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Line Dovarn: Good morning, and welcome to Munters' Q3 presentation for 2025. My name is Line Dovarn, and I'm Head of Investor Relations, joined here with -- by Klas Forsstrom, our CEO; and Katharina Fischer, our CFO. We will begin with a presentation of today's results, and we will then kick off the Q&A session. So if you do have questions from the webcast, you can post these questions throughout the presentation by using the chat function below, and we will address them at the end. So Klas, let's go. Klas Forsström: Thank you, Line. And once again, good morning, and very much welcome to this Q3 report. Let me start, as always, to give you some summarizing a few words of the quarter that has passed. A very strong order intake and invoicing complemented with robust profitability in an operating working capital development that pleases me very much. Data center technology in FoodTech, very well positioned for continued strong growth in the years to come. That thanks to the strategic decisions we made and the execution on those decisions. We see solid underlying demand drivers of both business areas, data center demand and the digitization of the food supply chain and our offer is very well fit to capture this growth. AirTech in general is meeting a continued tough battery market and a generally tight industrial investment climate in U.S. and EMEA. To offset these headwinds, we are resetting AirTech to be better fit for the future. They will be well positioned to capture growth when the demand returns with modern factories, continuous sharper R&D and a clearer commercial drive across several sectors. Yet Munters are creating a business with several legs to stand on in a world of continued tariffs, geopolitical tensions and general unpredictability , so this makes us well equipped for continued growth and market share gains. So over to the quarter then that has passed. Strong growth and solid profitability. That is what I think is the headline of the quarter. And drilling into the different components of this. Order intake a 57% increase. If I deduct the currency, it is 70% growth in comparable currency. AirTech showing growth, positive development in APAC and to some extent in Americas when it comes to order, Data Center Technologies increased, continued strong demand in Americas. And as you later will see also margin improvements and market gains in Asia as well. FoodTech, increased as well, solid demand in Americas, EMEA. Toward the backlog, 2% smaller backlog, but compensated to currency actually adjust 4% up. This has mainly been driven by Data Center Technologies. And the orders we receive now that brings us into 2026 and 2027, a pleasing book-to-bill of 1.1. Moving over then to net sales, 17% up, 9% currency, so that would end up in 20% in comparable currencies. AirTech, here, it declined, lower sales across all regions. Data Center Technologies, continued increase, successful execution on the backlog and also FoodTech increased and were driven mainly by controllers in this quarter. Very pleasing to see controllers, an area that we have allocated a lot of more resources into. Solid profitability, as I said. EBITDA margin of 13.5%, driven by DCT, the volume growth, production efficiency, still pleasing product mix and continuous lean improvements. FoodTech, strong contribution, although impacted by continued investments and to some extent, the product mix, as we all know, I mean, a software product has a higher margin than a controller, even if controllers is also on a good level. AirTech, impacted by lower volumes, unfavorable product and regional mix as well as uneven capacity utilization. This has been, to some extent, offset by cost and efficiency initiatives. And in the quarter, we had currency headwinds and more specifically, tariff impacts in DCT, and this I will come back to later on. A fair description of how the world looks like right now, variations in between regions and end markets. Americas represents close to 70% of our total order intake. EMEA about 20%; and APAC, 12%. If I divide it in between the different business areas, you can see that DCT, if I start with that, is -- continues to be dominated by the U.S. market, but very pleasing to see that we have started to make inroads into Asia already now. And when it comes to EMEA or Europe, I would say it is not us. It is the European weaker market that is holding our growth in Europe back. AirTech then more even balanced, 44% in AirTech in Americas and about 1/3 in EMEA and about 1/4, 25% in APAC then. And FoodTech then very much American and EMEA focused. Drilling down in Americas, AirTech the market remains soft, pockets though of growth. DCT continued to rapidly expand, led by hyperscaler investments and a drive across the full sector, to some extent definitely AI-driven. FoodTech, a growing market. Yes, avian flu, bird flu is controlled, but a pickup will take, as always, after that type of outbreak, some time to recover. EMEA, a mixed market sentiment across the sectors, competitive price environment when it comes to AirTech. As I alluded to earlier, DCT, slower markets with signs of picking up, focusing on energy efficiency, and that is good for us because we have the most energy-efficient solution there is in the data center market. And FoodTech positive market outlook, driven by increased regulation and push for better practices in this sector. APAC, signs of improvements in China, though continued high competition, Southeast Asia and India also showing growth as markets. Very pleasing to see that we are making inroads into Asia with data center. That is according to the plan, but it's always good to see that you're executing on the plan as well then. And FoodTech, China is not the focus market, but still, we are making inroads into China and Southeast Asia. Moving over to AirTech then. All in all, a stable growth situation in a challenging environment. You've heard me say many times that I have predicted that the battery segment would be in between 10% to 20% in the coming quarters. Now we were at the low end of 10%, and I will come back with some outlooks on the battery and what is happening there later on. Besides that then, about 50% of AirTech's markets do have a slight positive outlook moving forward. So you can see the blue arrows then in about 50% of the total market of what we have today, that is slightly positive. The order backlog decreased, highlighting here that is clean technology generated good growth in the volatile organic compound area, and that has been supported with good execution of the acquisitions we have done. And then in other areas, as I said earlier, that remained at the flat level in all regions, but not at a lower level. This is one of my favorite pictures. And you can have different views on this. If I take it on the long term, I would say that it's a fairly flat, solid demand across the segments. If I go into a couple of other inroads here, one inroad that as you can see, if you compare quarters to quarters, i.e., quarter 3 over the years, I see a small uptick in each and every quarter, and this is a currency adjusted graph then. And then if you see then last year compared to this year, I will also say, in general, a slight up pick on the total of the year, so to speak. But if I summarize this then, battery is still being in this 10% to 20%. Clean Technology continued to slowly increase, creating another leg to stand on and the other industrial, fairly stable, but a weaker investment climate in Americas. And that, I think, is something that you've heard from all industrial companies that it's a damp industrial economy in Americas at current. Moving over to sales then, lower volumes and profitability. I'm not pleased with the profitability that we generated. It has been affected with some not strong enough execution on move of factories and how we have been able to work with our internal areas. I'm not worried about this. I mean I look upon this as a quarter or 1.5 quarters delay on certain of that, but I'm not really pleased with this. The other side of the coin, that is that it is also a continued weak market as such. I would have anticipated that we would have seen somewhat of an uptick then. And all of this is also leading into that we then, as I will talk about later, are increasing our traction on how to reset AirTech for the future. Also very important, something that makes me very proud. That is, how do we drive investments then. Investment -- or should I say, innovation. Innovation can be driven by that we only innovate internally. For me, innovation is more and more about collaboration, collaborative work. This can be done with academia. This can be done with companies. This can be done by co-investing in certain areas. And here, you see a couple of examples where we have, over the last couple of years, made minority investments in different companies to fuel our innovation. Some highlights, ZutaCore, DCT being very, very close to the ship and how to handle that. AgriWebb and Farmsee FoodTech, when it comes to how to drive digitalization and software in different areas. And Capsol, the latest then addition, where we started to invest a little bit more than a year ago, and we have now invested even more. And now we talk about carbon capture and moving forward in clean technology. For me, this shows that we can co-innovate with others not only inside our own house, so to speak. Coming back then to AirTech. We have come to the conclusion, and this is something that is needed to be done that we need to reset AirTech. That means that we will intensify our cost out and how we work with AirTech. The market demand is lower than expected, and I foresee that it will continue to be flattish, especially when it comes to batteries moving forward. So we need to reset AirTech, position AirTech to the right level at current, but continue to keep it ready for a strong recovery when the market returns. What are we doing then here? We adjust on investments. We drive footprint optimizations. We are more selective on where should we then fuel certain investments. We are optimizing the workforce. We are balancing capacity while safeguarding core competencies. And all in all, we expect here to have an impact of some 200 positions globally. We drive increased efficiency. And you may say, I mean, okay, you don't have enough load in the factory, but you continue to drive efficiency. Yes, that is the never-ending story you have to do because when the market returns, you have an even more modern, even more efficient factory layout that can then have a very, very positive drop through on the way down. And we're on top of that also driving our commercial activities to reach out in wider sectors. All in all then, this will generate a net cost saving of about SEK 250 million to SEK 300 million at the end of 2026. It will generate a restructuring charge of about SEK 150 million, the majority taken in Q4 this year and some of it taken in Q1 next year. This is on top of the previously announced cost savings that are delivering according to plan. It is about resetting and be fit for the future when it comes to AirTech. What about battery? As you saw today, we announced a battery order. And I think this is really telling the story about battery sector. First of all, there is a battery sector. It is not dead, but it's a sector where decision processes are taking much longer time. I can take this as an example. This project that we then recently received, we have been discussing, working, talking about this for about a year. And then they put the thumb on the green button, so to speak, and they released it. I think that tells the story about the battery sector right now. We are working with 3, 4 different projects of some 100 million sizes moving forward. But what is clear, what earlier took perhaps half a year to decide, in current capital squeezed market, especially in the automotive sector, that can take up to a year, sometimes even longer. My other point here, that is, we have the best products in the marketplace. Here, we talk about, I mean, you that are nerds, into dehumidification then a minus 78 degrees Celsius. That means that we can extract humidity at a very, very low temperature, a high-performing type of product. All in all, this generated a USD 30 million towards a U.S. battery cell manufacturer and the planned deliveries for mid and end of 2026. Moving over to another reality. I'm so pleased to see that our strategic initiatives, our execution of those, are delivering order intake where it should be. So an order intake that generated a book-to-bill of close to 1.4 in the quarter, orders that we delivered into 2026 -- during 2026 and into 2027. We received it across the full product portfolio. And I think this is something that's extremely important. We have widened our assortment. And even if I'm a little bit biased, I still say we have the widest and in my book, the most competitive product offering in the cooling market of data centers. EMEA did grow, especially driven by CRAHs and service offer. APAC started to show good growth as well. So all in all, when it comes to orders, I'm very pleased. And I'm also looking forward, I'm very optimistic for the underlying market. But as always, some quarters are very, very high in orders and others could be lower. But with that said, I'm continuous very optimistic moving forward. If we move over to the other side then, net sales increased, successful delivery on the backlog, SyCool and CDUs, CRAHs the full assortment something to highlight. This is the last quarter with SyCool, so that will generate some product mix changes moving forward. We generated an adjusted EBITDA margin that continued to be strong. We had some tariff headwinds of 2 percentage units in the quarter. And here, I can say, I'm not happy to have this but I'm not too disappointed either because what we have, that is the most innovative and efficient chiller product in the market. And at current, we cannot produce that in U.S. We are building up capacity here. And I'm happy that we take and receive orders, so this tariff headwinds, I'm willing to eat, and I know that also data center because we gain market share moving forward. So all in all, we invest in strategic growth initiatives. We had solid volume growth in the quarter and also high production utilization. So a very strong quarter in all aspects in data center this quarter. And here, you can see that we are filling up, and this is just examples of publicized orders and other orders of significant size that and how they are delivered moving forward. In summary, you can say the majority of the orders we receive now that is for 2026 and 2027. Now I have to balance here in between trying to explain this is in as simple words as possible. And at the same time, when I return back to the Munters headquarter also get good enough grades from my experts then saying that I was not shortcutting this too much. But if I try to balance that then, liquid cooling is about the full scheme. It is the large loop, and liquid cooling is about dissipation, capture, transfer and release. You can say in simple terms that this consists of 2 different loops. One loop that is in the dissipation that is close to the chip, very, very close to the heat source, that is one loop then. And then you have the larger loop, the loop where we are the market leader in. That is the capture, transfer and release loop then. Let's call one technology loop and let's call one facility rejection loop. And the thing here that is we have all the products in the facility loop and we have the products that creates this plug and play in between. It is the connection in between the CDU and the LCDs that created this link. So I think what we should remember that is when we talk about liquid cooling, it is 2 loops. And those loops are connected, and they work together. And we have solutions to whatever is happening in the technology loop, we can attach and we can capture, reject and transfer it out. And then on top of that, we are also collaborating with the key players in the dissipation area. So I'm super excited about the different technologies that are here, and I'm super proud of what we have delivered when it comes to innovation and collaboration in this area. On another side then, but I'm also very, very happy about that is, I think that we have started to be the trend finder. I think we have started to be the trend setter. I think we have started to be the trend innovator. And what do I mean with that then? Let me give you a couple of examples. We brought to the market SyCool split, the first and very energy-efficient type of non-water coolant solution. We brought new CDUs of never before seen efficiency to the market. And we decided that either we develop the best chillers in the market, or we acquire the company that provides the best chillers in the market, and we decided to do the second. So we acquired Geoclima. We spotted the trends on where they were going, we developed that, and we brought it to the market. And I can tell you that customers are really saying that we are leading the innovation and technology game here. So that brings me to another trend, a trend that is emerging. I call it modularity in a different way. You have heard me talk about modularity many times. Then we talk about components that can be used in different type of products, and that drives efficiency internally. But when it comes to data center, it's another type of modularity. Look upon this as a little bit of Lego blocks that you put together subsystems and then you can build those subsystems. You can have 1, 2 or many together then. This is a trend that will complement other trends. And I can just tell you that we are also trend setters, trend spotters and working actively with the ones that are driving those trends in the market. So once again, I think we are ahead of the curve in this area as well, super excited about this. If I then go into another area, FoodTech. Here, I think we have something that we can really be proud of. We have made a transition of FoodTech from a more classic old equipment driven company to be now a fully-fledged digital and software company. Many, many companies are talking about this change. Here, we have done this. And this is just in the beginning of what this can deliver. So when it comes to order intake, it increased. Software is growing. Controllers, the new acquisitions and what we had inside our own house are generating good order intake. Synergies is worked in between the old controller companies and the new controller companies. And the order backlog increased in a good way. When it comes to ARR, we are continuing to increase in between 20% to 40% quarter-by-quarter. Here, we have decided to show this in U.S. dollar to take away the currency effect because now we have definitely currency headwind. But here, you can see more volume-driven type of increases and apples-to-apples. Super excited about this, and we are just in the beginning of this trend shift then. So what about artificial intelligence? Artificial intelligence are driving data center growth, yes. But what can a company get out of artificial intelligence using it. Let me introduce to our recently new employers. One, Calvin that are driving internal efficiency and one, Clarity that is driving how to work with our customers. Calvin, that is how do we program in a better way? How do we automate? How are we doing code reviews? How are we becoming faster and more efficient in developing software? And I'm amazed to see how much efficiency, how much innovation can be driven by this new employer, asked them. Controllers, the other area, not software. Here, we have Clarity. An agent that is a virtual assistant that is driving training for us, that is driving training for customers, that are generating customer support online and so on. And look upon those, yes, it is perhaps not tens of thousands of customers, but for Munters and FoodTech, there is an increasingly large amount of the users that we have. 1,300 users have joined Munters Academy. We have more than -- close to 200 training videos. We received more than 3,000 inquiries that was answered by Clarity, and we support 20 languages with our new digital-driven agent and Clarity. So 2 examples of what we do with artificial intelligence to drive efficiency and customer satisfaction. With that, I hand it over to you, Katharina, and please take us through the numbers. Katharina Fischer: Yes. Thank you, Klas. I'm pleased to talk about the continued strong performance for the group. In the third quarter, organic growth contributed with 56% to order intake and 15% to net sales. This was complemented by nonorganic growth of 14% and 11%, respectively. At the same time, we continued to experience negative currency effects of minus 39%. Worth highlighting is also the order backlog, that currency adjusted developed well and then increased about 4% in the quarter. The adjusted EBITA margin remained solid at 13.5%, although lower than prior year's exceptionally high level. Here, data center and FoodTech continued to deliver very strong margins, so really demonstrating operational discipline across the business. As you heard Klas say, the margin in AirTech declined, both compared to prior year and also versus -- slightly versus prior quarter. And this was due to lower volume, unfavorable product and regional mix and then also continued dual site costs for the transition into the new factory in Amesbury, which has taken longer than anticipated and is expected to be fully operational by the end of the year. A key achievement in the quarter was the continued improvement in operating working capital. Here, we have reduced to now 8.3% of net sales. which is well below our target range of 13% to 10%. So this is a clear result of very disciplined work across the organization. Our net debt increased, and this is mainly reflecting then the acquisitions made, debt finance acquisitions and also the higher lease liabilities due to the new facility in Amesbury. Looking at the margin development then. As mentioned, the margin remains solid then at the 13.5%, even though it was lower compared to the high -- tough comparison last year. The different factors then, volume growth for data center and FoodTech had a positive impact on the margin. And for AirTech, it was a negative impact from volume, obviously then. I'm pleased to see that we continue to drive positive net price increases, mainly in data center and FoodTech. We also saw a negative mix impact, both for AirTech due to the higher mix from APAC and also product mix, regional mix from FoodTech. Also then, as Klas has highlighted, we had negative impacts from tariffs in DCT with 2 percentage points, and this is something that we anticipate to remain until the U.S. production of US chillers is up and running then in the U.S. On the operational side, the under-absorption in AirTech weighted on the margin, although there was a positive offset from the high factory utilization in data center. And then it's worth mentioning also that all business areas continue to drive very strong efficiency improvements. We also continue to invest in our strategic initiatives, as we have mentioned in prior quarters, and this has to do with building digital capabilities, system support and further strengthening our footprint across the globe then. And then finally, the currency had a negative impact for this quarterly result. Turning to cash flow then. If we look at the main cash flow movements, cash flow was strong for the first 9 months, although slightly lower than prior year, and this was due to lower -- slightly lower operating earnings and also a less favorable development in working capital. If we look at the individual business areas, data center continued to deliver very solid cash flow, supported by customer advances and strong profitability. And in AirTech, there was a negative cash flow then due to the weakness in the battery market and also the continued under-absorption. If we look at cash flow from investments, you see that the main part there is that we, earlier this year, bought the remaining shares in the software company, MTech, and also the continued investments in the manufacturing footprint and mainly in Amesbury. Also, this slide is showing the continuing operations. If you look at the discontinuing operations, you will also see the SEK 1 billion that we received for the divestment of the FoodTech equipment business earlier this year. And we, of course, continue to maintain a very strong focus on cash management, and I'm very pleased to see the positive effects of all the efforts that we have ongoing to increase operational efficiency and also the capital discipline across the group. Looking at investments then. We maintain a highly disciplined approach to the capital allocation. We focus our investments in the areas that generates the strongest long-term growth and also supports profitable, sustainable growth. In the third quarter, the ratio CapEx to net sales was 3.9%. And if you look 12 months rolling, it was 6.7%, so although the quarterly level was a little bit lower in Q3, in the near term, we expect it to be somewhat elevated above the historical levels, as we continue to invest in automization and innovation and digital capabilities. And an example of this, of course, in the coming quarters, is the ongoing expansion of the Virginia site for data center, where we are setting up chiller production then in the U.S. and also investing in a new test lab. And these investments, of course, strengthen our technological capabilities and also the regional manufacturing footprint. So we are very well positioned then to remain and be able to capture future growth in this area for Americas. Looking at leverage. The leverage ratio was 2.8, which is then unchanged compared to the second quarter. if you compare to Q3 last year, it's somewhat elevated then, and this is due to the acquisitions made recently, and then also the increased liability for Amesbury. And in the coming quarters, I want to highlight that we will be paying some holdbacks relating to some acquisitions made recently, including Geoclima and MTech. And we maintain our ambition to keep leverage within 1.5 and 2.5%. And we are comfortable staying above this level temporarily since this is due to the strategic investments that are so important for us to really further develop our competitive position and support our long-term growth. I also want to mention that we, in the third quarter, issued our second green bond, so now we have more access to the credit market, and we have been able then to diversify our funding beyond the bank, traditional bank loans. Moving to service then. So expanding service is, of course, a key priority across all our business areas. And in the quarter, we had an organic growth of 6% for service. And of course, here, we want to keep our systems running for our customers in a very efficient and sustainable way through the whole life cycle. But of course, also for Munters, it creates stable and recurring earnings base for us. So that is also important. And service is defined as aftermarket service across the business areas and then also the software revenue for FoodTech. Components has also developed well in the quarter. And this is, as you know, sold mainly within AirTech. So here, we have dehumidification rotors and evaporative pads as growth drivers. And the group's ambition for service and components is to be above 1/3 of group net sales. And in the quarter, we were at 24%. And also if you look 12 months rolling, it was on 24%. And then if we look to the individual business areas, you can see that both AirTech and data center increased their service shares. So AirTech is at 22% and data center at 5%. FoodTech here has 21%, which is a decline compared to last year, but that has to do with this year, we have a higher mix of controller sales and they don't have as much service. So going forward, we will continue, of course, to build on our growing installed base and continue to invest in smarter and more connected and even more energy-efficient products that creates value for our customers and make our products even more reliable. And then looking at our sustainability initiatives here. So here, we continue to make very meaningful progress. Circularity is something that is part of our daily operations. And one example of this is the circularity program that we have been running them with Combient Pure. So this is about how we can increase circularity within AirTech with regards to their processes and products. So it's about designing for reuse, recycling and do it more efficiently. And here, we have identified opportunities for even higher materiality circularity with 15% and there is also a possibility then to further reduce Scope 3 emission by developing our service offering more broadly. Just recently, we also announced a very interesting collaboration around innovation. So here, the residues from our rotor production will be reused for plasterboard manufacturing. So this is a really innovative initiative where we will turn waste into new material and really strengthen our regional circular value chain. So I think 2 really good examples within circularity. And of course, this is a continued focus for the group. We will further expand this across the organization, and we will also deepen the supplier engagement further going forward. With that, I would like to thank you and hand it back to you, Klas. Klas Forsström: Thank you very much, Katharina, and let me then start to summarize the quarter before we move into Q&A then. How are we performing towards our overall financial targets? The numbers that is in the quarter. So currency adjusted growth, 26%, adjusted EBITA, 13.5% and operating working capital, 8.3%. So operating working capital ahead or below in positive terms of the target. Adjusted EBITDA a little bit shy of the set target and adjusted currency growth then ahead of the target. And I think this is very much the pattern that we've had the last -- very often, we have 2 out of 3 then beating or be very close to it. So all in all, we continue to progress towards those targets. If I summarize the quarter, strong performance driven by growth in key industries, predominantly data center and FoodTech. DCT, maintaining a strong momentum, and I said it in the past, and I say even stronger now, I am very confident for the future. We are delivering the right products to the right customers and expanding it to more than just one region. FoodTech advancing on the fully digital business, something that I think has not really brought full attention with one exception. Our customers are very, very interested in this. And then AirTech navigating short-term challenges, building a long-term strength, as I said, resetting it to current circumstances, but then also be fit for the future with very efficient factories, continued strong innovation and an even more focused sales force that's spread out not only in certain categories, but across the different industrial segments. So with that, let's go over to Q&A. Line Dovarn: Absolutely. Thank you, Klas, and Katharina now. So we are now ready for Q&A session. [Operator Instructions]. Operator: [Operator Instructions] The next question comes from Joen Sundmark from SEB. Joen Sundmark: Congrats on a very nice order intake in data centers. If we start with the margin there, you talked about tariffs impacting margins of some 2 percentage points in data centers. Do you sort of expect to get those 2 percentage points back once you have the new factory in the U.S. up and running? Or will sort of change mix offset that improvement once we are there? Klas Forsström: Thank you for the question. So if I divide it into 2 sides then on this coin, as you have heard me say several times, Joen, that is then, yes, we will have a gradual change in the mix, and that will start to intensify next quarter. And then later on then, when we have moved up chiller production and moved it in to be closer to the market, I mean, the mix will start to change back again, the normal pattern. The more we produce, the better it will become, so to speak. So that is the mix movement, so to speak, and that is according to what we have said for several quarters then. When it comes to the tariffs then and here, we look upon it like this. We have a fantastic