the next slide, post-merger, our integration engine is running at full speed. One example of that is our Customer Experience and Service Operations Center, CESOC, which was launched in July, a major milestone that allows us to centralize network monitoring, service quality and field operations across all the 3 brands we have. On the network side, we've started and progressed significantly towards consolidating overlapping sites, streamlining our vendor ecosystem and optimizing the tower utilization. All these efforts are resulting in tangible cost savings. I'm happy to report that we are on track to deliver between $150 million to $200 million synergies for this financial year 2025, largely coming from operational efficiencies and vendor rationalization. Full benefits, what we spoke about earlier, $300 million to $400 million run rate pretax. That will come from -- after the integration is complete, but good, solid start towards that direction. Obviously, the next in pipeline would be the IT system unification, which again would be a significant value generator, office integration and expanding our partnerships on the roaming side. And we'll also further align the organization to operate as one unified XLSMART. If I move to the next slide, please, which is talking about the customer experience. As we said earlier, customers and employees will remain at the forefront of whatever we do. Both quality and coverage of our network would be super important in this regard. And through MOCN integration, all 3 brand users, XL, AXIS and Smartfren, are experiencing much better download speed. They have gone up by as much as 70%. And the population coverage, specifically for Smartfren, has gone up by 38%. These network improvements translate directly to a better quality of service, which is a very key differentiator in today's competitive network telecom operations. We also celebrated our National Customer Day in September with nationwide campaigns through XL Point and SmartPoint, reinforcing our commitment to customer loyalty and engagement. We received significant positive feedback, and which is a clear sign that our investments are making a real impact on the ground. If I move to the next, which is on the network update. We have now integrated over 15,000 sites, which is close to 1/3 of the number of sites which we have to integrate, and extended network access for Smartfren users to 192 cities through national roaming. Our total BTS count reached more than 209,000 sites, up 27% year-on-year, with majority being on 4G. MOCN integration is on track to complete by the first half 2026, which is within the 4 quarters of the start of this project. And the results are already visible, as I spoke about earlier, better coverage, higher speeds and more consistent services across geographies. If I have to cite an example, this was the 2025 MotoGP event in Mandalika, where our network handled massive traffic volumes very easily, proving our readiness to deliver world-class connectivity across the country. If I move to the next slide, which talks about the 3 growth pillars. And this is something we've been talking about and we are very excited about. The 3 growth pillars, Mobile, Enterprise and Home. And each pillar by itself represents a focused growth engine, and it has a distinct strategic focus. But collectively, all of these will contribute to company's mission of connecting every Indonesian to a better life. If I talk about the first pillar, which is Mobile, it is represented by our 3 brands, XL, AXIS and Smartfren. I strongly believe that the multi-brand approach enables us to effectively target different customer segments, and it's a unique strength we have as compared to other operators in the market. And post integration, we have seen encouraging momentum driven by a simplified starter pack strategy and optimized product offerings, which is supporting a stronger market recovery and I'm sure will help sustain future ARPU growth also. We're also driving digital engagement through all the apps we have on XLSMART, MyXL, AXISNet, mySmartfren, which is now reaching more than 39 million active users on a monthly basis, which is up 21% year-on-year. This, of course, helps in improving customer stickiness and monetization. The second pillar is Enterprise, which we work under the brand XLSMART for Business. Here, our focus is to become a trusted partner for Indonesia's digital transformation for both private sector and also the government clients. A key milestone in this journey was the launch of ESTA Enterprise Smart Technology and Automation, which was launched in July '25. ESTA provides a full suite of industry solutions across connectivity, IoT, cloud, cybersecurity and automation. This will help position XLSMART not just as a telco, but as a strategic ecosystem partner, enabling digital transformation beyond connectivity. The third pillar is Home, anchored by our brand XL SATU, which continues to gain strong traction in Indonesia's fixed broadband market. We are reinforcing our position as one of the leading fixed broadband providers by focusing on user experience, flexibility and family-oriented solutions with the effort to stabilize the ARPU. XL SATU continues to drive deeper household penetration and strengthen customer loyalty, which is a key differentiator in this competitive market. So if I have to summarize, XLSMART's growth is fueled by these 3 complementary pillars, Mobile, Enterprise and Home, each targeting a unique opportunity while collectively driving sustainable long-term growth for the company. If I move to the next slide, Slide #9. It's talking a bit more about the enterprise business. And as I said, this is expanding rapidly, powered by the launch of ESTA. And it's a comprehensive digital suite, as I spoke about earlier. We also hosted BRAVO 500 Summit in collaboration with Ministry of Digital and Information, bringing together 500 of Indonesia's leading corporations. Our enterprise solutions now reach key verticals such as financial services, manufacturing, logistics, health care and natural resources, combining ICT services and big data analytics to deliver smarter and more integrated outcomes. We believe momentum is strong, and we see continued opportunities and more industries accelerate digital adoption. I'll take a pause now and hand over to my colleague, Pak Antony, to walk us through the financial results. Antony Susilo: Okay. Thank you, Pak Rajeev. I think the next topic will be the financial and operational highlights. Let me start with the operational performance first. So at the end of the quarter 3, our consolidated subscriber base already around 79.6 million customer base, reflecting a normalization following to our starter pack price adjustment, which is, I think, last -- the latest one that we did for Smartfren brand in the month of July or August. So all the 3 product brands starter pack already now, already adjusted. That's the situation on the starter pack price. Then on the -- what we call on the data traffic, I think despite of the decline in the subscriber count, the data traffic continued to grow, reaching to 3.9 exabyte or 3,900 petabytes, up to 53% year-on-year and 2% quarter-on-quarter. The ARPU improved to become IDR 38.9, blended ARPU, this one, from IDR 35,500 last quarter. This is a double-digit growth, which is around 10% Q-on-Q, highlighting our focus on -- focusing on the quality growth as well as the customer value. Okay. Moving to the next slide to the financials. The revenue grew by 38% year-on-year and 9% quarter-on-quarter to IDR 11.5 trillion, driven by the full quarter consolidation of Smartfren and higher mobile ARPU. The normalized EBITDA reached to IDR 5.4 trillion, up to -- increased 9% Q-on-Q and 24% year-on-year. This is reflecting the underlying strength despite of the ongoing integration costs. The reported PAT improved to a loss of IDR 1.38 trillion, while if you look at the normalized PAT, the normalized PAT already turned positive at IDR 1.15 trillion. This is, of course, after the adjustment of the one-off expenses, which is the accelerated depreciation, noncash item and also the one-off integration costs. The margins are stable, with the normalized EBITDA margin at around 47%. These trends actually confirms that the integration is progressing smoothly and the synergy already captured starting -- is already starting to flow through our financial numbers. Okay. Move on. This is maybe to give another explanation how do we calculate the normalized PAT, normalized profit after tax. In here, we are presenting both reported as well as the normalized EBITDA and PAT to provide a clear picture of the underlying performance during the integration period. The normalized figure already exclude one-off items such as integration costs. Number two is the accelerated depreciation, which is related, of course, to network consolidation. And then in Q3 2025, you can see that the reported EBITDA was IDR 4.9 trillion, with the normalization adding from IDR 554 billion in integration expenses. So it brings to the normalized EBITDA to around IDR 5.4 trillion. The reported PAT stood at a loss of IDR 1.38 trillion. But after adjusting all these integration costs, accelerated depreciation and asset impairment, the normalized PAT become positive at IDR 1.15 trillion. This approach basically to ensure we want -- if we want to compare with the previous year. So this is to show a better comparability and better to reflect the company operational performance. Okay. Move on to the next slide. So let me now walk through on the cost structure, our operating expenses. So OpEx increased by 10% quarter-on-quarter and 66% year-on-year, reaching to IDR 6.6 trillion in the third quarter 2025. This increase reflects the enlarged scale of our business because it's a consolidation of Smartfren and XL. So this is already including the -- including a higher infrastructure as well as the regulatory costs, as well as all the integration related activities. Of course, we remain disciplined on the cost management, ensuring that all the expenditures are tightly linked to the synergy realization and also creating long-term values. So that's the end of my presentation. I shall now hand over back to Pak Rajeev to provide the full year 2025 guidance, as well as the closing remarks. Rajeev Sethi: Sure. And thank you, Pak Antony. As Pak Antony mentioned, I'll talk about what's our guidance for 2025 full year. Revenue is expected to grow broadly in line with the market. On a reported basis, growth is expected to be between 20% to 25% year-on-year. EBITDA margin will remain between low to mid-40s range, mid- to 40% range. On CapEx, the capitalized CapEx is projected to be around IDR 10 trillion. And I think it requires a bit of a clarification. This is not a reduction in the investment. If you remember, when we spoke last time, we spoke about a number close to IDR 20 trillion. The orders which we'll be releasing to our vendors would be still close to that number. But what we'll be able to capitalize, which is put on air and start using, and therefore capitalized, would be a number which is close to IDR 10 trillion. And that's the number which we are stating here. The capitalized CapEx would be around IDR 10 trillion for this year. Synergy guidance, last time when we spoke, we gave a guidance of between $100 million to $200 million for this year. This year, we are revising it to the upward part of that guidance between USD 150 million to USD 200 million. It's driven by stronger-than-expected network and vendor efficiencies. We also remain on track to achieve our full synergy potential of $300 million to $400 million annually pretax once the integration is fully completed. And with this, our summary for the third quarter '25 ends, and I hand it back to Chris to take it further. Christopher Kusumowidagdo: Thank you, Pak Rajeev and Pak Antony for the presentations. [Operator Instructions] The first question comes from the line of Piyush Choudhary from HSBC. There are two questions. The first one is -- sorry, there are three questions. The first one is what is the like-for-like -- like-to-like mobile service revenue growth Q-on-Q in third quarter 2025, as 2Q does not have the full impact of merger? I think -- then second question, what is the breakdown of revenue in 3Q into your 3 segments, Mobile, Enterprise and Home? And the third one is normalized EBITDA margin is 47%. Where do you expect normalized margin to be, post-merger integration? For these questions, I would like to invite Pak David to answer the first question. David Oses: Okay. I'll take the first one, Piyush. So the like-to-like mobile service revenue growth quarter-on-quarter will be at 5%. Like-to-like will be at 5%. To the second part of your question about the initiatives taken to increase the mobile ARPU, I can share that, as you can see, we had a double-digit ARPU growth quarter-on-quarter. This has been done by many things, but we have taken out a lot of freebies. We have increased prices by taking discounts out. We have also increased minimum prices, especially in our personalized offers. So we have done a bunch of things in our very clear strategy to focus on quality subscribers. Now you can see, I think you can calculate as well that the yield, the revenue per gigabyte has increased high single digit, well, around 6% quarter-on-quarter. So the yield increased 6% quarter-on-quarter. This means that the revenue that we are getting for each of the gigabytes is increasing, that our prices per gigabyte have increased. So out of the ARPU double-digit growth, from 10%, we can say that more than half is due to the price increases. The other comes from more usage per subscriber. And again, how did we increase the prices? As I was saying, taking freebies out, increasing prices literally nominally, taking some discounts out, increasing minimum prices in personalized offers, et cetera, et cetera. For the second question, I will pass it to our CFO. Antony Susilo: Okay. The second question is about the breakdown of the revenues into 3 segments, Mobile, Enterprise and Home. I think just to give rough figures on the Mobile segment, it contributes around 80% to 82% contribution of revenue. And then Enterprise is around 10%. And Home is the smallest one. It's around, I think, around 6% -- 5% to 6%. So I think that's the breakdown of the revenues. And then number three, the question is about the normalized EBITDA margin, which is 47%. Where do you expect normalized margin after post-merger integration? Okay. So I think we know that this normalized EBITDA margin is already taking out the integration costs, which is, I think, what contributes a significant amount. But I think post-integration, which is after the next 2 years, 2028, I believe, because our plan to do the integration, everything to be completed within 8 quarters. So we are hoping that, of course, this EBITDA margin, 47% will even further improve because the company management always trying to do the cost efficiencies program, trying to make sure that we are aligned with the plan that we have, which is, of course, it's a cost efficiency program. So we are expecting a higher EBITDA margin similar to the other telco players. Christopher Kusumowidagdo: Thank you, Antony. Can you [indiscernible]. Hi Piyush. Piyush Choudhary: Could you also be able to share what's the breakup of your EBITDA margin among the 3 segments, Mobile, Enterprise and Home, at the moment? And one more, like David, are there any kind of incremental initiatives being taken in fourth quarter to further kind of enhance the mobile ARPU? And how are the kind of economic trends at the moment? If you can throw some light on October trends? Antony Susilo: Okay. On the breakdown of the EBITDA per business segment, I think, unfortunately, we don't really make that specific analysis because most of the cost is a common cost. So I think we only measure the -- what we call the direct EBITDA -- the direct gross profit. But I think from EBITDA point of view, I think we prefer to do it as a total basis rather than doing it for 3 segments. David Oses: Okay. So regarding this fourth quarter, yes, we have additional initiatives planned in order to increase the ARPU, one of them being price increases. So we are going to have, I would say, significant price increases in the different portfolios of our 3 brands in the coming weeks. As I was mentioning in our strategy of focusing on value customers, so far, it's looking good. So we are happy with the results. So we are going to continue in that direction. And the next step will be to increment prices of our value propositions, specifically in certain specific products. There was any other question? Piyush Choudhary: Thanks, David. So have these price initiatives already been done in October, or it's something which is planned for future? David Oses: So we are on it. So some small things have been done, some will be done almost -- I won't say as we speak, but relatively soon. Christopher Kusumowidagdo: Let's move on to the next question from [ Irwin Vijaya ] from [ Adana ]. Two questions. First one is, are you going to distribute 100% of the proceeds from treasury share as dividend? And then second one is how much restructuring costs do you have left? Or when will things normalize? I think for both questions, we can -- Pak Antony can answer. Antony Susilo: Okay. Thank you, Pak Irwin. I think -- yes, I think in terms of dividend, I think I forgot to mention it earlier on that one. So like this. I think there is no such relation in terms of the treasury shares that we sold, I think, last month with the dividend amount that we want to distribute. Yes, indeed, that the company was like to do a dividend distribution, which is I think we would like to seek approval from the shareholders where the EGMS will be done next week on Friday. So why the company would like to give the dividend distribution, I think as you can see in our Q3 performance results that it shows that actually, we are -- we can reach to a normalized PAT positive around IDR 1.8 trillion. So this is a healthier -- healthy indicators actually for the company because we can see that some of the performance, the costs, as well as the revenues is improving. So with that reason, then the company would like to distribute the dividends. In terms of cash flow, I think the cash -- how to fund these dividends, it's going to be done through our internal cash from the operations. Today, the company is sitting at a cash balance around more than IDR 4 trillion. So with that one, I think we are able to do a dividend distribution. So all in all, I think the dividends will be approved by the shareholders next week, waiting for the news for this to everybody on this subject. And then on the second question about the restructuring cost, actually, this is not a restructuring cost. I think if you are referring to integration costs because we are not doing any restructuring. It's only integrations. In terms of integration costs, I think you saw it from the slides that total integration cost that we have incurred this year until September 2025 is IDR 1 trillion. The target -- our budget for integration cost for this year is around IDR 1.5 trillion. So the remaining is around IDR 500 billion that maybe this one will be materializing in the next quarter, in the Q4. And when the things will be normalized, I think like I mentioned that the integration period will happen in the next 8 quarters. So I think this is the first -- the fourth quarter, 3 quarters already, Q2, Q3, actually second -- 2 quarters, actually. And then Q4, 3 quarters, hopefully, everything will be normalized starting 2027. Okay. So that's the answer, Pak Irwin. Christopher Kusumowidagdo: Thank you, Antony. Pak Irwin, do you have any follow-up questions? Unknown Analyst: No, thank you. Everything's clear. Christopher Kusumowidagdo: Let's move on now to the next question. This comes from the line of Ranjan Sharma from JPMorgan. What is the -- there is one question. What is the difference between CapEx guidance in 3Q to the one in given in 2Q? And what is the capitalized CapEx for this year? I think for this question, I would like to invite Pak Antony again to address the question. Antony Susilo: Okay. The -- yes, indeed, that the CapEx guidance for second quarter and third quarters, if you look at the figures, was different. I think the difference was because that initially in the second quarter, when we give the guidance around IDR 20 trillion to IDR 25 trillion, that one was on the early post-merger indication, where at that time, we use a PO issuance amount at around IDR 20 trillion to IDR 25 trillion that we want to spend for integration. However, I think we understand that we may want to use a capitalized CapEx instead of PO issuance. So in terms of capitalized CapEx, if we make some estimation this year, this year, approximately around IDR 10 trillion. So we are not changing the -- or making a revision on the CapEx amount. It's -- the amount is still the same in terms of PO issuance around that, IDR 20 trillion to IDR 25 trillion. However, capitalized CapEx is around IDR 10 trillion. For -- I think for Q3, I think we already booked capitalized CapEx around IDR 4 trillion to IDR 5 trillion. So the remaining IDR 5 trillion maybe comes in the Q4 2025. That's the answer Pak Sachin. Christopher Kusumowidagdo: Thank you, Pak Antony. Sachin -- sorry, Ranjan, do you have any follow-up question? Ranjan Sharma: Can I just check one more thing? Did you say you're looking to pay a dividend? Because in the last quarter, you were saying you will not pay dividend for 2 years. Antony Susilo: Yes, indeed, indeed. I think -- correct, I mean, we -- I think I remember last quarter, we think that we will not be able to pay dividends next year actually. Because the company, if you look at the PAT numbers is negative, right? So we will not be able to give a dividend next year. However, we see that there is an opportunity for us to give the dividend distribution this year. Because our -- basically, dividend normally is following the previous year profit, right? So I think if you look at the -- also following the OJK regulations, that we are allowed to give a dividend within this year. So with that consideration from the OJK regulations, from the company performance, the cash situations, so we decided that to give distribution -- dividend distribution to the shareholders. So -- but of course, this is subject to approval from the shareholders here next week. Ranjan Sharma: Sorry. So you're not looking to pay a dividend next year, but you want to pay a dividend for this year? Antony Susilo: Next year, unfortunately, looking at the numbers, we are not allowed to. Because it's a negative retained earnings. At this moment, Q3, I think we see that PAT is negative, right? So we will do it this year. So it's like maybe we can say as an acceleration. Ranjan Sharma: Okay. It's interesting because if I look at your balance sheet and your cash flows, they don't seem in the best position, right? So I'm just surprised to hear you're looking to pay a dividend. Antony Susilo: Well, from our point of view, when we look at our balance sheet cash flow also, I think we are still in the safe position. Like, for example, the gearing ratio, I think we are still below 4. So I think there is -- I mean, by giving this dividend distribution, we are not impacting to any -- to the ratios of the company. So with that one, I think we can -- we are able -- we have some capacity -- we have capability to pay dividend. Christopher Kusumowidagdo: The next question comes from Sachin, Sachin Mittal from DBS. So does revised lower CapEx include integration CapEx? I think this has -- yes, I think Pak Antony has already addressed on CapEx, but you might want to clarify whether this includes integration CapEx, Pak Antony? Antony Susilo: This CapEx, yes, includes integration CapEx. But again, like I mentioned, we don't make any revision on the CapEx amount. It's only that we -- now we are using capitalized CapEx instead of the PO issuance. I hope that one can answer, Sachin. Christopher Kusumowidagdo: Thank you, Pak Antony. Sachin, do you have any follow-up questions to the management? Sachin Mittal: Can you hear me now? Christopher Kusumowidagdo: Yes. Sachin Mittal: Okay. So I understand that you're taking now, longer time to basically to incur the CapEx. Again, I want to understand a little bit of what is the normalized level of CapEx because there is some integration CapEx involved, right? So how much is -- how do we think of the normalized CapEx? Because it seems like you're talking of now, 10 and 10, right, each year, FY '25 and FY '26. Is that the right way to think about it? Antony Susilo: For the integration CapEx, yes, we can say that. Although actually, the IDR 20 trillion, IDR 25 trillion over there is also consists of BAU CapEx. Some of them, yes. Rajeev Sethi: If I may just jump in here, Pak Antony. I would not want to classify this as integration CapEx because the -- as I think we spoke about last time also, it's just not about combining the two networks together where we are spending most of the money. It's readying the network for future, i.e., 5G, for example. So whatever network we are readying, it's readying for future. So it's very difficult to classify and say this is because of integration or this is for modernizing the network. The outcome would be a brand-new network ready for future. So that's one point. The second part is there is no change in the CapEx plan. It's just the way we were stating it earlier. When we spoke about CapEx earlier, IDR 20 trillion, IDR 25 trillion in 2025, it was largely the ordering amount. And that quantum of orders will go out during the course of this year. What we'll be able to put on here and capitalize, there is a process of getting the material in-house, putting it on our site, doing those acceptance tests, that will be around IDR 10 trillion, which again is as per the plan. It's only that earlier when we spoke about, we did not clarify that this is the ordering amount, the capitalization amount would be lower. So that's the second part. And I think one more part of your question was how much will this normalize into. I think after the integration phase is over, after the entire modernization is over, which should be done by -- largely by 2026, I think it will go back to a regular mid-teens level. That's the number which we anticipate in the long term. Christopher Kusumowidagdo: Thank you, Pak Rajeev. Let's move on to the next question. Sorry, Sachin, do you have any follow-up question before we move on? I think you have one question, follow-up on ARPU, please? Sachin Mittal: I mean, it's -- how are you seeing -- your subscriber decline was noteworthy, while other -- your peers did not see the subscriber decline. Was it too much sharp hike? And what does it mean for you in the current quarter? David Oses: Yes, correct. So -- and if you take a look to the subscriber changes, yes, with competitors and also ARPU changes, I think our ARPU growth, it's significantly higher than our competitors. Also, our subs decreased. As I was mentioning before, our ARPU increase comes mostly -- more than 50% from the yield increase. So we are able to monetize better the gigabytes and part also from the usage increase. Is it too much? No, it is not. Actually, again, you can see in the results that it's going in the correct direction. So those subscribers that we lost are -- I don't want to call them a user because they were using the portfolio that we have given to them, right, but are subscribers that were very low ARPU and/or very low yield. So those are subscribers that in our newer strategy don't have a fit in our company. Probably, they found somewhere better where they can -- at those low yields, et cetera, they can fulfill their needs. But I think our strategy is very clear, go for value subscribers. Having said that, again, in quarter 4, we expect -- we hope that the ARPU will keep increasing and that our strategy will keep moving in the same direction. As I was mentioning before, we already have aligned many price changes increases that we are going to implement in the coming days, and that some of which we have already been doing also in the personalized tiers, et cetera. Christopher Kusumowidagdo: Thank you, Pak David, for the clarification. Any follow-up questions? Sachin Mittal: No. Christopher Kusumowidagdo: Now let's move on to the next question from Henry Tedja from Mandiri Sekuritas. There are two questions. The first one, what is the -- what are the three drivers of purchase of bundled device and the software increase under the interconnection and other direct expenses? I think this is under the COGS. And second question is, could you share more details regarding the accelerated depreciation expenses increase? What kind of assets that drive the increase? I would like to invite Pak Antony to address the questions. Antony Susilo: Pak Henry, I think on the first question about the -- what are the key drivers for the increase on the COGS specific to the bundled device, I think as we explained, I think Pak Rajeev already explained that the company now focusing to the Enterprise segment. So like again, I explained, Enterprise segment contributes around 10% of the total XLSMART revenues. So because of this focus expanding this business segment, so we are sort of like have to purchase this device as well as the software to one of our enterprise clients. So of course, this, of course, is along with the increase of the revenue from the Enterprise as well. So I think that's on the explanation for number one. And number two, regarding the accelerated depreciation expense. Yes, I think this accelerated depreciation expense was -- resulted from the -- one of the example is the 900 megahertz spectrum. Because as we know that the company have to return the 900 megahertz spectrum to the government by end of 2026. So with that one, all the assets or the -- any equipment which is associated to 900 megahertz, we have to sort of like making an accelerated depreciation. And also another example also, we know that the company already choose the vendors to do the integration as well as the modernize the network, so -- which is the vendor is ZTE as well as Huawei. So the vendors that currently the existing equipment, which is not this ZTE or Huawei vendor, we have to do some dismantling. So we will not use this asset anymore. So with that one, we have -- also have to do some accelerated depreciation. So I hope that one can explain to you the nature of accelerated depreciation, yes. Why is it increased? Because we have to do it earlier, faster than the -- let's say it's supposed to be another 6 years, but now we have to do it within by end of 2026. Is that answering the question, Pak Henry? Henry Tedja: Perhaps if I can have two or more -- three questions. The first one, I guess, regarding the integration costs. I think you mentioned earlier that this year, the budget or the target will be IDR 1.5 trillion. So I'm just curious, how about next year? What will be the target for the integration cost next year and also for the accelerated expenses? And then the second question, I think regarding the CapEx, just to want to clarify. So does that mean out of IDR 20 trillion to IDR 25 trillion that was guided like the previous quarter, IDR 10 trillion will be capitalized and the rest will be expensed for this year? So that will be booked under the cash OpEx? And then perhaps the third one to Pak David. I think earlier, Piyush has asked about the latest economic trends. So I'm just curious how do we see the purchasing power in the last few weeks or in the last few months? So I think those are my three questions. Antony Susilo: Okay. Let me answer first on the question on the integration cost for the next year, yes. I think like I mentioned that I think the integration cost still continue until end of 2026 or maybe first quarter '27. So the amount of the integration cost, I will say that we don't have the numbers at this moment because we are still calculating the BP for 2026. But I think let's assume the same similar number, what we project. If let's say, this year is IDR 1.5 trillion, maybe approximately the same numbers, integration cost for next year. So that's on the integration cost. And then the second question is about -- second question, Pak Henry? Henry Tedja: Yes. The second question regarding the CapEx, you mentioned that some of the all capitalized. So I just want to clarify on that. Antony Susilo: Yes. So the PO amount, yes, it is around 20 to 25, but the capitalized CapEx is 10. But the remaining actually will not be -- we will not expense this. Or we call it as cash OpEx, no. But the remaining, I think, will happen -- will be materialized next year. So next year will be -- this sort of like will be carry over to next year, the remaining instead of OpEx. Still capitalized CapEx. Okay? So the next question. David Oses: Regarding the economic situation on the consumer side, to be honest, I mean, you can see the results. So for us, the last few months have been positive. I think we see a little bit more of confidence in the consumers, a little bit of [ reparation ], in that sense. Christopher Kusumowidagdo: Thank you, Pak David. Pak Henry, any follow-up questions? Henry Tedja: No. Thank you, Pak Chris. I think everything is clear. All the best for the management. Christopher Kusumowidagdo: All right. Now let's move on to the next question. I think we have the question from Arthur Pineda from Citi. There are one question. There is one question. Can you please remind us about your dividend policy? And do you pay this out of retained earnings or reported earnings? I think maybe, Pak Antony, you can clarify this later on. In addition, what are the considerations for paying for the dividend given that the company is targeting IDR 20 billion to IDR 25 trillion, which is above the operating cash flow? Pak Antony, maybe you would like to address this question. Antony Susilo: Okay. I think we know that our long-term goal is to deliver sustainable shareholders' returns. So I think looking -- as I already explained that the company show a negative PAT, not normalized PAT and the negative bottom line. So with that one, we expect that I think next year, there will be no dividend. So we think that we want to give the dividend within this year while we still can, still following the regulations. So I think with that one, with that consideration and also, of course, looking at our free cash flow and everything, balance sheet, I think it's doable from our side. I think when you mentioned about the IDR 20 trillion to IDR 25 trillion is above PCF. I think, again, like I mentioned, this IDR 20 trillion to IDR 25 trillion is a PO amount that we issued. But again, capitalized CapEx is only like half of it that we booked to our CapEx. This -- what you call, this year will be around IDR 10 trillion. And then from that one, actually, what I would like to say that we get soft payment terms from the vendor itself. So the IDR 10 trillion, although we separately capitalize it this year, we may not need to pay IDR 10 trillion to the vendors. So I think there are some agreement already from the -- from the vendor on the payment terms. So I think with that one, I think we are hoping that all of the shareholders agree for us to give the dividend distribution this year. Christopher Kusumowidagdo: Thank you, Pak Antony. Arthur, any follow-up question? Arthur Pineda: Just wanted to clarify with regard to the cash flow implications on CapEx. I know you mentioned IDR 10 trillion will be booked for this year and the PO is IDR 20 trillion to IDR 25 trillion. I'm just trying to figure out from a cash flow standpoint, how do we view this? The balance of around IDR 15 trillion, is that paid '26, '27? I'm just trying to figure out what it looks like from a cash flow standpoint. Antony Susilo: Yes. I think more or less, the payment will be done next year. But I think from the next year point of view, if I look at the capability from our side, let's say, we can generate like IDR 20 trillion cash flow from operation next year. So I think we are able to pay this CapEx PO. So I think well, maybe we may need to do -- bank some of the borrowings from the banks, but the amount may be not as big as like this CapEx because the plan to fund this PO from this CapEx will be funded majorly coming from our internal cash operations because we are able to generate like IDR 20 trillion per year. Arthur Pineda: Understood. I was just wondering in terms of the decision to pay the dividend now, given that I think there will be spectrum auctions coming up as well. How do you balance the deleveraging of the company and having the cash available for items like spectrum versus paying dividends upfront? I'm just wondering what the philosophy is and why pay now, given that there's still auctions coming? Antony Susilo: It's now or never. I think like I mentioned, next year, it will be difficult for us to give dividends. So the chance, the window of opportunity to give dividend only this year. And looking at the -- again, for me, I reemphasize that looking at our balance sheet, our P&L, our cash flow, it's doable. We can do it this year because like I mentioned also maybe the cash balance at this moment today, we have -- we are sitting like around IDR 4 million, almost IDR 5 trillion. This is our cash balance. So we are able to distribute the dividend. And the gearing ratio, I think, yes, we are still in the reasonable amount. We -- of course, we still monitor this, make sure it is not going to be beyond 4x, the gearing ratio. So with that consideration, that's why we are -- our intention, I think we can give dividend to the shareholders. Christopher Kusumowidagdo: Now let's move on to the next question From Bob Setiadi from CGS. Can you discuss about the accelerated depreciations? Are we going to see depreciation run rate in third Q for the next 6 quarters? Pak Antony, yes. Antony Susilo: Yes. I think, Bob, the accelerated depreciation, as I explained earlier, that this is related to the asset that we have to -- we will not use in the next -- after the integration, which is maybe one of the example, the 900 megahertz and also the other vendors, which is not being chosen one. So we have to do this accelerated depreciation because we will not use it. So are we going to see the depreciation run rate in the third quarter -- in the next 6 quarters? The answer is yes. By the end, I think until the integration period is over, expect hopefully, by -- hopefully, I would say by end of the December '26, next year, it's over. Then starting 2027, everything will be normal -- back to normal. Christopher Kusumowidagdo: Okay. Bob, any follow-up question for us? All right. Next question comes from [ Andy Kurniawan ]. So there are two questions. The first one is, can you share about the ARPU increase in average from your 3 brands, respectively? Was Smartfren increasing more by ARPU compared to your other brands in third quarter? And second one, has your subscriber decline Q-on-Q due to focus on quality subs? Can you share which brand that gave the contribution to the subscriber decline? Pak David, I'd like to invite to address. David Oses: Yes. So it's going to sound like a normalized answer, but to be honest, no. So Smartfren was not the one increasing more, the ARPU, and all the 3 brands have been in the same direction, both in the ARPU increase as well as in the subscriber rationalization. So we will have one of the brands with more or much higher percentage of the subscribers that left or the low-value subscribers. So it's been quite -- let me put it this way, democratic, both the ARPU increase as well the ARPU increase, the yield increase as well as the subscriber rationalization. Christopher Kusumowidagdo: Andy, do you have any follow-up question? Unknown Analyst: No, thank you. Christopher Kusumowidagdo: Let's move on to the question from Norman from CLSA. Congrats on strong ARPU uplift. First one on accelerated depreciation and impairment. Will we see more being booked in 4Q 2025? Second one is on OpEx. 10% Q-on-Q increase is quite significant. Is this a normalized quarterly run rate? Or we should expect some increase? For these two questions, I would like to Pak Antony again to address. Antony Susilo: Okay. Thank you. So Norman, I think on the first question on the accelerated depreciation, a similar question with the Bob Setiadi question. I already explained that, yes, I think in the next quarter, Q4 2025, the accelerated depreciation still continue even further until next year. Because, again, integration period is 8 quarters. That's why please expect that there is an accelerated depreciation until the end of the integration exercise is completed. And then on the second question on the OpEx, I think, yes, but the increase of the OpEx is mainly because of the, number one, that recall in the last quarter was only like 0.5 month's of Smartfren expenses was not there. And the second one, of course, this quarter-on-quarter because of -- mainly because of the integration costs that we have to book in the Q3 2025. But of course, once this integration cost is over, which is -- I think we can see that the integration costs in the previous -- in the slides that it was around IDR 800 billion already booked by September 2025. So by the time that this is -- integration cost is no more -- is already over, then our OpEx amount will become stable and our EBITDA margin hopefully can increase from time to time. So I think that's the explanation, Pak Norman. Norman Choong: I think on the first question, where I'm coming from is mainly because I saw the accelerated depreciation run rate was like IDR 700 billion last quarter. Now it's IDR 1.8 trillion this quarter. I'm just wondering, the first is why don't you just book everything within the short term? Or is it not doable because you are still removing asset? Second thing is I'm just trying to figure out when you say there's more coming, would we get a sense of like roughly how much? Or profit is really not a priority during the integration period? Antony Susilo: Yes. I think, yes, it was quite a surprise maybe to look at the first quarter, IDR 739 billion and then second quarter, IDR 1.8 trillion, I think. But I think my estimation that -- if you look at the numbers, I think more or less, this IDR 1.8 trillion already represent, what you call, represent the numbers for a quarter. But I don't want to say that this IDR 1.8 trillion can go up further. But actually, as a matter of fact, these numbers will go down. Because if there is a site -- there is an equipment where we dismantle faster, then we actually have to write off the assets immediately. I mean, we have to stop the depreciation. So that's the reason I think in Q3 was quite high because actually some of the assets, some of the equipment already dismantled, already turn off, and we cannot make depreciation. So we have got -- so from the 6 years immediately, only like 6 months, for example, that's the accelerating depreciation. So what I'm saying that in the next quarter, I'm hoping that these numbers -- of course, at this -- maybe next quarter still remain the same, but I think the following quarter, hopefully, because the equipment already -- most of them already dismantled, so it will be tapering down to a smaller amount. So to give you rough figures, maybe this year, maybe we will end up like IDR 4 trillion, plus/minus. And I think just to give you an emphasize that this accelerated depreciation is a noncash item. Christopher Kusumowidagdo: I think we still have time for one more question. I think one last question, we'll just address from John Te from UBS. That will be the final question. John, do you want to have your question to the management? John Te: Yes. I have two questions, if you don't mind. First is, I just want to understand maybe where we are in terms of site dismantling. So you mentioned 15,000 already done, and that's 1/3 of the base. Firstly, what is that base? Is this the -- is the 45,000, give or take, an end figure of the combined sites that you have? Or is this pertaining to another number? Second question is, perhaps we can clarify the IDR 500 billion. In terms of integration costs, how much of that would be for personnel and how much of that would be for site dismantling? Because I understand these two are the largest cost drivers for integration charges. The third one being personnel costs, I think the run rate has stayed at IDR 1 trillion, unchanged from the second quarter despite, I guess, some integration. Any comments on how you think of personnel costs as a percentage of sales or maybe the absolute number itself? Christopher Kusumowidagdo: Thank you, John. I think I would like to invite Pak Rajeev to address the first question on site dismantling. Rajeev Sethi: Sure. Just to refresh the memory, when we started this journey, XL Axiata legacy had around 43,000 sites and Smart's sites were around 22,000. Put together, around 65,000 sites, 65,000, 66,000. As we said, between 15,000 to 20,000 of those sites will not be required, which will feed into our synergy savings, which will mean that the end number of sites based on this part of integration would be closer to 50,000 sites. And against that, we are talking about 15,000 sites, which is just short of 1/3 of that number. So that's the number of 15,000. Ending number would be around 50,000 for this space. The second question was about the integration cost of IDR 1 trillion which has been incurred so far. And I think Pak Antony mentioned, we expect another IDR 0.5 trillion for the remaining part of the year. And this is a number which we shared earlier, IDR 1.5 trillion would be the integration cost for 2025. You're right. Most of this is people and the network integration. Unfortunately, I don't have the details to share further. But as you would know that the people integration project would be over hopefully by the first half of next year. We are running that process now, and then this will be a regular run rate. We do not try and drive the people cost as a percentage of revenue as a big driver. I think as management, we believe that people are -- good people are really important for -- in our line of business, in our consumer business. And we'll have an appropriate cost as we move forward. We really not want to benchmark that with other players, but we'll pay the right amount of money for the best quality talent which you can acquire. This was the second part. What was the third one, please? John, was there a third question? John Te: Yes. Well, that was related to the IDR 1 trillion in personnel costs quarterly run rate, but I think you managed to answer that in the previous question. If you don't mind me clarifying just one point that someone raised earlier, it's mid-teens CapEx as a target after the integration. By mid-teens, is this mid-teens CapEx to sales or mid-teens in absolute trillion rupiah? Rajeev Sethi: No, I think mid-teens absolute rupiah would be a bit too high. It will be mid-teens as a percentage to the revenue. Christopher Kusumowidagdo: All right. Thank you. Thank you, John. Thank you, Pak Rajeev. And ladies and gentlemen, that concludes our today's conference call. Thank you once again for joining us today. If you have any follow-up questions, please reach out to our Investor Relations. Stay safe and healthy, and we look forward to speaking with you next quarter. Thank you. Rajeev Sethi: Thank you.
Operator: Welcome to Grupo Aval's Third Quarter 2025 Consolidated Results Conference Call. My name is Regina, and I will be your operator for today's call. Grupo Aval Acciones y Valores S.A. Grupo Aval is an issuer of securities in Colombia and in the United States SEC. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulations. Grupo Aval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Aval Financial conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Unconsolidated financial information of our subsidiaries in the Colombian banking system are presented in accordance with Colombian IFRS as reported, the Superintendency of Finance. Details of the calculations of non-IFRS measures such as ROAA and ROAE, among others, are explained when required in this report. This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions, changes in interest and currency rates, and other risks described from time to time in our filings with the Registro Nacional de Valores y Emisores and the SEC. Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update or correct the information provided in this report, including any forward-looking statements, and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable, in this document, we refer to billions as thousands of millions. [Operator Instructions] With us today are Ms. María Lorena Gutiérrez Botero, Chief Executive Officer; Mr. Diego Solano, Chief Financial Officer; Mr. Jorge Castaño, Corporate VP of Financial Assets and Efficiencies; Mrs. Paula Durán, Corporate VP of Sustainability and Strategic Projects; Mr. Jorge Otalvaro, VP of Synergies at Aval Valor Compartido; and Mr. Camilo Pérez, Banco de Bogota's Chief Economist. I will now turn the call over to Ms. María Lorena Gutiérrez Botero, Chief Executive Officer. Ms. María Lorena Gutiérrez Botero, you may begin. Maria Gutierrez Botero: Thank you. Good morning, everyone, and thank you for joining us for our third quarter 2025 conference call. I am here with Diego Solano, our CFO; Jorge Castaño, Corporate VP of Financial Assets and Efficiencies; Paula Durán, Corporate VP of Sustainability and Strategic Projects; Jorge Otalvaro, VP of Synergies at Aval Valor Compartido; and Camilo Pérez, Chief Economist of Banco de Bogota. This quarter, we reached a year-to-date net income of COP 1.4 trillion, 88% higher than the same period of 2024. Net income for the quarter was COP 521 billion, the highest quarter figure in 3 years, growing 25.3% over the year and 5.3% over the quarter. This performance reflects a strong net interest income as continued improvement in [indiscernible] loans, a pickup in loan growth and the results of our cost [indiscernible] efforts. Before addressing our financial performance, I will share the progress made in some of our strategic projects. First, our banks have continued working on improving their deposit mix towards retail funding. We launched accounts and saving pockets with a special remuneration rate and repositioning our bank's favorable account value proposition to both individuals and business. We also introduced product offerings to face increased competition, including short-term deposits and savings accounts with competitive rates. As a result of the above, peso-denominated deposits from individuals grew 22% over the year with saving and checking accounts growing 11% and term deposits 31%. Second, in addition to deposits, our efforts to deepen our presence in the consumer segment considers increasing our share of lending products where we are underweight and revamping our payment value proposition. We aim to increase our market share in credit cards where we have a space to grow. On this front, we entered an alliance with Visa that grant us exclusivity in Colombia for the FIFA World Cup. Third, on October 6, the Central Bank immediate payment system officially started operations, offering every day at any time instant and free transfers. This system will reduce the use of cash and promote financial inclusion. In Colombia, 75% of monetary transactions are with cash. We estimate these numbers could go down to 55% in future years, considering Brazil's peak experience. Given this opportunity in September 2025, we launched Gou Payments, our own instant payments with world-class infrastructure that will improve our time to market and offer innovative, safe and user-friendly solutions. Fourth, as we mentioned in the past, we are simplifying our processes through transversal initiatives, capturing value in our operational and administrative processes. This effort is based upon our main guiding principle, our external and internal customers go first. I will now invite Jorge Otalvaro to go into more detail on Gou Payments and our synergies plan executed through Aval Valor Compartido. Jorge? Jorge Otalvaro: Thank you, María Lorena. Good morning. At Grupo Aval, we are fully committed to driving the immediate payment system led by Central Bank in Colombia. Gou Payments will serve as our payment platform for the group's entities and will also enable fintechs, trust companies, and other players to connect the payment system where our value proposition is autonomy, differentiation, and agility in time to market with the Central Bank across all channels. Our strategy includes strength of the processing capabilities, traditional and instant payments, and clearing house services for Aval Banks and third parties. We are ready to launch innovative solutions that deliver a competitive edge, including interoperability for account-to-account merchants and payments, advanced capabilities in cash management, payment collections, QR solutions and open ecosystem for third parties. Our 4 banks [indiscernible] were the first and only players in Colombia, offering seamless credit cash transfers via WhatsApp, merging into our clients' day-to-day habits and offering an easy experience. We will measure success by the impact on cash reduction and the adoption of services by new