product that we know that we will start to produce in U.S. first quarter next year. This product is very sought after. So when we sell it, at current, we will send it over from Europe to U.S. That's the reason why we have the tariffs impact this quarter. And I can say like this, if we need to take some more tariffs, i.e., if we sell more, I'm happy to take that for a short time period because that generates market share. When we have the production up and running, I mean then the tariffs are gone and at the same time, they have also become much, much better in producing those chillers. So you can say we balance it out over the long run. Joen Sundmark: Okay. Very clear. Then as you're talking about more measures taken in AirTech, when you sort of look into 2026 and your ability to reach this 13% to 16% margin range. How confident would you say that you are to reach those levels having both cost measures in mind, but then also combined with the current lower demand situation overall? Klas Forsström: Also a good question. I mean, the reason why we are driving those cost measures that is, as I said in the beginning, it was a weaker market than we foresee in the beginning of the year. At current, we say that the battery sector will continue to be subdued during the majority of 2026. But with that, and on and off, we may pick up orders, but it will continue to be in the range of 10% to 20% of the total order intake. So that is one thing then. So then we are resetting the organization to be handling that level. What we need to have in order to come up to the numbers that would please me, the 13% to 16%, of course, that is also more volumes. And that is the reason why we are resetting now and with modernization of the factories that we've done and continued efficiency then we will gradually start to move towards that target. But as I said in earlier statements, I think that we now have a prolonged period of somewhat weaker margins then, and that's the reason for the program. Line Dovarn: We'll take another question from the telephone conference. Operator: The next question comes from Adela Dashian from Jefferies. Adela Dashian: Klas, it'd be difficult to limit myself to just 2 questions after today, but I'll try my best. Just firstly, on the book-to-bill in DCT, you did promise a ratio above 1 last quarter, and you did deliver that today. So congratulations to you and Stefan and the rest of the team. Should we expect some quarterly volatility going forward? Or are you interpreting this as a new norm given the very strong market drivers that you're seeing in the market? Klas Forsström: Adela, thank you for the congrats, and thank you for the question and this is the silver bullet question, I think. My best way to phrase it, that is like this. I see a very strong market that continues for years. I see us having a very, very strong product offer. And then I see customers that sometimes are putting many orders, sometimes are waiting for a longer period. With all that said, I think that we have a strong market, a strong offer and a great team, so I'm optimistic for the future. If I would say a certain level, the only thing I can guarantee that is that I would be wrong. But I'm very positive moving forward. But to predict, I mean, what will come in orders in a quarter, then I should buy me a lotto ticket at the same time then, but I'm positive. Adela Dashian: Well, this quarter, you were right, so and for my second... Klas Forsström: And I bought the ticket. Adela Dashian: For my second question, I'm going to just try to push 2 into 2 and be a bit broader here. On the order book composition in DCT, I believe so far, the majority of the orders have still been for the traditional air cooling. But you do mention some CDU orders here, and I also noticed that the share of indoor units is increasing. So are you entering now a phase where liquid cooling solutions are starting to gain real traction? And then on the, I guess, flip side, SyCool is now diminishing as a share, but we did hear one of your paper partners announce an integrated platform for waterless direct-to-chip, so could this potentially reinstate the interest in refrigerant-based systems? Klas Forsström: I try to answer this expanded question with one answer as well. The first one, that is that we have now, in my book, the widest product offer when it comes to different cooling solution there is. And we have also, and here I'm biased, I know, but I say it anyhow, the most energy efficient and modern assortment. Our vitality Index for the group is about 40, i.e. of what we are selling, what is -- 40% has an age of less than 5 and in data center, much higher than that. Yes, you're right. We are shifting more and more to what we call them the liquid cooling universe. And here, we have really targeted right type of products. We have 2 different, call it, shifts when it comes to portfolio. One shift is towards the CRAHs that have a weaker profitability. And then we have the CDUs and we have the chillers that have higher than the average of what we have done. We are shifting out the SyCool that had the highest. And then to just complicate this, short term on the chillers, everything we sell into U.S. at current, we have a tariff then surcharge, but that will, of course, disappear. So if I shorten this up, we will have a headwind when it comes to mix on the quarters to come, but that will then gradually turn around when tariffs and more and more production of chillers, et cetera, are driving through efficiencies. So a little bit tougher moving forward, and then it will lease up. That is what I predict. Adela Dashian: Could you just expand a bit about the SyCool and what the trends that you're seeing and... Klas Forsström: Absolutely. Here, super excited. I think that we will have opportunities here. But as always, when it comes to this cooling very close to the chip, I mean, the euro is still there, but I'm optimistic for that. I don't see that we will generate short-term billion Swedish krona orders on it, but I'm definitely, call it, looking forward to see orders coming in, in that area. And here, we are unique. Line Dovarn: Let's take another question from the telephone conference. Operator: The next question comes from [ Karl Degenberg ] from DNB Carnegie. Unknown Analyst: So 2 questions from my side. And first of all, on the backlog of SEK 6.6 billion DCT, I just wanted to hear, could you give any sort of quantification of how much of that is for delivery in '26? And a related question to that as well is on invoicing capacity in DCT, I think we had that discussion on the last quarter results again. And that's around, I think you've been at around 1.5% in the revenues in DCT now for roughly 3 quarters. And I just wanted to understand, given the capacity that you're adding and so forth, for '26, '27, what kind of quarterly run rate could you achieve given the capacity additions? Klas Forsström: If I generalize, you can say, with current footprint in DCT with one exception that I will come back to then, we could definitely without -- if we add shifts, if we tighten the chip to some extent, we could easily deliver 30% more deliveries out of our factories. And then we have one exception, and that is now we are definitely, we cannot deliver much more when it comes to chillers short term from our European setup to U.S. But as soon as we have that up and running, I mean, we will have close to double capacity of chillers also in U.S. And then, of course, we don't have to pay the tariffs on that, so to speak. So we have plenty of room to grow. But in one area, we are short term, a little bit squeezed, but that is according to plan. Unknown Analyst: Yes, yes, very well. And then I'll maybe take my follow-up on the same topic. I mean I guess the chiller exposure came predominantly from the acquisition of Geoclima, correct me if I'm wrong. And given that you -- I mean remembering when you bought that business, it was obviously quite an addition for the division but given that it has a 2 percentage point impact now on the imports on the margins, it sounds like the growth has been very, very significant since you acquired the entity. So could you say anything, what's the share now? And maybe if you look at your own portfolio, let's say, transformation away from SyCool and so forth, what do you expect the mix to be, let's say, '26, '27 without giving any absolute forecast? Klas Forsström: No. What I can say that is -- and now I don't have that picture in front of me, but you see the graph there on one of the slides where we have the different components and how that is spread. There you can have some indications. But if I'm a little bit more straightforward, I'm super pleased with acquisitions of Geoclima. I mean it is the world's best chiller, and we have a very strong sales force. So in my book, we have achieved or we have overdelivered on what the chiller sales could generate here. And then according to the plan that we deliver on then to add this into the U.S. setup and then we have an in the region, in the market for the market. And suddenly, we also get rid of this volatility when it comes to tariffs then. And here, I just want to underscore, you can never be happy to pay tariffs. But if I have to choose in between having no chillers, and paying tariffs, I'm happy to pay tariffs because we have the world's best chiller in the market. Line Dovarn: Sorry, we need to break that, we are running out of time. Thank you very much for that. We do have more callers on the line, but we will reach out to you separately. We also have received some questions here. And I will just finish off with one last question for you, Klas, that you can answer quickly, if you can. Klas Forsström: I will try. Line Dovarn: What is Munters' biggest challenges going forward, Q4 and further on, 2026 to 2030? Klas Forsström: That was a broad-based question. I think that -- and I don't call this a challenge that is we should continue to be on the toes when it comes to drive innovation, when it comes to be very, very close to the customers. And then we need to get best use of our decentralized setup. We have 2 skyrocketing divisions at current and one that has tougher. And that is in the decentralized way. I mean then we handle the opportunities when we are skyrocketing, and we handle the challenges when we have tougher and that is what I think we will continue to work with. Line Dovarn: Great. Thank you very much. Thank you, Klas and Katharina, for presenting. Thank you, everyone, for listening in. And we will, as I said, reach out to those of you that we did not have time to talk to. With that, thank you and wish you a nice weekend. Klas Forsström: Thank you. Katharina Fischer: Thank you.
Operator: Hello, and welcome to the HCA Healthcare Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Please go ahead, sir. Frank Morgan: Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Mike Marks. Sam and Mike will provide some prepared remarks, and then we'll take questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements, they're based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we will reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded, and a replay of the call is available later today. With that, I'll now turn the call over to Sam. Samuel Hazen: All right. Good morning and thank you for joining the call. As reflected in our earnings release for the third quarter, the company produced strong results when compared to last year with 42% growth in diluted earnings per share as adjusted. Revenue increased by 9.6%, which was driven by broad-based volume growth, improved payer mix, more utilization of complex services and additional revenue from Medicaid supplemental programs. We also translated this revenue growth into better margins with disciplined operations. As a result, you will see in this morning's release that we raised our guidance for the year to reflect this performance and our outlook for the fourth quarter. Our teams continue to execute our agenda at a high level across many operational measures, including quality and key stakeholder satisfaction. Outcomes were better year-over-year. I want to thank our 300,000 HCA colleagues who once again demonstrated excellence in what they do. As a team, we remain disciplined in our efforts to improve care for our patients by increasing access, investing in advanced digital tools and training our people. These investments allow us to enhance capacity, improve service offerings and gain efficiency. Making it easier for our -- for us to provide better services to our patients, physicians and the communities we serve. Typically, on our third-quarter earnings call, we provide some preliminary perspectives on the upcoming year. Before I get to these, I want to comment on the enhanced premium tax credits. We continue to advocate strongly for the extension of this program for the 24 million Americans who depend on it for health insurance coverage. Today, we believe there is greater recognition by legislators of the negative impact this issue will have on families, small businesses and individuals than earlier in the year. At this point, however, we still do not know how this policy will play out. Because of the fluid nature of the federal policy environment, we will limit our early thoughts for 2026 to our views on demand and the cost environment. We continue to see solid demand across our markets for health care services and believe volumes will be within our long-term 2% to 3% growth range. As it pertains to operating costs, we expect mostly stable trends consistent with the past couple of years. As usual, there are some pressures in certain areas, but we believe our resiliency plan should provide some relief. It is important to note that we are still early in next year's planning process, and these preliminary views may change before our fourth quarter's earnings call when we will provide you with our guidance for 2026. So let me close with this. As we work to complete another successful year for HCA Healthcare, we believe the company is well-positioned to sustain high levels of performance in the years to come. Organizationally, we have strengthened enterprise capabilities to execute at a higher level through our previously restructured management team and improved management systems. Competitively, our networks have enhanced service offerings for patients with more outpatient facilities, greater inpatient capacity and improved operations. And financially, because of the increased cash flow and stronger balance sheet, we have the resources to invest more in our strategic agenda. With that, I will turn the call over to Mike for more information on the quarter and our updated guidance. Mike Marks: Thank you, Sam, and good morning. The company produced solid results during the third quarter. The demand for health care services was strong in the third quarter with same facility equivalent admissions increasing 2.4% over the prior year. Our surgical volume growth also improved with the same-facility inpatient surgical volume of 1.4% and outpatient surgical volume up 1.1% in the third quarter over the prior year. Same facility ER visits increased 1.3% in the quarter over the prior year. Commercial and Medicare ER visits combined increased 4.1% in the third quarter of 2025 to prior year, whereas Medicaid and self-pay ER visits were both down to prior year. We have also seen a slow start to the respiratory season in 2025, which is impacting the year-over-year growth rate in our admissions and ER visits by an estimated 50 and 70 basis points, respectively. Our net revenue per equivalent admission growth in the quarter reflected strong payer mix, improved dispute resolution results, consistent case mix index and increased Medicaid state supplemental payment revenues. Regarding payer mix during the quarter, same-facility total commercial equivalent admissions increased 3.7% over prior year, with exchanges growing 8% and commercial, excluding exchanges, growing 2.4%. Medicare increased 3.4%, Medicaid increased 1.4% and self-pay declined 6%. Regarding Medicaid supplemental payment programs, as we've said in the past, these programs are complex, variable in timing and do not fully cover our cost to treat Medicaid patients. Considering these programs in isolation, the revenue growth from these programs drove about half of the overall increase in net revenue per equivalent admission in the third quarter compared to the prior year. And we saw an approximate $240 million increase in net benefit to adjusted EBITDA from these programs in the third quarter of 2025 over the prior year. This increase was largely driven by Tennessee program payments and the approvals of grandfathered applications in Kansas and Texas. We were pleased with our operating leverage and expense management in the quarter. The improvement in adjusted EBITDA margin was driven primarily by good performance in labor and supplies. As expected, we did see contract labor expenses flat in the prior year. Same-facility contract labor was basically flat in third quarter of 2025 to the prior year and represented 4.2% of total labor costs in the third quarter of 2025. The increase in other operating expenses as a percentage of revenue in the quarter was driven primarily by increased expenses related to Medicaid state supplemental payments and to a lesser extent, professional fees compared to the prior year. Our work progressed to both enhance and accelerate our resiliency program as we prepare for the future. Through these efforts, we continue to identify a robust set of opportunities across revenue and cost to improve efficiencies. The growth in our adjusted EBITDA in the third quarter reflects our strong operating performance and the increase in supplemental payments. We would also note the estimated $50 million impact from the hurricanes in the third quarter of 2024. Moving to capital allocation. We continue to execute our strategy of allocating capital for long-term value creation. Cash flow from operations was $4.4 billion in the quarter with $1.3 billion in capital expenditures, $2.5 billion in share repurchases and $166 million in dividends. Year-to-date, we've been able to defer approximately $1.3 billion in federal income tax payments to the fourth quarter due to the IRS providing relief to Tennessee taxpayers in the aftermath of severe weather in early April. Our debt to adjusted EBITDA leverage remained in the lower half of our stated guidance range, and we believe our balance sheet is strong and well-positioned for the future. So with that, let me speak to our 2025 guidance. As noted in our release this morning, we are updating the full year guidance as follows: we expect revenues to range between $75 billion and $76.5 billion. We expect net income attributable to HCA Healthcare to range between $6.50 billion and $6.72 billion. We expect adjusted EBITDA to range between $15.25 billion and $15.65 billion. We expect diluted earnings per share to range between $27 and $28. We expect capital spending to be approximately $5 billion. We now anticipate our supplemental payment full year net benefit to be $250 million to $350 million favorable comparing full-year 2025 versus 2024. This guidance update does not include any potential impact in 2025 from any additional approvals of grandfathered applications under the Act. And at the midpoint, this guidance assumes a $120 million decline in net benefit from Medicaid state supplemental payments in fourth quarter of 2025 versus the prior year due to onetime payments in the year. Consistent with our comments on the second quarter call, we believe our hurricane-impacted markets will produce approximately $100 million in adjusted EBITDA growth in full-year 2025 over 2024. Year-to-date, adjusted EBITDA in our hurricane markets is modestly below prior year, and we are anticipating all of this growth will occur in the fourth quarter. We are increasing our earnings guidance at the midpoint of adjusted EBITDA by $450 million. This represents an expected $250 million increase in net benefit from the state supplemental payment programs and $200 million increase from operational performance. With that, I will turn the call over to Frank for questions. Frank Morgan: Thank you, Mike. [Operator Instructions] [ Priela ], you may now give instructions to those who would like to ask a question. Operator: [Operator Instructions] Your first question comes from Ann Hynes with Mizuho Securities. Ann Hynes: Great. And thanks for all the detail on the DPP programs. Can you remind us -- I know there's other states that have preprints in for approval for grandfather programs. Can you remind us what states are still pending? And any quantification of what could be incremental would be great. Mike Marks: So as you think about kind of the states, there are several that have applied under the grandfathering programs, we've mentioned Florida before and certainly, that one is under review. There are a few others as well. I might mention Georgia and Virginia as well being in that list. We do not expect that CMS will be approving these additional grandfathering programs during the shutdown. I would say that we have reports that indicate though that the reviews between CMS and these states are active and those reviews continue during the shutdown. I might also mention that we were encouraged, coming up to the shutdown, that several states had approvals coming into the shutdown. So I think we're in a pretty good environment. We are, at this point, not going to size those potential applications until they get approved. But I did note in my comments, and I'll note again that the updated guidance that we gave you just now on this call does not include any potential impact from the applications that are still pending review with CMS. Operator: And your next question comes from the line of A.J. Rice with Credit Suisse. Albert J. Rice: Just to maybe ask on the public exchanges. So there's been some chatter and some of the managed care companies are talking about anticipating a potential step-up in volumes in the fourth quarter, elective procedures, because people are worried that they're going to lose coverage or their co-pays and deductibles will go up dramatically. I wonder if you're seeing an early scheduling for surgeries, for example, elective surgeries or anything else that would indicate that we might see that in the fourth quarter. And then if we do get disruption where people go off during the traditional open enrollment period, but then reset -- are able to reset because after open enrollment, special enrollment period is set up, would you be able -- if people show up in your emergency room, are you basically set up so you could get them re-signed up if that's a possibility under the special enrollment? Provisions if we get an extension, but it comes late. Mike Marks: So if you think about EPTCs and what happens with these exchanges, I would mention a couple of things. I mean, right now, we're really not sizing the potential impact given the fact that it's so fluid. There's going to be an enrollment period, as you know, that opens up here in a couple of weeks. When we get to the fourth quarter call, A.J., we'll have a lot more information. First about what is the deal potentially that comes out of this work in the government? Do they get extended? If they do get extended, what is the form of that extension? And then third, to your point, is timing. Do they -- do we end up with a special enrollment period at the end -- and so it's really difficult to size the potential impact of that until we get a little bit closer to the fourth quarter call, and that's when we'll intend to do that. We do have our financial counseling teams through our Parallon revenue cycle that helps our patients, both with things like Medicaid and with exchanges. It's the idea of them being able to do that on-site is not something that we can do, but we certainly can connect them to the appropriate resources to help them navigate that. And I think we've mentioned this in previous calls. We have structured our efforts here as we've gone through the balance of this year into next year to really beef up our resources with Parallon and broadly as a company to help patients navigate coverage, both on Medicaid and on the exchanges. And we feel really good about our preparation in that area, and we're going to try to help our patients navigate this season is very best that we can. Operator: And your next question comes from the line of Pito Chickering with Deutsche Bank. Pito Chickering: The quarter was a pretty strong beat even if we exclude the supplemental payments in the 3Q, but guidance didn't go up a whole lot past the beat you guys did this quarter, at least at the midpoint of the range. Can you give us any color on how we should think about the range of guidance implied on the fourth quarter, if we just steer towards one or the other? And also, if you can help provide a bridge from 3Q into 4Q as we think about the moving parts between hurricanes and supplemental payments. Mike Marks: When I think about fourth quarter growth rate, there's really 2 main considerations that I would think about and then the third being just operations. But the first would be the hurricane impact for sure. And then the second would be the decline in state supplemental payments that I noted in my comments when you compare fourth quarter of '25 to prior year. When we take those 2 factors into consideration, we believe the implied growth rate is still solid for fourth quarter in the kind of high single digits range, maybe 7% roughly. And then the other note I would give you, when you take those same considerations into account, our sequential growth from third quarter to fourth quarter is in line with our past trends. And so we feel that our guidance for fourth quarter is solid. I might also just note that our range in our guidance is intended to really cover a range of outcomes and including at the higher end of the range, even stronger performance as well. So that's how we're viewing the fourth quarter. Operator: And your next question comes from the line of Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Just a quick follow-up on the SDP guidance. How much in there did you recognize in the fourth -- or in the third quarter and is included in guidance for Tennessee specifically? And did you include -- recognize anything in the quarter and in guidance related to Texas? I know that got approved later in the quarter. I just want to see if you're including anything in there. Mike Marks: Thanks, Ben. So Tennessee was the largest driver of our net benefit in third quarter. We did receive cash in the third quarter of 2025, and we began accruing this program. So that's the update on Tennessee. Texas, as you know, we did receive approval of the grandfathered application. As this approval was really an enhancement to an existing program, this was really accrued just in our normal manner for third quarter of 2025. I might note being, though, that this grandfathered application really only had 1 month of impact for third quarter. The third one that we mentioned on call is Kansas, where we also received approval of the grandfathered application, we received caps for this program in third quarter of 2025 as well. This is a calendar year program, so 9 months of impact recorded in third quarter of '25. And Ben, let me just mention, like always with these programs, we always talk about that they're complex and variable. There were another number of pluses and minuses that you see across our portfolio of programs. So these 3 states with those pluses and minuses of all the other programs really led to the aggregate of the $240 million net benefit. It's always important to keep that in mind. Operator: And your next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: Congrats on the quarter. Mike, I appreciate you highlighting how you guys have done really well with expense management, labor and supplies. So just curious, as I think of supplies cost, you guys have done a great job over the last few years keeping that fairly steady. At what point do those contracts reset? And then maybe the follow-up question for me on cost too is, as we think about your efforts to mitigate Medicaid cuts from '28 forward, when do we start seeing those efforts come through the P&L? I mean I'm guessing a lot of that -- those initiatives will start way before '28. Mike Marks: On supplies, Brian, we have a robust ongoing effort with supplies that we've communicated multiple times in the past. I mean, certainly, to HealthTrust, a lot of effort in flight on our contract renewal cycles. We tend to run 2-year cycles, some contracts as many as 3. And so those renewals flow as follows. And we spend a lot of effort in those contract negotiations, and that's certainly one component of our supply expense annual trends. The second component would be mix of technology. And so as you're aware, every year, there's new technology coming in. And then there's management of technologies that goes through its maturation cycle that's a big part of our overall management routines. The third part of our resiliency plan is our efforts to manage utilization. And so we have a very active resiliency plan. Supplies is one of those areas that we are continuing to both enhance and accelerate our resiliency plans focused on appropriate management of supplies and the utilization of supplies throughout the platform. As I think about bridging into the future, the other component that we're keeping a close watch on our tariffs, where our HealthTrust team continues to work through a very diligent effort to manage the tariff risk. Both in terms of sourcing, the way that we negotiate with contracts, our vendor partners on contracts and then also in terms of moving products and moving choices of products across countries of origins. So a lot of work in flight with supplies that I think you've seen not only help us manage supplies over the last several years, but we believe will continue to give us a very strong platform moving forward and our ability to manage supplies. You asked about resiliency. And really, we've had a long-standing resiliency effort in the company. As we've noted on the last couple of calls and noted again today, our work to both enhance and accelerate our resiliency plans continue as we prepare for the future. These are widespread across both our corporate platforms and our field platforms. really proud of the entire team at HCA, helping us to find additional opportunities to drive efficiencies. We're doing this through benchmarking. We're doing this through a robust focus on digital tools. Sam talks often about digital transformation, and it certainly applies to our resiliency and efficiency efforts. It's a big part of what we're doing. And then third, we're focused on our shared service platforms and the strength that they give us and the ability to expand their influence across the company is helpful as we continue to move forward. So a lot of good work going on with resiliency. And as we get into our fourth quarter call, we will intend to provide additional comments about our resiliency effort when we give 2026 full year guidance as well. Samuel Hazen: And Mike, let me add to resiliency. I mean we think about resiliency holistically. There -- it's clearly a financial resiliency culture within HCA that Mike's alluded to, and it's not event-driven. It's really a part of our culture. It's embedded within the disciplined thinking, the disciplined resource allocation and the disciplined execution. But holistically, we also think about other aspects of resiliency across the organization. First is what we call organizational resiliency, and I alluded to this in the fact that we had restructured. We're now embarking upon a more aggressive effort to develop our people, enhance the capabilities of our C-suites across our facilities and so forth, prepare for succession planning, all these things that go into having a very durable organization. And we have great people in HCA. We want to make them greater through our development programs. And we've asked our human resources department to invest even more in ramping up capabilities there. The second aspect of resiliency that's beyond financial, it's something I'll call network resiliency. Our organization within sort of the marketplace is also advancing resiliency with respect to adding more outpatient facilities, improving throughput within our facilities, investing in very targeted ways to improve our overall competitive positioning and then just operating at an even more excellent level when it comes to quality, engagement, efficiency, patient satisfaction, all these important fundamentals that help us endure through whatever cycles we have. And so our resiliency agenda is broad. It's across these 3 dimensions, and it puts us in a very strong position, we believe, to navigate tailwinds, push through headwinds, compete on the ground and produce solid outcomes. And we've got a pattern of doing that, and we're enhancing that now with technology. We're enhancing it with new capabilities within our shared service platform, as Mike alluded to, and we're further enhancing it with development of our people. Operator: And your next question comes from the line of Whit Mayo with Leerink Partners. Benjamin Mayo: I was wondering how you guys are thinking about capital deployment for next year. Obviously, you have the capacity to increase buybacks or the dividend or whatnot. But I know you evaluate every year. So I just wanted to take your temperature on preliminary thoughts. And then I think what I mean is like where do you think you will be spending differently versus prior years? Samuel Hazen: So, this is Sam. We're not ready to give you our financial plan for 2026 yet. I think it's a reasonable assumption to assume that our plan is going to be somewhat consistent with the methodologies we've used in the past. And so we need to get through the planning process that we're in now, see how some of the federal policies land. And from there, we will refine and define our capital allocation plan for 2026. But just as much as the culture of HCA is around resiliency and cost discipline and so forth, we have the same culture around capital allocation and finding the most productive ways to allocate it to benefit our networks and benefit our patients, but also benefit our shareholders. And that thinking will permeate our plan in 2026, just as it's done this year and in past years. Operator: And your next question comes from the line of Justin Lake with Wolfe Research. Justin Lake: A couple of things here. First, I think you mentioned payment dispute resolution is one of the drivers of revenue growth, pricing growth in the quarter. How much of a benefit there? And then another question on DPP. It sounds like your DPP number for 2025 benefit will be somewhere in the -- if I'm right, the $2.3 billion, $2.4 billion range billion this year. Is that the right number? And before any of these additional state approvals come through, what's the right run rate that we should think about going into 2026 when we normalize for stuff that might have been out of period? Mike Marks: So let me walk through NRA real quick, and then we'll talk a little bit about supplementals. When I think about our net revenue per equivalent admission growth, in the third quarter to prior year, first thing, and I mentioned this in them comments, Justin, but the first thing is about half of the growth was related to state supplemental payment increases in revenue. And so that's a piece. I also mentioned and it's the next biggest driver is payer mix. I mean, as we noted, with very strong payer mix in the quarter, and that's the next biggest driver for sure in our overall growth in net revenue per unit. Case mix index was pretty consistent. It was just up a tick, about 30 basis points to prior year. And then we're -- as we've noted in past calls, we continue to work on our dispute resolution activities, and they did provide some support in the quarter. And so those combined really drove the net revenue per unit growth I think on -- as I think about for the year and the state supplemental payments at this point, just keep in mind that we noted that we expect -- and part of what drove the earnings guidance is the net benefit from state supplemental payment programs, we're going to be about $250 million better for the quarter. And so you would just apply that now if you just think about kind of the walk up on state supplemental payment programs and you apply that to our full-year guidance, I think that gives you a sense that now we're expecting it to be $250 million to $350 million, favorable full-year '25 to full-year '24. And that gives you a sense of our kind of our early thinking as we kind of finish guidance right here, this is where we think the year will come in at this point. I did note, and there's a lot of volatility here, that guidance update does not include any additional impact from any other state supplemental payment programs that may get approved by CMS in 2025 once the government reopens. So just keep that in mind as well. Operator: Your next question comes from the line of Andrew Mok with Barclays. Andrew Mok: Last quarter, you called out a few underperforming regions outside the hurricane markets. Can you give us an update on those markets and how addressable those issues are near term? Samuel Hazen: So we did mention that we had 2 of our 16 geographic divisions that had some challenges in the second quarter. One of those, I'm happy to say, has recovered. But within our portfolio, we're fortunate that we have a very diversified geographical base and a very diversified service base. And we've seen, again, very strong portfolio performance across the company in the third quarter. So one of the divisions recovered. The second one is still working its way through some of the challenges, and we're confident that we'll be where we need to be as we push into 2026. I think an important point here is the third quarter over the second quarter is always a challenging period. You got summer dynamics with vacations, physician movement during the summer months and so forth. And in this particular third quarter, we performed sequentially really well. And our core operations were managed very effectively from a cost standpoint. We saw a good mix of volume from the second quarter to the third quarter. So that's an encouraging seasonality aspect to this particular year versus some of the other years that we've seen. And I'm really proud of our teams and how they push through that. And again, with a large portfolio, you always have movements inside of it. But for the most part, none of them are material in and of themselves individually because we have other divisions that are outperforming our expectations and tend to provide cover for those that may have a struggle in the short term or what have you. Operator: And your next question comes from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: I thought I might ask about the growth in surgeries. There was a little bit of an improvement this quarter versus last quarter. Sam just mentioned some of the seasonal dynamics. Can you give us a sense for some of the service lines that are maybe doing a little bit better? Just anything to highlight there? Samuel Hazen: Well, when we look at our outpatient surgery, we had strong general surgery activity. Our urological service line was very strong on the outpatient side. On the inpatient side, our neurosciences surgical capabilities, our orthopedic surgical capabilities, cardiac, all of these were up and had very good performance on a year-over-year basis. So again, diversification is a powerful element for us. diversification amongst these service lines, different mills use for delivering care to our patients, all of it sort of works as a system to create again the enterprise performance that we're able to produce. But those are some of the categories that moved favorably. We had a couple that weren't as positive. Again, that's par for the course from one quarter to the other and not really indicative of anything structural. Our gynecology business on an outpatient in the third quarter was slightly down. So that's one item that was down, but it was covered by some of these other areas. And then within the inpatient side, our neurosurgery business was down modestly, and that impacted the inpatient business, but it was overcome by some of these other areas. Mike Marks: Matthew, I might also mention on outpatient surgery, that payer mix continues to be solid. Actually, Medicaid and self-pay volumes continue to be below prior year, which obviously implies that our commercial and Medicare business continues to be really strong. So we're seeing that in really good growth in overall net revenue in outpatient surgery and the translation to earnings. Samuel Hazen: One of the things we talked about at our investor conference back in November of '23 was what I term the staying power of HCA Healthcare. And that staying power is really connected to 3 points. One, the relevance of our systems within the communities that they serve. The second thing is the scale across the company when it comes to just the sheer size of HCA Healthcare. The third aspect to that is the diversification. And so you're hearing about how the diversification provides what I call staying power for our organization, allowing us to push forward with our agenda, produce solid returns on our capital and create better outcomes for our stakeholders. Operator: And your next question comes from the line of Scott Fidel with Goldman Sachs. Scott Fidel: I was hoping if you could maybe drill a bit more into the Medicare volumes in the quarter and break those down for us between Medicare Advantage and then fee-for-service, year-over-year and sequentially? And then just observations on case mix or acuity that you're seeing in the volume trends within those 2 categories of Medicare. Mike Marks: So Medicare Advantage was up 4.8% in the quarter over prior year. And then I think look what was traditional over there. [indiscernible] 90 bps, yes. Traditional was up 90 bps. Case Mix Index, the traditional Medicare case mix index was actually up a bit and Medicare Advantage was pretty flat to prior year. So those would be the 2 components of Medicare in the quarter. I think one of the things that we noted, and I'll go kind of more of a macro statement here is the improvement in our volume trends in third quarter to prior year versus second quarter to prior year. We saw that in Medicare. Medicare combined was up 3.4% on adjusted admissions. Medicaid was up 1.4% after being down for several quarters. And then as we noted, we saw good movement in our overall commercial business as well with self-pay being down 6%. So overall, really good operational growth, good demand growth across our payer categories, really with the one exception of being self-pay. Operator: And your next question comes from the line of Ryan Langston with TD Cowen. Ryan Langston: We've heard a lot of news on the pickup of hospital usage in AI, particularly in revenue cycle. Can you give us a sense on how your initiatives there are progressing and how much runway you see with the advances of technology in the future? Mike Marks: So you're right. I mean there's been a lot of commentary around this idea of utilization intensity and maybe coding intensity and the like. And I think it's important to note, we can't speak to all of the dynamics that the payers see across their various geographies and line of insurance. We've already noted from a pure volume perspective, what we're seeing volume-wise. I do think that both Medicare Advantage, the exchanges, you are seeing pretty good volumes this year, at least from HCA, and that's really the extent that we can speak to. As it relates to coding intensity, we think about that as case mix index. And from a case mix index perspective, it's pretty consistent with prior year and with trends. I think it was up 30 basis points in third quarter of '25 versus third quarter of '24 and actually down a little bit sequentially from second quarter. As we look at the individual lines of insurance, whether it's Medicare Advantage, Medicaid, exchanges and commercial, we're really not seeing any material changes in case mix index compared to the prior year at the detailed line level as well. It's always important to note, our coding practices remain consistent and accurate as verified by multiple layers of audits. Specifically related to AI, we do -- as Sam mentioned, we're deep into our efforts around digital transformation across our company, including in our revenue cycle. Our focus in terms of AI automation and our revenue cycle right now is really specifically focused on working to respond to the growing denial and underpayment activities from the payers. We have noted before, we are also both piloting and rolling out ambient AI documentation tools designed to help our physicians be more complete, more accurate and more timely in completing their clinical documentation. So that's a quick update of what we're seeing in the utilization space. Operator: And your next question comes from the line of Raj Kumar with Stephens Inc. Raj Kumar: Just kind of maybe focusing on the expense side and pro fees. Just maybe kind of any color on how that trended year-over-year? And as a sense, if we kind of bridge towards '26 and think about Valesco and how that's historically been a drag of $40 million to $50 million in the past for EBITDA on a quarterly basis, kind of how do you expect that to trend in 4Q and 2026? And what kind of opportunity is still there to maybe potentially achieve breakeven in '26? Mike Marks: So our same-facility professional fees increased 11% over the prior year in third quarter '25 versus third quarter '24. I'll note it's about a 1% sequential increase to second quarter of 2025. So professional fees continue to run hotter than just average inflationary levels across the rest of -- if you think about our cost structure, I might note that this is a bit more related to anesthesia and radiology this year. And so that's a bit of an update on pro fees. Professional fees on an as-reported basis still represent about 24% of total other operating expenses. Remember, Valesco was an acquisition. It's in part of our employee base. And so we don't really call that out separately other than just to say generally, and Sam might note additional commentary here, but we're pleased with our work around integrating Valesco and really making Valesco a strategic asset for the company as we're thinking about not only the ability to manage the cost structure of emergency physician management and hospital medicine. It also really helps us with our strategic work around things like case management, to improve our length of stay and the ability to manage our emergency rooms and drive really good emergency room efficiency. So the work around Valesco continues to mature and really proud of our operating and our physician management teams for the really good work around Valesco. Sam... Samuel Hazen: Yes. The only thing I would add there, Mike, is I would say, generally, we do expect continued financial improvement as we carry forward into 2026. We haven't finalized their budgets yet either. And so we don't have a number specific to that, but we are seeing progression -- favorable progression in the financial performance of Valesco. And beyond even operational improvements, as Mike was alluding to, we expect clinical improvement, patient engagement improvement and other clinical efficacy, if you will, from the opportunity that we have with Valesco being part of our organization now. So we're excited about what the prospects are. Operator: And your next question comes from the line of Ben Rossi with JPMorgan. Benjamin Rossi: Regarding maybe the capacity for incremental volumes, I appreciate your commentary regarding the stable operational backdrop and some of your existing efforts and patient throughput. I guess as we think about 4Q and the typical seasonal uptick in utilization, how would you characterize the incremental cost to manage additional throughput or free up additional capacity? And then are you seeing any variance across your markets and being able to ramp up this capacity in a cost-effective manner? Samuel Hazen: Well, the short answer is we don't see any significant capacity constraints at this particular point in time. If you recall from a couple of years ago, we had capacity constraints that were driven mostly by staffing and not having the workforce that we needed to take care of the patients who desired service in our facilities. We don't have that issue today. We've improved the net headcount of the company, and we believe we have good programmatic efforts in place today to put us in a position to carry forward the workforce necessary to meet the demand that we expect in the fourth quarter. And really on into next year, we're excited about some of the other operational initiatives that are being put forward with our emergency rooms. We have very specific surge planning that we're preparing for and learning from past years to improve our preparation and anticipation of demand surges in whatever periods we have. So we feel much better about our capacity on the labor side. We're also encouraged about the fact that we have more capital coming online in 2026 than we had this year. And that will add physical capacity and align with the workforce capacity that we're creating and put the company in an even better position to accommodate the demand that we anticipate. Mike Marks: I might add as well that the work that we've been putting forth to manage length of stay has also been very helpful. Third quarter showed really good performance around length of stay management. Those efforts continue not only into the fourth quarter, but into 2026. That also gives us the ability to make additional room for volume growth as we head into the future. So I really want to call out to our operating teams and our case management teams for really good work this year to help us prepare for volume growth in the future. Operator: Your next question comes from the line of Jason Cassorla with Guggenheim. Jason Cassorla: Just wanted to ask about the hurricane-impacted facilities. I know you left that the same in guidance. There's a big step-up in the fourth quarter. But how should we think about the ability to recover the remaining $150 million or so headwind versus the $250 million total headwind back in 2024? Would you expect to recover the majority of that remaining headwind next year? Or how do we think about growth off that? Mike Marks: Yes. So let me walk back to just quickly the way the hurricane markets has kind of transversed this year. As you may recall, as we started the year, we actually thought that our 2025 full-year EBITDA would be about flat with 2024. And '24 had this $250 million hit from the hurricanes. And really, that $250 million hit was a hit to our pre-storm run rate of earnings. So think about to '23. As we're now updating guidance, we're -- we believe that we'll recapture, call it, $100 million of that in 2025. The real impact here now is just the continued and lingering effects of that storm and mostly in our North Carolina markets. While volumes have recovered in North Carolina, the payer mix has deteriorated, and we're having to use a significant amount of premium labor to staff those facilities. And so that's the driver there. It's too early to give 2026 guidance. But just to give you a sense of kind of how it's moved through the first 3 quarters of the year, first quarter of 2025 was about flat to prior year. Second quarter was a bit negative, modestly negative in third quarter '25 to '24 combined for our hurricane markets on EBITDA was again about flat. So that's why we said in fourth quarter, we do expect that all plus of that $100 million improvement in year-over-year EBITDA will happen in the fourth quarter. We will give more guidance on our fourth quarter call when we give full-year 2026 guidance about the hurricane markets. But hopefully, that helps as it relates to the movement through the year. Operator: And your next question comes from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: I appreciate the early commentary on 2026. I'm wondering if there's something that you can speak to that gives you confidence in achieving the long-term volume range at this point. I guess the question would really just be without exchange growth, you'd be below the range this year. So I'm sure you thought about that even with an extension, exchange volumes could potentially be flat to down next year. But wondering how you're thinking about what the other moving parts are, whether that could be more level -- more normal levels of Medicaid or self-pay growth in there, too. Samuel Hazen: I realize the past is not prologue here, but we've had 18 consecutive quarters of volume growth. So that gives us a pretty confident foundation that we can continue to navigate through different dynamics within our markets. As I mentioned, we have more capital coming online next year. We have more outpatient facilities. So our ambulatory outreach is growing. We're building new relationships with physicians. All of that's woven into our thinking around 2026 volume. We continue to believe that population is growing in many of our markets, as it has, and there's going to be this consistent level of demand. The exchange piece of it is a small component of the overall, again, diversification that we have as a company. And so when you add all that up, we feel pretty confident that the range will accommodate some of the movement within our overall demand equation. Operator: Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig Hettenbach: On the $600 million to $800 million resiliency program you laid out a few years ago, can you just give us a sense on kind of how you're tracking to that? And then how you think about any additional levers to extend that further over time, whether that's technology or increased AI adoption? Mike Marks: Yes. So at our Investor Day back in 2023, we highlighted our resiliency plan, including that target of $600 million to $800 million. We've been working hard on that. And -- but the other thing that we highlighted, so yes, some of those dollars helped us in '24 and in '25 -- but as we've gone through really the last 12 to 18 months, we've been focused at both enhancing and accelerating our development of our resiliency program and our execution of our resiliency program. And that development piece is key. We think about this as a program. In other words, as we have work streams that we identify, we work those through, we pilot them, we execute on them and then we roll them out to scale. And then literally, every day, we're hunting for new ideas. And our teams are really attuned to this idea of the pipeline of resiliency and identifying new ideas. And as new ideas come into our resiliency work stream efforts, those ideas, again, are piloted. They are verified within our markets, and then we try to roll them out at scale. And so think about the resiliency program with all of our benchmarking work with all of our digital technology and development. We have a robust series of use cases that are in flight for AI, machine learning and automation. And then lastly, as I mentioned earlier, this notion of continuing to expand the impact of our shared service platforms, all of those combined really give us encouragement that we are preparing for the future and that this resiliency program is not a static, onetime event. It is a program that allows us to develop financial resiliency well into the future as well. Samuel Hazen: I think, Mike, some of that's reflected. I mean if you just look back in 2023, when we gave the update on the resiliency program and you look at the core operating margin of the company at that particular point in time versus what it is now, it's improved. And so we're experiencing some of that in the margin advancement that you're seeing in the results of the company. And we are continuing to, as Mike said, with technology, with best practices, with benchmarking, with finding other ways to deliver more efficient services. We see this as a growing agenda, not one that's static. Frank Morgan: Priela, let's take one more question. We're running up close to the end of the hour. Operator: Yes. Your last question comes from Joshua Raskin with Nephron Research. Joshua Raskin: I appreciate that. So I wanted to ask about cash flow conversion. We've seen the ratio of EBITDA that converts to free cash flow sort of move from the 30% range into the 40s. And I think this year, you're on track to almost 50%. So maybe talk about the factors that are driving that? Is that a shift to outpatient? Is there an impact from the strong pricing, including the sub payments? And I guess, most importantly, do you think that's sustainable over the next couple of years? Mike Marks: There's 3 or 4 things I would note that are driving our strong cash flow from operations as we think about it. One certainly is just we've had really solid adjusted EBITDA growth. And that strong operational performance that we continue to highlight as we think about the strength of our revenue cycle operations with Parallon, we turn that revenue into cash. And so that's a piece of that. And you're seeing that in kind of our working capital management plans. We have a pretty robust working capital management strategic plan that includes not only net days in ARR, but includes things like inventory levels, prepaid levels. And that work around working capital continues to assist us as we think about growing our cash flow. The other point, and I made this on the call, but it's important to note is that year-to-date, we have been able to defer $1.3 billion of estimated federal income tax payments to the fourth quarter. And so keep that in mind as well. But when I think about the long term, this idea of clearing out your revenue with cash and the strength of Parallon and our revenue cycle operations and the strength of the working capital management plans of the company, I think, puts us in good stead for continued strong management and performance around cash flow into the future. Operator: And that is all the time we have for questions. I would like to turn it back to Mr. Frank Morgan for some closing remarks. Frank Morgan: Priela, thank you for your help today, and certainly, good luck for the rest of the earnings season. If anybody has any questions, we're around today. Give us a call. Thank you. Operator: Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Jane Morgan: Good morning, and welcome to the Amaero Investor Webinar. I'm Jane Morgan, Investor and Media Relations Manager. And today, I have the pleasure of speaking with Hank Holland, our Chairman and CEO, who's going to be providing a company update. As usual, we will be taking questions throughout the presentation. So please use the Q&A function, which can be found at the bottom of your screen. Hank, I'll hand to you. Hank Holland: Thank you, Jane. Good morning, everyone. As you're aware, Amaero lodged its quarterly financial results yesterday. I'd like to highlight some of the information from the results. And then as always, we'll be happy to take questions as follows. It was quite a transition for Amaero. We reported revenue of AUD 4.7 million, an increase of 445% over the same period a year ago. This included AUD 4.1 million of powder revenue and about AUD 600,000 of revenue from PM-HIP manufacturing of large near net shape parts. During the quarter, we increased atomization by 240% over the prior quarter. Again, that is in the September quarter, we increased atomization by 240% over the June quarter. Notwithstanding the significant step function and increased manufacturing, we could not manufacture enough product to fill all of our orders. And thus, we carried it into the current quarter approximately AUD 0.5 million of order backlog. All of those powder orders have now been shipped that carried over into this current quarter. We ended the quarter with AUD 9.9 -- I'm sorry, excuse me, we used cash in operations of AUD 9.9 million during the course of the quarter. This included AUD 4.7 million of bar stock inventory purchases. We've been very mindful of the last 12 months to carry buffer stock, thus mitigating the risk of any trade disruptions or tariff risk, somewhat timely given the tip that arose about a week ago with the threatened heightened tariffs with China. We are in very good position as far as inventory in stock. We have 20 tons of titanium bar that arrive this week. We have another 20 tons -- another 40 tons actually that will ship before the end of the month. The threatened tariff was to take place in November. So again, we are in very good shape as far as buffer stock of inventory. We ended the quarter with AUD 50.9 million of cash. Moreover, 3 days into the quarter on October 3, we received USD 5.7 million or about AUD 8.8 million from EXIM Bank draw. This was from CapEx spent in the prior quarter. So as of October 3, we had a cash balance of roughly AUD 59.7 million after drawing on EXIM Bank. We've got about another USD 7 million or about AUD 10.8 million left to draw on the EXIM Bank loan, and we will draw that over the course of this fiscal year. Moving on, one of the real focuses this year, really, there will be 2 primary focuses: one, to continue scaling manufacturing production, our throughput and the other will be continue to scale our commercial contracts. Anyone that has been involved in manufacturing, scaling manufacturing is not easy. When you go from development to production, it's a very different process. In anticipation of this, in May of this year, we brought in a gentleman that I've known for many years, Eric Olson. Eric headed up manufacturing consulting at Accenture for 3 decades. I met him at a former portfolio company. We had a SWAT team in for about 6 weeks. They reviewed all of our processes, met with our entire staff, all of our quality controls, all of our safety controls, and they put forth a plan in anticipation of not only scaling from fiscal year '25 to fiscal year '26, but scaling from atomizer, which we had before all the way up to 4 atomizers, which is our plan. They had no shortage of input and recommended changes over time. In fact, there's about 42 items that they identified in our processes and our people and our staffing and various protocols, much of which has already been implemented and some more of which will be implemented in the coming months and/or years as we begin to further scale and automate, for example, the way that we handle and move powder within the facility to do so in a way that is more expedient, but also less risk of contamination and safer. As part of the changes they recommended, our operations over the prior 2 years had really been focused on building our facility and commissioning the equipment. Obviously, now we've transitioned a very different type of operations, which are centered around manufacturing. As part of this, we brought on a new VP of Manufacturing Operations, who is essentially now running our operations, Mark Struss. I'll talk a bit more about Mark later. Mark comes with 25 years of manufacturing experience, including in the auto industry, a much more complex manufacturing process or series of processes than we have here. But again, he has been very instrumental in helping us think about how we begin to scale, how we begin to change these processes. I'll come back to this in the last point here in a minute, but we've gone through a real step function in operations. To that point, we have ordered additional equipment, much of which was ordered earlier this calendar year, some of which arrived in the first quarter of the fiscal year, more of which will arrive in the current quarter and next quarter that will again continue to scale the processes beyond atomization. We have a 5-step process, the first step of which is atomization but a series of processes that follow and this capital equipment will help us further scale those processes. Over the prior quarter, and again, I repeat, over the prior quarter, we had a subsequent or sequential increase in powder shipments of 153% in a single quarter. We shipped about 5 tons of product in the fourth quarter of fiscal year '25. We shipped over 12 tons of product in the first quarter of fiscal year '26. We had a 240% increase in atomization from about 8 tons in the fourth quarter, the June quarter to 27 tons in the September quarter. We were operating in June one 8-hour shift, 5 days a week on a single EIGA. We finished September operating two 10-hour shifts a day, 6 days a week on 2 atomizers. So again, significant scaling over