clients, prioritizing cash management and excellence in B2B services. Let me mention our performance during the first month of credit, more than 8 million keys to individuals, 62% of them which are Tag Aval, the only customizable alphanumeric key in the market, more than 10 million transactions. We also have a market share over 45% in merchant keys with more than 1 million keys. And finally, we processed more than 10 million transactions with a total amount of COP 2 trillion. Now let me share our results on synergies and efficiencies at Aval Valor Compartido, AVC. In 2025, we focused on identifying potential synergies and implementing action plans to capture efficiencies through standardization and process mastering while raising productivity and control standards. After analyzing 30 administrative and operational processes, we initially selected 8 key processes for our synergy model. Administrative processes include procurement, property management, facility management, talent acquisition, payroll and physical security, currently serving Banco de Bogotá, Banco de Occidente, Aval Valor Compartido, and Gou Payments. Other entities will be incorporated in the coming months. A second wave to be launched next year will focus on operational synergies, particularly in back office banking processes and IT synergies such as cloud, data center operations, and optimization of our physical channel network. Some of the key achievements in 2025 are 40% reduction in procurement cycle time, 50% simplification of active contracts, and we also launched the Aval Real Estate portal, and we could by 2/3 the commercialization times for other real estate owned. In cybersecurity, we designed the cybersecurity synergy strategy, prioritizing the security operational center, SOC and the centralization of the critical tools. The SOC service points coverage increased from 16 to 23 connected companies. We also launched the Aval talent portal that will reduce 20% in real time to hire. Finally, talking about ATMs and banking agents, we are the first to implement Near Field Communication, NFC technology in Colombia, and we developed also a machine learning model to optimize coverage of Aval Bank's physical service points. Thank you all for your attention. Maria Lorena. Maria Gutierrez Botero: Thank you, Jorge. Last year, we announced the acquisition of Corficolombiana share in the trust company and the broker deal, and we launched Aval Fiduciaria while simultaneously creating Aval Investment Banking. We are now moving into the second phase by integrating the trust funds, trust state and fidiciary, separation of Fiduciaria Bogotá, Fiduciaria Occidente, Fiduciaria Popular into Aval Fiduciaria. With this strategy, Aval further expanding its leadership in the asset and wealth management business in Colombia and abroad. Now I invite Jorge Castaño, our VP, to share with you our advancements and perspective in the Aval Asset Management business. Jorge? Jorge Gutierrez: Thanks, María Lorena, and good morning, all of you. As María Lorena mentioned before, this operation is part of our extended corporate strategy aimed at improving operational efficiency, diversifying revenue streams and strengthening our competitive position in key markets as the non-banking financial services. The initiative is expected to deliver meaningful financial and operational benefits over time, supporting sustainable growth and resilience in an evolving economic environment. Aval Fiduciaria is set to become the largest fiduciary in Colombia by assets under management with COP 201 trillion and the leading institution in fee income with 21% of the market share. The company will oversee more than 5,500 trust funds and diversify our range of products and services, serving retail, small and medium enterprise, corporate and institutional clients. Through Aval Casa de Bolsa, we will strengthen our capabilities in fixed income, equities, derivatives, and FX markets, enhancing long-term value creation and consolidating our leadership in the Colombian financial sector. Next year, Aval Fiduciaria will continue to strengthen its position in the fiduciary market. We expect to increase our share of total industry fees and consolidate our position as the #1 player. In 2026, fee income is projected to grow around 13.2% versus 2025, exceeding COP 635 billion, [indiscernible]. We also expect tailwinds from deepening of the commercial model with Banco de Bogotá and Banco de Occidente and implementation of the new integrated commercial model with our other banks. By business line, we are targeting funds fee growth of 20%, explained by increase in assets under management, well above the sector's expected 12.7% and administration growth of 15.4% compared with 7.1% for the industry, supporting our ability to capture superior value in 2026. This transaction will also unify fiduciary risk management policies and operational processes and importantly, enhance commercial synergies across our other business segments. In addition, we expect to capture cost efficiencies in the medium term. We are working to strengthen Aval Fiduciaria's product portfolio and customer service. We will have an integrated commercial model in coordination with our 4 banks across the country as well as with Porvenir and Aval Casa de Bolsa. Their offering also incorporates cash management solutions and offshore investment access via digital platforms and corresponding agreements in Panama and the USA. The integration also accelerates the rollout of enhanced digital investment channels, enable better penetration across retail, small and middle enterprise and corporate clients and supporting a materially higher distribution capacity across Grupo Aval's client base. The transaction has already received regulatory approval by the financial superintendents and the required corporate approvals are expected to be received by month end. We aim for Aval Fiduciaria to start operation as a single company with unified clients facing challenges by January 2, 2026. That's all from me for now. Maria Gutierrez Botero: Thank you, Jorge. Now Paula will go over our sustainability achievements for this quarter. Paula? Paula Fernandez: Thank you, María Lorena, and good morning, everyone. The most relevant sustainability highlights for Grupo Aval in the quarter includes the definition of our sustainable strategy with a vision that further connects our business goals to our ESG impact. We call it sustainable ROE, R for returns with purpose, O for opportunities for all, and E for environmental value. Across all three pillars, we have defined specific goals and actions in close collaboration with our entities. Starting with our returns with purpose pillar, this quarter, all our entities participated in the CSA assessment of the Dow Jones Sustainability Index. Results will be released at the end of the year, but preliminary scores already reflect significant progress compared to global industry leaders. During the quarter, we also received several recognitions for our sustainability achievements. Banco de Bogota, Corficolombiana, and Promigas were included by [indiscernible] Colombia among the 50 leading companies in sustainability for this year. Additionally, the Global Compact Network Colombia announced the Sustainable Development Best Practices Award where Banco de Bogota, Corficolombiana, and Promigas won in five different categories: gender equality, climate actions, reduced inequalities, and decent work, and economic growth. In terms of sustainable finance, we continue to achieve strong results. Our sustainable portfolio reached COP 35 trillion with 78% representing our social portfolio and 22% our green portfolio. In line with our commitment to the energy transition and the development of resilient infrastructure in Colombia, we have consolidated our position as a leading player in the structuring and financing of major projects nationwide. Under the leadership of Aval Banca de Inversión, Banco de Bogotá and Banco de Occidente participated in the financing of the [indiscernible], a landmark infrastructure project connecting [indiscernible] with the Porto International Airport expected to generate over 2,000 direct jobs. Additionally, Grupo Aval led the COP 1.9 trillion refinancing for the [indiscernible]. We're also leaders in financing of social projects that incorporate more than 800,000 panels, expanding clear energy generation and strengthening the country's renewable infrastructure. Moving to the opportunities for all pillar, quarterly highlights include our participation in the Vamos Pa’lante 2025 campaign led by University of Los Andes and W Radio to support young people from vulnerable backgrounds to complete their university studies. All of our entities, branches and ATMs are open for donation to the campaign, which is expected to benefit 1,200 students through university scholarships. Our entities also continued advancing social programs focused on financial inclusion, education, SMEs and productive projects. Our progress on diversity, equity, and inclusion was also recognized by [indiscernible] ranking, where three of our companies were ranked among the top 10 in Colombia in their categories. Regarding our flagship social initiative, Misión La Guajira, we continue delivering on our commitment. Since its launch 1.5 years ago, we have brought water, energy, and connectivity to vulnerable communities, benefiting more than 21,000 people and 3,000 families across 80 communities. On the environmental balance front, during this quarter, we defined Grupo Aval's climate strategy, which establishes a comprehensive road map to strengthen the management of risks and impacts associated with climate change. The strategy adopts IFRS 2 guidelines and TNFD recommendations in line with the financial superintendence of Colombia's regulation with clear goals to reduce emissions by 51% by 2030 and to promote carbon neutrality by 2050. We reaffirm our commitment to a low-carbon economy aligned with the Paris Agreement and Colombia's National sustainability objectives. It is also worth noting that beyond our entity's individual progress [indiscernible] became the first bank in Latin America to report under the TNFD standards, assessing the impact of its operational nature. In conclusion, we continue delivering across all ESG dimensions, remaining firmly committed to achieving a sustainable ROE, proving that profitability and sustainability are not competing goals for two sides of the same vision, creating lasting value for people, for the planet and for the country. Thank you. Maria Gutierrez Botero: Thank you, Paula. Now moving to the macro environment. Let me share some key trends affecting our business. Monthly data indicates that in the third quarter, the Colombian economy continued to perform positively, primarily driven by increased household demand. The main sectors driven growth remain public administration, entertainment and e-commerce. Looking ahead, we expect GDP growth of 2.7% in 2025 and 2.8% in 2026. This inflation has stalled. Inflation reached 5.1% in October, surpassing the 2024 year-end figure of 5.2%. We now expect inflation to close at 5.3% in 2025 and 4.2% in next year. This view incorporates an upward pressure in the coming months, particularly driven by ongoing minimum wage discussions. The fiscal environment remains challenging. The government approved the 2026 national budget at COP 546.9 trillion. However, this lacks a clear path back to the fiscal rule suspended this year. Analysts project a fiscal deficit of minus 7.5% of GDP in 2025, worse than 7.1% forecast in the medium-term fiscal framework. In September, the Central Bank kept its policy rate unchanged at 9.25%, maintaining a cautious stance amid persistent inflationary pressures. We expect rates to remain steadily through early 2026 with cost begins in the second quarter of 2026, ending the year at 8.25%. Camilo will now elaborate on our economic outlook. Camilo? Camilo Pérez Álvarez: Thank you, María Lorena. Good morning to all attendees. In the third quarter, the Colombian economy extended its upward trend to such an extent that annual growth rate is estimated to be around 3% for this quarter, a high since 2022. Domestic demand continued to explain its strong performance of local activity. Consumer companies returned to positive territory and has now been trending upwards for more than 2 years, while the national unemployment rate reached its lowest level ever for a third quarter, averaging 8.5% -- coupled with solid household income, both from employment and unemployment sources, Colombians continue to increase their consumption, especially of goods, which has also been supported by credit. Consumer loans reached their highest annual growth rate since 2023 in the third quarter. Furthermore, the increased domestic demand has also been supported by a high influx of tourists with more than 7 million visitors so far this year through August, a record high. For its part, government current and investment spending grew in real terms by more than 3% in the third quarter, also supporting economic activity. In this context, the best-performing economic sectors continue to be those most dependent on demand from both residents and nonresidents as well as the public sector, such as commerce, entertainment, transportation, accommodation, manufacturing, food services, and finance. On the export side, the best results are seen in coffee, processed foods, gold, bananas, and textiles, especially leather, which offset the decline observed in oil and coal exports. Regarding investment, the persistent lag in construction, especially buildings continues to hinder the sector's potential improvement, which is only supported by civil works, machinery, equipment, and biological resources investment. The investment recovery could improve after 2026 elections if uncertainty dissipates. Given this context, but acknowledging global risks and the local electoral cycle, the 2025 growth projection remains at 2.7%, close to the potential level and higher than the figures for 2023 and 2024. For 2026, the economy could improve to 2.8% growth. Turning to prices. This inflation process stalled in the third quarter with inflation reaching 5.2% in September, the same level as the year-end figure for 2024. In October, inflation increased to 5.5%. Inflationary pressures have persisted in food due to higher input costs, goods due to increased domestic demand, and non-rental services due to higher labor costs resulting from the minimum wage adjustment, the implementation of the labor reform and the reduction of the working hours per week. In this scenario, inflation is expected to end 2025 around 5.3%, above the 2024 level. As a consequence and pending the definition of the 2026 wage, the Central Bank has kept its benchmark interest rate stable at 9.25%. This level could remain for much of 2026 if inflation and its expectations do not show significant improvement. For the time being, interest rates remain restricted as the Central Bank acknowledges this, especially for investment. While for households, a limited impact is expected since the positive trend in consumption is based mainly on resources other than credit. On the fiscal front, favorable global financial conditions for emerging economies, debt management operations and stronger normal GDP growth will reduce interest payments to between 3.2% and 3.8% of GDP compared to the 4.7% of GDP projected in the medium-term fiscal framework. However, the primary deficit, which excludes interest payments, will approach historical highs, exceeding 3% of GDP and above the 2.4% projected for the world. If this occurs, the deficit will only be surpassed by those observed during the local crisis at the end of the 1990s and the pandemic. Despite the challenging state of the public finances between the end of June and September, the exchange rate fell from COP 4,102 per dollar to COP 3,970 per dollar, following the global weakening of the dollar. Furthermore, the government's monetization of dollars obtained from operations with international banks, the total return swap and external bond issuances led the Colombian peso to become the best performing currency in Latin America. Given that the government still has dollar excess balances and expects to issue new bonds for up to COP 5 billion and obtain direct credit from international banks for up to $1 billion, monetization will continue to impact the exchange rate. Ultimately, these flows would offset the effects of electoral uncertainty, which is expected to increase as the elections approach. Finally, the current account deficit is expected to widen from minus 1.8% of GDP in 2024 to minus 2.6% of GDP in 2025, driven by a stronger recovery in imports than exports, both in goods and services where terms of trade would be affected by lower commodity prices. It is important to note that for the first time ever, remittances surpassed oil exports as the economy's main source of foreign currency. This further strengthens the diversification of the export basket. To sum it up, it is important to highlight that we are currently at the beginning of the congressional and presidential elections, which will be held in the first half of 2026. It is too early to draw conclusions about the election results, but the economic scenarios are based on the expectation that Colombia will have a government that will need to be more fiscally disciplined, promote private investment by reducing uncertainty and generally make public policy decisions that promote economic growth. That will be all for my part. Maria Gutierrez Botero: Thank you. Thank you, Camilo. Moving to financial results. Our financial performance continued to improve with net income for the quarter reaching COP 521 billion, resulting in an 11.5% return on equity. The improvement throughout this cycle has been driven by consistent positive trends in the core business metrics of our banking segment. In addition, Porvenir was a strong contributor to our quarterly results. Gross loans and deposits grew 2.1% and 0.4% over the quarter, reaching 4.6% and 8.5% over 12 months. Consumer loans had the strongest quarterly growth in 10 quarters at 1.5%. As we had anticipated in our last call, commercial loan dynamics recovered significantly, growing 2.1% during the quarter. The strong performance in commercial lending includes benefits from the joint efforts of our banks with Aval Banca [indiscernible]. Peso-denominated commercial loans grew 3.1% over the quarter, the fastest pace in the last 8 quarters. Given our exposure to U.S. dollar-denominated loans, the 3.6% appreciation of the peso over the quarter had a negative impact on growth metrics. Our net interest income grew 11.6% to COP 2.9 trillion during the quarter, while our net interest margin improved to 4.3%, incorporating a consolidated NIM on loans of 4.6%. 90 days PDLs were 3.7%, the lowest level since the fourth quarter of 2022. Our cost of risk for the quarter was 1.9%. During the quarter, our investment portfolios performed well, driving NIM over investment. The performance of Porvenir's stabilization reserve during the quarter was struck. Now I would like to pass the call to Diego, who will give you our results. Diego? Diego Saravia: Thank you, Maria Lorena. I will start on Pages 12 and 13 with a few charts showing the growth rate and quality of our loan portfolio relative to the rest of the Colombian banking system. For comparability reasons, these are on consolidated figures under Colombian IFRS as published by the Superintendency of Finance. Starting on Page 11 for the 12 months ending in August 2025 commercial loans and mortgages for the system grew 0.8% and 5.8% in real terms, while consumer loans contracted 2.4% in real terms. Year-on-year, our Aval Banks gained 56 basis points of market share in consumer loans, 188 basis points for mortgages and last 77 basis points in commercial loans. This yielded year-on-year market share losses of 9 basis points in total loans. For the last 3 months, loans grew 1.6% in the system. This market growth begins to show signs of recovery, considering a 0.8% partly inflation. Mortgages grew 2.8% and commercial loans, 1.1% in nominal terms over the quarter, while consumer loans maintained their growth trajectory with 1.7% increase for the quarter. On Page 12. Loan quality for both the system and the Aval Banks showed an improvement during the quarter in most loan categories. Our banks continue to exhibit better loan portfolio quality than the system in gross loans, mortgage loans and consumer loans. I will now move to the consolidated results of Grupo Aval under IFRS. On Page 13, assets grew 7.2% year-on-year and 2.4% over the quarter to COP 344 trillion. Fixed income investments, which account for 17% of our assets reached COP 58 trillion, growing 24% year-on-year and 9.3% during the quarter. Gross loans, which account for 59% of our assets reached COP 203 trillion, growing 4.6% year-on-year and 2.1% over the quarter. Growth metrics were affected by the 3.6% appreciation of the Colombian peso spike during the quarter and 6.1% over 12 months. This peso appreciation reduced gross loan growth in 1.1 percentage points year-on-year and 0.6 percentage points quarter-on-quarter. Peso-denominated loans that account for 84% of gross loans grew 6.1% year-on-year and 2.8% during the quarter. While dollar-denominated loans, which account for 16% of gross loans grew 3.4% year-on-year and 1.8% in the quarter in dollar terms. Given the appreciation of the Colombian peso, our dollar-denominated loans contracted 2.9% year-on-year and 1.8% quarter-on-quarter in peso terms. Although retail loans continued to drive our growth, commercial loans have shown positive signs for the quarter. Consumer loans grew 4.1% year-on-year and 1.5% in the quarter. [ Gross ] loans growth continues to recover, increasing 4.4% year-on-year and 1.1% during the quarter. While personal loans grew 7.6% year-on-year and 4% during the quarter. Auto loans 1.9% year-on-year and 0.1% during the quarter; and finally, credit cards contracting 3.4% year-on-year and 0.4% during the quarter. Mortgages where we continue to be underweighted grew 18% year-on-year and 3.5% over quarter. Finally, commercial loans expanded 2.2% year-on-year and 2.1% during the quarter, this incorporates a negative impact of the peso appreciation of 1.4 percentage points year-on-year and 0.8% quarter-on-quarter. We expect our 2025 loan growth to be in the 4.5% area incorporating a negative effect of the peso appreciation on a dollar-denominated loans. On Page 14, we present the evolution of funding and deposits. Total funding increased 8.1% year-on-year and 2.9% during the quarter. Total bank borrowings grew 19% year-on-year, in line with the expansion of our investment portfolio and account for 8.8% of total funding. Deposits that account for around 3/4 of our funding grew 8.5% year-on-year or 0.4% quarter-on-quarter. Our deposits to net loan ratio closed at 109%. On Page 15, we present the evolution of our total capitalization, our attributable shareholders' equity and the capital adequacy ratio of our banks. Our total equity increased 2.9% in the quarter and 5.6% year-on-year, while our attributable equity increased 3.7% during the quarter and 5.9% year-on-year. Total solvency and Tier 1 ratio evidenced an increase in all of our banks. On Page 16, we present our NIMs. Net interest income reached COP 2.9 trillion, increasing 20.6% year-on-year and 11.6% during the quarter, driving -- driven by the strong performance of our trading investment income. Part of the quarterly net interest income was offset by hedging and derivatives that I will comment later, when covering other income. Total NIM increased 35 basis points to 4.35% quarter-on-quarter. Our consolidated NIM on loans expanded 21 basis points year-on-year and contracted 6 basis points during the quarter to 4.4%, while NIM on investments improved to 4.13%. NIM on loans incorporates a 60 basis points year-on-year expansion of NIM on retail loans to 5.9% and a 13 basis points year-on-year contraction of NIM on commercial loans to 3.28%. Focusing on our banking segments. The NIM on loans was 4.88%, materially stable year-on-year. This incorporates a 41 basis points year-on-year increase in NIM on retail loans to 6.4% and a 39 basis point year-on-year decrease in NIM on commercial loans to 3.72%. The total NIM of our banking segment expanded 17 basis points from the quarter to 4.74% due to the same dynamics that affected our consolidated NIM. On Page 17, we present our yields on loans, cost of funds and spreads. On a consolidated basis, the average yield on loans for the quarter decreased 2 basis points quarter-over-quarter to 11.7%, while the average 3-month IBR fell 6 basis points to 9.2%. Our consolidated cost of deposits remained relatively flat during the period, while our cost of funds slightly increased by 7 basis points quarter-on-quarter to 6.83%. The increase in the cost of funds is mainly attributable to a higher repo position related to our fixed income business. Finally, the Central Bank CapEx policy rate unchanged at 9.25% throughout the third quarter and a persistent inflationary pressures. We expect this level to remain over the following few quarters with rate cuts beginning by the end of 2026. On Pages 18 through 20, we present several loan portfolio quality ratios. Starting on Page 18, loan pay portfolio quality further strengthened during the quarter. PDL metrics continued to improve in all categories. 30-day PDL formation for the quarter reached COP 1.083 trillion, 23% lower than for third quarter 2024. 30-day PDLs were 4.64%, a 17 basis points improvement over 3 months and 113 basis points improvement over 12 months. 