the course of the quarter. In anticipation and recognizing the transition period of which Amaero is in, my wife and my family and myself relocated to Chattanooga during the course of last quarter. We're thrilled to be here for 3 years. I've been traveling back and forth and with a new baby at home, did not want to continue to be away from the family and moreover, have very long days here. I get to the office about 6:30 in the morning. We have a 7:00 a.m. production meeting. It's a little bit after 8:00 p.m. now, which would be a typical day. So again, it gives me a chance to be here all day, every day and be less away from family as I travel. So thrilled to do so, work alongside a great group of colleagues. And one of the things I've always said is people around here can attest, I want to ask anyone to work harder than I work and that being said, there's plenty of people here working just as hard as I am, and it's a heck of a team. Some significant improvements during the course of the quarter from a qualification standpoint as well as ongoing material improvements. As you might recall, with Castheon and ADDMAN, we signed a 5-year preferred supplier agreement in April of 2024. We then qualified C103 in September of '24. This was a very big deal. The founder of Castheon, Dr. Youping Gao is the foremost expert in printing C103 and refractory alloys. ADDMAN owned by one of the leading private equity firms in the industrial space in the U.S. has been very active in additive manufacturing as well. And so qualifying with Castheon and Dr. Youping Gao is a very big deal. We then immediately did some additional work on refining chemistries and we announced in December of '24 that we have made some slight tweaks to C103 chemistry that had shown some improvements. And then we've been continuing since then to make some other refinements. We have completed that. Thrilled to say that we have qualified with ADDMAN on top of the qualifications that we've done before. We've achieved performance specifications that are rock-like. Much of additive manufacturing material is subpar to rock material properties. The prior supplier that Castheon had achieved rock-like material properties, and it was important that we achieve consistent properties with other supplier, and we've now done so. So another significant advancement both in our qualification standards as well as our relationship with Castheon and ADDMAN. We will continue to advance, particularly as it relates to propulsion systems and thermal protection systems. These important systems on hypersonics and space applications, and we'll work closely with Castheon and ADDMAN going forward. Also during the course of the quarter, as you know, we achieved qualification, which was a predicate condition with Velo3D. We achieved that with Auburn University's National Center of Additive Manufacturing Excellence. I'll announce later one of the interesting things, Dr. Jonathan Peck, who had been a senior technician at Castheon, very few people, again, understand and know how to print C103. He had left Castheon and gone to Auburn. That is who we worked with at Auburn. I'm pleased to say that Dr. Jonathan Peck will be joining Amaero at the end of this month and again, one of the important technical hires that we have made. During the course of the quarter, as everyone is aware, we completed a AUD 50 million Placement that was very well supported, strong institutional support and participation. We also had an SPP. The SPP was AUD 3 million, and I would say modestly supported AUD 470,000, same terms and same issue price as the Placement. The Board considered this very seriously and that we were fully funded before -- but the Board felt it was important given that we were 2 years into commercial engagement, go ahead and pull forward some growth initiatives that had been planned for fiscal year '27 and beyond as well as to make investment in Argon recycling that will further improve our cost -- unit cost advantage that we have over competitors and further uniquely position us not only as the largest capacity U.S. domestic producer of spherical refractory and titanium alloy powders, but also the lowest cost. Some important hires that we made during the course of the quarter. Brett Paduch, our Chief Financial Officer, has been fantastic, brings a great audit background in accounting as well as FP&A experience. Mark Struss, I mentioned before, essentially assuming leadership in the manufacturing operations. Dr. Jonathan Peck, I mentioned, has joined us as VP of Technology Development was at Castheon and then Auburn. And then Dr. Arun has been an amazing force at Amaero. He's been promoted yet again. This is actually a second promotion, and he is leading all of our applied research as well as process development and working hand-in-hand with Mark Struss as we continue to refine and develop our operating systems. Also during the course of the quarter, we gave updated financial guidance. Pleased to report for fiscal year '26, we anticipate revenue of AUD 30 million to AUD 35 million and we expect roughly 40% of that would be achieved during the first half of the fiscal year, roughly 60% of that to be achieved in the second half of the fiscal year. On the commercial side, we made progress on a number of fronts. As everyone is aware, we announced a 5-year exclusive supplier and development agreement with Titomic, ASX-listed company for refractory and titanium alloy spherical powders. One of the things that perhaps isn't as well appreciated in the ASX market is spherical powders are very different than angular powders, also very different gas atomized powder than, say, HDH powders. Also reactive or titanium alloys very different than nonreactive, such as nickels and so forth. And so Amaero plays a unique role in the supply chain and particularly when you're qualifying in parts. What Titomic was finding is that the defense primes came to them for development and production parts, mission-critical aerospace and defense applications, the defense primes required it be spherical powder. So they give very specific material specifications. And in some cases, will also define how the powder is manufactured. This is more true, for example, in medical applications, where it is most often plasma atomization or gas atomized powder. We've already begun working with Titomic on a project, and I would expect you'll hear more about that in the coming months. But again, important opportunity for us, I believe, for Titomic as well in the refractory space, in particular, and really scaling their expertise in cold spray applications. Knust-Godwin, we did not announce this as a stand-alone announcement in the course of the quarter. As people will know that have followed this company closely, we tend to be somewhat guarded with not announcing things unless we feel it has a very material immediate financial impact. That being said, Knust-Godwin is an important relationship for us. Knust-Godwin is located near Houston. They're a very pivotal integrated additive manufacturing and advanced manufacturing firm, primarily focused on the oil and gas industry, but increasingly focused on other areas, including aerospace. We work with them on the PM-HIP side of our business, and now we'll be working more closely with them on the titanium side of their printing business. They also use largely Velo3D machines. And obviously, with our partnership with Velo3D, it ties in here nicely with Knust-Godwin as well. During the quarter, we announced about a year ago, we received a contract a little bit over [ $1 million ] with the U.S. Defense Prime Contractor and that we expected to complete First Article parts. Those parts have now been completed. We said we expect to do that in September or October. We will continue to do some testing with our customer over the balance of this calendar year, expect to hopefully finish that by the end of December. And then that will be -- the acceptance of those First Article parts will be a very important milestone as we move forward to advance other development opportunities, but even more importantly, production part contracts with this customer. It also further validates PM-HIP manufacturing as a mature, what in the U.S. we call technical readiness level or TRL level, a mature and scalable alternative to large castings and large forgings, which is very important, particularly in the maritime industrial base, the submarine industrial base, but also in the oil and gas industry. And then finally, we announced in the quarter a development collaboration with a Boeing company. This also, I think, is a very important example of the benefits as well as the immediate insertion of PM-HIP. We are -- we've not disclosed the nature of the part that we're working on with Boeing, but it is a structural part in a next-generation aerospace application. And I would expect you'll hear more from us as well as Boeing as this collaboration advances. I thought it might be helpful to give investors just a representative list of some opportunities that we're advancing. We won't come out and essentially announce these or announce the counterparties until we have binding contracts. That's just our practice. But we are continuing to advance development and production opportunities that support the U.S. Navy and the maritime industrial base. We're continuing to advance C103 powder opportunities, specifically within Missile Systems. Tungsten powder opportunities for the munitions complex. Munitions, as those you might know, is a very significant opportunity given our depleted stocks. And tungsten, very, very important. Tungsten, as you might know, has got a characteristic as a heavy alloy it penetrates, but also it sharpens as it penetrates. And so it's a very important material that is used in munitions. Very few people and very few technologies. Tungsten has a very, very high melting temperature, and thus very few technologies can atomize tungsten. Zirconium opportunities, which are important for nuclear power as well as nuclear propulsion systems. Refractory powder opportunities for cold spray applications, as I mentioned with Titomic. I have been advancing a strategic supplier agreement with a large integrated additive manufacturer, continued to advance a strategic supplier agreement with a large multinational medical device company, investment tooling for a semiconductor large company in the U.S., production contracts for oil and gas, actually companies plural. We're working on an upcycling/recycling opportunity that takes titanium coarse powder and the stubs from our bar to upcycle and recycle that. Atomization and testing of development refractory alloy powders as a more cost-effective alternative to C103 for applications that aren't so mission-critical that they would insist on C103. And then finally, integration and/or co-location of adjacency manufacturing and processing capabilities. This is particularly important to the U.S. Navy. Part of the challenge that we have right now is parts on average are taking about 28 months to manufacture. And yet much of that time has been queued up as these parts travel all over the country for various processing. And so to the extent we could co-locate some of those adjacency processing, it would enable us to shorten the time of production as well as mitigate the risk and improve the resiliency of our production supply chains in the U.S. Jane, I hope that is helpful and would be more than happy to take any questions. Jane Morgan: Wonderful. Thank you so much for that, Hank. And if you could please send through your questions using the Q&A screen that would be great. We've had a few come through already. So let me jump into it. This one came through an e-mail actually, in fact. So one of Amaero's competitive advantages has been stated that the company can produce a far greater percentage of the high-value aerospace grade powder versus the low-value sort of off-spec powder than competitors. So from Amaero's production results so far, is the company achieving the advertised figures across the range of metals? And did this affect Amaero's ability to produce enough finished powder to fill orders this quarter? Hank Holland: Great. So kind of 3 questions in there. First, for those that may not be as familiar, the whole idea of yield. So when we start with the bar, we atomize that entire bar and we had a distribution of powder. And different applications use different particle size distribution. So we might have powder from essentially 0 micron to 400 micron. But in the case of laser powder fusion, which is the most valuable cut of powder, it will tend to be about 15 to 53 microns. Now what the question is referring to is the prior generation of EIGA technology got about a 25% or 30% yield of that 15 to 53 most valuable cut. Plasma atomization, again, a proven and very, very well-accepted form of atomization gets somewhere around a 30% to 35% yield. EIGA premium, the new generation of the technology that we're using is getting a 50% and 50% plus yield. And yes, we are -- we'll continue to improve our yield as we continue to dial in our manufacturing, but all the results that we're seeing today are consistent with what we would have expected. By the way, the other thing that I would say is there's other forms of atomization where you start with scrap and whether what's called HDH, which is a chemical process or other ways that you're making powder. And they might stipulate they've got a higher percentage yield than, say, that 50%. But that's implicit on starting with the correct size powder. That is if you want 15 to 53, you've got to start with 15 to 53 feedstock, right? So again, we're talking about 50% of the entire bar, right? So the EIGA premium has got the highest yield from a bar standpoint of any technology. It also uses half the Argon gas. And so again, our significant unit cost advantage that we drive. Jane Morgan: Wonderful. Thank you. So next one is, in the quarterly, you mentioned that you shipped to Velo3D 500 kilograms of C103 and 500 kilograms of Ti64. So were these included in the revenue performance for the quarter? Hank Holland: Yes. So over the course of the quarter, we had a pretty balanced distribution of revenue. In the course of the quarter, as you mentioned, we shipped C103 to Velo3D. We also had shipments of tungsten, TGM, I'm missing another alloy or two. But anyway, we had -- so we had C103, we had development refractory. We had what we call other refractory and then we had Ti64. So a broad portfolio of powders that were shipped during the quarter. And then as you know, of the AUD 4.7 million of revenue, about AUD 600,000 of that was PM-HIP. We actually had a couple of PM-HIP projects that got pushed into this quarter as part of that AUD 500,000. That AUD 500,000 back order was about half powder and about half PM-HIP, the powder of which that backlog has already shipped so far this quarter. So it was a nice balanced quarter as far as where the revenue came from. What I would say going forward, including the current quarter that we're in, I think that you'll see a consistent increase in the kgs that we ship. So the amount of powder that we ship, though it will be somewhat lumpy in revenue and there will be quarters, for example, we don't ship C103, right? Obviously, C103 has a price 20x higher than Ti64. So where we don't ship C103, that can impact the revenue. But I think you'll see a consistent increase in kgs that we're shipping quarter-to-quarter. Jane Morgan: Wonderful. And so next one is, you mentioned delivery of First Article parts to a defense contractor in September, October 2025. Have these been delivered? And if so, what is the process to progress from First Article to purchase orders or ongoing contracts? Hank Holland: Yes. So the First Article parts have been completed. They are back at our facility. Our customer has seen these parts. We will do some further testing with our customer on these parts through the end of the year. We hope to have it finished -- our customer hopes to have it finished before the end of the calendar year. And that will be a very, very important milestone. We understand from our customer, and I think it is fair to represent that in the area of PM-HIP, Amaero, and I really credit Eric Bono, Fred Yolton, Dr. Aman, we have absolutely have leading pioneering experience in this area and we hear this back from our customers as well. We are addressing some of the most difficult manufacturing challenges as far as parts that are not only bottleneck in the forging ecosystem, but are very difficult to make even with the forging and machining capabilities that we have today. So we feel very good, as does our customer about where we are. And the importance of having these First Article parts accepted is what is in the wings after this to follow is more development opportunities, but even more importantly, immediate production opportunities. And I think that, too, speaks to the technical readiness level and the maturity of PM-HIP as a manufacturing technology. Jane Morgan: Yes, absolutely. I think -- and this one has come through a few times actually, Hank. So what impact is the U.S. government's budget shutdown having on that sort of defense and aerospace contracts? Hank Holland: Yes. It's a very good question, and there's not an easy answer. So for those in Australia that might not be as familiar with the U.S. budget process, our federal budget fiscal year begins October 1 and goes through the end of September. So October 1 of this month, we began our fiscal year '26 budget. As you might recall, last year, a continuing resolution was passed through the end of fiscal year '25. So that expired September 30. And historically, what you would then do is you would pass a new continuing resolution that would be a short GAAP measure until the fiscal year '26 budget is passed, which typically has happened in December, if you look historically. Instead, the House and the Senate could not reach terms on passing a continuing resolution. The continuing resolution we had expired at the end of September. And today, we have no continuing resolution and no pass budget, thus, our government in the U.S. is closed down. Essential services continue to operate, but we are already hearing from customers. And when you -- even when you're in a CR, you can't have new starts or restarts, but this is not even a CR, right? You're just closed, if you will. And so we have not yet seen an impact on our business. We've not yet seen an impact on the immediate quarter or the immediate pipeline. But if this was to go on much longer, I believe this is already the second longest shutdown that we've had in U.S. history. I believe 42 days or 40 days thereabout is the longest. And here we are 23 days into it. If it goes on longer, a, it's not good for our country. It's certainly not good for our readiness as a country, and it will begin to have an impact at some point. So I wish I could give a more definitive answer. Stay tuned. Hopefully, we will -- it's not a great way to run a country. It's certainly not a great way to fund a Department of War. And hopefully, we'll get this resolved shortly. Jane Morgan: Yes. So great. So another one that's come through. So what progress are you making with nondefense, non-aerospace customers who need to buy U.S. sourced materials? You've previously spoken about potential customers in the medical center. Is there any progress happening there? Hank Holland: So one of the areas that we got lucky, if you will, was when we first invested in Amaer 3.5 years ago, a big part of our premise was anticipating that the U.S. would reshore defense industrial base. And obviously, we've seen that in spades. What we didn't anticipate was an administration would take policy actions such as the Trump administration is now to so resolutely reshape international trade policy. And obviously, in the U.S., we've done this with tariffs, and we've done this with other non-tariff trade policies. And what this has created is significant, and I say significant movement of particularly U.S.-based companies that are multinational that had offshored their manufacturing really from the early 90s onward. Obviously, much of that had gone to China and other lower production cost areas. And those companies that their end market is back in the U.S. So take a company such as Stryker, I think I've mentioned this before, 75% of their knees and hips, their orthopedics by value that they sell, they sell in the U.S. But today, 100% of those are manufactured in Ireland and 100% of their powder is sourced in Europe and Canada, right? So you're seeing a lot of companies like that now begin to reshore and better align the manufacturing footprint with their end markets. So a significant part of the opportunity that we're seeing in addition to the defense industrial base are these commercial markets. It's also important for us because we've got to work on immediate now opportunities and then be planting seeds for longer qualification period opportunities. For example, if you're going to qualify powder for a jet engine part, it could be 2 to 3 years before you qualify that material. If you're going to qualify an orthopedic for a medical device, it could be 12 to 24 months before you qualify that material. So we've got to find some now opportunities and then be planting the seed for these longer term, and that's the way we're approaching this. So when I say we're making progress, which I think we are, think of that as we've planted those seeds, we've commenced those commercial engagements, we provided them powder, and we're trying to advance that towards qualification internally. Jane Morgan: Thank you, Hank. Lots coming through, so bear with me. Okay. So is EIGA #3 still on track to arrive in calendar year '26? And are you confident you will have enough orders building to sort of fully utilize the 3 EIGAs into calendar year '27? Hank Holland: Yes. So our strategy has always been not to fully utilize. And this is part of what gives us the opportunity to go after some of these very large commercial accounts. If we were at full capacity utilization, imagine you're a 1 million square foot office building downtown Sydney and you've got a 95% occupancy rate, well, you can't attract a very large single tenant, right? So our strategy has been to be on our front foot making these investments and to operate in the early years at about 50% capacity utilization and thus have room that we could accelerate production further if we can land some of these large commercial accounts. And by the way, in our current plan, we don't assume any of that happens. We assume that we methodically absorb that capacity utilization over a 4-year period of time, right, between now through FY '30. If we do land some of these accounts, it will accelerate that. So that's the first part of the question. As far as timing, what we've announced is the first atomizer we commissioned in June of '24, and that's essentially dedicated to refractory. The second atomizer we commissioned in June of '25. That is in a separate production room much larger that has capacity for 5 EIGAs dedicated titanium. The third atomizer in total, the second one, which will be dedicated titanium is scheduled to ship from Germany in January and to be commissioned by June of '26, so next year. And then with the recent capital raise, we announced that we will go ahead and order a fourth EIGA. We expect to order that before the end of the calendar year, and then that one commissioned 1 year later than the third one. So we'll have a cadence of June '24, June '25, June '26 and June '27, commissioning the 4 EIGAs. Jane Morgan: Thank you. A bit of a different one here. So has Amaero considered atomization of low alpha, high-purity aluminum, which is used in the casing of silicon computer chips and currently produced by some of the largest Japanese manufacturers to obviously supply the next generation of semiconductor fabs being built in the U.S.? Hank Holland: Yes, it is a great question. And part of what I love about having so many great partners right here that are smarter than I am on various issues. If Eric Bono was on the phone, he would have an immediate a very thorough answer to that. I don't have an answer to that question. We are working right now with some semiconductor companies, both on the capital equipment side, which is really a PM-HIP opportunity, but also on advanced materials side. So there is interesting work being done there. I do not know specific to that material. If Jane, if you want to forward me the e-mail, I'd be happy to get to Eric Bono and we'd be happy to respond. Jane Morgan: Absolutely. Okay. Next one. Sorry, there are a lot coming through and a few double ups here. But okay, so looking at the quarterly, as production scales into the December quarter, will there be additional working capital requirements to further build input inventories? Hank Holland: So I'm not sure if the question means more than we have anticipated or simply working capital scales. Certainly, as we scale the business, working capital scales, right? So if you think about as you have more production, you need more feedstock, you carry more inventory. So absolutely, one of the things that we follow very closely is work in progress. And candidly, the immediate priority is scaling production. You kind of take this in sequential steps, if you will. As you scale production, then you'll want to circle back on optimization and you'll be then focused on, okay, we want to do certain things such as further enhance yield to the question earlier about getting to 50%, we actually think we can get materially higher than 50%. In doing so, you reduce your cost per kg. And there's other things that we can do to further reduce the cost per kg. So it becomes a bit of a circular process. But yes, naturally, as you scale the business, the working capital required for the business will also scale, and that is in our model and very much accounted for in the capital that we have on hand. Jane Morgan: Thank you, Hank. Sorry, that's come through. So let me just double check that there's nothing that's sort of been already covered. Look, I think that does cover most of the questions that have come through. I mean, finally, what kind of 3 key messages would you like investors to take away from today's webinar? Hank Holland: Look, I think what's most important for this year, and again, this will be a transitional and transformative year for the company as we transition into commercialization, and we begin to significantly scale production. So what am I paying the most attention to? What are we collectively in leadership, scaling production and scaling commercial contracts, right? That is going to be our focus over the course of this year and candidly, into fiscal year '27. So we hope to have more commercial announcements. Obviously, we had a cadence of long-term agreements and strategic announcements. We hope to have more of those. We certainly hope to have some progress with the U.S. Defense Prime that we've been working with. You can't really control when these things happen. And candidly, when you're working with the U.S. Navy, they don't really care about this quarter. They care about getting it right for a generation of our sailors, right? Getting it right for our next generation of submarine. And so on one hand, most important to us is to be a great partner and do great work. We want these things to happen as quickly as they can. A, it's not within our control; and b, candidly, it's not what's most important. What's most important is for this business to be successful long term. So I would say those would be the key takeaways. Follow our progress in scaling production, follow our progress on additional commercial contracts and scaling our revenue. Jane Morgan: Thank you, Hank. Well, that does look like we've answered all the questions for today. Should we miss anything, please feel free to reach out by the contact details on the bottom of our ASX releases. But thank you all for joining us. Hank Holland: Thank you very much, Jane. Thank you, everyone.
Operator: Good day, and thank you for standing by. Welcome to the Hexagon Q3 Report 2025 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead, sir. Anders Svensson: Thank you, operator. Good morning, and welcome to our third quarter 2025 earnings presentation. Today, we have an extended session with a bit of a different format. So I will take a moment now in the beginning just to walk you through how it will work. So in a moment, I will start by taking you through the third quarter performance. First, from a group perspective, and then focus on Hexagon core business performance in the third quarter. I will then hand over to Mattias Stenberg, the CEO of our potential spin-off company, Octave, and he will talk about the Octave performance during the quarter. Mattias will then hand over to Norbert Hanke, our interim CFO, who will cover the financials for Hexagon Group in a bit more details. Following this, I will take an additional roughly 20 minutes or so, to discuss my initial thoughts from my first full quarter at Hexagon, including also immediate priorities, with a focus then on -- also here on Hexagon core. And we will then, of course, open up for questions-and-answers. But starting then with our third quarter performance, and I start directly on the highlights. So in the third quarter, we made solid progress in our financial metrics and delivered a great deal of operational progress. Organic growth was 4%, with growth driven strongly by a demand in Autonomous Solutions and also across some of the other customer segments, such as aerospace and defense, electronics, machine control, mining and general manufacturing. Operating margin strengthened quarter-on-quarter, despite that Q3 is normally our seasonally weakest quarter, but it remained below our targeted levels. Across Hexagon Group, we have identified a cost efficiency program, which has been in action now and will begin to benefit margins gradually from the coming quarter here, the fourth quarter and will then have full effect by the end of 2026. Cash conversion in the quarter was good at 77%, considering that Q3 is normally the weakest quarter in the year. And we remained on course to achieve our annualized target of 80% to 90%. We also made some strategic operational moves during the quarter. We have previously announced the sale of our D&E business in Manufacturing Intelligence to Cadence for EUR 2.7 billion. And we made some changes to the executive leadership team ahead of the potential separation of Octave. And this separation is still on track for the first half year of 2026. And I will talk more about these changes in a moment. But first, I will walk you through the announcement where we are addressing our cost issue. So at my first call during the second quarter report, I committed to review the cost base of Hexagon to address the recent challenge in our operating margins. So across Hexagon Group, we have identified EUR 110 million of potential savings with around EUR 74 million being related to Hexagon core and EUR 36 million being related to Octave. And as I said, we expect to see these benefits gradually starting from the fourth quarter this year and then with full effect at the end of next year. The cost to achieve these efficiencies will be around EUR 113 million. In Hexagon core, we also conducted a review of our balance sheet, which we identified a charge of EUR 186 million related to primarily innovation in history and also some other items like inventory and also discontinued products. These charges were also taken during the third quarter. And I'm very confident that these situations will be less likely in the future as I expect our businesses to manage their profit and loss and balance sheet within normal operations, and key steps we are taking here is to give divisions full accountability for financial performance. It will also enable operational and product decisions to be taken closer to customers to ensure a market fit and also that customer needs are met. We're also strengthening our governance for approvals and review systems, and we are implementing a new performance management system to enable swift response. I'll now turn into recent changes to our executive team. So we have announced that David Mills is stepping down as CFO from Hexagon for personal reasons, and he will be replaced on an interim basis by Norbert Hanke until we find a permanent replacement. We didn't want to see David go, but I understand the reasons and he has my full support. But I'm very happy that David has agreed to remain available for us for the next 6 months as a financial adviser and that we also have a very competent and knowledgeable interim replacement here with Norbert. We have also announced that on the separation of Octave, Ben Maslen and Tony Zana will transition to the Octave leadership team, where Ben will be the CFO, and Tony will be Chief Legal Officer and Corporate Secretary. Ben and Tony has been key members to the Hexagon executive team for many years and still are. And while I'm sorry to see them go, I'm also delighted to see them progress into these new roles with Octave. And I have no doubt that they will be instrumental in driving value for Octave and embrace the future that this company is going into as an independent listed company. And I'm pleased to announce that replacing Ben is Andreas Wenzel. Andreas joins us from ABB, where he has held a number of senior roles, including Head of Strategy and M&A. Replacing Tony will be Thomas De Muynck, who joins us from Jones Day where he was the Head of the Brussels practice. Thomas joined us early in this month, and I'm very happy to welcome him on board to the team. Turning now to the next slide. I will talk briefly on the decision to sell our D&E business. In early September, we announced the sale of our D&E business to Cadence for EUR 2.7 billion. The engineering and simulation market has been consolidating rapidly and electronical design and automation suppliers, EDA suppliers, have been increasingly taking a leading role in this consolidation. And we are then consolidating with physical simulation suppliers like our own D&E business, and we have seen this with other companies like Siemens, Altair and Synopsys, Ansys. And this is a trend which is very difficult for Hexagon to follow. It is therefore better that we dedicate our time and attention to our core, which is precision measurement, positioning and autonomy technologies, where we can use our market leadership position to drive best-in-peer group growth and margin levels. And just to make it very clear for everyone, this is not an exit from software at Hexagon. Post the potential separation of Octave and the sale of D&E, Hexagon software and services revenue will still account for above 40% of revenues and 25% recurring revenues, and we expect these amounts to continue to grow also in the future. The funds released by the transaction expected to be in the amount of EUR 1.4 billion will help support us to build and develop our businesses while also maintaining a very robust balance sheet. We expect the transaction to close during the first quarter of 2026. I'm now turning to the next section, and that's the financial performance of Hexagon core in the third quarter. So I'll move directly into that. So Hexagon core, that means excluding Octave business, grew by 5% organic in the third quarter with an adjusted operating margin of 27%. This is a solid financial performance in challenged end market environments. I will now turn into a focus on Manufacturing Intelligence. So MI reported revenues of EUR 445 million, represent a 3% organic growth versus 2024. There was a strength in general manufacturing and electronics, and it was somewhat offset by continued soft demand within automotive. There was growth across all geographies with good demand in the Americas and growth also in EMEA, where automotive weakness was offset by a strong demand in aerospace. China also grew with 3% in the quarter, strength within electronics and general manufacturing, but signs of weakness is also here within automotive. The division reported EUR 112 million EBIT and an operating margin then of 25.1%, and it was impacted by some negative currency effects. In fixed currency, if you compare the margin year-on-year, it was actually better in 2025 than in 2024. So turning now to Geosystems, where we reported revenues of EUR 353 million during the quarter. And I'm happy to say that represented a 1% organic growth compared to last year. And it was really good to see a return to growth after 6 quarters of negative growth. Last time we had a positive growth was the fourth quarter of 2023. So good to see that we are back on positive numbers. We saw continued growth in the software portfolio and associated recurring revenues and a good contribution from our new product iCON trades, which continues to grow very well. This was, however, offset by continued weakness in hardware related to construction and heavy infrastructure, where the market remains very weak, especially in China. The Americas continued to grow, and there was a return to modest growth in EMEA. Asia remained challenged, of course, given the exposure to China heavy manufacturing or heavy infrastructure, particularly in high-speed railway, offsetting the continued good growth that we actually have in India. And here, maybe adding some interesting facts that in average 2022 to 2024, China was building 3,600 kilometers of rail every year. If you compare to the first half year of 2025, they only was building 301 kilometers. So it's almost a drop of 85%. And that is, of course, impacting Geosystems deliveries in China. EBIT declined to EUR 95 million with an operating margin of 26.9%, reflecting the combined effects of low volume in some product segments, the weaker product mix because the product mix going into this heavy infrastructure is a really positive contributor and also then we had negative currency impacts. Finally, I turn into Autonomous Solutions. And I'm happy to say here we have the standout performer in the quarter, delivered revenues of EUR 178 million, representing 19% organic growth compared to the prior year. There was a very strong performance in aerospace and defense. Mining was also growing well and end markets in agriculture actually remain challenging. So here's the problem child within this division currently. But it's market related, and the agriculture is currently in a serious downturn, and we are seeing signs of improvement, but still it's very low compared to where it should be. By geography, growth was strong in the Americas, which represented the majority of the aerospace and defense demand in the quarter. APAC also grew well, supported by demand in the autonomous road trend project within Australia and EMEA declined, but that was on tough comparables. EBIT came in at EUR 65 million, represented an increased EBITDA margin -- EBIT margin to 36.6%, driven by strong volume, positive product mix, but slightly offset by currency. So in summary, a very solid performance within Hexagon core in general. And I will now hand over to Mattias, who will cover the Octave performance. Mattias Stenberg: Yes. Thank you, Anders, and good morning, everyone. We'll start with, I thought, since this is the first time we report like this publicly for Octave, I thought we'd start with a short description on what the business is and what we do. So we are a market-leading provider of enterprise software that ultimately helps customers design, build, operate and protect mission-critical industrial and infrastructure assets. In terms of numbers, we had about EUR 1.5 billion revenue last year. As you can see also from the slide, we have high recurring revenue and high profitability. We have roughly 7,400 employees around the world. And we have a very strong, I would say, A+ list of customers. As you can see, roughly 60% of the global Fortune 500 companies are customers of Octave today. And you can see some of the logos there on the slide, but of course, many, many more. So what could we do if we move to the next slide and talk about our core pillars. I think, first of all, it's important to say what makes us unique is that we connect all of these pillars together into one platform, one natively integrated data platform, right, all the way from design, build, operate and protect. So you will see product names out to the right here on the slide, some of the flagship products, obviously, SmartPlant 3D, EcoSys, EAM, ETQ, et cetera. But the way we go to market is really by selling a platform. We're selling solutions. We're delivering value, not selling individual products. I think an example of that is that you can also see that products like SDx2, which is our data platform, shows up in several of the different pillars here. Design is our biggest area, as you can see from the revenue contribution pie there. Build would be our smallest one, operate our second largest, and that's also been the fastest growing over the last couple of years. But moving into the quarter, how did we do on the next slide. I guess the headline number is that we grew organic growth 1%. And one has to remember first that we come from several years of good growth, right? I think that's one important thing to say. The other thing to say is that our recurring revenue grew 6%. So I feel confident that we're building momentum for the future. We're adding customers, adding seats, et cetera. So the base is growing. And you can see that by our SaaS revenue that grew strong double digits. However, our lease revenue was flattish, which obviously had a, what you say, dampening effect on the recurring revenue compared to the SaaS. To offset this growth, we did have a decline in perpetual licenses. This is a revenue that varies quite a lot by quarter. It depends if you get a big deal in one quarter or the other, the other thing one has to say also is that it is an intentional strategy and has been for quite a while to transition this revenue into subscription revenue. So if you look at the slide there as well, we described that the license revenue is now 13% in this quarter of total revenue. And this is the revenue that we will gradually, over time, transition to SaaS. If you look at the profitability, we did 26% operating margin, which was lower than last year. And I think it's a combination of things. I mean, one, that the perpetual licenses were down that has a high drop-through. Also that we've had some additional investments partly due to making the company ready for being a stand-alone public company and also to integrate the other business units, SIG, ETQ and Bricsys that we have taken on recently. Important to say, however, that this is a temporary downturn in the margin. We are taking cost effects like Anders talked about. And my expectation is that this will put us back on a growing margin trajectory. If we move to the next slide, I wanted to highlight one very important strategic win we had in the quarter. We won a multiyear 8-figure deal. And I guess you could say also there was very high 8 figures, and I see this as proof that our strategy of selling a platform and our relatively new product, SDx2 is delivering value in the market and to customers. It really also sets a precedent, I think, for other owner operators that want to digitalize their assets. And it will clearly also influence and incentivize other players in the ecosystem, such as EPCs, suppliers, contractors to adopt our platform as they see big owner operators adopting it. Okay. On the next slide, I wanted to say a few words about some key initiatives that are going on right now. Like I mentioned, we are transitioning our business to a SaaS model. So you will see more of that going forward. I also mentioned that we are investing in making the company ready to be a stand-alone public company. Also wanted to highlight the strategic disposal that we did earlier this summer of some noncore assets in the HexFed business, which historically sat in the SIG division. It was around EUR 90 million of revenue, and this will strengthen our margin profile and, yes, sharpen focus for us going forward. Like I also mentioned, we are in the midst of integrating these businesses into one. We are making very good progress on that and we'll, yes, soon complete that. We're also, like Anders mentioned, completing the cost saving program, which will, like I mentioned, put us back on a growing margin path. Finally, we are also making improvements to our organizational structure. So if you go to the next slide, I wanted to highlight the management team that we have put together here over the last couple of quarters. I'm not going to read every resume here, but if you -- there was this press release in September where you can read more about this if you're interested. But I would say it's a world-class management team that we put together that we think really will help us scale this business. It's a combination of Hexagon executives like Ben and Tony that Anders mentioned. And then we have some executives from the former ALI division as well as 2 new recruits that I wanted to say a few more words about. So we've hired a Chief Product Officer in Jay Allardyce. He is a recognized leader in the industry across AI and enterprise software. He has had prior leadership roles at HP, GE, Uptake and Google. So I think he will be a great addition to our strategy and product teams. We also have hired Tamara Adams or Tammy, as she goes by, who is a strong CRO with lots of experience in the industry. She has had recent roles at Honeywell, Oracle and most recently as Chief Revenue Officer of a company called Dotmatics, which recently was acquired by Siemens. So in summary, I'm very happy with the team we put together, and I'm sure they will help us scale this going forward. Finally, on the next slide, I wanted to say a few words about the time line and what you can expect there. So we are obviously well aware of that the U.S. government shutdown, which is impacting the SEC and the review process, but we still feel that we are on track to complete the spin-off in the first half of next year. Also, like we mentioned before, Octave will be listed on a U.S. National Securities Exchange with the Swedish depository receipt expected to run for approximately 2 years. And also like we mentioned in the report, we will -- we are planning to hold an Octave Investor Day sometime in the first quarter next year, and we will come back with an exact date when we have it. So thank you very much. And then I'm handing over to Norbert. Norbert Hanke: Yes. Thanks, Mattias. In the following financial update, I will take you through the Q3 performance for the Hexagon group. Turning now to the next slide. Let us begin with the Q3 2025 income statement. Taking the sales bridge first. Revenue were EUR 1.3 billion, generating reported growth of 0%. Currency was a negative minus 4% on sales, and there was a positive plus 1% from structure, resulting in organic growth of 4%. Gross margin were stable at 67%, considering the impacts of FX. We continue to be confident in driving gross margin expansion as we will have positive impacts from new product releases. Operating earnings decreased by 7% to EUR 349 million, corresponding to a margin of 26.8%. I will break this out further in the profit bridge. Interest expenses and financial costs decreased from EUR 44 million to EUR 32 million, given a delta on earnings before tax of minus 5%. Taxes being at 18%, in line with prior years, bringing us down to an EPS of EUR 0.096 also declining by minus 5%. Just for reference, the EBIT1, including PPA includes EUR 27 million of amortization and so dilutes the EBIT1 percentage to 24.7%. Next slide, please. Moving on to the gross margin development. As I mentioned on the previous slide, we saw stability in the gross margin once adjusting for currency. On a rolling 12-month basis, gross margin of 67% is broadly in line with the prior year. Turning now to the profit bridge, please. So during Q3, currency continued to be dilutive, reducing EBIT margin by 30 basis points. The structural element was accretive with solid contribution from acquired companies such as Septentrio and Geomagic as well as by the sales of the dilutive assets in Octave. The organic impact was negative, diluting the margin by 240 basis points. This mainly reflects a cost base that is not yet fully aligned with the current level of demand. To address this, we have started a cost program to rightsize the organization and mitigating this impact going forward. We expect the benefits to contribute or to start to contribute gradually from the fourth quarter of 2025 and beyond. Turning to the next slide, please. Moving on to the Q3 cash flow, which is a strong performance when taking seasonality into account. The adjusted EBITDA variance at minus 2% demonstrates the continued stronger cash leverage versus the EBIT1 variance at minus 7% due to the increase in D&A. The working capital represented a build of EUR 32.4 million in the quarter, an improvement to working capital management last year that results in a 1% increase in the operating cash flow before tax and interest, which leads to a solid cash conversion of 77% versus 70% last year. Interest payments marginally decreased as expected and cash taxes remained at a similar level to Q3 last year. The nonrecurring items cash outflow of EUR 38.8 million versus the prior year of EUR 22.7 million brings an operating cash flow of EUR 139 million, decreasing by minus 3%. Next slide, please. Moving on to the working capital trend. The Q3 net working capital being a build of EUR 32.4 million versus the prior year build of EUR 56.2 million decreased the proportion to rolling 12-month sales to 5.3%, lower than the prior year level of 8.3%, which is still below the 10% threshold we aim to achieve. To conclude, the divisions have continued to mitigate an uncertain environment to deliver growth, solid cash conversion and stable gross margin. Negative currency has been a headwind to EBIT1 margin development, and we are working to address the cost base through the announced cost program. I will now hand back to Anders. Anders Svensson: Thank you, Norbert. And I will then start by summarizing the third quarter. So to conclude, in Q3, we have seen solid development in our financial metrics. Organic growth of 4%, an improvement in margins quarter-on-quarter and a good cash flow considering the usual seasonalities for the third quarter. While improved, our operating margins remain below our expectations and below our targets. And as a result, we then launched an efficiency program aiming to achieve cost savings of EUR 110 million. And this, we expect to have gradual benefits from the fourth quarter this year with full effect the end of 2026. We do not see the immediate market environment that currently is characterized by delays in customer decisions, as Mattias mentioned and also within the Hexagon core businesses, and we don't expect that to change in the near term. So we see a similar environment in the beginning here of the fourth quarter. But we have also released a lot of products in recent quarters, and we see that as we are set up in a good way when the positive environment returns. Operationally, we had a successful quarter. The sale of D&E, as I mentioned, as one of the key highlights and the release of those funds will then further fund growth for both Octave and Hexagon core. And finally, then, the potential separation of Octave remains on track for completion in the first half of 2026. I'll now turn to my first quarter review slides. So in this section, unless I otherwise mentioned or it's otherwise stated in the slides, it would be relating to Hexagon core businesses. And that means then the type of businesses that are left after the potential spin-off of Octave, of course. And this includes then our business areas, Manufacturing Intelligence, Geosystems, Autonomous Solutions and also the Robotics division. So I will take you through my initial thoughts and observations after now almost exactly 3 months being at Hexagon. And I will then talk about actions we are taking to drive performance further and some more details about our upcoming CMD. So I turn into the first slide here. So Hexagon has created superior value for many decades now, at least 2-plus decades, and we have the potential setup to continue to generate superior value creation for decades to come. And today, we are at a very exciting inflection point in our company's history because our industrial customer base, they value precision and quality more than ever as they try to meet the increased quality demands of everything getting more tight, more small and with less tolerances and also the increased sustainability challenges. They're also driving towards full autonomy as a response to the shortage of skilled labor in the world. Our industry-leading technologies regarding sensors, software and AI are allowing us to deliver ever more value-adding products and services to our customers, and we are well placed to seize the opportunity for autonomous operations in many industry verticals going forward. Our new operating model will enable us to take full advantage of our profitable growth opportunities. But first, a little more on the opportunity ahead. So I turn to the next slide. So Hexagon is ideally positioned to enable autonomy in many industry verticals, and we will do this by combining our capabilities and offerings within various fields. We possess market-leading measurement and positioning technologies, combining multiple types of sensors. We utilize these to deliver sophisticated real-time digital twins, including reality like full 3D environments of buildings and cities. And we leverage advanced analysis on [ AI ] to unlock the value of petabytes of data that we generate. The combination of these capabilities position Hexagon to be a clear leader in the emerging field of Autonomous Solutions. Many of our industrial customers have embarked on a journey towards these autonomous operations as they increasingly struggle to find skilled and qualified labor. And hence, they need to move towards so-called lights-out production. And here, of course, our new humanoid robot, AEON, is a prime example of enabling industry autonomy. Measurement and positioning new technologies and industrial autonomy are only going to become more important as industrial customers face these significant challenges. So let's see how our products are helping. So turning to the next slide. Since late 2024, we have launched a number of important product innovations, which combine our most advanced sensor with latest technology on AI and digitalization. All of them also bring significant advances on autonomy. Taking some examples from this page, we have talked previously quite a lot about AEON and iCON trades. And also last quarter, we talked about MAESTRO, our new coordinate measurement machine. So I will focus on the other one here. So in Manufacturing Intelligence, we have the ATS800, which is the first laser tracker ever to merge scanning and reflector tracking into one system. This portable metrology device is automation-ready and uses AI to pinpoint the true center of each measurement, detect features like holes and edges, et cetera, and this is huge to speeding up the process and removing the need for human intervention. And also now in the beginning of October in Geosystems, we just launched the TS20. And that's the first new total station platform in, I would say, 20 years plus. And it's a full hardware and software overhaul it's the first total station with on-device AI, which enables it to recognize and lock into any prism without user input. And this drastically reduces errors, setup time and operator dependency. And this is a direct response from Hexagon to the shortage of skilled surveyors. So combining our skills in measurement and positioning technologies, digital twins and advances in AI to deliver solutions for industrial autonomy is key for Hexagon, and we are in the middle of this journey. So the products you can see here on the page represent profitable growth opportunities ahead. And this potential is, of course, largely not reflected in Q3 financial performance and will also not be very much reflected in Q4. But going forward, these products will play a major role in Hexagon's delivery. So turning to the next slide. So we know that Hexagon historically demonstrated that we can generate strong organic growth with excellent operating margins. And on this slide, I try to demonstrate a bit the relationship between organic growth and profitability during the last 2 years. And we can see here in this recent history that we have 2 trends. One is that the organic growth has been impacted by the macro backdrop, and we can see it's been negative or at best flattish, while the operating margins have been subject to increasing cost levels internally and hence, a dislocation from our top line alignment and -- a top line development, which has been flat. So you can see we have dropped even more when it comes to profit. The recent quarter shows some signs of reversal of this trend. And with our increased cost focus going ahead here, combining this with our new operating model, we intend to generate a delivery model within Hexagon core that supports profitable growth generation. So let's have a look at the steps we have taken, moving then to the next slide. During the third quarter, we have taken 2 really important steps to enable us going forward to perform at our full potential. The first one is our new operating model, which embraces best practices of decentralization, but then applies them to the specific situation of Hexagon. So we have established 17 divisional P&Ls with our externally reported businesses with dedicated management team, and this would improve accountability within these organizations considerably. This would also improve our ability to quickly respond to end market changes and also to customer changes and make us generally faster to take decisions. It also means that product and operational decisions will move closer to customers, ensuring that we take the right decisions related to the different market dynamics and ensuring we don't take decisions centrally where we don't have the input from markets and customers. The second step that we have taken is to realign our operational performance, and that was to do this restructure program that we communicated of EUR 110 million. And this should be understood that this is in addition and completely unrelated to the operating model. If we would have kept the same model as we already had, we would have launched the same program. So it's not related. We already communicated that we are addressing the cost base challenge to respond to the pressures on these margins. And alongside this, we have taken the decision to review the balance sheet as well and in particular, related to historic R&D spend. This would help us to baseline performance so we can measure our divisional leaders properly on performance going forward. This baselining will only happen once, and we expect our divisional leaders to manage their P&Ls and balance sheet going forward as a part of normal operations, with adjustments only being taken for exceptional circumstances going forward. It could be such acquisitions with partly overlapping offerings. It could be a new COVID situation when we need to, as a group, react quickly. And it could be large restructure within the group, like the spin-off of Octave for example. All other items need to be handled within the business of day-to-day operations. Turning now to some more details on R&D, where we have taken the decision to make these impairments. So innovation power is one of Hexagon's greatest skills and assets and is something that we will nurture also going forward. However, in recent years, investments in R&D has spiked, as you can see in the graph there. And that's mainly due to related to somewhat delayed core product developments and cost overruns in some major innovation projects, and we have seen this not only in one division, it's been actually in several divisions where some of our key renewal projects has been fairly late to market. The positive thing is they're coming to market now. And so that's really positive to see with the TS20, et cetera. But this has meant that we have seen significantly increased R&D spend, while at the same time, the benefits of our organic growth and margins have not yet materialized to be seen. Maybe to be added here as well, there are some elements in this spike that related to software acquisitions that in relation has a generally higher R&D spend than our normal businesses. But with these new product launches across '25 and '26, we expect R&D to stabilize on an absolute basis and then to decrease on a ratio versus sales. However, as we reviewed our innovation and product portfolio, it also became clear that in some cases, we have invested into innovation that turned not fully to meet customer requirements or the target end market situation has changed or we have decided to exit a specific offering. This means that there are some product lines that are not performing and will not be able to generate a return. So we have, therefore, taken the decision to impair EUR 186 million in Hexagon core. Most of this then is related to these R&D spends, but there's also some related to inventories. And this will give our businesses the opportunity to reset and move forward from a more comparable basis. So we are also then able to performance manage on actual performance and not on historical effects. As I mentioned earlier, our new operating model will help us to avoid that we face the need to do such impairments again in the future. I move to the next slide. So this is explaining a bit the new management structure. So we will have 17 profit and loss accountable businesses, which are part of -- these are sort of the main part of our operating model. So I will explain a bit how it will work. So Hexagon has always operated with decentralized structure, which has then entailed a lot of freedom for the divisional presidents to run their businesses, and it has kept the corporate cost levels quite low. However, within the former divisions, the organizational structures became quite overly complex sometimes with slow decision-making and not always focused on end customers. So our new operating model establish clear and common management blueprint on a more granular level. And also, we have historically called divisions. They will now be called business areas instead, and they will have divisions reporting into them. So the previous divisions, Manufacturing Intelligence, Geosystems, Autonomous Solutions will now be called business areas. And they will then have the dark boxes, the 17 -- or you can say 16 smaller dark boxes reporting into them. But externally, we will still report on the business area level. And then you have the 17 dark blue box, which is robotics, and that will then continue to report into the CEO. Division leaders and their teams will then have mandate to deliver superior value creation within the businesses. And I move to the next slide to show how those mandates will be set up. So a division can have a mandate of stability, profitability or growth depending on where they are in the current situation. So we refer to these 3 stages as strategic mandates. And that sets the overall direction for the business and how the management and leadership of those divisions should basically think every morning when they wake up. If you are in stability, it does, of course, not mean that you need to restructure or sell parts of your business. You can also transform it organically. And if you are in growth, it doesn't mean that you need to buy everything, you can also grow organically. But we will allocate capital accordingly. So more capital allocated towards where you are in growth and less when you are in profitability and almost nothing when you are in stability. Moving then to the next slide. So a decentralized management structure with full accountable divisions can only create value sustainably if it's combined with a strong governance and a clear performance management system. And here, we are taking a major step forward at Hexagon with the introduction of scorecards. At the core of the scorecard system is a set of standardized financials and nonfinancial KPIs, which are closely tracked for all divisions in a fully consistent way. The scorecard system will significantly improve transparency, accountability and also speed of action taking to steer the division in the right direction and to pull the right levers to change direction or create more value. I then turn into the next slide, and that's the summary. So Hexagon is a