90-day PDLs were 3.37%, a 15 basis point improvement in the quarter and a 93 basis point improvement over 12 months. Commercial 30-day PDLs were 4.29% and 8 basis points improvement quarter-on-quarter and 110 basis points year-on-year. 90-day PDLs were 3.69%, an 18% improvement over the quarter and 105 basis points over the year. Consumer 30-day PDLs improved 39 basis points for the quarter and 136 basis points year-on-year to 4.68%, while 90-day PDLs improved 13 basis points during the quarter and 84 basis points year-on-year to 2.71%. Mortgages 30-day PDLs and 90-day PDLs improved 2 basis points and 5 basis points, respectively, over the quarter. Finally, the ratio of charge-offs to average 90-PDLs was 0.71x. On Page 20, coverage measured as allowances for Stages 2 and 3 as a percentage of Stages 2 and 3 loans was 31.9%, increasing 38 basis points relative to a quarter earlier. The shareable portfolio classified as Stage 1 grew to 89.1%, while Stage 3 fell for a fourth consecutive quarter to 5.8%, driven by improvements across all portfolios. On Page 20, cost of risk net of recoveries slightly increased this quarter to 1.9% in line with our expectations for the year. We expect 2025 cost of risk to be in the 1.9% area. Cost of risk net of recoveries from consumer loans improved 33 basis points to 3.9%. This includes a 41 basis point improvement in personal loans and to 7.7% while cost of risk for payroll loans was 1.9%. Cost of risk net for commercial loans was 1%. On Page 21, we present net fees and other income. Gross fee income grew 11.8% year-on-year and 7.5% quarter-on-quarter. Net fee income increased 11.5% and 8%, respectively, over these time periods. Both pensions and trust fees increased over the quarter due to high performance-based management fees driven by positive returns on financial markets. Banking fees increased 4.7% above growth -- loan growth. Our income from the nonfinancial sector was 88% of that reported in third quarter 2024 due to lower -- a lower contribution from the infrastructure sector. Finally, on the bottom of the page, the quarter-on-quarter decrease in operating income is mainly driven by derivatives and FX losses of COP 211 billion. These were mainly explained by hedging strategies of trading income in around our fixed income instruments. On Page 22, we present some efficiency ratios. Cost to assets for the quarter was 2.7%, including 9 basis points relative to a quarter earlier and increased 9 basis points year-on-year. Our quarterly cost-to-income improved 124 basis points to 50.7% over the quarter driven by the positive performance of our NIM. Quarterly expenses fell 1.4% quarter-on-quarter and grew 10.3% year-on-year. General and administrative expenses fell 0.8% quarter-on-quarter and reached 16% year-on-year. The year-on-year increase was driven by operating taxes, which account for 26% of this category and explain 7.9 percentage points of the year-on-year growth in administrative expenses. Personnel expenses grew 1.4% over the quarter and 4.8% year-on-year, well below the 9.5% increase in Colombia's minimum wage. Finally, on Page 23, we present our net income and portfolio ratios. Attributable net income for the quarter was COP 521 billion or COP 21.9 per share, increasing 25.3% relative to the third quarter of 2025, the highest since second quarter 2023. Our return on average assets and return on average equity for the quarter were 1% and 11.5%, respectively. I will now summarize our general guidance for 2025 and 2026. For 2025, we expect return on average equity to be in the 10.5% area with loan growth in the 4.5% area with commercial loans growing in the 2% area and retail loans growing 8.5% area. This incorporates an expected negative impact of the peso appreciation of 2 percentage points on commercial loan growth. We expect our consolidated NIM in the 4% area with NIM on loans in the 4.5%. NIM of our banking segment in the 4.6% area with NIM on loans in the 5.1% area. Cost of risk net of recoveries in the 1.9% area cost of assets in the 2.75% area, income from the nonfinancial sector of 85% for that of 2024 and fee income ratio in 21%. Now moving to our initial view for 2026. We expect loan growth in the 8% area with commercial loans growing at 7% in retail loans growing at 9%. Total NIM in the 4.3% area with NIM on loans in the 5.2% area. NIM of the banking segment is the 5% area with NIM on loans for banking segment is in the 5.6% area. Cost of risk net of recoveries in the 2% area cost to assets in the 2.8% area, income from the nonfinancial sector of 1.3x that for 2025, a fee income ratio of only 1%. Finally, we expect our 2026 return on average equity to be in the 12.5% -- in the 12% to 12.5% range. Maria Gutierrez Botero: Thank you, Diego. Finally, looking ahead, 2026 will be challenging for Colombian businesses, particularly during the first part of the year. The electoral cycle will bring political uncertainties that can be expected to bring volatility in the financial markets and delay investment decisions. In addition, the market consensus anticipates a high Central Bank real integration rate to prevail incorporate fiscal balance concerns and inflationary pressures due to a high minimum wage increase. Even though we recognize this to be a challenging environment, we remain positive for the continued recovery of the industry in which we operate. This view is supported on expectation of a sustainment sustained expansion of economic activity, a stable labor market, a slight improvement in asset quality, a reduction in average cost of funds relative to the year and opportunities for further banking penetration resulting from the introduction of Bre-B. In addition, we are working hard and focused on unlocking fundamental value supported on our strategic pillars. First, we expect to improve our presence in loans and deposits in the retail segment adding to the segment and businesses where we already lead, which will result in improvement in NIM and further growth. We continue working on improving the alignment of the strategy and the culture of our banks around a more client-centric experience further differentiation in target segments and products of each one of the business units as well as the redesign and centralization of key processes in Aval Valor Compartido, APC. We expect these elements to translate into a better customer experience, shorter innovation cycles and time to market and more competitiveness in our cost structure. We are committed to having a positive impact on the community and those we serve without losing focus on commercial and financial performance. Finally, regarding year-to-date share price performance, the price of our preferred shares has increased by 82%, 1.6x that of the [indiscernible]. Our ADR increased by 116%, 10.3x that of the Standard & Poor's 500. We are evaluating several options to further liquidity of our local shares and our ADR. On this front, we reached an agreement with JPMorgan. The depository bank of our ADR program to reduce by 80% the conversion cost of the issuance and cancellation of the ADRs in the United States. This measure will be effective starting next Monday, November '17 through next month and year April '17, 2026. So now we are open to questions. Operator: [Operator Instructions] Our first question will come from the line of Brian Flores with Citibank. Brian Flores: The first question is more of a request. If you could repeat the guidance, I think you focus only on general loan growth and ROE for '25 and '26. It would be great. I try to catch it, but honestly, I have bad hearing. So apologies on that. On the second point, I wanted to ask you on the contribution from trading and other operating income. Do you think these levels are sustainable because we have seen good contribution from these lines in the second quarter and also in this third quarter. So just if we can think about these levels on a recurring basis. And my last question on your NIM profile. It seems the NIM on loans declining, but also the NIM in investments is increasing very healthily. So also, how recurring do you think this is? Diego Saravia: Brian, I think those are great questions. Let me start with the easiest and just to recap our loan growth guidance. For this year, we are guiding to 4.5% with retail loans growing at 8.5% and 2% and that 2% includes a relevant negative impact of FX over our U.S. dollar-linked loans. For next year, we're guiding into 8% with a similar growth on the retail front, retail growing at 9% and commercial growing at 7%. 7% built in a seeing a combination of not having the negative impact and eventually having a positive income from FX and then reflecting growth over the past few months and I would say over the past quarters recovering on that front. Then I think questions 2 and 3 are linked and we're thinking on how to better transmit this to you guys. On the training front, you have to read 3 lines, when you look at our numbers. You have to look at what is happening in net interest margin, what is happening on the trading income and what is happening on the derivatives front. That's why I emphasized during the call that we had a negative effect from derivatives that affected the results and the fixed income front. What I'm gearing to is when you take into account those lines, our performance has been strong. However, given that we are conservative there and we go hedged, we are trying to lock in the kind of returns that we're looking into. The area where we had an upside during this quarter was we had a very strong performance from Porvenir. We expect to continue seeing positive performance from Porvenir, but this was a particularly strong quarter. So all in all, that is going on in the numbers. And the other question that you asked regarding the trends of peso of loans and investments having built an effect of having grown our fixed income portfolio that is in a relevant portion financed with repos. So we didn't want to change our methodology. But if you earmark the cost of those repos to fixed income, you see a better performance on the loan side, however, for comparability. We didn't want to move things around in each one of the quarters. To try to -- to get to the substance of your question, what we're seeing is we are seeing an improvement in pricing of loans and actually something that is built into our guidance is we are working on improving our mix, both on the asset side and on the liability side. So you see in the guidance, we are guiding into a better number for NIM for next year, but also a slightly worse number on the cost of risk side that what that is doing is it's bringing in that we've been growing more on some of the products that we haven't grown in the past, and we're making a richer mix on the asset side. We're doing basically the same on the liability side, where we're growing our deposits from the retail base from individuals that is helping us progressively and is built into those numbers. So bottom line, we are positive on the evolution of NIM. It's still shy of what were the stable numbers we used to run on before we saw this long cycle because of the Central Bank policy. But a lot of this is growth that is not dependent on Central Bank policy, what we're building in our numbers. Sorry for the long explanation, I think your questions were very relevant to understand how we're looking into the future. Brian Flores: No, it was very helpful. If I can, just a very quick follow-up. Can you repeat please the levels of cost of risk and ROE for both '25 and '26? Diego Saravia: ROE for this year, 10.5% area and for next year, 12% to 12.5% range. And cost of risk for this year, 1.9% and for next year, 2%. Operator: Our next question will come from the line of Diego Marquez with JPMorgan. Diego Marquez Antonio: So just a quick follow-up there on asset quality. So we're seeing most metrics improving cost of risk down at 1.9%, similar to what you guided. Just to get a sense on what you [indiscernible] to reach and what you expect going forward? And also a quick question on coverage. So we saw stable 90-day NPLs ratios of 130%. So what level should we work with going forward? Do you expect this to continue? Diego Saravia: Could you repeat your second question? I'm sorry, I'm not sure I caught it. Diego Marquez Antonio: Yes. Just on coverage. So we saw levels of 130% it has been stable for the 90-day NPLs. So just going forward, what level should we expect? Diego Saravia: Okay. And your first question, I have to be shortsighted on the answer to this one because it's very macro dependent. For next year, we're looking in this area of cost of risk that built in that we're closer to ending the cycle of recovery. So that's why we are not including any substantial improvement or any relevant improvement in cost of risk as a measure. It depends very much on how further years look like, what our sustainable costs of risks would look like. But -- what this built in is a growth, shy of 3% for GDP in Colombia, a stable labor market and a slight reduction in rates by the end of next year that should support that kind of level with a change in mix towards these kind of assets that I mentioned before then the coverage side is very much mechanics and how you provision under full IFRS. So it's not a target. It's a result -- it depends on how our different stages are behaving, therefore, what kind of provisions we're making and our write-off policies. So this basically is destroying that I would pay much more attention on a new PDL formation, where you can anticipate how things are going to evolve into the future where the trend has been consistently positive for our banks. Operator: Our next question will come from the launch of Daniel Mora with CrediCorp Capital. Daniel Mora: I have a questions. First 1 is regarding OpEx and efficiency ratios. How should we think about the synergies coming from a Valor Compartido. What will be the targeted efficiency ratio and the potential impact on ROE in 2026 and the years ahead, because if I'm not mistaken, it seems that the guidance of cost to assets suggest an increase from 2.5% to 2.8%. I would like to understand if OpEx will be in line with inflation or above or below? That would be my first question. And the second 1 is very short, is I would like to understand the impact on interest expenses this quarter, especially the interbank borrowings. I would like to know what was behind that? And if this is one-off or should we expect a similar impact going forward? Diego Saravia: Okay. Starting with your last question, I think that's in the line of Brian's question. What we've been doing over the past few quarters is we've been increasing our position in FX and that position is being financed with repos and that's what is driving our repo position. So it has a repo financing that investment in securities plus the derivatives on top where we're locking in some of these results. So the reason why you see more expenses, there is more volume that's the key driver, tied to a larger positive carry on the other side of the balance sheet. Then regarding OpEx, Colombia is facing pressure for next year on the inflation side. We've built into our numbers, a minimum wage increase that could be in the order of 11%. So when you start out with loan growth, that is in the 8% area, and you into account that you have a minimum wage plus inflation ending year at 5.3%, you have a pressure on expenses that begins there. Then the other part of your question, I think, is that the most reliant thinking to the future and it says, we've only begun to work on the Aval Valor Compartido initiative. We started with admin processes. Those processes are being implemented. There are some restructuring costs associated to those that delay in some way, when you start seeing the net result what is being done there. However, as Jorge Otalvaro mentioned, we have a large aspiration there, and we're moving into our next phase where we're going to touch on back office and operational process over next year. And when we have additional information there we can touch back on that to give you a better idea of what we expect to achieve. Operator: And there are no further questions at this time. Ms. Maria Lorena Gutierrez Botero, I turn the call back over to you. Maria Gutierrez Botero: Okay. Thank you to your attendance on today's conference call. This is the last time we meet in 2025. So see you next year. And I wish you all a happy holiday season. Merry Christmas, Happy New Year. So thank you for being with us. Operator: Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the HELLENiQ ENERGY Holdings conference call and live webcast to present and discuss the third quarter and 9 months 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to HELLENiQ ENERGY Holdings management team. Gentlemen, you may now proceed. Andreas Shiamishis: Thank you very much. Good afternoon to everybody. We're going to be talking a little bit about our third quarter performance over the next half an hour to an hour. And at the end, try and see if there are any questions that we can answer and maybe give you a bit of an insight into how we see the rest of the year closing. The backdrop, first of all, we have a market which is positive for the downstream business, relatively low level of absolute prices, low levels both in terms of the commodity price, but also in terms of the euro-dollar exchange rate because that effectively translates into lower euro prices in the domestic market. That, combined with a regional mostly supply-led shortage of products, especially middle distillates have led to very healthy refining margins, which we have been enjoying for the last few months. If you add to that increased demand not only from the Greek market, but also from the regional markets for a number of reasons. Most of it is supply side led, it gives a very good backdrop for downstream businesses. In terms of operations, we have a very good refining performance after the Elefsina shutdown earlier in the year, revamped and updated refinery is running with very high availability. Aspropyrgos, which is nearing the end of run cycle. It's scheduled for a refinery shutdown and maintenance shutdown in the next few months is also doing very well. And this helps us to capitalize on the strong margins, the increased footprint on the international markets. And of course, the increasing demand that we have, as I mentioned, in pretty much all markets that we operate in. The other businesses have delivered record results, especially on the marketing side, both in Greece and international. And for the first time, we also have the full consolidation of the Enerwave. I'll make sure that I don't call it ELPEDISON I can because that would be sold off by my colleagues here. So Enerwave is the new name of ELPEDISON, which is included in our financials on a fully consolidated basis for the first time this quarter. As a result of that, we have an adjusted EBITDA, which is close to EUR 0.75 billion for the 9 months with EUR 365 million for the quarter. That puts us on a relatively safe trajectory to overshoot the EUR 1 billion, which is something of an internal benchmark for us, given it's going to be the fourth year which we managed to achieve that. And it is helping to deliver strong operating cash flows. Some of it were used to pay the one-off solidarity tax and others for the acquisition of the 50% of the old ELPEDISON, which was partly financed by our own cash flows and also by the disposal on the DEPA commercial business. But still, it leaves a healthy room for an interim dividend of EUR 0.20 per share, which is in line with what we paid last year. And this is effectively a strong signal of how we see the outlook as well. Now on the outlook, we have a number of developments. It's going to take us quite a long time to go through all of these. In summary, positive outlook. The quarter-to-date has been very strong. In fact, it has actually been even stronger than the third quarter. We've started the new business model on the supply and trading with the activities from our Geneva subsidiary, which is gradually picking up speed. And it is coordinating even better with the refining and the Supply & Trading team here in Athens [indiscernible]. Marketing is improving, mostly as a result of improved market, but mostly from the efforts that we put behind our networks and our performance in the pedal stations. Soon, we should be able to announce the commencement of the Thessaloniki-Skopje pipeline. I hope that by the end of the year, we'll be able to do that, which will give us an even better operating model and a better footprint into the West Balkans. And from them -- from there, we could actually think about reaching other markets as well. The green utility, which is effectively the combination of Enerwave and the renewables. It's coming together. It's going to take some time for this to blend into a seamless operation. We know that we're patient, and we'll work diligently to get to the results. The high-level plan is to double the size of Enerwave on a number of fronts and also to double the size of the green utility in the next few years. Now whether that takes 2 or 3 years, I don't know. We're still in the phase where we are relaunching the whole business. But there is definitely room for improvement there. Finally, on E&P, which is part of our business, which attracted a lot of publicity over the last few weeks. The latest one has been the signing of a farming agreement by ExxonMobil into Block 2. I remind people that we were effectively a 25% minority stakeholder there in the joint venture. 25% was owned by Energean, and they were the operator. The discussions with Exxon were led by Energean, and we participated in those discussions as well. I think we're all happy that we have the participation of a company like Exxon, which will not only cover some of the past costs and the well -- the exploratory well that will take place. But more importantly, it's providing the credibility and the experience and knowledge required in difficult explorations. A few weeks ago, we also announced that the joint venture with Chevron is a preferred bidder. And we hope that over the next few weeks, we should be signing that concession agreement as well. Which means that we'll be closing all the areas that might be of interest to us in the Greek [E&P]. Overall, a very good quarter, a good 9 months, not only in terms of results, but in terms of operations, in terms of safety and also in terms of steps in our strategic plan to grow this company even more. So with that, I will turn over to Dinos Panas, who is heading our Supply and Trading and he's also the Deputy CEO for the HELLENiQ Petroleum team to walk us through the environment and maybe shed some light on what he expects things to look like in the next few months. Dinos? Konstantinos Panas: Okay. Thank you, Andreas. Good afternoon, everybody. I have 3 slides on the environment. First slide, Page #6. We see that we had a weak Brent during the last 2 quarters of the year, second and third. We still see, let's say, a global crude [overhang], mostly driven, let's say, by the increased production from the United States and Guyana, but also from the lower, let's say, refining utilization in Russia following the drone attacks from Ukraine, which actually obliged the country to export more crude since they could not run the refineries. We see this type of trend continuing into the fourth quarter of the year. So most probably we will see weakness in crude, let's say, continuing in 4Q. And of course, a quite strong euro versus the USD, plus 6% compared to the last year's same quarter. Now the product cracks were quite strong in Urals gasoline in the third quarter. We see the same trend continuing in the fourth quarter, actually much stronger yesterday, as you all know, let's say, from the prices we had the USD crack of $38 a barrel, and the gasoline crack of $25 per barrel. And we had a refinery benchmark margin of $8.5 a barrel in the third quarter, significantly higher than the third quarter of 2024. We have seen October margins much higher than this number. And of course, November [advance] of the quite high numbers. Most probably, we will see that the middle distillate crack will stay strong during the remaining part of the year. And also remain strong when we have the U.S. sanctions in place in the 26th of January, if I remember correctly, which will make, let's say, imports of middle distillates into Europe more difficult because everybody will have to prove where the origin of this material comes from. Now on Page 7, we can see that natural gas prices were down by 7%. Electricity prices down by 3% and the EUA is higher by 7%. EUAs now are trading a little bit higher than [EUR 81 per metric ton]. And finally, on the gas market, we can see that the third quarter remained strong. We had a 2% increase in gasoline, flat quarter-over- diesel so in 0.5% increase overall. Aviation sales up 7% and the bunker sales 5%. We believe that the lower prices will support further growth in the domestic demand. And of course, with the economic growth that [indiscernible] increase, we expect that this will be the case in the third -- and in the fourth quarter of the year. And with this, we will pass to Vasileios Tsaitas for the group performance. Vasilis Tsaitas: Thank you, Dino. Good afternoon. So moving on to Page 10 to have an overview of our key numbers. So the refining sales up 4.3 million tons, it's an all-time record, driven by the very high production that we'll discuss further on at our system of refineries. Marketing also very strong sales, 4% higher. In terms of power generation, we have the addition of Enerwave that is mainly driving the quadrupling of the production. And similarly, it is also having an impact on the turnover, which otherwise without Enerwave would be lower driven by the lower commodity prices. An adjusted EBITDA of EUR 365 million, double the one of the third quarter '24, driven mainly by refining, the very strong refining margin that we discussed earlier on. Similarly, a very strong performance from marketing and the presentation of our green utility business, which combines Enerwave and renewables becoming a meaningful contribution to the group numbers at just over EUR 30 million for the quarter. In terms of our sources numbers, this number is now less relevant that [indiscernible] now Enerwave is fully consolidated. Finance costs lower than last year. And overall, we're moving a bit further down total capital employed of over EUR 5 billion as we have now fully consolidated Enerwave and total investments for the 9 months exceeding EUR 0.5 billion. Moving on to Page 11. So the doubling of our adjusted EBITDA profitability comes mainly from the very good refining environment comparing with refining margins in the similar period of last year. FX is having an impact given the strengthening of the euro, especially in the third quarter with retreating in the last few weeks. And performance-wise, certainly, our refining operations with Elefsina fresh from the turnaround and yielding very good performance in the third quarter, our marketing contribution as well as the addition of Enerwave. On Page 12, I think it's important to discuss a bit our CapEx and our cash flow for the 9 months. So our CapEx is driven on the downstream side, mainly by stay in business and largely by them and the turnaround at the [indiscernible] turnaround at our Elefsina refinery that happened during the second quarter, which is maintenance CapEx on the one side, but on the other side, it significantly enhances the ability of the refinery to capture the very good refining environment that we're experiencing in the second half. And on our green utility, we have