strong company with a bright future ahead. Our fundamentals are very good. We are the market leader in precision measurement technologies. We have strong exposure to high-growth end markets and emerging field markets like industrial autonomy. And this places us very well to capture the opportunities presented from several macro trends, including the main one, labor shortages and skill shortages, increasing quality demands and also, of course, sustainability and safety demands. Our innovation and expertise is second to none, and that's reflected in several of the exciting new products that I showcased in an earlier slide. And as we have a clear plan to achieve superior value creation going forward, we are taking immediate actions to address our cost base. And in addition, we're implementing best practice decentralized operating model, establishing these 17 divisions with full accountability. Operational decisions will then be taken faster and innovation will be anchored in markets and close to customer needs. And last, we will manage our division portfolio very closely for performance and value creation, applying proven tools like strategic mandates and the scorecard system. Turning then to the next slide, where we are inviting you all to Hexagon's Capital Markets Day in 2026. And that's on the 30th April. It will be showcased in London. And on this event, we will discuss in much more detail business area strategies, including the divisional mandates that we have identified. And also, we will also discuss then new financial targets for Hexagon core '26 and forward. So we are really looking forward to seeing you all there. And with that, I think that summarizes the presentation, and we will now move into the Q&A section. Operator: [Operator Instructions] And your first question today comes from the line of Johan Eliason from SB1 Markets. Johan Eliason: I was wondering a little bit, I mean, your new setup of the Hexagon core looks excellent to me. One issue that's been high on the agenda over a couple of years has been the way you capitalize R&D and now obviously, you impair a lot of that. Will you change the strategy regarding R&D capitalization going forward? Anders Svensson: So thanks, Johan, for the question. We will not basically change the way we run capitalization is IAS 38. We will make sure, of course, that we are not capitalizing too early of any of the projects. We will manage our portfolio more like an insurance company. If we believe that we take a larger risk in one project, we can't afford to take larger risks in all projects. So we can manage all that within the normal operational structure of the company. So what we are doing is more strengthening around how we do governance when we approve projects to be started, how we review projects during the way to make sure we don't continue to invest in something that we are aware of will be difficult in a go-to-market situation. So the answer to your question is we will not change the methodology of capitalization and by then restating all our history or something like that. So we will keep the current way of operating, but we will operate more carefully and more controlled and with a tighter governance. Johan Eliason: Excellent. And then secondly, you will have a very strong balance sheet after the D&E divestment next year. How are you thinking about the balance sheet of the spin-off Octave? Is that a business that should be run on a net cash position? Or how should we think about how to split the balance sheet going forward? Anders Svensson: Yes. So this is a decision that the Board will take at the right stage in the process on how we divide the assets, net debts and the firepower within the company generated from the D&E sale. So that's a question we would need to come back to you on. Johan Eliason: Okay. I guess that's topics on the Capital Markets Day. Then just finally, a short question also for Mattias here. In Octave, you talked about lease revenue stable. I'm not sure I understand what lease revenues are. You have subscription license and services in your pie charts. How does this corroborate to each other? Mattias Stenberg: Yes. Yes, good question. And first of all, I should say we will break all of this down for you in more detail at the Investor Day, right, since we are in a public filing process, and we're still a division of Hexagon. There's -- we're not going to give all of the details today. But basically, leases are -- it's also subscription revenue, but it's month-to-month leases, right, of seats. So think of it, it fluctuates more than the SaaS revenue, right? So that's why it's, yes, more, I guess, short-term volatile than the SaaS, if that helps you. Operator: And your next question comes from the line of Erik Golrang from SEB. Erik Pettersson-Golrang: I have a couple of questions. So we'll start with Geosystems and China, which was weaker. And you talked about the development on the high-speed rail side in China. So given you have some peers in China growing much faster, is that basically an end market split dynamic that means Geosystems is growing so much lower? Anders Svensson: Sorry, we had a little bit of a problem here with the sound in the beginning of the question. Would you mind to repeat it? Erik Pettersson-Golrang: Sure. So on Geosystems development in China and your commentary there that a lot of the weakness is related to your exposure towards high-speed rail and that development. And so your take is basically that it's an end market split that means that you are growing slower than particularly some of the local peers in China. Anders Svensson: Yes, I would say the end market exposure that we have in China is related to where very high precision is required and not in the general sort of market for our competitors. So we are in the top-tier segment within China. And the top-tier segment is not required everywhere, of course. It's required when you have sort of high-speed railway manufacturing and other very large infrastructure projects. So our exposure to that sector within construction is much higher than our competition. So when something happens to that specific part of the market, we get hit very hard. And that's exactly what happened if you compare that to local competitors. Erik Pettersson-Golrang: Okay. And then as a follow-up on that, any -- there was never a plan to do with Geosystems similar to with -- as you do with MI now, making China a separate unit within to make it operate a bit more autonomously given developments in China? Anders Svensson: The question is good. And -- but that option is actually not available because the reason why we can do that in MI is that we have been very good in history on localizing our products and our innovation also is localized. So within MI, we have a good, better and best offering. Best is basically the offering that we use globally and the good and better offering is the offering we use within China for China. And it's fully manufactured, developed, et cetera, within China. If you look at Geosystems, basically, very little is localized in terms of supply chains, innovation, et cetera, to China. So it's mainly a global offering that we have. So a lot of the products are imported to China. And this is the reason also, of course, why we are only present in Geosystems in the top-tier segment and not in the general segment in the market. So completely different situations within those 2 businesses. So it wouldn't make any sense to do that within Geosystems. Erik Pettersson-Golrang: Okay. Then for Mattias on Octave, just if you can give some more perspective on the low growth rate. I get that you say that growth has been high for a few years, but I guess that depends a bit on the starting point you use and you certainly have some peers that are growing quite a bit faster. So what -- I mean, what kind of growth rate would you like to get out of Octave in the midterm? Mattias Stenberg: Yes. I mean I'm not going to give a forecast today, as you can imagine, since we are doing the Investor Day in Q1. But fair to say is that it needs to be higher the growth, and it needs to be higher the margin. And I feel confident when I see recurring revenue growing a lot faster than the headline number, the reported revenue. So yes, I mean, I think that's -- I'll stop there, I think, and then we'll discuss more in Q1. Erik Pettersson-Golrang: Okay. Then just one quick at the end. You mentioned for Hexagon core and the peer-leading profit margins. What peers will you compare with? Anders Svensson: We have different peers in the different businesses, of course. So if you look at first, maybe you start with AS, you have peers like Sandvik, Epiroc, Metso, et cetera, right? And if you look at MI, you have ZEISS, Siemens, to some extent, Sandvik as well. You look at Geosystems, you have Trimble, FARO, NavVis, Topcon, do you want to add any? Mattias Stenberg: No, I think that's Renishaw. You mentioned already. Anders Svensson: Renishaw, yes. Mattias Stenberg: That's all, good. Operator: And the question comes from Sven Merkt from Barclays. Sven Merkt: Maybe first, following the R&D impairment, how should we think about R&D capitalization going forward? It looks like you're on track to capitalize around EUR 500 million this year and amortize EUR 300 million. So this gives you a net benefit of EUR 200 million. Where is that heading going forward? Norbert Hanke: Yes, it's Norbert here. From our point of view, as we are managing now the cost -- the R&D costs, and you have heard as well going forward on this, that we are very selective, right, in the sense and we will be very focused. It will be going down in the sense that overall, I think from our point of view, it will slowly decrease the gap from our point of view. Anders Svensson: Yes. And maybe adding here, so let there be no mistake, we are not doing the write-down of the balance sheet to improve the results. And actually, if you would compare going forward with the new products being released and the impairments we are doing on the balance sheet, it's basically a wash from the performance and the gap within the third quarter this year. So there will be no sort of big benefit in our reported results from this impairment. What this impairment does is to set up the new management of divisions and business areas on a right level so we can actually performance manage them on their operational performance and not performance manage them on historical mistakes that we have on the balance sheet that are not generating a return. So this is the reason why we do this. And that enables us then us and the Board to make sure that we take portfolio decisions that are based on facts and not skewed by historical balance sheet issues. That's the reason. Sven Merkt: Okay. Got it. And of the capitalized R&D that you have on the balance sheet at the moment, how much is sitting within Hexagon core versus Octave? Mattias Stenberg: We will not give any, say, further information on that, honestly. We'll do it when we have the spin. You will see it then. Anders Svensson: Yes, you will see it clearly when you have this potential spin executed. Sven Merkt: Okay. Fair enough. And final question, just on the cost savings. How much of that should we expect to really flow through profit and how much you might reinvest elsewhere? Anders Svensson: So what you see on the EUR 110 million of savings that we have communicated, that is what we expect flowing to the bottom line at the end of 2026. So that is net. That is not gross. But you -- I want to add one thing. You should not calculate a big effect in Q4. That is important to understand because this is a process that will take time before you will see the effect. And you will see gradual effect starting in Q4 this year, but then it will ramp up during '26 and give the full benefit at the end of the year. Operator: We will now take our next question. And your next question comes from the line of Johannes Schaller from Deutsche Bank. Johannes Schaller: Three, if I could. I mean, firstly, on the impairments. You said there are certain kind of areas, products, initiatives that are now discontinued or maybe where you didn't have the success you wanted to see. Could you give us a little bit more detail on what that is and which kind of areas are not part of the strategy and the growth profile of Hexagon anymore? And should we expect that this is it now in terms of impairments, maybe for the next 1 or 2 years? Or is that more an ongoing process where maybe in 6 months' time, you also find other areas? That would be my first question. The second was just coming back to China. I know you don't guide, but could you give us a bit of a sense kind of when you would expect that region to be back to growth? And then lastly, just on the Cadence stake that you got as part of that sale, what's the strategy here and the plan with that stake? Anders Svensson: Okay. I counted at least the 4 questions, but... Johannes Schaller: Apologies, you're right. Anders Svensson: No worries. No worries. So starting with the impairment, I will give you a couple of examples where we mean -- what I mean there. It could be related to market changes. We have, for example, one project that we have developed for autonomous driving mass production. And this, as you know, has been quite delayed coming to market all over the world, basically -- maybe except China, where it has come to market a bit at least. So when the main producer of cars then decides to cancel the platform, we have nowhere to allocate this to get any revenues for this. So this is something we need to write off, right? So that's market change. Then you have misalignment to customer needs. And this is also related to ourselves, but customer needs can also change over time, right? It could be, for example, we have developed a product and the expectation of operations from customer is 4 hours, and we can operate for 20 minutes. We don't fulfill the sort of sound levels that are required by the customer, et cetera, which means that we basically can't offload this product even if we would discount it 90% because nobody would buy it. So this is something we need to write off. It's useless, won't generate any revenue for us. And then you have the third area then, and that is when we decide as we now restructure our company given the potential spin-off of Octave, and we are refocusing Hexagon core. We then have areas that we believe are not suitable for us to continue to invest in and continue to take a part of, and they're not contributing positively, either in growth or in profitability. And we have then decided to exit those areas and those products, and then we need to write those off. I will, for competitive reasons, of course, not mention exactly which products these are in this call. And then if we go into -- will this be an ongoing thing? And I think I answered that question during my presentation, I hope, at least twice, but I'm happy to do it again. So my expectation is that our divisions and business areas need going forward to manage this in their operational normal day-to-day business and the operational profit and loss and balance sheet performance, and they will be monitored closely to make sure that we achieve this. The decisions in those divisions will then be taken closer to customers, so we are sure that we are aligned to market needs, customer needs, market changes all the time. We will have a stronger governance also before we start projects and also during projects to ensure that we stop projects early on when we notice that they are no longer aligned with market or customer expectations. And we will have a new performance management system to enable swift response when we see that some of the KPIs that we follow are getting off track. So this is not that some will come back on a regular basis. And I hope we won't do this at all going forward, unless we have one of those big things that I mentioned could be a potential spin-off like Octave. That will, of course, make us do some things in terms of realignment structure, et cetera. It could be that we, as a company, need to react very quickly together, like a new sort of COVID situation or something like that. So those are the kind of situations where we might have to do this again on a higher level on a group level. But otherwise, it could also be that we buy a bigger company and there is product overlap and we need to make some impairments of some of that asset, of course. But those are the only examples. It should not be from normal operations and normal R&D development. That should be managed in the day-to-day business in the day-to-day results. And then China guidance, we are not guiding forward on China, but there are areas in China that are performing very well. So if you look at Manufacturing Intelligence, we are growing quite well in Manufacturing Intelligence on a constant basis in China. I think in Q2, we grew 10%. In Q3, we grew 3% organically. So we continue to grow. The different markets are strong there. Electronics, general manufacturing, we're doing very well. Then we have this construction and larger infrastructure projects, which is very weak currently. And when that change into being more positive again, I mean, your guess is as good as mine, right? So we are all hoping that, that will change quickly. But unless that change, we will not see a speed up or an improvement in Geosystems performance. And Geosystems is now, I would say, what is it, 20% negative growth year-on-year or so. So that is affecting, of course, the full number for China for us. But when that turns, that business turns, of course, we will start seeing better numbers from China on the group level. But underlying, ALI is performing quite well in China. Manufacturing Intelligence is performing well in China. And Autonomous Solutions, which is more bumpy, given mining orders, et cetera, are performing well from time to time in China as well. So our China issue is related to large infrastructure and construction within China currently. And then Norbert, do you want to take the Cadence? Norbert Hanke: Sure. So the question was on the Cadence, if I understood this correctly, because it's a while ago that you asked and the question here was related regarding net gain, I assume from... Anders Svensson: I think it's the EUR 810 million that we have as Cadence shares, right? Ben, you can maybe... Norbert Hanke: Yes. I think, obviously, the focus at the moment is to close the deal, Johannes, and that's still on track for the first quarter of next year. It's obviously a very nice stake to have. Cadence is a super strong company with a great outlook. So it's a nice stake to have. But I think we'll have to come back to you on what the plans for it are because it's tied to the capital allocation discussion between Octave and Hexagon, and that's obviously a decision for the Board. So I think we'll come back to you on that. Operator: We will now go to the next question. And the question comes from the line of Mikael Las en from DNB Carnegie. Mikael Laséen: All right. You stated here, that the division priorities will follow the sequence stability, profitability and growth on Page 37. Could you give a sense of how Hexagon Core is distributed across the 3 categories? And maybe give some examples from the 17 P&L accountable divisions on Page 36. Anders Svensson: Yes. Thanks, Mikael. We will give more clarity on how we rank the different businesses in the Capital Markets Day. We have just now launched the new organizational structure. It will be implemented basically from the 1st of January across the group finally. So it's too early to give any input on that externally. But I would also like to say that if you are in stability, it doesn't mean that it's a bad business. Even a good business could be in stability. I would even say that our D&E business was in stability phase. It's a very good business, but we didn't really know what to do with it. It wasn't growing for us. We were not the right owner for it. So that's why the decision was basically to offload it and reallocate those proceeds into where we are stronger and have a stronger market position. So it doesn't mean that if you are instability that you're a bad business. But in general, of course, we would like to move all our businesses into the growth scenario or strategic mandate. But we have a range of different businesses also within the different divisions. So there's a lot to go through here and to set up with the business areas and the divisions themselves. So we have to come back with that on the Capital Markets Day. Mikael Laséen: Okay. Fair enough. And just curious here about the book-to-bill ratios for the MI segment, if you can maybe comment on that or other areas where you have bookings leading sales? Mattias Stenberg: At the moment, we don't have -- I don't have the information with me now, but we'll come back to you directly afterwards in a sense. Anders Svensson: We will come back to you afterwards and give you the facts. Operator: We will now take the next question. And your question comes from the line of Ben Castillo-Bernaus from BNP Paribas. Ben Castillo-Bernaus: I guess a couple for Mattias to start with on the Octave business. Obviously, some headwinds there from the transition from licenses to SaaS. I just wondered what's your assumption on how long you expect that to take? And so you're sort of mostly SaaS business? And then I guess, related to that, the margin headwinds that we're seeing there at the moment. Obviously, there's some one-off costs going through there. I guess if you look out to 2026 and the sort of margin trajectory, what's your working assumption at this point in time? Mattias Stenberg: Yes, good questions. But what you said I had to be boring and answer you will get to know in the Investor Day in Q1, right? I'm not prepared to give outlook at this point. But we will lay that all out in detail at the Investor Day. Ben Castillo-Bernaus: Okay. I'll try one maybe that can be answered. Just on Autonomous Solutions, obviously, super strong performance there this quarter. How much of that was kind of anticipated and predicted, if you like? And was there any kind of one-off in there that we should think about just in that performance? Mattias Stenberg: Yes. Thanks. If you look at Autonomous Solutions, I mean, we, of course, know our order intake, right? So this -- our result was quite expected internally. Very strong order intake in aerospace and defense area. Also Mining has been very strong, and you can see that also, I think, in related companies reporting Mining numbers also on very good levels. So in general, the underlying markets in here are doing very well. And we have a good order intake in those markets that will also generate a good performance going forward. So we expect Q4 to also perform well. Q4 has a bit tougher comparable, so it will not be on a similar level, but we expect a continued strong market demand within Autonomous Solutions. And as I mentioned, the weakness we see in Autonomous Solutions is agriculture, which is in a quite serious downturn globally. And that weakness is also expected to continue during Q4. So we see a relative similar business climate in the fourth quarter. Operator: We will now go to our final question for today. And your final question comes from the line of Magnus Kruber from Nordea. Magnus Kruber: I just wanted to get back to the delta between impairments and -- or amortization capitalizations in R&D. So is the message that it will be relatively similar in the coming quarters, but gradually over time, it will narrow. And if that's the case, do you expect your new strategy will be able to offset this headwind on the margin side in the coming, say, 2, 3 years? Anders Svensson: Yes. Thanks, Magnus. Yes, that's correct. So given that we are releasing lots of new products to the market, like the TS20 now here in October, for example, we see that amortization of those products released will then completely net the gain that we will get from this impairment. So this impairment by itself will not move basically the amortization and capitalization gap. It will be on the same level in Q4 and in Q1 as it was in Q3. So that's correct. And then going forward, we expect, of course, these new products to generate higher sales numbers. And that is how we will compensate the shrinking gap between amortization and capitalization. And I want to make clear that to capitalize R&D is not dangerous if you capitalize good R&D, then that's the way it should be done, right? And then you take the cost over the life cycle of the product. So that's completely right in how it should be done. The dangerous thing is to capitalize and then not release the product and try to fix it and further capitalize a product which is not good. And then when you release it, you don't get the sales and you only get the amortization. So that is the danger. And that is what the new management structure will make sure that we avoid going forward. Magnus Kruber: Fantastic. That's very clear. And with respect to the EUR 110 million savings, could you characterize a little bit on how the sort of we should expect this to be filtering through 2026? Is it more linear or back-end loaded? Or what's the character of the implementation? Anders Svensson: I would say it's very linear. So you can model in linear with probably less in Q4 than going forward. Magnus Kruber: Perfect. And then just a final one, Geosystems China, I think you said down 20% or something, if I read that right. How do you characterize that slowdown? How long it has been going on? And is there any element of that, that's structural compared to cyclical, would you say? Anders Svensson: I would say it's generally cyclical connected to the large infrastructure projects like the rail. It's impacting very much for Geosystems. In China, we don't have good sales of our whole offering portfolio. We have good sales of the top tier of our offerings, the most sort of precise measuring equipment. That is what we sell in China. On the mid-tier offering, we have very strong local competition. So we have a very little footprint given that we don't have local manufacturing, local R&D, et cetera, within Geosystems. So that's why we get so heavily impacted when there is an effect on those type of industries. And it's been going on now for what is it, could it be something 12 months? Mattias Stenberg: 12 months, round about. Anders Svensson: Yes, that we see this effect coming in for Geosystems. And of course, since this is our top offering, that also gives a weaker mix for Geosystems because we have best margins on these top-tier products because we don't have any competition basically. So that impacts Geosystems mix negatively. And you can also see that in the year-on-year drop in Geosystems in financial performance when it comes to operational margin. You can see the effect there as well of the lack of sales of those top-tier products. Operator: I will now hand the call back to Anders Svensson for closing remarks. Anders Svensson: Thank you, operator, and thank you, everyone, for attending, listening and putting good questions for us. Our next report will be on January 13th -- 30th, sorry. Thanks. Good correction, January 30th, next year. So hoping to see you all then. And until then, be safe. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to Grupo Televisa's Third Quarter 2025 Conference Call. Before we begin, I would like to draw your attention to the press release, which explains the use of forward-looking statements and applies to everything discussed in today's call and in the earnings release. Please note, this event is being recorded. I would now like to turn the call over to Mr. Alfonso de Angoitia, Co-Chief Executive Officer of Grupo Televisa. Please go ahead. Alfonso de Angoitia Noriega: Thank you, Elsa. Good morning, everyone, and thank you for joining us. With me today are Francisco Valim, CEO of Cable and Sky and Carlos Phillips, CFO of Grupo Televisa. Before discussing our third quarter operating and financial performance, let me share with you what we believe are the key milestones achieved this year, both at Grupo Televisa and TelevisaUnivision. At Grupo Televisa, let me touch on 4 major achievements. First, our strategy to focus on attracting and retaining value customers in cable has allowed us to grow our Internet subscriber base in the first 9 months of the year compared to the end of 2024. Second, we keep executing on implementation of OpEx efficiencies and the integration between Izzi and Sky to extract further synergies. This has already contributed to expanding our consolidated operating segment income margin by 100 basis points in the first 9 months of the year to 38.2% driven by year-on-year OpEx reduction of around 7%. Third, we continue to keep a disciplined CapEx deployment approach to focus on free cash flow generation. So far this year, we have invested MXN 7.5 billion in CapEx, which is equivalent to 16.8% of sales. In the fourth quarter, CapEx deployment should remain at similar levels to those of the third quarter. Still, our CapEx budget of $600 million for 2025 implies a reasonable CapEx to sales ratio of less than 20% for the full year. We have been able to achieve this mainly because we have had successful negotiations with suppliers, resulting in more favorable terms. And fourth, during the first 9 months of the year, we have generated around MXN 4.2 billion in free cash flow, allowing us to prepay a bank loan due in 2026 with a principal amount of around MXN 2.7 billion. This debt repayment comes on top of the $220 million principal amount of our senior notes already paid on March 18. Additionally, at the end of the third quarter, Grupo Televisa's leverage ratio of 2.1x EBITDA compared to 2.5x at the end of last year, mainly driven by our free cash flow generation. And at TelevisaUnivision, I will mention 3 key milestones. First, engagement and growth for ViX remains solid with strong momentum across both our free and premium tiers. Moreover, the Gold Cup semifinals and final and the compelling entertainment in sports slate that included the third season of La casa de los famosos, Mexico and our broadcast of Liga MX and the NFL helped drive a high single-digit increase in MAUs and robust demand for advertisers and ViX. Second, the efficiency plan to reduce operating expenses at TelevisaUnivision by over $400 million in 2025 is delivering outstanding results. In the first 9 months of the year, our total operating expenses have declined by around 12% year-on-year for total savings of around $300 million. This shows a disciplined execution of our cost savings initiatives, including lower content, technology and marketing costs and the normalization of our DTC related investments. And third, looking at TelevisaUnivision's leverage and debt profile, the company ended the quarter at 5.5x EBITDA an improvement from 5.9x in the fourth quarter of 2024, driven by growth. Moreover, so far this year, TelevisaUnivision successfully refinanced $2.3 billion of debt. As discussed in our second quarter earnings conference call, the company successfully issued $1.5 billion of new 2032 senior secured notes and refinanced over $760 million of term loan A now due in 2030. In addition, more recently, TelevisaUnivision extended its $500 million revolving credit facility and its $400 million accounts receivable facility. These transactions strengthened TelevisaUnivision's balance sheet, enhanced its liquidity and extended its maturity profile with its nearest maturity now almost 3 years away. Deleveraging remains a core strategic priority for TelevisaUnivision and management remains committed to further strengthening the capital structure of the company over the coming quarters. Having said that, let me turn the call over to Valim as he will discuss the operating and financial performance of our consolidated assets. Francisco Valim Filho: Thank you, Alfonso. Good morning, everyone. As Alfonso mentioned, we had an excellent quarter in this third quarter. First, let me walk you through the operating and financial performance of our cable operations. We ended September with a network of almost 20 million homes after passing around 20,000 new homes during the quarter. Our monthly churn rate has remained below our historical average of 2% for 2 consecutive quarters as we continue to execute our strategy to focus on value customers while working on customers' retention and