the growth in Romania mainly. So the implementation of one of the wind projects and the acquisition of the hydro project in Bulgaria and the acquisition and the equity consideration of Enerwave. On the top right, effectively, we present how the adjusted cash flow, including normal operations, normal stay in business CapEx as well as accrual-based taxes. So excluding the effect of differences in taxable earnings in prepayments of taxes or any one-off windfall taxes. So that leaves us around EUR 450 million for the 9 months to be able to remunerate our capital providers, both on the debt as well as on the equity side, pursue our growth CapEx, and that should be just enough to have a net debt virtually flat compared to the beginning of the year -- but we have 3 items. One has to do obviously with the acquisition, including the debt consolidation of Enerwave. Obviously, this -- we don't make this level of this size of acquisitions every year. And if we do, it will enhance, obviously, their profitability base of the company. We have the Solidarity contribution in the beginning of the year that you are very well aware of, again, a one-off item. And as a result of the supply chain disruptions in the Red Sea and the increase of offtake of Iraqi crude, it has an impact on our working capital as long as we -- we have to ferry the cargoes around the Cape. So it's a temporary -- just over EUR 200 million of impact on our inventories, again, not recurring. So that brings the net debt to the total of EUR 2.5 billion. Moving on to the next page, a higher net and gross debt similarly due to the reason that we presented just now. The debt servicing cost has escalated significantly. This is driven by the decline in base rates, which we're able to take advantage given our floating exposure. The decline in spreads that we were able to negotiate with all our credit providers during the year and certainly a better cash utilization that eliminates or minimizes to be exact the cost of [indiscernible]. Our maturity curve well has -- I mean, properly amortized. We have a maturity coming up in the next few weeks, which is at the final stages of refinanced for 5 years. So that will move to the end of 2030. On Page 14, Andreas mentioned before, the decision about a flat interim dividend versus last year. We're certainly going to revisit our full year dividend at fourth quarter results as we do every year. I guess, always good to remind combined almost 40% of dividend yield in the last 3 years. That is compounding the total shareholder return over the last 4, 4.5 years to 1.5x of the share price. Now we'll move on to discuss a bit the business segment performance starting from Downstream. So our Refining Supply and Trading business, as we mentioned before, delivered very strong results on the back of good refining margins as well as a record production and record sales. So very good ability to capture refining margins, especially following the completion of the full turnaround at Elefsina refinery. And total sales for the 9 months around 11 million tonnes. On the next slide, we reiterate on the very good operational performance with exports close to 50%, yielding very strong returns, something that is driving -- moving on to the next page, something that is driving the very good overperformance. So as you can see, the $8.7 per barrel on the far right is the highest that we've seen in the last several quarters. That is partially driven by an improvement in the crude spreads given the availability of crude that also Dinos highlighted before as well as the very strong export premia that we are enjoying in the neighboring markets. Moving on to our Petrochemicals business on Page -- sorry, on Page 21. Certainly, we're experiencing a difficult cycle in this business in Europe and globally driven by overcapacity. It looks like that it's going to take some time to clear the overhang. So the returns are going to be much, much lower than the mid-cycle that we are -- would be used in the past. Important to say that our business is almost -- is to a large extent integrated with refining with Aspropyrgos refinery producing polymer-grade propylene, which is then converted to polypropylene at [indiscernible] complex. So that helps manage our position across the supply chain in order to be able to be much more resilient in the downturn and avoid losing money effectively in this business. So still considering the environment, a positive EBITDA of EUR 3 million for the third quarter. Now moving on to our fuel marketing business, starting from our domestic market in Greece. So as we discussed before, a very good result of EUR 38 million for the third quarter and over EUR 6 million of adjusted EBITDA for the year. This is driven by the increasing strength of our brands, especially Eco in Greece, the consistent increase in market shares in all products, in all auto fuel products, increased penetration of differentiated fuels, both in gasoline and diesel, increasing volumes while we continue with the rationalization of our network, so higher ATPs and much higher contribution at the point of sale and much higher profitability. And certainly, as a reminder, ECO is very well placed to take advantage of a very good tourist season in Greece, both on the retail side as well as on the aviation. In the international business, again, another record-breaking quarter and year-to-date with [EUR 30 million ] and EUR 70 million of adjusted EBITDA, respectively, close to 15% higher versus last year, increased volumes, increased profitability. Again, some of the drivers that referred to the Greek market like the very strong NFR contribution to our numbers and the differentiated fuels penetration are the key trends that have helped drive this result. On that note, I'll pass you on to George Alexopoulos, who's going to discuss our Green utility business. George? Georgios Alexopoulos: Thank you, Vasily. Good afternoon, everybody. We're very pleased to be consolidating Enerwave and thus being able to report our green utility segment. And turning to Page 26, I will not repeat the information on natural gas electricity price. I will note that prices were lower and continue to normalize natural gas and electricity. It was a quarter of low consumption in Greece, the third quarter. And also, we continue to have high participation of renewables in the mix, namely 57% versus 44% in the same quarter of last year. Turning to Page 27 and looking at the Green Utility segment with Enerwave on a pro-forma basis for the quarter, we -- it was a weaker quarter in terms of market fundamentals. On the conventional power side, spark spreads were lower. On the renewables side, we saw high curtailments. And given the lower demand, we also saw lower thermal production. So all in all, this translates into lower power generation and lower adjusted EBITDA overall, higher for renewables, but lower for Enerwave, and we will be discussing those separately as well. If we turn to Page 28, we see for the renewables higher capacity. We are at 494 megawatts installed capacity. Of course, higher production as a result of that, better weather conditions on the wind side. And thus getting better performance despite facing more pronounced curtailments versus last year. Quarterly EBITDA at EUR 15 million and 9-month. EBITDA at EUR 37 million, respectively. Turning to Page 29. I think we've discussed this graph before, but I wanted to stress that we are continuing our expansion plans. We focus on Southeastern Europe. We are diversifying both geographically and technologically. We are currently present in 5 countries, including a small participation in North Macedonia, which is not shown in the numbers of the renewables business is shown as part of the international business. We are progressing our installed capacity. And we have secured the path to 1.5 gigawatts by 2028. We currently have over 300 megawatts under construction, and we expect to complete about 1/3 of those within the current year or around the end of the current year. Turning to Page 30, the Enerwave page. I keep repeating it so I don't get it wrong. As we said, weaker market conditions. There was also grid unavailability at one of our sites, which did affect production. So all in all, lower adjusted EBITDA versus last year for the quarter, slightly higher for the 9 months. Yesterday, we relaunched the company under the new brand Enerwave, and we are pushing ahead our strategic transformation, which has several elements, 2 of which are important enough that I will mention here. We have already redesigned our commercial policy, and this is starting to show results. We expect to be launching new products following the relaunch of the company, improve customer service and, of course, targeting a higher market share. On the energy management side, now we have a combined portfolio of almost 1.4 gigawatts if we look at conventional assets and renewables assets. We are managing this portfolio on an integrated basis from Enerwave, and we expect to see better realization and better results for our renewables assets, but also for the combined green utility as well. And with this, I think we've reached the end of the presentation, and I think we will open it for questions. Operator: [Operator Instructions] The first question comes from the line of Grigoriou George with Wood & Co. George Grigoriou: A few questions, if I may. The one regards your production now in the third quarter. If I'm not mistaken, this was a record for your refining output. Just wanted to hear your thoughts on how much more you could actually produce. And my other questions are, I've noticed on your slide that in the third quarter, diesel sales of diesel, all the diesel here in Greece were actually 0, flat year-on-year. I wanted to hear your thoughts on that and how you see it evolving after the third quarter. And my last question goes to what was Dinos discussing before about the refining margins. You obviously mentioned the middle distillate cracks, but I wanted to hear your thoughts on the gasoline cracks as well. Andreas Shiamishis: Okay. Good afternoon George. I would ask Dinos to comment on the production and the cracks. Before doing that on the diesel sales, Well, we are seeing some increase. The market is not growing as fast as it was growing in the previous few years, but it's still growing. If you will, our market shares are growing. And also we're seeing a premiumization of our portfolio. So we're getting more of the premium auto fuels, which has diesel and gasoline 98 and 100 octane gasoline and the diesel, [biofuel] which are growing. Now on the cracks in the production, I will turn over to Dinos, who will answer. Konstantinos Panas: I think that we had a very high utilization in the third quarter. So the target is to keep that level, which is exceptional for -- was exceptional for the quarter and most probably if we keep it, we'll have a very good quarter in the fourth quarter of the year. So what I'm saying is that there is not a lot of space to increase production in the refineries. Now coming in the fourth quarter of the year, I mean diesel has been growing by roughly 2% in the 9 months of this year. We see signs of remaining strong in the fourth quarter as well. And additionally, on top of that, we will be selling gasoline, hitting gasoline in the year. So quite a few qualities of diesel will be shown in our sales in the fourth quarter. And we do have, let's say, a strong demand for diesel around the area. So I think it's going to be a good quarter for the diesel overall in the fourth one. Now regarding, let's say, gasoline, we have this ongoing issues with [RCC], which combined, let's say, with the Russian disruption and the low U.S. inventories makes us feel that the market -- the gasoline market will remain strong despite it's the weaker seasonality, but definitely not as strong as the distillate ones in the fourth quarter. Operator: [Operator Instructions] There are no further audio questions. I will now pass the floor to Mr. Katsenos to accommodate any written questions from the webcast participants. Mr. Katsenos, please proceed. Nikos Katsenos: Thank you, operator. We have 3 questions from Sylvia Richards from Morgan Stanley. The first one is third quarter was very strong on volumes. How do you see volumes for the fourth quarter? The second question is, what would be the CapEx needed to double anyway size? And the third one on your refinancing, do you expect to have lower finance costs? Andreas Shiamishis: Dinos, do you want to take the first question? Konstantinos Panas: Yes, I will take the first question. Q4 until now, we have the refiners operating at capacity. So the volumes are as high as I can get the production volumes. The second one on the CapEx. Vasilis Tsaitas: I'll take the CapEx. Just to be -- just to clarify, Enerwave is the utility business. It includes conventional generation, energy management, commercial business, retail business. So it's not -- it does not include the renewables. The CapEx required to double its size is fairly limited because the improvement in the profitability comes through performance improvements and growth in commercial and energy management and trading. So it's a limited investment. It's not a major CapEx. But as I said, this does not include renewables, which is tracked and reported separately. Andreas Shiamishis: Vasileios, one on the financing? Vasilis Tsaitas: Sure. On the refinancing, by [virtue] of refinancing, there won't be a significant impact on the finance cost. Over the year, we've been repricing all our facilities. So I would say that around 2/3 have already been repriced and we've seen the impact in the second and third quarter. And the last, let's say, 1/3 of our facilities, including the one that will be refinanced, will be repriced in the fourth quarter. So there is some positive impact left, but not as significant, I would say. Nikos Katsenos: We have another question from [Nicholas Payton] from Edison Group. Nicholas asked with regards to renewables are you still confident that you can hit your medium and long-term targets in terms of capacity for the renewables business? Second question, can we have an update on the office that has been set up in Switzerland? Is everything going to plan? And the third one, is there any update on the Suez situation any time that you might be able to resume that? Georgios Alexopoulos: Okay. Nicholas, on the first question, I mean, the short answer is yes. As you saw from the presentation, we have a secure path to -- we are at 0.5 gigawatt today. We have a secure path to 1.5 gigawatts in the next 3 years. And we have a pipeline of approximately 6 gigawatts out of which we can certainly find the rest to the 2 gigawatt target. Of course, every investment is subject to scrutiny and it proceeds when our return goals are met. But the answer clearly is yes, we can. Andreas Shiamishis: Okay. On Suez and the trading office, Dinos, do you want to take it? Konstantinos Panas: Yes. The trading office in Geneva is up and running for quite a few months now. We have the key, let's say, trading team front office in place. We have the middle office also in place, and we have the back office set up here in Athens. So the team is working well. We are looking to start buying and selling a little bit more outside of tenders. And of course, trade some third-party volumes, which will help us to increase our overall volumes above the system ones that we are producing the refineries. Now on the fifth Suez situation, there was an announcement from the Houthis leadership that they will stop the tax, but most of the majors are looking to the situation very carefully. We are monitoring the vessels that are passing through the Suez, and we've seen a little bit of an increase there. As soon as we are confident that the risks are very limited, we will start using the Suez route again, and this will help us both on the cost and on our working capital requirements because currently, it takes 45 days to go around the Cape, while through Suez, now it takes 16 days. Nikos Katsenos: Thank you. And we have another question from Christian Are from Eurobank Equities. Is there a turnaround scheduled for 2026? Konstantinos Panas: Yes. The answer is there is one for Aspropyrgos was scheduled to start at the beginning of next year in the first quarter. So February, March, we're going to have the maintenance turnaround of Aspropyrgos. Nikos Katsenos: Thank you. Operator, we don't have any other questions through the webcast. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Andreas Shiamishis: Thank you very much for your attendance. As we said, it has been a very good quarter. Our financial performance has been very good. The market backdrop has been very favorable. And in terms of operations, we've been able to make the most of it. From a strategic point of view, we have the upstream announcements over the last few days. We had the Enerwave launch, which effectively repositions and relaunches our power sector ambitions. As we've said, we're not buying to be the #1 electricity company and utility in Greece. We are aspiring to be a decent size, much bigger than we are today, Green Utility centered around our operations in Greece, but also looking to capitalize on opportunities in other markets as well. From a downstream point of view, we have a good setup of the refineries. The trading is doing very well. The international trading office has started picking up speed, and we are gradually seeing the benefits of this model change. The retail business in Greece and outside of Greece is doing very well. And in fact, it is an area where we think we can grow even more. But as you can appreciate, the pace of additional business and profitability is of a different scale between the 3 different businesses, the refining, supply and trading, the marketing and the utility. So we need to make sure that we maintain a balance between the 3 on the capital allocation policy, if you will, and continue our operational improvements irrespective of which business they relate to. So with that, we thank you for your time. And I am sure we will be able to touch base with you again in a few months when we do the full year presentation, which I expect to be and hope to be even better than what we have presented now. Thank you very much. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
Operator: Good morning, and welcome to The RMR Group Fiscal Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Bryan Maher, Senior Vice President. Please go ahead. Bryan Maher: Thank you, and good morning. Thank you for joining RMR's fiscal fourth quarter 2025 conference call. With me on today's call are President and CEO, Adam Portnoy; Chief Operating Officer, Matt Jordan; and Chief Financial Officer, Matt Brown. In just a moment, they will provide details about our business and quarterly results, followed by a question-and-answer session. I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on RMR's beliefs and expectations as of today, November 13, 2025, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be found on our website at rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call, including adjusted net income per share, distributable earnings and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. generally accepted accounting principles to these non-GAAP figures can be found in our financial results. I will now turn the call over to Adam. Adam Portnoy: Thanks, Bryan, and thank you all for joining us this morning. Yesterday, we reported fourth quarter results that were in line with our expectations, highlighted by distributable earnings of $0.44 per share, adjusted net income of $0.22 per share and adjusted EBITDA of $20.5 million. Despite a continued unsettled economic environment, RMR was active this past quarter executing on our clients' strategic initiatives. The majority of these activities took place in our managed equity REITs, where we completed nearly $2 billion of accretive debt financings at attractive rates and we completed over $300 million in asset sales. We believe these efforts are being recognized in the public markets, as demonstrated by the share price improvements at both DHC and ILPT. These share price improvements have resulted in DHC and ILPT both accruing potential incentive fees for RMR, which highlights the alignment of interest RMR has with the shareholders of our managed equity REITs. While subject to change, these potential incentive fees could be approximately $22 million in 2025. Turning to a few notable updates at our perpetual capital clients. DHC posted solid quarterly results led by strong sector tailwinds benefiting DHC's senior housing segment as well as the significant capital that has been invested in DHC's communities. Consolidated SHOP NOI increased 8% year-over-year to $29.6 million, led by a 210-basis point increase in occupancy to 81.5%, a 5.3% increase in average monthly rates. Beyond its continued focus on SHOP operations, DHC has also been executing on its strategic transformation. More specifically, DHC announced the successful sale of non-core assets at attractive valuations as it further deleverages its balance sheet. During the quarter, DHC also began executing on its announced transition of 116 SHOP communities from AlerisLife to new operators that have proven track records and well-established regional footprints. The transition of all 116 communities is expected to occur by year-end 2025. SVC continues to make significant progress selling non-core hotels to delever its balance sheet. During the quarter, SVC completed the sale of 40 hotels for over $292 million and is on pace to sell a total of 121 hotels in 2025 for $959 million. SVC also successfully completed a 0-coupon bond offering that raised $490 million in net proceeds that were used to repay SVC's revolving credit facility and retire the remainder of SVC's 2026 debt maturities. Beyond the deleveraging efforts, we remain focused on helping SVC drive EBITDA growth across its hotel portfolio, despite softening demand and ongoing revenue displacement from renovation activity. Further, our organization continues to keep SVC's triple net lease portfolio, which is anchored by the travel centers leased to investment-grade rated BP, well leased to ensure SVC benefits from the stable cash flows these assets generate. Seven Hills, our mortgage REIT, delivered another solid quarter, supported by a fully performing $642 million loan portfolio. Seven Hills has been exploring ways to generate new equity capital to ensure the REIT can continue to capitalize on the robust pipeline of investment opportunities our Tremont commercial lending team generates. To that end, Seven Hills recently announced a rights offering to raise approximately $65 million in new equity, which should allow for over $200 million in gross new loan investments. The rights offering is structured so that shareholders of record on November 10 were given a transferable right to buy 1 new share for every 2 shares they currently own. Importantly, RMR, which is Seven Hills largest shareholder, has agreed to backstop this offering, essentially acquiring any unexercised rights as a demonstration of our confidence in Seven Hills business prospects going forward. Lastly, in late October, OPI, after exploring all possible strategies to address its capital structure, entered into a restructuring support agreement, or RSA, with certain holders of its senior secured notes to restructure its corporate debt. As part of the RSA, OPI voluntarily initiated a court supervised process under Chapter 11 of the U.S. Bankruptcy Code. This agreement will meaningfully strengthen OPI's financial position and delever the balance sheet. As part of the RSA, RMR has agreed to continue managing OPI for a 5-year term that starts upon OPI's emergence from bankruptcy. RMR will receive a flat business management fee during the first 2 years of $14 million per year, and our property management agreement will remain unchanged. To support OPI's operations during this process, OPI entered into a debtor in possession financing of $125 million. We remain committed to supporting the assets, vendors and tenants of OPI throughout this process and look forward to updating you as new information becomes available in the future. To conclude, we are pleased with the progress RMR has made over the past quarter, assisting our public company clients with their financial and strategic objectives. Our perpetual capital clients also provide RMR with stable cash flows, which we can use to pursue new growth initiatives in the private capital space to drive future revenue and earnings growth. With that, I'll now turn the call over to Matt Jordan, Executive Vice President and Chief Operating Officer, to provide added insights on our platform and private capital growth initiatives. Matthew Jordan: Thanks, Adam, and good morning, everyone. As Adam mentioned, this past quarter was active on a number of fronts across the RMR platform. From a non-residential leasing perspective, despite continued headwinds, this past quarter, RMR arranged almost 1.4 million square feet of leases, and for the full fiscal year, almost 8 million square feet of leases at rental rates approximately 14% higher than previous rents for the same space. We believe these results speak to the hard work of our people, proactively engaging both tenants and the brokerage community. Beyond leasing, the platform continues to invest in our people, technology and brand building to ensure we stand out in a competitive fundraising environment. While fundraising remains challenging, we believe 2026 will be a better year for institutional investments in real estate, as recent conversations our capital formation team is having with potential partners have reinforced commitments to the United States in many of the sectors we operate in. Further, while many private capital investors are limiting how many new manager relationships they form given the effort associated with underwriting a new manager, the breadth and scale of our platform remains an attractive differentiator. Our current fundraising efforts remain focused on residential, credit and select development opportunities. Though as I noted, the diversity and scale of our platform will allow us to pivot quickly based on investor feedback. As it relates to RMR Residential, which currently manages almost $5 billion in value-add residential real estate, we formally launched fundraising for the enhanced growth venture in early September. Our efforts are focused on finding up to 3 large investors to invest approximately $250 million in multifamily real estate. This venture is targeting value-add returns and provides investors the ability to share in property level and general partner economics. RMR's commitment via almost $100 million in seed investments provides investors certainty that committed monies can be immediately put to work as well as providing them a portfolio they can readily underwrite. The seed investments include the 2 acquisitions closed this quarter for a gross aggregate cost of $143.4 million. One is a 266-unit property near Raleigh, North Carolina, and the other is a 275-unit property near Orlando, Florida. We expect there to be meaningful updates regarding the enhanced growth venture by early spring. Within the retail sector, we continue to source investment opportunities as we build a portfolio of value-add multi-tenant retail properties as part of establishing a track record in this sector. Our first investment, a $21 million community shopping center outside of Chicago, closed earlier this year and is executing on its underwritten business plan. We are currently assessing market opportunities with the goal of adding at least 2 more similarly sized deals. As it relates to our credit strategy, although we expect to close on the sale of 2 loans that are on our balance sheet later this month, we continue to explore opportunities to form a strategic venture with institutional capital. Real estate credit remains a high conviction strategy, and we believe Tremont's track record, middle market focus and strong underwriting and asset management teams are attractive differentiators. With that, I'll now turn the call over to Matt Brown, Executive Vice President and our Chief Financial Officer. Matthew Brown: Thanks, Matt, and good morning, everyone. As Adam highlighted, this quarter, we reported adjusted EBITDA of $20.5 million, distributable earnings of $0.44 per share and adjusted net income of $0.22 per share, all of which were in line with our expectations. Recurring service revenues were approximately $45.5 million, a sequential quarter increase of approximately $1.5 million, driven primarily by increases in enterprise values at DHC, ILPT and SVC and higher construction supervision fees. Next quarter, we expect recurring service revenues to decrease to approximately $42.5 million, driven by lost fee revenue from the announced sale of AlerisLife's business and decreases in certain of our managed REITs enterprise values from accretive debt financings and asset sales as we strategically manage their debt levels. Turning to expenses. Recurring cash compensation was $38.5 million this quarter, which was consistent with the prior quarter. Looking ahead to next quarter, we expect cash compensation to decline to approximately $37 million as recent cost containment measures continue to positively impact earnings. We expect our cash compensation reimbursement rate to be between 46% and 47% going forward. Recurring G&A this quarter was $10.1 million, a modest sequential quarter increase driven by costs associated with our ongoing private capital fundraising efforts. We expect recurring G&A to remain at these levels over the next couple of quarters. Interest expense this quarter increased to $1.7 million following the acquisitions of 2 leveraged residential properties that Matt highlighted. Interest expense next quarter is expected to increase to approximately $2.6 million as we incur a full quarter of interest on these new mortgages. It is also worth noting that this quarter's income tax rate of 21.4% reflects year-end adjustments primarily related to stock-based compensation. For modeling purposes, we expect our tax rate to decline to approximately 15% in Q1 based on our current forecast for incentive fees we may earn for calendar year 2025 and to approximately 18% for Q2 to Q4. As Matt mentioned on the call last quarter, we believe cash flow measures such as adjusted EBITDA and distributable earnings per share are becoming more relevant when comparing our results to prior periods and other alternative asset managers. Our private capital business is accretive to our cash flow, but as we continue to use RMR's strong balance sheet for strategic growth initiatives, expenses such as depreciation and interest will have an adverse impact on certain financial metrics, such as adjusted net income per share. Aggregating the collective assumptions I've outlined, next quarter, we expect adjusted EBITDA to be between $18 million to $20 million, distributable earnings to be between $0.42 and $0.44 per share and adjusted net income to be between $0.16 and $0.18 per share. This expected decline in quarterly results is mainly due to the sale of AlerisLife's business. For the fiscal fourth quarter and full year, we earned $1.4 million and $5.7 million, respectively, of fee revenue on the AlerisLife contract. We expect to offset this lost revenue with increases in DHC's enterprise value, as new operators that have well-established regional footprints and proven track records should help drive NOI growth. We ended the quarter with $162 million of total liquidity, including $62 million in cash and $100 million of capacity on our undrawn revolving credit facility. Finally, as Adam mentioned, if September 30 was the end of the measurement period, we would earn incentive fees from DHC and ILPT of approximately $22 million in the aggregate. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] The first question comes from Mitch Germain with Citizens Bank. Mitch Germain: I'm curious about OPI's fee. Does it in effect go up quarter-over-quarter? Adam Portnoy: Mitch, I think your question -- you broke up for me -- is about OPI's fees. See, effectively, it's pretty much flat. We were earning just under $14 million a year on a business management basis. It was like $13 million and change over the last 12 months, give or take. And so we have a contract that we'll be earning $14 million fixed fee for the first 2 years per year, $14 million. On the property management agreement, nothing's changed. All the economics are the exact same as they were prior to the filing. During -- just to be very clear, during the pendency of the bankruptcy itself, we are operating under the existing contract. So we probably will earn a little bit less than a $14 million run rate during the pendency of the bankruptcy. But upon emergence from the bankruptcy, that's when the clock starts and that's when the $14 million per year goes into effect. I'll just say -- it might be a correlator to your question. Look, the fact that we entered into what we call a restructuring support agreement, we think leads to hopefully a much faster bankruptcy process and allows us to get out of bankruptcy, hopefully, faster than if we had not entered with an RSA. So it's a little unclear exactly when we'll emerge, but I think roughly speaking, it's first half of 2026 we'll emerge. Mitch Germain: Got you. I think, Adam, you mentioned where your focus is on the private capital side in terms of fundraising. Maybe I missed it, but I didn't hear you mention shopping centers as a competency that you're raising capital for. Yet you guys are -- obviously, you own one and you're looking to allocate capital to others. So maybe just kind of go over where that sits with regards to your private capital strategy. Adam Portnoy: Sure. Sure, Mitch. So it's a great question. Matt touched a little bit on this in his prepared remarks. But you're right, we have it on our balance sheet. We think we have a lot of core competency in retail. We run a very large multibillion-dollar existing retail portfolio. Today, we have a very large, very competent retail asset management team on staff. We -- it's not front and center, but already in parts of our organization, given the size and breadth of the different portfolios. We do actually run shopping centers in different parts of the business, let's say, buried within some other asset classes or buried within some of the portfolios. So we do have experience there. We think for a lot of reasons investing in neighborhood and grocery-anchored specifically shopping centers is a great thing to be doing right now. Retail has really gone through transformation over the last 10 to 15 years, and we really have a pretty good supply-demand dynamic going on, where there's not a lot of new supply, and demand has sort of finally caught up with the existing supply. And so we see a lot of interesting opportunities to basically put money to work. And through either capital improvements or re-tenanting a center, we can generate outsized returns. And we're doing that first on our balance sheet, but we're pretty confident that we're going to be successful with that and that we'll be able to then take that -- demonstrate that track record and raise more capital around that going forward. Matt, do you want to add anything to that? Matthew Jordan: No. And I think, Mitch, we have the one asset outside of Chicago. And the point we were making in the prepared remarks is we're hoping to at least add a couple more of similar sized scale to build a fulsome track record that we can go out and fundraise around in hopefully a couple of years from now. Mitch Germain: Got you. And then did I hear that you guys have a couple of additional loan investments that are under agreement? Did I mishear that? Adam Portnoy: We don't have new -- at RMR itself, we do not have any new loan investments. We are -- I don't think we discussed in our prepared remarks, but it is in our public disclosures. We are selling or have an agreement to sell the 2 loans that we have on our balance sheet. Those are being sold. There's currently no plan to put more loans on RMR's balance sheet. What I did mention in my prepared remarks is we have a rights offering that we're in the middle of occurring at Seven Hills. And we expect, as a result of that, we'll have about $65 million of equity, which provides for about $200 million in additional loan investments that we plan to deploy over the following, call it, 6 months to get that money out. If your average loan size is $25 million, that's, call it, 8 loans, 8 to 10 loans, give or take, that will be new loans that we will be putting money out at Seven Hills. Mitch Germain: Last one for me. Matt, maybe just kind of go through the puts and takes to get you to your forecast in the first quarter, maybe a bridge from where you ended the fiscal fourth quarter to how you get to the first quarter in terms of your guidance, please? Matthew Brown: Sure. I'll focus on adjusted EBITDA for that. So fiscal fourth quarter was $20.5 million. Our forecast for fiscal Q1 is $18 million to $20 million. The major impact of that is the sale of AlerisLife's business and the wind down of that. Today, we earn 60 basis points on the revenue of our senior living communities. And as that winds down, we're expecting revenues to decrease about $1 million for that alone. So that's the major headline from the decrease from fiscal Q4 to fiscal Q1. Operator: [Operator Instructions] The next question comes from John Massocca with B. Riley. John Massocca: Maybe just sticking with that question quickly. Is there any expected additional negative flow through from the loss of managing AlerisLife as we think beyond next quarter? Matthew Brown: So the full wind down should happen by the end of this year. So while we're expecting about $1 million decrease in fee revenue this coming quarter, we will -- we did earn $1.4 million in fiscal Q4. So there'll be another kind of $400,000 deduct when we roll forward to fiscal Q2. John Massocca: Okay. And then maybe moving on to OPI. Can you just walk through what the advisory agreement looks like after 2 years? If you're still managing that portfolio? Adam Portnoy: Sure. So it's a 5 -- it's a term sheet we entered into with the -- what will be likely the new equity owners of OPI upon emergence. It's a 5-year term. The first 2 years are set at $14 million per year in the business management fees. The property management stays unchanged. And during the first 2 years, if -- now that $14 million stays the same, whether the portfolio shrinks or grows. It doesn't matter what the size of the portfolio is, that sort of stays in place at $14 million per year. After 2 years, we -- there's a negotiation. And I think -- look, the reason it was set up that way is with the new owners of OPI, I think there's a little bit of a hesitancy about how to structure the fee in terms of what it should be based on because we're not quite sure exactly the size and the makeup of OPI, let's say, over the next couple of years. We're confident and I think the new investors or new owners of OPI are confident that we will still be managing it over the next 2 to 3 years. But as part of that, I think they just want to see how the next couple of years play out, what's the size of the company. It could shrink from the size it is today. It could also grow from the size it is today. I mean part of what we've had discussions with the new owners about is that this vehicle might be used -- and I'm not saying this will be used, I'm saying it might be used as a vehicle to roll up other distressed office portfolios in the marketplace. I mean we're pretty encouraged that we found a group of investors. They currently own the debt. They wanted to equitize their debt and really want to go long on office because they really see as a great opportunity, both from a macro perspective -- and I think they also feel pretty good about the portfolio itself. Meaning there's a lot of pain that the OPI portfolio has gone through, but the vast majority of that pain is behind us. Looking forward, it looks much better than what we've gone through over the last 2 or 3 years in terms of leasing prospects and cash flow or NOI that's going to be coming out from the property. The other thing I'll mention, in the term sheet that's on file and is public is it also contemplates a significant incentive fee to be structured for RMR as well. It's anticipated that upfront, we will be getting 2% of the reorganized company and then another 8% that's a little bit more ambiguous but will be benchmarked to sort of outperforming benchmarks. Basically, think about it as sort of structured like a classic promote that you might see in a private equity type investment. That's what I think the other 8% will be structured like. So I think there's going to also be a higher degree of alignment between the manager and the new equity owners in terms of performing -- doing a good job in managing the portfolio and generating a healthy return for those equity holders. John Massocca: Okay. Kind of longer-term question given -- you have the 2-year contract, locked-in contract in place. But how kind of flexible is G&A spending to managing OPI? I guess, how much could you potentially bring down G&A if for whatever reason at the end of 2 years post emerging from bankruptcy, the portfolio goes in a different direction or the owners want to go a different way? Like is there kind of a high amount of leverage into how you can kind of pull down G&A if you're not managing OPI here in a couple of years? Adam Portnoy: The short answer is, we spend a lot of time thinking about that. As you know, John, we don't have P&Ls by business line, right? That's one of the advantages of the economies of scale for our clients that they basically manage with RMR. And we get those economies because we get the spread costs across the entire structure. So we don't have P&Ls, let's say, by business line or client. But I can tell you this much, office as an asset class is probably the most management-intensive asset class that we manage at RMR. And so while I don't believe this will be the case, if we were to not be managing, let's say, a large office portfolio at the company, I do think there would be significant cost cuts that we could take. I don't believe to even go even further. We're not quite sure what would happen to margins, but there's a scenario where we might have less cash flow but higher margins, if you can follow me, because we just know intuitively there's a lot of people that work on the office portfolio versus other portfolios we run. So I think we would be able to -- in the unlike -- what I believe is unlikely situation where we are no longer managing a large office portfolio, I think we would be able to correspondingly reduce costs at the organization. John Massocca: You touched on it a little bit with Mitch's question, but thinking about kind of the Seven Hills and selling kind of the loans that were on RMR's balance sheet to Seven Hills, what was kind of the logic there? Maybe I'm misremembering past calls, but it felt like there might have been an opportunity to grow the loan book within -- on the RMR balance sheet. Is there some kind of change strategically where you're no longer seeing that as attractive? Just kind of curious the thought process behind that transaction. Matthew Jordan: Yes, John, it's Matt. So if we go back in time about a year ago when we put these loans on our balance sheet, the goal was for them to be part of a seed portfolio to help us with the fundraising process. And they've been well-performing, incredibly strong loans that have contributed to RMR's earnings, quite frankly, in a significant way. But it's now been 12 to 18 months since those loans were initiated. And as we fund raise in a very competitive environment, I think it's fair to say -- one of the loans actually matures next July, I believe. So their attractiveness from a seed perspective had fallen off. And at the same time, you have Seven Hills that's raising this significant money. We want to make sure they can quickly deploy those proceeds. And by selling these loans at par to Seven Hills, it allows them to start quickly deploying, secure their dividend, which is also critical to this rights offering. And it just was a successful transaction for both sides. John Massocca: Okay. With Seven Hills in mind, any updates you can provide on how the rights offering is looking at this moment? I know it's -- obviously, there's moving pieces and things you might not be able to talk about. But just was kind of curious if there was any outlook on the amount of the rights offering you expect RMR to participate in. Adam Portnoy: Sure, John. So you mentioned it is sort of early. And the way these rights –- the way rights offerings typically work, not just this company, but the way they always do is, unfortunately, you really don't -- everyone sort of waits till the last minute, which you have to keep the rights out -- you have to have the -- about a month outstanding before people have a deadline to exercise the right. And so for whatever reason -- and I guess it's people like to keep their options open till the very last minute. You just don't know till the very end how many people are going to be exercising their rights. What I can tell you is that as part of the rights offering, we retained UBS Investment Bank as the dealer manager. And part of their job -- and one of their jobs is to basically solicit interest from outside investors that might want to buy the rights that other shareholders want to sell, meaning shareholders that don't want to exercise. And while there's been very little trading, it's only been a few days in the rights themselves. What has been encouraging is that we have had quite a bit of interactions with share -- new shareholders that are interested in perhaps buying rights from other shareholders that don't want to exercise them. Existing shareholders decide they don't want to exercise them, so they want to sell them. And we are working with UBS to try to help identify potential buyers of those. And what I'm saying is it's too early to tell, but we're having lots of meetings, right? And so there is interest out there. To get to the heart of your question, which is, well, how much is RMR going to have to spend here, or do we have to spend any? I think our base case assumption is that we don't expect that we're going to have to drop -- basically pull on the backstop beyond our 11% ownership. Meaning we own 11% today. We expect to exercise up to that 11%. It could be that we end up exercising some amount. I think it would be less than, let's say, half, if I had to guess. And so there's a possibility somewhere between 11% and 50% of the offering itself we might have to backstop. But again, it's very early. I mean, I do not believe it would be more than half the offering. I think that's pretty -- I don't want to say locked in stone, but it's hard to imagine that scenario. And I think it's -- our base case is that we will just be exercised -- just exercising up to the 11%. Could we end up exercising a little bit over that to fill out the backstop? Yes. But it's very hard to know for sure where the numbers are going to shake out. Operator: We now have a follow-up from Mitch Germain with Citizens Bank. Mitch Germain: Just quickly on the -- I know that, Matt, you talked about a bit of a true-up on interest expense because you've got a -- had it in place for a sub-quarter. Do we have a similar true-up for the -- what's the true-up for the rental income associated with the 2 residential assets that were acquired mid-quarter? How should we think about that? Matthew Brown: Yes. I think the best way to think about our wholly-owned portfolio, which includes the 2 residential acquisitions from the quarter, is we're expecting about $3.2 million of NOI to be contributed on a quarterly basis for those while they remain on the balance sheet. Mitch Germain: So that's aligned with this quarter. Is that the way to think about it? I think we're at $3.2 million right now. Matthew Brown: The owned real estate contributed about $650,000 of EBITDA in Q4. So that will grow to just over $3 million on a run rate basis. Mitch Germain: Okay. And then how should we think about -- you guys are pretty flushed with cash, but obviously, with the rights offering and some acquisitions that you're making. So how should we think about that balance on a go-forward basis? Adam Portnoy: So you're right to point out the rights offering. I think it's hard for us to put a stake in the ground to say exactly where we think things will be. As we sit today, we don't believe based on all the actions we have underway that we will be drawing on the revolver. That's not something we think. But it could be that we use more cash, obviously, than we have on the balance sheet today. We will be getting proceeds from the sale of the loans themselves. There will be a liquidity event, we hope and think, as we get into 2026 as we sell the enhanced growth fund. What? Matthew Brown: Plus incentive fees. Adam Portnoy: Plus incentive fees that we'll be getting, hopefully, at the end of the year. So we don't think we'll be drawing on the revolver, if that's maybe the question. It's hard to know exactly where the cash balance will be. I will say that we're not -- we don't feel cash constrained. We're still very active in terms of all of our initiatives in terms of continuing to look at other retail properties. We continue to look at sort of JV investments, GP investments on the residential side. So I think we feel that we're not constrained in our ability to continue to do things. But we are waiting to see where the rights offering shakes out and whether incentive fees actually shake out for the year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Adam Portnoy, President and Chief Executive Officer, for any closing remarks. Adam Portnoy: Thank you all for joining our call today. Institutional investors should contact RMR Investor Relations if you would like to schedule a meeting with management. Operator, that concludes our call. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good day, ladies and gentlemen. Welcome to Vista Gold's Third Quarter 2025 Financial Results and Corporate Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Today is Thursday, November 13, 2025. It is now my pleasure to introduce Pamela Solly, Vice President of Investor Relations. Please go ahead. Pamela Solly: Thank you, Sylvie, and good day, everyone. Thank you for joining the Vista Gold Third Quarter 2025 Financial Results and Corporate Update Conference Call. I'm Pamela Solly, Vice President of Investor Relations. On the call today is Fred Earnest, President and Chief Executive Officer; and Doug Tobler, Chief Financial Officer. On November 12, 2025, Vista reported its operating and financial results for the quarter ended September 30, 2025. Copies of the news release and quarterly report on Form 10-Q are available on our website at www.vistagold.com. During the course of this call and the question-and-answer session, we will be making forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Vista to be materially different from results, performance or achievements expressed or implied by such statements. Please refer to our most recently filed Form 10-Q for details of risks and other important factors that could cause actual results to differ materially from those in our forward-looking statements and the cautionary note regarding estimates of mineral resources and mineral reserves. I will now turn the call over to Fred Earnest. Frederick H. Earnest: Thank you, Pam, and thank you, everyone, for joining us on the call today. During the third quarter, we achieved a significant milestone with the completion of a new feasibility study for the Mt Todd gold project. The results of the study were announced on July 29, 2025. And this new study represents a fresh vision for the project as a 15,000 tonne per day operation, one that prioritizes lower initial capital costs and higher ore grades. The study underscores our commitment to see Mt Todd developed as an Australian project. I'll talk more on that later in the call. As we continue to evaluate strategic options for developing Mt Todd, we have started modifications to existing permits to align them with the new 15,000 tonne per day project and initiated technical work in preparation of a decision to commence detailed engineering. I'm pleased to report that we ended the quarter with a solid cash position, which Doug will discuss shortly. Additionally, we have now achieved 4 years without a lost-time accident at the site. We are committed to prioritizing the efficient use of our cash and creating long-term value for our shareholders through disciplined execution of our strategy for the Mt Todd gold project. I will discuss some of these topics in greater detail later in the call, but I will now turn the time over to Doug Tobler for a review of our financial results for the quarter ended September 30, 2025. Douglas Tobler: Thank you, Fred. And I'll begin today's discussion with a summary of our results of operations for the 3 and the 9-month periods ended September 30, 2025 compared to the same periods for 2024. For additional details, our full financial statements and our MD&A are included in our Form 10-Q that was filed earlier this week. For the 3-month periods ended September 30, '25 and '24, we reported net losses of $723,000 and $1,638,000, respectively. The most significant reason for the decline in our net loss in the current period was our recognition of other income upon recovery of $1,257,000 for taxes that were paid in connection with the 2020 sale of the Los Reyes gold project in Mexico. Minor offsets to these incomes resulted from slightly higher Mt Todd exploration and evaluation costs and administrative costs. Now for the 9-month periods ended September 30, 2025 and '24, we reported a net loss of $5,787,000 for the 2025 period and net income of $12,922,000 for the '24 period. The change between the '25 and the '24 periods resulted mostly from 2 gains recognized during the '24 9-month period. First, we recognized a $16.9 million gain on the grant of a royalty interest to Wheaton Precious Metals. And secondly, we had an $802,000 gain on the sale of a portion of our used mill equipment. Partially offsetting the change that resulted from these 2024 gains was the $1,257,000 Mexico tax recovery that I mentioned previously. Turning to our financial position. We continue to maintain a strong cash position with $13.7 million on hand at September 30, 2025. This compares to the $16.9 million cash on hand at December 31, 2024. We were successful in limiting our net decline in cash during this 9-month period because of the Mexico tax recovery and selected use of our ATM program. Also, we continue to have no debt. Looking forward, we expect our recurring costs and other expenses to remain largely in line with our expectations. For the 12-month period following September 30, 2025, the company estimates net recurring costs will approximate $7.4 million, plus an additional $2 million related to ongoing and currently planned work at Mt Todd. Thank you. That concludes my remarks. Fred, I'll turn it back to you now. Frederick H. Earnest: Thank you, Doug. Let me first talk about the feasibility study. As I mentioned earlier, during the quarter, we completed a new feasibility study for Mt Todd that presents a fresh vision for the project as a 15,000 tonne per day operation. The study significantly decreased the initial capital cost to -- from over $1 billion to $425 million, prioritized grade over tonnes, delivered stable gold production over a 30-year mine life and incorporated design and operating practices commonly used in Australian gold operations to reduce development and operation risks. The new feasibility study marks a significant shift in the strategy for Mt Todd, demonstrating the potential for near-term development of a smaller, lower capital cost project than those previously evaluated. At the feasibility study gold price of $2,500 an ounce, the net present value at a 5% discount rate is estimated to be USD 1.1 billion, with an internal rate of return of 27.8% and a payback period of 2.7 years. At a still conservative gold price of $3,300 per ounce, the net present value on an after-tax basis at a 5% discount rate is estimated to be $2.2 billion, with an internal rate of return of 44.7% and a payback period of 1.7 years. Obviously, these economics demonstrate very strong leverage to the price of gold. For additional information on the feasibility study results, please refer to Vista's news release dated July 29, 2025 and the feasibility study presentation, both of which can be found on our company website. Switching over to permits. As we've discussed in the past, we have all of the major permits for the previously evaluated 50,000 tonne per day operation. As all will appreciate, with design changes, with the rising gold price, there are some differences. And in order to align the new 15,000 tonne per day operation with those permits, modifications to some of those permits are necessary. The work commenced during the third quarter and is ongoing. Switching to technical studies. We are completing technical work in advance of a decision to commence a detailed engineering. The primary objective of these programs is to characterize material properties and attributes to support early-stage engineering and equipment selection decisions. During the third quarter, we maintained our focus on safety, environmental stewardship and stakeholder interest. The Mt Todd team passed the very significant milestone of 4 years with no lost-time accidents. We're very pleased with this achievement. We remain committed to our health and safety programs and our focus on extending this achievement. Site personnel continued to successfully manage Mt Todd environmental initiatives, and management continued its proactive engagement with the Jawoyn Association Aboriginal Corporation and other key stakeholders. Looking ahead, we believe Mt Todd holds tremendous intrinsic value and represents an exceptional investment opportunity at conservative long-term gold prices. With an all-in sustaining cost of $1,500 per ounce and a very conservative gold price of $3,500 an ounce, the Mt Todd gold project will generate approximately USD 300 million of free cash flow annually. Looking at this from another perspective, at a $2,500 gold price, the study net asset value per share is $8.41 per share. And at a $3,300 gold price, the study net asset value per share is $17.14 per share. That's nearly 10x our current share price. I think these numbers support our belief that there's a tremendous opportunity here and a -- tremendous opportunity to acquire Vista shares and see a significant increase on returns. We're very pleased with our share performance to date, which reflects not only the rise in the gold price, but also the market's strong support of the new Mt Todd 15,000 tonne per day feasibility study. Vista shares have increased approximately 210% year-to-date, with our market cap at approximately $220 million. We anticipate sustained strength in the gold price will continue to positively influence Vista's share price performance. Today, with much higher gold prices and growing investor interest, Mt Todd is positioned as one of the most attractive development-stage projects in the gold sector. Its strong project economics, favorable jurisdiction, permitting status and existing infrastructure make it well suited for near-term development. We are confident that this is the right market in which to advance Mt Todd. In conclusion, Vista is committed to seeing Mt Todd developed in compliance with the highest mining and ESG standards, and we'll work diligently toward that goal. For more information about Vista Gold, the Mt Todd project, I refer you to our corporate presentation, which can be found on our website at www.vistagold.com. We believe that Vista Gold represents an exceptional investment opportunity and that current prices represent a tremendous opportunity to establish a position or increase one's holdings in Vista Gold. This concludes my formal remarks, and we will now respond to any questions from participants on the call. Operator: [Operator Instructions] Your first question will be from Heiko Ihle at H.C. Wainwright. Heiko Ihle: Sorry for the background noise. I'm traveling, as you can probably hear. Hey, in our view, the project is one of the largest benefactors of the current metal pricing environment that we're in. At the start of this call, we were at $41.50 an ounce, which is nuts. It's probably even better in Australian -- probably it is even better in Australian dollar terms. You're only using $2,500 an ounce in your feasibility study. Can you just give a bit more color on the change at current prices due to the study? And how much of that has been reflected in investor and potential partner interest? I mean it seems like things are firing on all cylinders, but just add a bit of color on what you're seeing from the other side of the negotiating table. Frederick H. Earnest: Well, Heiko, just in general terms, obviously, at a $41.50 gold price, project economics are substantially better than the numbers that we discussed on the call. And that just speaks to the tremendous leverage that we enjoy in the project and the leverage to the price of gold. Obviously, these gold prices are driving a lot of dynamics in the market. And there's -- since announcing the feasibility study results, we have signed additional confidentiality agreements. We continue to see interest in the project. And we continue to move forward on all of the options that we have available to us. We have not shut off any avenues for advancing Mt Todd and, in fact, continue to be open to any of the options that we've laid out previously, ranging from an opportunity or a decision to advance Mt Todd as a standalone project, to forming a joint venture to develop it with an appropriate partner or even considering an appropriately valued corporate transaction. Heiko Ihle: Fair enough. Same question, but different -- and with a very different change. You've always had very good relationships with the Jawoyn. I mean any detail on how they've reacted to the latest feasibility study that came out? Did they provide any input, any commentary after it came? I mean I know you guys are talking very much on the regular. Frederick H. Earnest: Yes, I've been in Australia several times since announcing the feasibility study results and had meetings with representatives of Jawoyn leadership as well as their board of directors. The Jawoyn continue to be very supportive of the Mt Todd project and very hopeful that it will go forward in a timely manner. I think as most people know, that we have a contractual relationship with the Jawoyn, we have a couple of royalty agreements, and they stand to benefit economically from the development of the project, and they are supportive of the project and keen to see it move forward. Operator: Next, we will hear from Mike Schultz, investor. Mike Schultz: Fred, can you hear me? Frederick H. Earnest: We hear you loud and clear, Mike. Mike Schultz: Okay. Great. A couple of questions. So one is, can you shed light on like the number of confidentiality agreements that have been entered into since you announced kind of the recent feasibility study? Not exact numbers, ballpark -- yes. Frederick H. Earnest: Yes, Mike, we don't disclose how many confidentiality agreements we've signed or who they're with. That's just a matter of corporate practice. But we have signed a number of new confidentiality agreements and we continue to see new interest in the project. Mike Schultz: Okay. And then the second question is just I know that you've kind of come with the new feasibility study, you've opened the door some to potentially developing it on your own on -- Vista developing it as a standalone. What are the trade-offs there? Because like, I guess, if you enter into a partnership agreement, you're giving something up, versus if you do it standalone, you're having to pay finance costs. What are the benefits of a partner versus just going ahead and deciding to do it as a standalone? Frederick H. Earnest: That's a very astute question, Mike. There are some very significant trade-offs between either of those 2 execution strategies. Certainly, bringing in a joint venture partner, the advantages would be reduced dilution. There wouldn't be a need to issue near the number of shares of equity participation. But I suppose you could say that dilution would happen in a different way and, as you pointed out, you'd be giving up part of the project to bring in a joint venture partner. Ideally, and I don't think we would do a deal if we weren't satisfied with this condition, but a joint venture partner would bring to the table a project development team and an experience and reputation in developing gold projects, that we hope that the market would recognize and reward. And so that would be a benefit. Obviously, the biggest tradeoff there is that you're giving away part of the project, likely 50% or more, to bring in that joint venture partner. On the other hand, developing it on a standalone basis preserves 100% ownership for the Vista shareholders. It involves Vista building a team to advance the project and putting together that carefully, and selectively putting together that team of people, and sometimes that takes time. But obviously, there's some advantages there economically in that we retain 100% ownership. And there's different ways to finance this that could be some that are more attractive and more advantageous for shareholders than others. Doug, do you want to chime in with any other thoughts on this question? Douglas Tobler: Yes. I mean, I think you've hit the big points. It's around, on a joint venture opportunity, obviously, you'd be looking for a premium to the -- what our current share price is, if that's the driver of valuation. But keeping it yourself, you have the whole thing to work with, but you do have to take on, most commonly, you take on debt and you have a larger dilution. But having 100% of it is very helpful. I think one key point to make, which you brought up, Mike, is this option of looking to build Mt Todd on our own is really a valid option at this point in time, which we haven't had previously when we were a large project and needed to rely on finding a partner. So it definitely opens many more doors. Mike Schultz: Okay. Well, that's -- the answer is very helpful. I just, as an investor, as soon as something definitive is announced, and I think a lot of things could happen and I know you guys are evaluating that, but from an investor standpoint, you're just kind of waiting for something to be announced. And knowing that you can do it as a standalone does give you the option to do it if you -- if the partnerships don't seem favorable. Operator: Thank you. And at this time, Mr. Earnest, we have no other questions. Please proceed. Frederick H. Earnest: All right. Thank you, Sylvie, and thanks to all of you who have been on the call today. Obviously, we're very excited about where the project is headed and the results of the feasibility study. I'd like to go back to a point that I made just in closing, and that is we've seen a lot of volatility in the gold price in the last month and we've seen our share price move up, move down. I'd come back to the 2 concepts. The one is, what is the free cash flow that the project will generate? And again, using some very conservative numbers, we know that our all-in sustaining costs as estimated in the study would be just a little under $1,500 an ounce over the life of the project. And to make the math easy, just using a $3,500 gold price, so that's $2,000 in margin on 150,000 ounces of gold per year, that results in free cash flow of $300 million a year. This is a very robust project. I think that that number alone should attract people's interest. Looking at it from a different perspective, and that is looking at the study net asset value, and again, using these conservative gold prices that are published along with the feasibility study, first at $2,500 gold price, which results in a study NAV per share of $8.41, and comparing that to the $3,300 gold price study NAV per share, which is $17.14, and again, I'd point out that that latter number at still a very conservative gold price is 10x our current share price. I think both of these numbers speak to the fact that Vista is considerably undervalued, that there's tremendous upside opportunity here. And while the gold price is moving up and down, and I know that that causes some people some -- a little bit of concern and anxiety, I would suggest that this is a tremendous opportunity and a good time to be considering an investment in Vista Gold. We're doing the things that we feel are important to lay the groundwork for that future decision as far as how we develop the project. We continue to be very cautious and careful and prudent in the way that we manage the cash that we have. And we think that we're on the path to unlock significant value for shareholders. I'm excited about the opportunities that lie before us. I invite you to seriously consider and evaluate whether this is the right time for you to make an investment in Vista Gold. And if you already own shares of the company, I invite you to consider whether this is a time to increase your holding. We're in a very dynamic gold market. I think that we're at still in the very early stages of a bull market and that we will continue to see gold price increase, that that will be a contributing factor to all of the work that we're doing at the company to drive the share price higher and to create value for shareholders. So with that, I thank you for your time today and wish you all a very pleasant day. And thank you for participating in this quarterly conference update call. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Hello. Welcome to the Blaize Holdings, Inc. Third Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vernice Pozynski, Investor Relations. Vernice Pozynski: Before we begin the prepared remarks, we would like to remind you that earlier today, Blaize Holdings, Inc. issued a press release announcing its third quarter 2025 results. Earnings materials are available on the Investor Relations section of Blaize Holdings, Inc.'s website. Today's earnings call and press release reflect management's views as of today only and will include statements related to our competitive position, anticipated industry trends, our business and strategic priorities, our financial outlook, and our revenue guidance for the 2025 and full year 2025. All of which constitute forward-looking statements under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. For a discussion of material risks and other important factors that could impact our actual results, please refer to the company's SEC filings in today's press release. Both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today and other than as may be required by law, we undertake no obligation to update these statements as a result of new information or future events. Information discussed on this call concerning Blaize Holdings, Inc.'s industry, competitive position, and the markets in which it operates is based on information from independent industry and research organizations, other third-party sources, and management's estimates. These estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from Blaize Holdings, Inc.'s internal research. These estimates are based on reasonable assumptions and computations made upon reviewing such data and Blaize Holdings, Inc.'s experience in and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measure, please refer to today's press release. Operator: Good afternoon, everyone. Dinakar Munagala: Thank you for joining us today. Q3 was a breakout quarter for Blaize Holdings, Inc., defined by strong execution, commercial traction, and expanded global visibility. We delivered a solid quarter with revenue of $11.9 million, up 499% from Q2. We further expect the Q4 revenue to double from here. We secured a $30 million investment from Polar Asset Management Partners to support this acceleration following the close of Q3, to scale commercialization and the next generation chip development as we scale into 2026. Together, these results mark a step forward from validation to scale, demonstrating growing customer adoption and investor confidence in Blaize Holdings, Inc.'s strategy and solutions. We strengthened our ecosystem through two new key partnerships. First, we announced a collaboration with Technology Control Company (TCC). Second, we formalized a partnership with Reach Digital, the digital transformation arm of Reach Group, a subsidiary of International Holding Company (IHC), one of the largest investment holdings with a market capitalization of $240 billion. Blaize Holdings, Inc.'s presence on the global stage continues to expand. We participated in the world's most influential innovation forums: the Milken Institute Asia Summit 2025, the GITEX Global 2025 in the Middle East, and the Web Summit 2025 in Europe. Each reinforcing Blaize Holdings, Inc.'s growing role in shaping the future of efficient and deployable AI. Together, these achievements reflect a company executing with discipline and scale and demonstrate validation of the Blaize Holdings, Inc.'s hybrid AI platform through active deployments across key industries and geographies. They also validate the next chapter in AI's evolution, a new paradigm we call practical AI. This marks a turning point for the industry, from large models to practical outcomes, and from dependence on the cloud to sovereign AI infrastructure that organizations can now own and control. We call this next phase practical AI, AI that is useful, deployable, and sustainable at scale. First, practical AI is business-driven and outcome-focused. It solves problems that improve safety, productivity, and efficiency, helping customers optimize cost and create value across sectors such as smart infrastructure, defense, and industrial automation. Enterprises are prioritizing energy-efficient, cost-scalable inference while governments are investing in sovereign AI infrastructure that they can own and operate end-to-end. Second, it is hybrid by design. It combines heterogeneous compute, our graph streaming processor, alongside GPUs and CPUs, giving customers flexibility to choose the right fit hardware for each deployment, balancing performance, cost, and efficiency from cloud to edge. Third, it is efficient. Practical AI delivers a clear total cost of ownership advantage, achieving better performance per watt while reducing energy consumption and maintaining responsiveness. Efficiency defines the economics of AI at scale, enabling sustainable and sovereign deployments that work in the real world. Together, these principles—business-driven, hybrid, and efficient—define what practical AI means to our customers and partners. Let me highlight a few programs that illustrate our progress. First, Starshine Hybrid AI infrastructure, a $120 million collaboration with initial shipments in Q3 2025 and continuing through 2026. The partnership will focus on building AI infrastructure for smart city development, industrial automation, and public services across Asia. Second, TCC, the Saudi Arabia sovereign AI infrastructure announced in September. This partnership positions Blaize Holdings, Inc. as a technology enabler of Saudi Arabia's Vision 2030. TCC is working with us to build hybrid AI infrastructure. Together, we are developing energy-efficient AI systems to accelerate adoption across the kingdom's public safety and infrastructure sectors. Third, EutraSmart Infrastructure. Our AI-powered public safety rollout across India continues to advance. We are fulfilling Yota's purchase order and expect initial deliveries completed this year. Fourth, a new partnership with Reach Group, announced recently at GITEX Global 2025, strengthens Blaize Holdings, Inc.'s position in the Middle East through collaboration on practical AI solutions and regional infrastructure initiatives. Beyond these programs, we continue to expand our engagement worldwide through workshops with data center providers, sovereign operators, and system integrators while advancing proof of concept work in next-generation smart radar, facial recognition, and vision AI. Together, these initiatives strengthen Blaize Holdings, Inc.'s position as a practical, sovereign-ready AI platform partner, helping governments and enterprises deploy AI securely, efficiently, and at scale. On the technology front, Q3 was about execution. We continued the commercial rollout of the Blaize Holdings, Inc. AI platform, integrating hardware, software, and orchestration into one unified stack that simplifies deployment and accelerates time to value. The platform's orchestration layer gives customers flexibility for model packaging, deployment, and optimization across diverse environments. In hybrid AI infrastructure, Blaize Holdings, Inc.'s GSPs and GPUs work together, complementing each other to boost inference performance and power efficiency. At track scale, this combined architecture delivers up to 2.4 times higher performance per rack and up to three times better power efficiency, enabling greater performance per watt and lower total cost in real-world deployments. At GITEX Global 2025, we showcased these capabilities in live demonstrations from city safety analytics and incident detection to autonomous mobility, including ruggedized systems that operate reliably in environments up to 70 degrees Celsius. We are also continuing development of our next-generation chip, working closely with ecosystem partners to extend our leadership in low-power programmable AI. Next, we have strengthened our capital position. Earlier this week, we announced a $30 million private placement investment from Polar Asset Management Partners, reinforcing confidence in Blaize Holdings, Inc.'s long-term strategy and market opportunity. This new funding provides flexibility to advance commercialization, fulfill customer programs, and accelerate next-generation platform development. It positions us to accelerate the future of silicon development, expand ecosystem partnerships, and continue executing with financial discipline. Looking ahead, we expect continued growth momentum in Q4 and into 2026. Our priorities are clear: scale deployments, expand revenue through integrated AI solutions, and advance development of our next-generation GSP architecture. In 2026, our focus turns to global expansion of practical AI, delivering solutions that are efficient, scalable, and sovereign capable. We will deepen partnerships to drive adoption across key sectors such as urban AI, infrastructure build-out, defense, and retail. Our strategy centers on hybrid AI deployments that combine the strengths of Blaize Holdings, Inc.'s GSPs and GPUs across heterogeneous environments, enabling secure, energy-efficient, programmable AI infrastructure. Blaize Holdings, Inc. is helping lead this shift towards real-world, sustainable, and sovereign AI that bridges innovation with impact and turns technology into tangible progress for industries and societies. We reported revenue of $11.9 million for the third quarter, reflecting strong execution and continued growth. With that, I'll turn it over to Harminder Sehmi to walk through the financial highlights and our outlook for the remainder of the year. Harminder Sehmi: Thank you, Dinakar, and good afternoon, everyone. I'd like to start with a few highlights. We reported $11.9 million of revenue, beating the upper end of our guidance by $400,000. We beat our Q3 adjusted EBITDA loss guidance by $2 million, coming in at $11.1 million. This reflects better than expected execution and stronger operating discipline across the business. And we closed a $30 million financing with Polar Asset Management Partners. I will now move on to reviewing our financial performance for 2025 in more detail and provide guidance for the fourth quarter. The results that I'm sharing today demonstrate our shift from customer validation to growth at scale. This quarter, we delivered our strongest quarter yet with revenue of $11.9 million, which was a sequential increase of 499%. I'm pleased to report that revenue surpassed the upper end of our prior guidance range by $400,000. Approximately $10.4 million of the third quarter revenue was driven by the initial shipments of servers under the Starshine contract into the Asia Pacific region, which we expect to collect in full before the end of the year. Gross margin was 15% this quarter compared to 59% in 2025. As I noted in my remarks last quarter, as expected, initial gross margins related to the Starshine contract would be impacted by the higher component of third-party hardware in the system. Going forward, we're working with Starshine software teams to replace most GPUs in these servers with Blaize Holdings, Inc. GSP cards. This is expected to result in lower average selling prices for customers and improved margins for Blaize Holdings, Inc. in the quarters ahead. We continue to fulfill the Yota purchase order and anticipate that the initial approximately $6 million of revenue contribution will be completed this year. Let's now turn to our third quarter operating expenses, which I will discuss on a non-GAAP basis to exclude stock-based compensation charges. Research and development costs of $6 million were down slightly from $6.4 million in the second quarter and represented a year-over-year increase of 7%. Sales and general and admin costs totaled $8.5 million, largely flat versus the prior quarter and an increase of $3.6 million year-over-year. Blaize Holdings, Inc. remains disciplined on costs as the business grows. Our third quarter adjusted EBITDA loss was $11.1 million, down 1.8 sequentially and marginally up from Q3 of last year. This reflects better than expected execution and stronger operating discipline across the business. Reported net loss in the third quarter of $20.3 million was lower than the $29.6 million net loss for the second quarter. Both include significant non-cash adjustments related to stock-based compensation and fair value charges. The reconciliation between GAAP net loss and adjusted EBITDA is included in our earnings press release. We are very excited about our November 10 announcement of a $30 million private placement financing by Polar. This investment positions Blaize Holdings, Inc. to continue its trajectory of delivering results from contracts in hand, converting pipeline opportunities into new business, and advancing its chip roadmap. We welcome Polar as a long-term anchor investor in Blaize Holdings, Inc. We have also taken advantage of recent strong trading volumes to exercise our right to sell common stock to B. Riley under the committed equity facility signed in July. These initiatives have resulted in a significantly improved cash balance of over $60 million today. Combined with expected inflows from current customer contracts, we believe we're strongly positioned to fund our operations well into 2024. Total revenue for the fourth quarter is expected to be between $21.1 million and $23.1 million, almost doubling our third quarter performance. We anticipate adjusted EBITDA loss to be in the range of $15.6 million to $18.6 million, reflecting the variable nature of next-gen chip costs. The share-based charge and weighted average shares outstanding estimates are provided in our earnings press release. Looking ahead, our pipeline opportunities based on the current generation of silicon remain robust. Approximately $160 million from the Yota and Starshine deals are expected to support our revenue projections over the next six quarters or so. Our partnership with The Kingdom Of Saudi Arabia's Technology Control Company is progressing well. We anticipate initial revenues from delivering ruggedized AI boxes capable of operating in harsh high-temperature environments, and professional services to begin in 2026. We expect our recently announced partnership with Reach Digital to significantly enhance our profile as a provider of practical AI solutions. The Blaize Holdings, Inc. hybrid AI platform is resonating well in the market, and we look forward to providing further updates on customer progress. Let me highlight upcoming events for the financial community. Blaize Holdings, Inc. will be at the Craig Hallum Alpha Select Conference in New York on November 18 and at the Wells Fargo Annual TMT Summit in California on November 19. We look forward to seeing you at these events. Thank you. And with that, we'll now open the line for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone. We ask that you please limit yourself to one question and one follow-up. One moment, please. Our first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Kevin Cassidy: Hi. Congratulations on the good results and the really strong revenue growth. You know, tied in with this Starshine project, how many more quarters do you think it will be before you start shipping the third-party hardware? Harminder Sehmi: Hey, Kevin. This is Harminder. So your voice is a little cracky, but let me just repeat what I understood you to say, which is how many more quarters before we start to shift to a GSP-heavy server. Was that right? Kevin Cassidy: That's right. You know, just when can gross margins start to expand again? Harminder Sehmi: Yeah. So we expect in the latter part of the second half of next year. Work has been going on with both software teams to create this orchestration layer that allows workloads to seamlessly go across both the GSP and the GPU. So as we start to shift, as that work completes, the servers that will start to ship perhaps in the second quarter onwards will have more GSP components in them. Kevin Cassidy: Okay. Great. And, yeah, I'm always interested in your next-generation silicon. Can you give us any hints on what you're targeting with that and what will be some of the improvements? Dinakar Munagala: Sure. I can take this. So as you know, in the key markets that we're in, the majority of the customers, we're actually capturing at the business outcome level. And our software is quite coming to life as well. The whole platformization, orchestration layer, now what this is helping us is taking all of this customer demand and feedback into the definition of the next-generation chip. Certainly, it will be addressing existing video image visual workloads. Also, we're expanding it outside of this into other areas to help us capture a wider set of workloads. So it is a time expansion for us when the silicon comes in. But the good part right now, because we're platformizing and our software is playing a role, it already helps us understand what the customer's needs are. And by adding this next-generation silicon, it further improves our margins. But including things like language models, etcetera, are part of it also there. New kinds of AI that are emerging by being programmable and having the flexibility of our architecture, we're able to address all of that. Kevin Cassidy: Okay. Great. Thank you. Operator: Thank you. And our next question comes from the line of Craig Ellis with B. Riley Securities. Craig Ellis: Yeah. Thanks for taking the question, and congratulations on the momentum in the business, guys. I wanted to start, Dinakar, just following up on comments regarding TCC and Reach. Is it possible for you to help us scope the size of those two deals? And if not in their entirety, help us understand how material they might be to 2026. Dinakar Munagala: Sure. Happy to. So the interesting thing is both of these are in the Middle East. So let me address the size of the opportunity, not getting into the exact opportunity size, but the market is rapidly growing there. There's a lot of demand for AI solutions and particularly practical AI solutions that can help their cities become safer, the defense entities, and so on. So we're fortunate to have been working with TCC specifically in the Saudi region. And this is all part of the Vision 2030 where they have pretty big plans, you know, we were collaborating on AI solutions there. And Reach is in UAE. So we have solid partners in both these countries. And each of these, as we solidify the contracts, we will start announcing them to the market. Harminder Sehmi: I don't know if Dinakar wants to add. Dinakar Munagala: No. No. You covered it. I just want to make one very important point. I mean, the proof points about technology and particularly where we are able to exist in very harsh thermal conditions, we were the only solution that was able to still continue to do high-performance compute at the edge up to 75-degree centigrade temperatures. Right. At a total cost of, you know, you can, of course, put a system together and have lots of extra cooling. And these are the kind of things that are now resonating really well with customers. Craig Ellis: Exactly. The temperature grade testing was done, and we passed with flying colors. And as Dinakar mentioned, right, they picked the hottest month of the year, which is September. We were literally on the rooftop testing these. So all of those results are helping us, you know, get into the commercialization phase, which is the next step. Craig Ellis: That sounds like it's very compelling. Proof points for your partners, and it should translate well into what your sales can do in other areas with that deployed. So a follow-up question given the momentum that you have with each of those partners, should we expect there to be meaningful revenue recognition next year? Or will we be in a planning and deployment phase that would precede sales and activity? Just trying to understand when these start to really tip towards revenue-generating partnerships for you. Harminder Sehmi: So, Craig, as I mentioned in my prepared remarks, I certainly expect that the TCC relationship will start to contribute towards 2026. The exact timing of that, of course, will depend on how the solutions are deployed. Reach Digital is a relatively recent engagement. However, what we're starting to see is that as certain solutions are deployed with one customer, I think the pace at which some of those other customers in the same industry or same vertical and how quickly they adopt should accelerate. Craig Ellis: That's very helpful. And then just building on that point and going back to Starshine where we are into development from early development, what are your customers learning about the advantages of the system and how is that impacting the pace at which they're choosing to move forward? Dinakar Munagala: So certainly, hybrid AI is very popular. Which is how we complement GPUs with Blaize Holdings, Inc.'s GSP for the best business outcome and better cost and better operational expenses. So this is certainly resonating. Plus, Blaize Holdings, Inc. is programmable. And therefore, the workloads that can seamlessly move across GPU and GSP is another advantage. So these are the key learnings. And they're applying it to real problems such as smart infrastructure, agriculture, and so on. Right? So this relationship is growing well. Harminder Sehmi: May I just add one more comment on that, which is the affordability side? If you have a server which is full of GPUs, you know, the reason why margins are low, but also, you know, the customer affordability is impacted. As we start to replace those with the Blaize Holdings, Inc. GSPs, the selling price of that server comes down significantly. And our margins, of course, increase because we don't have to necessarily pass all of that benefit on. And that's where we'll see probably an acceleration of adoption of solutions in 2026. Craig Ellis: It's a very good point, and ROI is one of the things that I've always found quite resonant with the solution that you're providing. Lastly, for me, I think the last time we spoke in a forum like this, we were talking about a pipeline that would have been quantified at about $725 million. Is that still the right way to look at the pipeline? And any color on where there might be candidates for conversion as we look across the fourth quarter and into early 2026? Thanks, team. Harminder Sehmi: So the pipeline still remains robust. It's, as you know, it's a living beast. The ones that we expect to convert, we've already talked about. Obviously, we continue to ship on our Starshine contract. We continue to work with Yota. You'll have seen an announcement that enhances their relationship with Yota into the Middle East. Whether that hits 2026 or so on, you know, will depend on how fast we work together. But we feel very strong and confident that the pipeline remains strong, and it's based on currently shipping product. And the more deployments that we start to make, then, as I said, the conversion should accelerate, and we should add more customers that are not in the pipeline today from those verticals into that pipeline. So we'll talk about that more when we do our annual results next year. Dinakar Munagala: And to your point, the whole ROI is the key metric. What's driving this acceleration. As we engage with one customer and they're seeing the ROI clearly, there's a land and expand within the customer, but also these same solutions are relevant across the entire geography, and we're getting that momentum as well. Craig Ellis: Excellent. Thanks, guys. Operator: Thank you. And our next question comes from the line of Richard Shannon with Hallum. Richard Shannon: Well, thanks, Dinakar and Harminder, for letting me ask a few questions. My first two questions are going to be interrelated, and the first one, Harminder, looks for you to just repeat one of your last comments in your prepared remarks. I think you mentioned something around $160 million from, I believe, added Starshine revenue over the next six quarters. Can you verify that I got that right? And I assume that next six quarters includes the fourth quarter that we're in now to 2027. Is that accurate? Harminder Sehmi: That's accurate. It's basically the $120 million and the $6 million that we announced a few months ago. And we're starting to deliver on those. And, yes, it includes Q4 of this year. It's across from Q4 of this year. Richard Shannon: Okay. And my second question is following up on the prior commentary you've had on your calendar '26 revenues. If I got my notes right here, you talked about at least $130 million for next year. Is that a number you're reiterating, or would you change that in any way? Harminder Sehmi: So we're not changing that at the moment, Richard. Dinakar Munagala: Okay. Harminder Sehmi: We feel confident that the minimum is $130 million. Yes. Richard Shannon: Okay. Perfect. Let's see here. Maybe a question on OpEx. You mentioned your guidance here for an increase in EBITDA loss. You mentioned that's related to the next-gen chip development here. Maybe give us a sense of the degree to which these elevated expenses will continue into next year. Harminder Sehmi: So I'll start on the numbers, and then maybe, Dinakar, you can add a little bit more. As a fabless company, we benefit from actually the core of the GSP, that design, which is around which we have all of the IP. That core design remains constant across our roadmap. That's number one. So the internal costs of getting additional features, making maybe a chip bigger, etcetera, are disproportionately low. They don't expand linearly, if you will. What we're then left with is the external cost of getting third-party IP, of just having a partner put that IP into our chip. And then, of course, the largest expense is the foundry itself. Those costs, we don't disclose how much those are. They're just commercially sensitive. But they're typically paid over a 20 to 24-month period, generally back-end loaded. And we write these costs off through our P&L. So it's the reason why in Q4, for example, I've got a slightly wider range on my adjusted EBITDA just because certain costs, particularly IP and so on, we have to pay before we can actually start the work. The NRE is generally spread over time. So it will have an impact on 2026, which we've accounted for. We've been very fortunate in the past of having strong partners that allow us some favorable payment terms, and we'll continue to pursue those. Richard Shannon: Okay. Great. One last question for me. I'll jump out of the line. Dinakar, you've announced a number of partnerships and contracts in the last number of months here. All of them are kind of based in Asia, Southeast Asia, which is interesting and noteworthy here. So I'd love to get a sense from you to the degree to which this is a core focus for you. What's kind of your advantage and what's driven your success there so far? And then to what degree should we expect you to announce Western world or even US-based partnerships and customers in the near future? Thank you. Dinakar Munagala: Sure. So Asia and the Middle East are areas where there's a lot of new smart developments, etcetera, particularly in the Middle East. As well as Asia has a lot of camera infrastructure that's trying to upgrade. So naturally, there's a good amount of business that's happening there. But our pipeline does span the US as well as North and South America, as well as Europe. In fact, and we will, as we are able to announce, we will. But we've been in smart retail kind of use cases in the Americas. And also smart restaurants where they're looking at using video analytics for better margins and so on. There are other practical AI use cases that are part of our entire platform, hardware plus software, that is undergoing POCs. And as we solidify and start booking revenue, we'll be sure to announce deals in the US as well. Richard Shannon: Okay. Great. Thank you, guys. Operator: Our next question comes from the line of Gil Luria with D. A. Davidson. Gil Luria: Yes. Thank you. Glad I was able to get through. Sounds like you're on track for this year, on track for next year. You're building up the book of business mostly through relationships. So I wanted to ask in terms of the conversion of the pipeline, is the strategy going to be mostly focused on the partners that you're accumulating, or is there more of a thought to also having more direct sales as you have opportunities with bigger customers? Dinakar Munagala: Thank you, Gil. I can start, and Harminder can add. Most of the large customers that we're engaged with, as they deploy, there is repeat business there. There's an expansion of scope within those customers themselves. And these are pretty large customers. So that opportunity exists. And more importantly, or equally important, the use case that we are perfecting with this one particular customer is relevant across the geography. Like, what we do in Saudi Arabia is relevant for, let's say, Qatar, and others. So there is an expansion within the geography as well. Especially the example that Harminder gave. We're able to withstand harsh temperatures, outdoor settings, and deliver smart infrastructure use cases. And there's massive construction that's happening there. So there is both within the customer and across. And some of these engagements, which are at various stages of POCs, etcetera, are with large direct customers. And while we can't name them today, as these get solidified, we will. So the answer is we have both channel as well as direct. Gil Luria: So you've mentioned it now two or three times, so I have to ask how hot was it on the roof in Saudi? Dinakar Munagala: It went to almost, I think, north of 80 degrees centigrade, I think is what we ended up with. Yeah, it was very hot. Gil Luria: Well, that's some commitment on your part. That's founder mode. Appreciate it. Thank you. Operator: Thank you. And our next question comes from the line of Scott Searle with Roth. Scott Searle: Hey, good afternoon. Thanks for taking my questions. Maybe just to quickly follow-up on the qualified pipeline. I don't think you gave a number, but I'm wondering if you could just provide directionally, has it continued to increase and the diversity of that pipeline, has it continued to expand? I would imagine given some of the announcements you've made, it's getting a little bit more diverse. And, also, as part of that, looking at some of those qualified opportunities, are these more GSP-heavy deployments out of the gate so we would expect as you convert and deploy, that these should have higher gross margins at the start of the contracts? And then I had a follow-up. Harminder Sehmi: Okay. So the pipeline, the way we look at the pipeline, there is a gross pipeline which is a significant pipeline. It's what when we first qualify opportunities, we say, okay. What's the likely outcome over the next two to three years from this customer or from these groups of customers? And then, what changes for us is depending on which customer is working faster or slower through the POC process, it allows us to put a higher percentage weighting, if you like, in terms of when things will close. So when I stand back, the $725 million number, anything that was not imminent was already out of that number. What I have not done yet is, some of the new engagement that we've got. We've got some high-level indications of what these might mean for us over the next couple of years. But when we do our annual results announcement next year, we'll provide a lot more detail around conversion and so on. The second thing to say is the Starshine deal is probably the only one in the pipeline where we are doing within the same box replacement of a GPU. And that's where the margins are lower and they'll become higher. If you look at some of the other deals that we've got, our servers are coexisting with the GPU server in a data center. And so that server is full of Blaize Holdings, Inc. cards. And it has Blaize Holdings, Inc. software on it. So in, for example, the Yota one we talked about, 15% of that being software revenues. So it kind of depends, but more Starshine happens today, happens to be the only one where we are at this low margin going up to higher margin. Dinakar Munagala: So the only other thing I'd add is that besides the existing smart infrastructure and defense, the industrial automation is something that's coming up. You asked us about trends in which areas. And the kind of adoption that's happening is including the software platformization, the software layer that we have. And that means higher margins as well for us in those outcomes where we participate with the customer at the business outcome level. So those are all helping us at the platform level consuming a software plus or Blaize Holdings, Inc. service. Scott Searle: Okay. Very helpful. Thank you. And if I could just a question on the competitive landscape. You guys have done a good job of not only from a product standpoint, but developing the ecosystem around it, is driving that opportunity set. I'm wondering what you're seeing out there as you're going to customers. Is the competitive landscape getting a little bit more competitive or thinning? You guys have certainly been able to go out and raise capital. But I think they lack the ecosystem development around that. So I'm just kind of wondering what you're seeing out there in the trenches in terms of the competitive landscape. Thanks. Dinakar Munagala: That's a very good observation. The topic is very important because it solves the end application. And in that category, customers typically prototype on GPUs even when it comes to actual deployment CapEx and OpEx budgets are very critical, especially in the world of in the physical world, you know. And therefore, complementing Blaize Holdings, Inc. servers is the way to go. That's how they achieve their CapEx results and within operational margins. So and coming to competition, right, the productized solutions that exist pretty much there's a couple of names, big handful of names we come across. It's and customers we are the places we're winning, it's because of our rather combined advantage that we bring to the table in terms of TCO advantage, with, you know, helping them with the CapEx and OpEx. And fully productized. So in that area, we don't come across, you know, because we're at the business outcome level. That's what Blaize Holdings, Inc. gets picked. Harminder Sehmi: Yeah. The keyword there, Scott, is programmability. There are other competitive solutions that might do one or two things. And what we've realized is that whilst there may be a place for that in certain parts of the market, but the kind of customers that want to deploy AI at scale want it to be a customizable, programmable solution. Right? So no longer are we having a conversation, you know, how many tops do you have on your card? It is can I run my real-world application at a cost that makes sense for me? And if you're, by the way, a tier two cloud service provider who's making zero money today by running all of your infrastructure on GPUs. Well, you know, with working with Blaize Holdings, Inc., you now have a chance, more than a chance, of providing services to customers and making money. Scott Searle: Great. Thanks so much. Operator: Thank you. I'll now hand the call back over to Dinakar Munagala for any closing remarks. Dinakar Munagala: Before we close, I wanted to share a few quick highlights of this quarter. We delivered $11.9 million in revenue, beating the upper end of our guidance and marking a 499% sequential increase. We're confident that Q4 revenue will reach nearly double our Q3 performance, reflecting strong momentum heading into 2026. Excluding non-cash adjustments, we beat our Q3 adjusted EBITDA guidance by $2 million, reflecting stronger execution and operational discipline across the business. We began initial shipments under the Starshine contract into the APAC region, which we expect to collect in full before the end of the year. We closed a $30 million investment with Polar to accelerate commercialization, next-generation chip development, and expansion across key markets. Finally, I want to recognize our team for winning second place at the Milestone Systems Developer Summit in Copenhagen today with our emergency first responder VLN. It's a great example of how Blaize Holdings, Inc. technology is making cities safer and smarter through innovation. You can find the award-winning video demonstration on our Blaize Holdings, Inc. AI YouTube channel. Thank you to our customers, partners, and investors for your continued confidence. We're proud of what we've achieved this quarter and even more excited about what's ahead. Thank you. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.