satisfaction. Our broadband gross adds continues to improve on a sequential basis, allowing us to deliver 22,000 net adds during the third quarter compared to net adds of around 6,000 in the second quarter and disconnections of about 6,000 in the first quarter. In video, we also experienced a strong gross adds than in the first 2 quarters of the year and managed to reduce churn. Therefore, we lost about 43,000 video subscribers during the third quarter compared to 53,000 cancellations in the second quarter and 73,000 disconnections in the first quarter of the year. Moreover, we expect the improving trends to continue going forward, influenced by our recently announced multiyear partnership with Formula 1 to provide live coverage of all Grand Prix via Sky Sports channels available through Izzi and Sky. Beginning in the fourth quarter of this year until 2028 season, Formula 1 is the one of the fastest-growing and most passionate sports events in Mexico and around the world, and we definitely see this as a competitive advantage relative to our peers. Moving to mobile. Our net adds of 94,000 subscribers during the quarter continued to gain momentum, beating the 83,000 net adds of the second quarter and doubling those of the first quarter. Our innovative MVNO service developed by ZTE, offering enhanced user experience is already making our bundles more competitive and allowing us to increase our share of wallet from our existing customers. During the quarter, net revenues from our residential operations of MXN 10.6 billion, which accounted for around 91% of total cable revenue decreased by only 0.7% year-on-year. This marked the best quarter of the last 2 years at our residential operations from the revenue growth performance standpoint and compares well to a decline of 3% in the first half of the year. On a sequential basis, net revenue from our residential operations grew by 0.4%, potentially signaling an ongoing gradual recovery. During the quarter, revenue from our enterprise operations of MXN 1.1 billion, which accounted for around 9% of our cable revenue increased by 7.7% year-on-year. This also marks the best quarter of the last 3 years of our enterprise operations from a revenue growth performance standpoint and compares favorably to growth of 3% in the second quarter and a decline of 4.5% in the first quarter of this year. Moving on to Sky's operating and financial performance. During the third quarter, we lost 329,000 revenue-generating units, mostly coming from prepaid subscribers that have not been recharging their services. In addition, beginning in the second quarter, we started to charge an installation fee of MXN 1,250 to all satellite pay TV subscribers to increase the return on investment for this service. This translated into a slowdown of video gross additions for Sky that has been steady over the last 2 quarters. Sky's second quarter revenue of MXN 3.1 billion declined by 18.2% year-on-year mainly driven by a lower subscriber base. To sum up, segment revenue of MXN 14.7 billion fell by 4.4% year-on-year, while operating segment income of MXN 5.7 billion declined by only 0.7%, making it the best quarter of the year as we appear to be very close to reaching operating segment income stabilization. Our operating segment income margin of 38.5% extended by 140 basis points year-on-year, mainly driven by the efficiency measures that we have been implementing and synergies from the ongoing integration between Izzi and Sky. Regarding CapEx deployment, our total investment of MXN 3.6 billion account for 24.3% of sales during the third quarter. This shows a material sequential increase in CapEx deployment, but it is in line with our updated CapEx budget for 2025 of $600 million. Finally, operating cash flow for Cable and Sky, which is equivalent to EBITDA minus CapEx was MXN 2.1 billion in the third quarter, representing 14.2% of sales. Alfonso de Angoitia Noriega: Thank you, Valim, best quarter of the year indeed. Now let me take you through TelevisaUnivision's third quarter results. The company's third quarter revenue of $1.3 billion declined by 3% year-on-year, while adjusted EBITDA of $460 million increased by 9%. Excluding political advertising, revenue fell by 1% year-on-year, marking a sequential improvement compared to both the first and second quarters of this year. On the other hand, also excluding political advertising, adjusted EBITDA increased by 13% year-on-year, underscoring the scalability of a profitable DTC business and the sustained impact of cost reductions initiatives launched at the end of last year. Moving on to the details of our revenue performance. During the quarter, consolidated advertising revenue decreased by 6% year-on-year or 3% excluding political advertising expenditure. In the U.S., advertising revenue was 11% lower as growth in ViX continued to partially offset linear declines. Within ViX, the Gold Cup, semifinals and finals helped drive a high single-digit increase in MAUs and robust demand from advertisers. In Mexico, advertising revenue increased by 3% year-on-year, primarily driven by private and public sector ad sales that powered ARPU growth for ViX. Results this quarter benefited from a compelling entertainment and sports slate that including the performance of the third season of La casa de los famosos Mexico, dramas such as Monteverde and Amanecer and our broadcast of Liga MX and the NFL. During the quarter, consolidated subscription and licensing revenue increased by 3% year-on-year, driven by ViX's premium tier and higher content licensing revenue. In the U.S., subscription and licensing revenue grew by 11%, supported by ViX and results included a mid-single-digit increase in linear subscription revenue and higher content licensing revenue due to timing of content delivery. In Mexico, subscription and licensing revenue fell by 17%. Excluding the impact of the renewal cycle, subscription and licensing revenue in Mexico grew by 5% driven by ViX. To wrap up, Bernardo and I remain confident that our focus on value customers, efficiencies and ongoing integration between Izzi and Sky at Grupo Televisa and further integration and operational optimization at the TelevisaUnivision now that our DTC business has gained scale and achieved profitability will allow us to create greater value for our shareholders throughout this year. Now we are ready to take your questions. Operator, could you please provide instructions for the Q&A. Operator: [Operator Instructions] Our first question comes from Marcelo dos Santos with JPMorgan. Marcelo Santos: The first question is if you could comment a bit the CapEx outlook for 2026. How do you see this trending? And the second question is regarding the insurance claim you received. Was that related to Hurricane Otis? And is there something left to be received? Alfonso de Angoitia Noriega: Thank you, Marcelo. I'll ask Valim to answer both questions. Francisco Valim Filho: We gave -- Marcelo, we gave a guidance of around $600 million, and we should be within that range. Regarding the insurance claim, I think that's the last portion of the claim on the Otis Acapulco situation. So we shouldn't be seeing anything more from that event. Marcelo Santos: Valim, just one question. The CapEx for 2026, so for next year you're... Francisco Valim Filho: 2026, no 2026 is so far away, Marcelo. No, no, no. Alfonso de Angoitia Noriega: Let's finish 2025, then we can talk about '26. Operator: Our next question comes from Matthew Harrigan with Benchmark. Matthew Harrigan: You've actually reached a point in the U.S. when you look at the entire TV industry, there's more consumption on streaming than on linear. And I know your linear is much more durable than your English language peers. But you've got tremendous local programming positions, particularly in news and some of the largest U.S. EMAs. Are you really taking a lot of our -- hopefully, eventually almost all the news content on local stations and the distinctive content on the local stations and moving that to ViX over time because it feels like it would be a shame to lose the local identity. You have those stations because eventually, linear is going to fall off even for Hispanic audiences. And then secondly, clearly, a very dynamic situation in the U.S. and Mexico right now. Are you doing anything more on the BC side in relation to advertising for investments? And also, I can't help but ask, what's your general perspective on the U.S. and the imaginations with the administration on the tariff side and the prospects for near-shoring and everything going on. I know this is kind of ridiculously open-ended question. But just any thoughts on the stability of the economic relationship with the U.S. Alfonso de Angoitia Noriega: Yes. Thank you, Matthew, for your questions. I think, as to your first one, local news is very important for us. We are very strong in the local places where we produce news and local programming. We are exploring the possibility of including that in our streaming platform. We haven't yet included all of that content, but we're exploring that. The good thing is that, as I was saying, the local content is very strong. So very popular. As to your second question, we have made media for equity deals with great companies with great startups. We have assembled a great portfolio, I would say, and more companies are coming to us as they realize the importance of our platforms. And this is because of the strength of our platforms, we can position and grow their products and especially their brands when they're launching. Companies like Kavak, like Rappi, have become our ambassadors. At the beginning, we had doubts about the strength of linear television and most specifically in Mexico. But now they have become ambassadors of ours. We will continue to do these deals as we generate value with unsold inventory. And these companies become regular clients. So it's basically a funnel for these start-ups to grow, to position their brands, to position their products. And we take equity, which is great at very good valuations, and then they become regular clients and this is basically unsold inventory. So we're very happy with the portfolio we have been able to put together, and we'll continue to do this. As to your last question, I think that the Mexican government President, Sheinbaum has done an extraordinary job in dealing with the negotiations, the trade negotiations. I think that Mexico and the U.S. are key partners. If you look at the border region, it's one of the largest economies in the world by itself. The border, the legal border crossings that happened every day are in the millions. So I mean it's an integrated region. It's an integrated economy. So I believe that eventually, we'll be able to get to the right deal for Mexico and for the U.S. Operator: Our next question comes from Alex Azar with GBM. Alejandro Azar Wabi: Few ones on competition, Valim, on cable. If you can share a little bit of color on short-term and medium-term dynamics, especially when seeing how competitors are adding 1 million, 1.5 million net adds per year. It seems that in 2, 3 years, the market is going to be fully penetrated. So that would be my first question. And the second one is on Sky. With the levels of net disconnections you have year after year, how should we think about the EBITDA contribution in the next couple of years from Sky? Alfonso de Angoitia Noriega: Thank you, Alex. Valim? Francisco Valim Filho: Thank you, Alfonso. Well, I agree 100% with you. With this amount of net adds on a yearly basis, the market is very close to being fully penetrated. That's why our strategy is not going after volume because we know that we will be fighting for prices at the lower end of the pyramid. So our aim is to focus on the higher-end clients. That's why we have -- we are the only company in Mexico increasing ARPU consistently across the board. So I think that's the focus. So we think there's obviously a diminishing returns of this fight for the volumes of subscribers. And that's why our strategy moved away from that, and we have been successful in doing that. Regarding Sky, Alex, the way I see Sky is very straightforward. This is a business that will eventually disappear. Why? The penetration of the fiber networks and the amount of OTTs and the availability of a linear TV through cable and fiber operators is something that will obviously position Sky to only subscribers that are outside of those covered areas. So it will by definition then keep on declining. So how we perceive it, we perceive it as a cash flow from existing subscribers minus the programming cost, minus the technological cost of the satellite and all that is involved in that and then it generates a positive cash flow. That's the business and it has been generating positive cash flow and for the foreseeable future, we'll see positive contribution from Sky as a cash flow perspective. Obviously, it has this negative optics on our revenue, but just the way we see it is we've kind of segregate that from everything else and see that as an inflow of cash flow and everything else is more a stable growing businesses. Alfonso de Angoitia Noriega: Yes. And to add to your first question, to add on what Valim was saying, in Mexico, we have a 4-player market, but it's a pretty rational market, except for Telmex, which has kept its entry price unchanged for, I guess, more than 10 years, while also increasing Internet speeds and offering Netflix now for 3 -- for 6 months. They don't seem to be really interested in the profitability of Telmex as they extract value from the lease of fiber owned by other subsidiaries of theirs. And the other Megacable raised prices by around MXN 30 per month from the beginning of the year. So there, you can see that the industry is raising prices, except for Telmex. Totalplay also announced price hikes from April particularly from broadband customers that are heavy data users. So even though it's a 4-player market, it's a rational market and if you look at the prices and ARPU, we feel comfortable, and we feel confident that this will remain like that. Alejandro Azar Wabi: If I can just add a follow-up on Sky remarks. When you say Sky probably will disappear. I'm just thinking that there must be some part of the population that where fiber is not around, and they -- if Sky becomes the only thing that they can use, especially for video. Do you guys have an approximate of that? I don't know. Alfonso de Angoitia Noriega: No, you're absolutely right. I mean there are rural areas where a satellite provider makes sense. I don't know. Francisco Valim Filho: No, I don't think they will disappear per se. It's obviously a diminishing volume like we have been seeing and we'll keep on seeing. But just to give an example, in Central America, we have close to 100,000 subscribers basically flat because in those areas, there are less competitors offering a fiber network or a cable network. And it is very stable. And like Mexico, where we are all deploying network and expanding our infrastructure. So yes, I don't think it will disappear, not just there will be a day that will be just shut down. I think it will still have -- and I think there are just several hundred thousand people living in areas where there's no other option for entertainment and Sky will keep on being a solution. But that's why we don't see this as a -- I understand some people see this as a problem. We actually see this as an upside given the fact that we're generating positive cash flow. Alfonso de Angoitia Noriega: Yes. I think Valim is absolutely right. We see Sky as a cash flow. And the more we extend, we prolong the life of the subscribers, it's going to be an amazing driver for our cash flow. Operator: Our next question comes from Ernesto Gonzalez with Morgan Stanley. Ernesto Gonzalez: Look, I know it's early but going back to the discussion on broadband penetration in Mexico. Do you have any -- or can you share any expectations for cable growth rates next -- sorry, next year? Do you believe that you can accelerate growth for the unit. And the second question is on the sustainability of margins for Cable Sky but also TelevisaUnivision. They were strong in the third quarter. So I wanted to get a sense of how much more room they have to grow going forward. Francisco Valim Filho: Well, I think that -- back to your point Ernesto, I think that it's key to understand that obviously, as penetrations go higher, the level of net adds will diminish for every player in the market. And you have already saw that. As you see quarter after quarter after quarter, we already see a diminishing number of net adds being added to the different players. So that's a diminishing return in other countries like Brazil, for example, where the penetration is significantly higher even than Mexico. You see there's this dynamic as well and companies find ways by selling more products to the same existing customers to keep revenues growing but obviously, you're not going to be seeing high double-digit numbers because of the dynamic of the market. So like Alfonso just said, this is a very rational market. Nobody is flashing, prep is down. The promotions are very reasonable. And everybody is actually making money in this market like our cash flow generation that we have just presented. This is significantly -- is very significant. So I think that's a dynamic in mature market that you'll see. And what happens is you add more products, better products, more speeds and that's how you keep on increasing ARPU. And that's why we think the strategy of going after the high-end customers, they have more disposable income available as opposed to the other end of the pyramid. And I think regarding margins of cable... Alfonso de Angoitia Noriega: No. I think he asked about TU... Francisco Valim Filho: No, no, no. The answer is not over. Alfonso de Angoitia Noriega: Okay. Go ahead. Francisco Valim Filho: So the idea here is we think that we keep on improving margins. This is an ongoing, never stopping exercise that will go internally. And we find that through many different ways, mostly through technology. Obviously, we still are collecting a few synergies from Sky mostly through technology and improvement in how we provide services and processes. So there is an ongoing effort to increase margins. I'm talking about cable. Alfonso de Angoitia Noriega: Yes. Yes. And about -- I mean, TU amazing margins. I think that was a result of the cost cutting and all that we did in terms of costs and expenses in the fourth quarter of last year, which are being reflected in this year. We believe that we have the highest margins in the industry. And that has to do with that cost cutting, $415 million. And also, it has to do with owning the largest library of content in Spanish in the world, more than 300,000 hours of content. It also has to do with the very efficient way in which we produce content, especially in our studios in Mexico. And that allows us to have these amazing margins. So I think those margins in the mid-30s are sustainable. Operator: This concludes our question and answer session. I Would like to turn the conference back over to Mr. Alfonso de Noriega for any closing remarks. Alfonso de Angoitia Noriega: Well, thank you very much for participating in our call. And if you have any questions, please give us a call. Have a great weekend. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2025 Third Quarter Results. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you, Anders. And also from my side, a good morning. Happy to present results for the third quarter '25. So -- and when I summarize the quarter, we can state that SCA continued to deliver a solid result in a rather challenging environment. Our high degree of self-sufficiency in strategic areas continued to be an important factor to mitigate higher costs, not the least related to wood raw materials. Our EBITDA reached SEK 1.64 billion and by that, an EBITDA margin of 33% for the third quarter. In Q3 '25, we had substantially lower prices in the Pulp segment in comparison with the same period last year. Our planned maintenance stops in pulp and containerboard were also considerably more extensive compared to the same quarter last year. Delivery volumes in the Containerboard segment increased this year compared with the same quarter last year, driven by the continued ramp-up of our Obbola containerboard mill. The uncertain market situation, mainly dominated by changing tariffs continues to affect market conditions. The forest industry in general is momentarily challenged by a weaker -- with a market with soft underlying demand in many product areas. Turning over to some financial KPIs for the third quarter '25. As already mentioned, our EBITDA reached SEK 1.64 billion in the quarter, which corresponds to a 33% EBITDA margin and a 22% EBIT margin. Our industrial return on capital employed came out just over 6%, counted for the last 12 months. And the leverage was at 1.7x with our -- while our net debt to equity reached 11.2%. I will now make some comments for each segment, starting with Forest. Higher harvesting levels from our own forest have not the least contributed to stable supply of wood raw materials to our industries during this period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs as can be seen in the graph on the bottom left. Regarding pulpwood, we have now passed the peak, I guess, and the prices have started to come down during this quarter. Demand for sawlogs continues to be high, especially for spruce logs. When one compares Q3 '25 with Q3 '24, sales were up 14%, while EBITDA was up 17%, mainly due to higher prices for wood raw materials. Turning over to Wood. In general, we still have a slow underlying market for solid wood products. As said before, we have noted signs of improvement in the repair and remodeling segment this year in comparison with the last year, but the uncertainty in general economic development continues to affect the market recovery negatively. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce. Stock levels at customers continue to be on the low side. The volumes in both production and deliveries were good for SCA during the quarter, resulting in a close to unchanged stock level of sawn goods. The price for solid wood products decreased by 5% in the third quarter of '25 in comparison with the second quarter of '25. This development is in line with what I said when I presented the report for the second quarter. As expected, the cost for sawlogs has increased from the second to the third quarter, and we also expect them to continue to increase going into the fourth quarter. Sales were in line with the same quarter last year. EBITDA margin decreased from 19% to 15% due to higher raw material costs and a negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA level is rather normal. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been on a normal level during the first 8 months of '25. In the diagram to the top right, we can note that the price decreased during the third quarter. The decrease in pine has been larger in comparison with the spruce products. Going into the next quarter, I estimate that prices on average again will decrease by up to 5%, somewhat more for pine and somewhat less for spruce. And this is driven by the momentarily high availability of pine products. In the construction sector, we can conclude that start of new buildings continues to be low. As said before, uncertainties are still present, but we see improved consumption in the repair and remodeling sector. The level of duties now put in place on wood products from Canada delivered to U.S., about 45% in comparison to the level for wood products from European Union, delivered to the U.S. about 10% has strengthened the competitiveness for EU producers in comparison with Canadian producers. And I guess it's likely that the price level in U.S. will increase when stock levels are coming down from today's high levels. So over to pulp. When comparing Q3 '25 with Q3 '24, sales were down 21%, mainly due to lower prices, a lower delivery volume and a negative currency effect. EBITDA was down 57%, compared to last year, mainly due to lower prices, a negative currency effect and higher cost for wood raw materials. The cost for the planned maintenance stop was SEK 83 million this quarter compared to SEK 35 million in Q3 '24. Global demand for pulp was at a healthy level during the first quarter of '25. During the second quarter, the market changed with reduced demand and prices came under pressure, much due to uncertainty related to U.S. tariffs. During the third quarter, prices on NBSK pulp were stable at low levels. On the demand side, we saw increased activity in China during the quarter. The weakening of the U.S. dollar in relation to the Swedish krona, which started already in Q1, continued to have a negative impact on the pricing in SEK also in Q3. Tariffs on NBSK pulp from the European Union to the U.S. were removed during the third quarter, and this allows us to maintain a competitive offering in the U.S. Looking at CTMP, prices have been unchanged in Asia at low levels and have decreased slowly in Europe during the third quarter. Inventories of softwood and CTMP have been increasing in July and August, as you can see in the diagram and are now on the high level. Hardwood inventories on the contrary were stable during the third quarter. Moving over to Containerboard. Sales were up 10% in Q3 in comparison with the same period last year, driven by higher delivery volumes and higher prices, somewhat mitigated by a negative currency effect. EBITDA was down by 39%, very much driven by long planned maintenance stop with a cost of SEK 204 million versus SEK 87 million in Q3 2024. Higher costs for wood raw materials and a negative currency effect also had an impact. We have seen a softer box demand during the last quarter, but still with a positive development on a year-to-date basis. The retail business remains on a positive driver. On the other side, we continue to see a weak European manufacturing industry, which, for the moment, drives the demand in a negative direction. After a stable first half of the year of European demand of containerboard has started to decrease in Q3, due to the current turbulent macro environment, it's difficult to have a view on the long-term demand. In Q3, we have seen additional supply coming on stream with the vast majority coming in testliner. We do not expect further capacity increases in Q4, except from the ramp-up effect of newly started machines. Kraftliner inventories remain above average level in Q3, as you can see in the graph. During Q3, the availability of OCC has been good, driven by the lower demand in the quarter, which in its turn has led to decreasing prices of OCC. Moving into Q4, we see the availability of OCC to be stable and expect prices to be more or less unchanged. Prices for brown kraftliner in Central Europe has during Q3 decreased with EUR 20 per tonne, driven mainly by slow demand and reduced prices of OCC. White kraftliner has remained stable. Finally, I will say some words about renewable energy. In this area, we have had a weaker quarter compared to the same period last year, mainly due to lower prices in wind power and solid biofuels. Continued improvements in ramping up Gothenburg biorefinery are partly compensating for this. The market for solid biofuels in Northern Sweden continues to be weak due to warm weather and low electricity prices. This factor increases our export share and by that, reduced margin. For liquid biofuels, we have seen higher margins compared to previous quarters. The main reasons are tighter supply due to maintenance stops in biorefineries, European countries implementing RED III and better control mechanism within the EU regarding imported feedstock. We expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both from -- both in HVO and SAF. Electricity prices were low during the quarter, which impacted on our wind business negatively, but it is good, of course, for SCA as a net buyer of electricity. SCA's land lease business is stable at 9.7 terawatt hours, which is equal to 20% of installed capacity of wind power in Sweden. Installed capacity on our land is expected to reach 10.5 terawatt hours by the end of the year. And by that, I hand over to you, Andreas. Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I'll start off with the income statement for the third quarter. Net sales decreased 5% to SEK 5 billion, driven by negative currency effects and lower prices, which was partly offset by higher delivery volumes. EBITDA decreased 18% to SEK 1.6 billion, driven by negative currency effects, lower prices and higher costs for planned maintenance stops. EBIT decreased to SEK 1.1 billion and financial items totaled minus SEK 103 million. With an effective tax rate of just below 20%, bringing net profit to SEK 0.8 billion or SEK 1.19 per share. On the next slide, we have the financial development by segment and starting with the Forest segment to the left. Net sales decreased to SEK 2.4 billion, driven by lower delivery volumes compared to the previous quarter due to several planned maintenance stop at SCA's industries. EBITDA decreased to SEK 912 million due to seasonally lower harvest from SCA's own forest. In wood, prices decreased compared to previous quarter, while the cost for sawlogs continued to increase. Net sales decreased to SEK 1.5 billion, driven by lower delivery volumes and lower prices compared to the previous quarter. EBITDA decreased to SEK 232 million, corresponding to a margin of 15%. In pulp, net sales decreased to SEK 1.65 billion, driven by lower delivery volumes and lower prices. EBITDA decreased to SEK 242 million, corresponding to a margin of 15%. Higher costs for planned maintenance stops and lower prices were offset by lower costs. We had lower energy and raw material costs in the quarter, and Q3 is also a low-cost quarter for indirect costs in all segments, which had a positive impact. In Containerboard, net sales decreased to SEK 1.8 billion and EBITDA decreased to SEK 194 million, corresponding to a margin of 11%. Result was negatively impacted by planned maintenance stops in both Munksund and Obbola of SEK 204 million. The market for renewable energy continued to be weak. EBITDA decreased compared to previous quarter and amounted to SEK 79 million, corresponding to a margin of 21%. The decrease was mainly driven by lower deliveries of solid biofuels. On the next slide, we have the sales bridge between Q3 last year and Q3 this year. Prices decreased 2%, driven by lower pulp prices. Volumes increased 1%, driven by higher volumes in containerboard, which was also offset by lower volumes in pulp. And lastly, currency had a negative impact of 4%, bringing net sales to SEK 5 billion. Moving on to EBITDA bridge and starting to the left. Price/mix had a negative impact of SEK 99 million and higher volumes had a positive impact of SEK 14 million. Higher costs for mainly wood raw materials had a negative impact of SEK 57 million, which was mitigated by our highest degree of self-sufficiency. We had a positive impact from energy of SEK 37 million and a negative impact of currency of SEK 169 million. This was impacted by higher costs for planned maintenance stops. And in total, EBITDA decreased to SEK 1.6 billion, corresponding to a margin of 33%. Looking at the cash flow. Operating cash flow increased to SEK 1.1 billion for the quarter, and SEK 2.5 billion for the first 9 months. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Looking at the balance sheet. The value of the forest asset totaled SEK 108 billion. Working capital decreased compared to previous quarter and totaled SEK 5.6 billion. Capital employed totaled SEK 160 billion and net debt decreased compared to the previous quarter to SEK 11.7 billion. And we have now almost finalized our large ongoing investment projects. Equity totaled SEK 104 billion and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf. Ulf Larsson: So thank you, Andreas. And well, just to summarize, I mean, as I said, we have continued to deliver a solid result in a rather challenging environment. . I guess the market has bottomed in more or less all areas except from solid wood products. On the other side, we will see a cost pressure coming in our solid wood business, wider price for pulpwood has now stabilized and are on its way down, I would say. In pulp and kraftliner, I guess, the market is going sideways now, and we are 100% focused on what we can have an impact on ourselves, which is meaning that we are focusing on the ramp-up of our big projects. And they are going very well -- did go very well during the third quarter. So by that, I think that we open up for some questions. Operator: [Operator Instructions] And we will now take our first question from Ioannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: I've got 3 questions, if I may. I'll take them one at a time. First on pulpwood costs. Given the small decline that you show in your slide deck for Q3 and the typical lag in your business, what should we expect for cost development in your industries in Q4 this year and also Q1 2026? Ulf Larsson: You asked about pulpwood. And as I said, I mean, we see that now that prices for pulpwood is coming down in the market. But as you say, we have a lagging effect. And I could say that we have -- it's around 6 months or less. Andreas? Andreas Ewertz: Yes. So in the fourth quarter, I mean, fairly flat, maybe we're talking about 1% decline in pulpwood prices. So fairly flat, while the cost for sawlogs will continue to increase a bit into Q4. Ulf Larsson: And in the beginning of next year? Andreas Ewertz: Then I think that pulpwood will slowly continue to decrease. But as I said, I would say, it's around 6 months of lag effect in the terms of sawlogs. I think they will start to peak also around maybe Q1, Q1 next year. Ioannis Masvoulas: And then going back to pulp, looking at NBSK inventories on days of supply were pretty much at the top of the historical range, do you see the recent temporary curtailments among your peers to help rebalance the market in the short term? Or do we need to see more aggressive supply response? Ulf Larsson: It's hard to say, I mean, maybe I didn't say that, but I mean we are still at a very high operating rate in NBSK, and we should because we have a very low cash cost, of course. But on the other hand, we see announcements now from many areas where they have started to take curtailments. I guess also in the statistics that you see now, we haven't included the typical longer maintenance stops that we have had now during the autumn. So I guess that the inventory will come down. And as always, it's a question, it's a supply-demand issue. And I guess we will see a better balance, but I mean, underlying, we have to wait for an increase in consumption before we can say that we have a stronger market. Ioannis Masvoulas: Understood. And then just last question for me on the FX hedging. Looking at your disclosure, you seem to have brought down your USD hedge ratios for the next 4 quarters. Is that a conscious decision to avoid locking in an unfavorable FX rate? And could these ratios come down further in the coming quarters if spot FX rates persist? Andreas Ewertz: We use statistical model for our hedge strategy. So we have -- for the next 6 months, we hedge around 50% to 85% of our net exposure and then it goes down. But then it depends on statistically how favorable the currency is. So we use model and for the U.S. dollar currently in the low range of that while for euro, we are on the normal range. Operator: And we'll now take our next question from Linus Larsson of SEB. Linus Larsson: Couple of questions on use of funds. It seems to me that you have a very strong balance sheet. Cash flow is robust through the cycle. You're running at high operating rates, like you say, your competitiveness is strong. How do you look at buybacks in this context, given where your share price is trading and given your investment plans for the time being? Ulf Larsson: If we start with the investment plan, as I said, we are just now 100% focused on ramping up what we have started, and we feel that we are doing that in a good way. As I've also said, I mean, just now, we sit on our hands. We will not start up new big projects. And I guess, as all other companies, we also try to -- yes, not do too many current investments because we have an uncertain market coming going forward, I mean, that's the position we have just now. And the question about buybacks, I mean, that is more question for the Board, honestly. So let's see. We are now focused on ramping up what we have started. And by that, as you said, we expect that we will increase our cash flow capacity substantially. Linus Larsson: Yes. Yes. No, that's great. But I mean, principally, how does the Board look at buybacks? Is there like a principal view on whether or not buybacks is part of the toolbox? Ulf Larsson: Again, that's a question for the Board. But as far as I understand, we have no principles in this matter. I think we have done since the split 2017, I mean, we have invested 20% of the net sales in the company every year. For us, that's a lot of money. For all companies, it's a lot of money. So we are more focused just now to realize the cash flow that we suppose -- that we will have from these ongoing investments, so that's our focus now. Linus Larsson: Yes. No, that's clear. And just to finish off that, what's your CapEx guidance for 2025 and 2026, respectively? Andreas Ewertz: If you look at CapEx for '25, I think that current CapEx will be around SEK 1.5 billion. We might have some spillover to next year, so SEK 1.4 billion, SEK 1.5 billion. And then in terms of strategic CapEx, also depending on timing of some payment, but around SEK 1.3 billion, SEK 1.4 billion. So maybe SEK 2.8 billion in total for current and strategic, but it depends on certain timing of certain payments. For next year, strategic CapEx will go down. We have some payments left in the ramp-ups, but strategic CapEx will come down. And then I would guess that current will be slightly higher than this year since we have some spillover from this year to next year. Linus Larsson: But how much will the strategic CapEx go down? Is it SEK 0.5 billion or SEK 1 billion or around the backlog? Andreas Ewertz: It depends on some timing, but I would guess we have a couple of hundred millions left on our current projects. Operator: And we'll now take our next question from Charlie Muir-Sands of BNP Paribas. Charlie Muir-Sands: I wanted to start on the round wood market. So you mentioned obviously log prices are high and if anything, still slightly moving up due to high demand. But equally, it sounds like the wood products market in general is still quite soft. So I'm just trying to understand, is this a demand that's for other uses? Or are you basically saying this is more of a supply issue for the market? And if so, is this just of a hangover from the spark beetle delivery from prior years? Or is there any other reason why we could expect some better balance coming back on the supply side soon? And then just on the pulpwood cost side, very helpful the detail you've given so far. But just in terms of the timing effects, the changes in pricing of pulpwood hit the forestry and then the industrial segment at the same time? Or is there a phasing effect whereby the P&L benefit on forest is reduced before the cost tailwind on the industrial segments come through or anything like that to be aware of. Andreas Ewertz: Yes. So if you look at the pricing, I mean we base our internal prices of what the Forest division pays for its sourcing and a lot to buy on stumpage. So you buy the right to harvest. And then, I mean, you optimize the harvesting to try to have some larger areas to have efficient harvesting. So it can be vary. I mean, some of these -- what the harvest is couple of months. You bought it for some might be 3 months ago or 6 months ago. And then that average price is what the industry gets to pay. But the pricing is -- when the prices goes down, the industry will get a lower price, but then, of course, our Forest division will earn less money on their own harvest. But one day, what they source externally that they get paid for. And then the second question -- the first question was around the demand for sawlogs. Ulf Larsson: The coming demand. I mean, as we see just now, we have, as you saw on the graph in Sweden and Finland, the production is still on a normal level, even if we know that the price -- log prices are very, very high. And profitability in the business is, in general, rather low. We feel rather confident with the profitability we have in our own Wood division. But I mean we -- up until today, we haven't seen any signs of decreasing log prices actually. Andreas Ewertz: And also -- it's also difference between pine and spruce sawlog. On spruce sawlog, you have much lower supply compared to pine sawlog, sort of pricing and demand difference there. Charlie Muir-Sands: And then just on the wood products side, you mentioned the relative competitive advantage for EU exporters to the U.S. now versus Canadian. Can you just talk about the relative profitability of your U.S. business compared with your European business today? How big an opportunity might this be? Ulf Larsson: Yes. First, if we take the tariffs, I mean, as I said, the tariff just now going from Europe over to U.S. is 10%, and coming from Canada over to U.S., then the tariff is 45%. As it is just now, in U.S., the stock level is on the very high side. So, so far, we haven't seen any impact on the, let's say, the local price in U.S. But I guess when the inventory level is coming down, then, of course, customers, they have to start to buy and then they can buy some volume from Europe and they have to buy some volume from Canada. But then I guess that prices can in a short while, increased quite dramatically. We don't have a big volume for U.S. We do, let's say, 80,000 cubic meter per year. But again, it's a global market. So if we start to see better trade in U.S., I mean, that will, of course, have also an impact on the European market and also the Asian market and so on and so on. So we have to wait and see. But I mean, as it is just now, I guess, it's more a question of time. We will have a slow fourth quarter, as we always have. And I guess it will be rather slow also in the first quarter. But then I guess, in the beginning of the second quarter next year, then we might start to see something. Charlie Muir-Sands: But Canadian volumes can't get displaced into other parts of the world or even coming into Europe to offset that benefit? Ulf Larsson: Yes, not really. I mean, of course, you will see some Canadian volumes in China and you might -- I don't think you will see too much of it in Europe. Again, it's -- you have the distribution cost and many of those sawmills, they are located inland. And so it's also a question of distribution, inland distribution cost within in Canada so I guess if this remains, which you never know, I mean, then you probably will see further closures and capacity reductions. And honestly, I don't know really how the U.S. -- I mean, we know that U.S., they need a lot of solid wood products coming into U.S. So I guess it might be so that we see some further changes going forward now. Also when it comes to tariffs and things like that. So I mean, it's -- but all these -- I think we had a question before. But I mean, tariffs, we are not directly too much impacted by tariffs. We can handle that in a good way. But I guess that this discussion has created uncertainty globally. And that's the reason also why we have a rather slow demand in Asia in more or less all product areas. And so I mean that is the -- I guess the worst thing with tariffs is it is creating some kind of uncertainty in all areas and globally. Operator: We'll now take our next question from Robin Santavirta of DNB. Robin Santavirta: Thank you very much. Firstly, I have a question related to the Containerboard business. Looking at the delivery volumes now this year, they have been quite steady, but it seems still Obbola is not running at full capacity. And now you had the log maintenance shut. So could you give some guidelines on volume outlook for that segment in Q4 and early 2026? Should we expect a bit of a step change or more of a slow gradual ramp-up during the end of the year and next year? Ulf Larsson: When it comes to Obbola, we have said that Obbola will produce 600,000 tonnes this year, and they will do so if nothing expected will happen in the fourth quarter. Then it is a tough market in kraftliner. So we have seen during the third quarter, increasing inventories in kraftliner. And so that's the case. And as you said, we also had a rather long maintenance stop in Q3. So that also had an impact on deliveries. But production-wise, Obbola will reach 600,000 tonnes next -- this year. And then the plan is to reach 700,000 tonnes next year. Robin Santavirta: Okay. Okay. Can I ask about this EU deforestation regulation? How do you view that? Will that have any kind of impact for your businesses in Europe either way, what is your view? Ulf Larsson: I mean, it has also created a lot of uncertainty. But I guess for us, we can manage EUDR, but of course, it would be an administrative burden, which we don't like. But we can handle it. Robin Santavirta: But what about your competitors? Could it be a setup where some pulp had been imported from some countries or some paperboard that has been imported from Asia or Americas, they could end up in a bit of difficulty to do so in the future? Or will this impact trade flow at all in your view? Ulf Larsson: Yes, it's very hard to predict. I mean, we have been working quite hard to find out a system which will not create a lot of administration. And I mean, typically, we are for free trade. I think that's good. And I think that EU in the long run, they will benefit from a free trade. We don't know what -- how this will be implemented in the trade up till today. So again, this is also another thing that really creates uncertainty. But the honest answer is we don't know how that will -- this will play out. The only thing we can do is to focus on our own ability to meet the requirements that might come. Robin Santavirta: Yes, for sure, for sure. Follow-up question related to the pulp market. What is going on in the softwood pulp market? There's a lot of curtailments now during early autumn. Certainly, Finland, some in Sweden as well, I understand some in Canada as well. And historically, when you do that, you tighten up the market quite quickly. Now we're not seeing that. Is this a bit of a substitution into hardwood pulp? Is it some Chinese volumes that -- I mean, historically, they do not produce a lot of softwood pulp. Now I understand there is some production going on in China as well. So why is not the market tightening despite the quite significant production curtailments in the Northern Hemisphere? Ulf Larsson: I guess the first thing is that the underlying demand is weak. So that's the first explanation. The second thing is substitution. I don't think that we will see more of substitution today than we did last year. I mean, it's not as easy as that. And we have always had a delta between hardwood and softwood prices. So I mean, if possible, I guess, it would have already been done. So I haven't heard anything -- no structural changes in that area. What we know is that a lot of capacity in pulp is -- will be built up in China. And that, of course, sooner or later, that will -- might have an impact. As it is just now, we are more considered about the CTMP volumes. And as we have understood, I mean, the board market is very weak. And while companies in Asia while they closed down the converting and stop producing boards, I mean, they still produce CTMP, and that will, of course, give a surplus in the market. Then also, I guess, that the statistics that we also saw on our side was from August, Andreas, and I guess we will see some other figures now coming into September, October and so on. We also have had a lot of big maintenance stops in pulp. But you're right. I mean, we also hear that companies, they are taking curtailments now. So far, no big changes. But I mean -- and the prices maybe -- I guess that the price has already bottomed because at this level, we see that curtailments are taken instead of continuing to produce and of course, creating a negative cash flow. So we have reached the bottom. I guess we will see some result of actions taken now later this year. But again, the fundamental challenge is the underlying demand that must come back. Robin Santavirta: Thank you very much. Operator: And we'll now move on to our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three questions for me, if I may. The first one is just on the lower wood cost. You mentioned this in the Pulp division sequentially, but not in containerboard, sorry, not lower pulp costs, lower wood costs, having a positive impact on pulp, but it didn't seem to have it on Containerboard. What's the reason for that? Should I go on with the other questions? Andreas Ewertz: No, we take 1 at a time. So I mean, we have maybe 1% lower pulpwood prices in both Containerboard and in Pulp. In Pulp, we had a better yield in the quarters, we had lower consumption of both energy and wood and they generally have low cost quarter. But I would say it's more on the consumption side that we have lower cost on pulp in this quarter. Oskar Lindström: And in Containerboard, was it just the maintenance stop that sort of... Andreas Ewertz: The Containerboard, we had large maintenance stop both in Munksund and Obbola, the cost around SEK 20 million. So that quarter was impacted by that stop. Oskar Lindström: Right. Moving on to cash flow. You say that you will increase your cash flow significantly in 2026, and I presume beyond as well, while CapEx looks as if it's going to come down quite a bit. If we only look at the ramp-up of Obbola, can you say anything about what kind of contribution you expect from that 2026 versus 2025? If you reach the 100,000 tonnes, could you put a monetary value on that? Andreas Ewertz: Currently, I would say it's hard to put the money on the excess volume because you said that currently have a weaker market, and that means that the extra volumes you would place on -- you have a worst customer mix and country mix on those extra volumes that will, of course, depend on how the market develops. If you have a stronger market, I mean, those volumes would be placed in customers in Europe and places nearby. And that will have a larger impact. But if you have a weak market, of course, then we'll have to put it further away. So it depends on how the market develops. Ulf Larsson: And also to add, I mean, if you have -- yes, maybe that was exactly what you said. I mean, if you have an additional volume already this year, if you go from a little bit over 400 up to 600, I mean that puts a pressure in a tough market that puts a pressure on the market side, of course. So I mean you also have a -- you have ramp-up production-wise, but you also have a ramp-up in the market. So of course, we have to find markets overseas not at least as it is just now. Oskar Lindström: Of course. And my third question is, I mean, we've seen other companies in your sector announcing cost savings and even structural changes as a consequence of the tough market, which both they and you seem to feel is not about to change anytime soon. I mean, do you see any need for you to take actions if demand does not improve, either cost-saving actions or structural changes? Ulf Larsson: I mean, if we go back to 2017, as I said, we have been invested 20% of the net sales more or less every year. And by that, we have also top-class sites as it is just now. We have also, during this period, closed down our publication paper business. and we are focused on pulp, containerboard and also solid wood products and to some extent, also renewable energy. And step by step, I mean, as soon as we see that we can reduce the manning or if we can do something else to improve our cost position, we will do that. So for me, it's -- I don't like those programs because that means that you haven't done your work -- your ongoing work, so to say. Andreas Ewertz: For the last one and half year we had a program to reduce our personnel at our pulp division with around 80 people and has gradually begun to give an effect. Ulf Larsson: And we reduced the manning by 800 people when we closed down the publication paper business. So I mean, if you have structural changes, then, of course, you have to follow up with personnel reductions, but otherwise, that is something that you have to do. That's the everyday work. Oskar Lindström: My final question is on CapEx, which you talked a little bit about here. You say that you expect next year for current CapEx to be -- I can't remember the exact wording, but slightly higher. And then how much higher is that? And then you said the strategic CapEx will be a couple of hundred million. How many couples of hundreds of millions are we talking about? Is it possible for you to be a little bit more precise? I'm just wondering. Andreas Ewertz: It depends, of course, on what overspill we have to next year, and then it depends. I mean, we have our base CapEx for next year. And then we have some potential projects, and it depends on which of them we go through with which timing, but if we go around 1.5 this year, then you're talking maybe SEK 100 million, SEK 200 million more next year on current CapEx. But again, it depends on what projects we do. And also on the strategic side, it will -- I mean, it will be between 0 and SEK 1 billion but it depends on the timing of our strategic CapEx. For example, we have 1 payment that would either go at the end of this year or the early next year, which is around SEK 150 million, and we have a couple of hundred millions next year. So it depends. But just to give a rough figure. Ulf Larsson: But CapEx will come down. Andreas Ewertz: Yes, CapEx will come down, yes. Oskar Lindström: Thank you very much. Those are my questions. Operator: And we'll now take our next question from Martin Melbye of ABG. Martin Melbye: Given tariffs and new volumes to place, could you give some hints on prices for Pulp and Containerboard at volumes heading into Q4 quarter-over-quarter? Ulf Larsson: I mean, we don't know. That's the honest answer. But as I said, we -- I guess, we are in Pulp at the bottom level just now. I mean, as we -- as I said before, I mean, we have seen substantial curtailments taken now. And so I guess, Pulp prices will -- if they -- the only way from this point, I guess, is upwards. When will that come? Well, remains to see, I guess. I think for Containerboard, we have more capacity has come on stream during the third quarter. No additional capacity will come on stream, but we will see some ramp-ups. I guess we will see some closures in testliner going forward. The balance for kraftliner is much better, of course. I mean, the only additional volume coming in now is our own from the ramp-up in Obbola. On the other side, the inventory level is on the high side coming down a little bit now when we had the new statistics. So it's always -- it's a question of supply-demand balance, of course. But my best guess is sideways, maybe we will start to see upward trend in Pulp and maybe sideways in Containerboard. And as I already said, I guess, we will see somewhat decrease in prices in solid wood products, I guess, another 5% in the fourth quarter and then the first quarter is always -- it's tricky to increase prices in the first quarter. If something is happening now in U.S., that might have a faster impact on the pricing for solid wood products. But otherwise, I think we have to wait for the second quarter next year. Andreas Ewertz: And in terms of volumes, forest, you harvest a bit more from our own forest in the fourth quarter. In solid wood products, I sort of mentioned, you seasonally weaker quarter compared to the summer months so they have lower delivery volumes. In Containerboard, it will be slightly higher since we had a big maintenance stop in the third quarter, which we won't have in the fourth. And in Pulp, I would say it's slightly up or flat. Operator: Thank you. And we'll now take our next question from Cole Hathorn of Jefferies. Please go ahead. Cole Hathorn: I'd just like to ask what do you see would be the positive catalyst for each of your segments and like to take it in turn. But maybe starting on Pulp. What do you think is truly needed exit the demand? Do you think it's going to be capacity closure potentially something out of Canada considering they've got elevated wood costs and you see a sawmill go down and then pulpwood closure that tightens the market. Wood product, is it ultimately just a demand that's needed rather than any form of supply response? And Containerboard, I'm just wondering what are you looking for in the market for kraftliner. Is it -- do we need to rely on the recycled closures and to follow that? Or are you seeing the ability to kind of keep this premium versus recycled considering the less imports from the U.S. and much better supply-demand balance in... Ulf Larsson: If we start with pulp, I guess, it's again, it's about demand. The tissue business is rather slow, of course, it might be impacted by closures also, again, it's a supply-demand issue. And it might be so that just my speculation, but I mean, if we will have a tough -- if tariffs will remain in Canada for solid wood products that will have a negative impact on the raw material supply to the pulp mills that might have an impact over time, of course. Otherwise, it's demand and mainly then in the tissue segment. In wood, as already said, I mean, we are in the slower season just now in Q4 and Q1. I guess that sooner or later, Americans, they have -- they must start to buy solid wood products. And if the tariff level from Canada over to U.S. will remain of 45%, that definitely will mean that we will see increasing prices in solid wood products even if you're not a big supplier to U.S., which we are not, but still, that will have an impact on the global trade rather immediately, I would say. And then we know that it can start to move quite fast. But I guess if you look at the inventory level in U.S., we have to wait for at least a quarter before we can see something. In Containerboard, I mean, we look at the box consumption, and we feel that we have a slow demand from the industry while I mean, in other businesses for food and yes, maybe trade and that part -- that is going quite in a normal pace. So -- but the industry for us, I mean, heavy-duty spare parts and things like that where we typically can find a premium for kraftliner. My -- I don't know, but my guess is also that we will see closures in testliner, I guess that the main part of testliner produces just now, they don't make money. And I guess we have a chicken race on the testliner side as this just now. The balance both for Containerboard, kraftliner and also for NBSK, it's much, much better than for recycled-based production. Cole Hathorn: And then maybe just following up on capital allocation. You were clear that you're ramping up your projects, your past peak CapEx. And beyond that, you've got flexibility for consider capital returns via dividends and buybacks. But you didn't mention anything on M&A, and I'm just wondering how you think about that? And what are your criteria there? Would you consider anything in Central Eastern Europe if a very low-cost asset came available? Are you staying with your production base in Sweden? Just like your thoughts. Ulf Larsson: I mean, typically, we are a company based on organic growth. And typically, we are a company focused on Sweden where we have our own forest. We don't like to stay in countries where we can see a higher risk really. So I guess we are -- but on the other hand, you shall never say no. But typically, we are based on -- and focused on organic growth as it is. Andreas Ewertz: And as Ulf mentioned before, currently, I mean, we're focusing on our ramp-up of our current project before we add some too much complexity. Operator: And we will now move on to our next question from Andrew Jones of UBS. Andrew Jones: Can you hear me okay? Andreas Ewertz: Now, we hear you. Andrew Jones: Sorry, apologies, I missed the start of the call. So if you've mentioned this, my apologies. But on the actual solid wood products, what usually give a bit of the sort of guidance range in terms of pricing? I mean, how do you look at pricing going into the fourth quarter on -- in the Wood division? And then also, I think on the last quarter, you sort of gave us like a percentage changes you expect in the Forest division in both logs and then pulp. What sort of percentage changes are you sort of thinking about in the Forest for those 2 categories? Ulf Larsson: The first one, yes, we did mention that one. And as I said, I mean, we lost 5% in terms of price from -- in the third quarter in comparison with the second quarter. And I guess that we will lose another 5% in the fourth quarter. And that is mainly a seasonal effect as the demand always -- we always have a slower demand in the fourth quarter and in the first quarter. Forest, Andreas, you can... Andreas Ewertz: Yes. So Forest, pulpwood, I mean, they have peaked. We saw a very slight decrease here in the third quarter, maybe 1%, and we expect fairly flat, maybe 1% down in Q4 because of this lag effect. In terms of sawlogs, they will continue to increase a bit in the fourth quarter, maybe 5% compared to Q3, but that's also because you saw that the logs were quite flat within Q2 and Q3. But that's more of a mix effect. We had lower dimension on the logs, which have a lower prices. So we didn't get that so underlying, the prices increased also in Q2 to Q3. But since we had that mix, we didn't see that increase. But now we'll get that in Q4 so maybe 5% up. Andrew Jones: So it sounds like a pretty tough quarter, fourth quarter if you're sort of saying price is 5% down, log import prices 5% up. And you're probably seeing some seasonal volume weakness, I guess, maybe and it's about 5% last year. So anything to mitigate or offset those moving parts? Andreas Ewertz: Yes. So but on the solid wood products, I mean, as Ulf said, the prices will go down 5% and also the log will continue to increase a bit, but of course, continuing to focus on cost and what we can affect. Andrew Jones: Okay. And just 1 question just about the structural change. On kraftliner, I mean, you've kind of talked about the market being more balanced in kraftliner, obviously compared to testliner, but I mean, how -- why can the actual premium kraftliner and testliner fee in the medium term given the sort of substitution potential, I'm curious like to see whether that premium can be maintained in the near-ish term. Ulf Larsson: It's hard to say. I mean, the delta just now is EUR 280 or something like that. So that is a rather wide gap. And I guess if customers -- if they can substitute, they will substitute. And we see the same trend in -- we have the same question always in softwood and hardwood pulp. But the same answer, I mean, if customers, if they can substitute, they will do it because if something is cheaper, of course, they will use that instead. So I guess my perspective is more that I think we will at least remain on rather high delta between testliner and test recycled products and base products and virgin-based products as virgin fiber will be a scare resource going forward. So strategically, I guess, we will widen this gap, which we have also seen in the past years. So I think that will remain, honestly. And also, when you look at the capacity increase. I mean, the absolute main part capacity is coming in the recycled business. But in order to get raw material to the recycled business, you must have some virgin-based production. Operator: And we'll now take our next question from Pallav Mittal of Barclays. Pallav Mittal: Pallav Mittal on behalf of Gaurav Jain. So a few questions. Firstly, you and your peers have all highlighted good availability of pulpwood because of which we are now seeing this decline in pricing. And now given demand is weak and there are a number of production curtailments, how do you think these pulpwood costs could change if you start seeing some sort of improvement in demand? Ulf Larsson: Then, of course, it might be so that you have bottleneck again in raw material supply. So again, to have a stable long-term increase in the market, then the consumption must come up, the demand must come up. So that's the simple answer. And I mean, then it might be so that if -- when sawlog prices, if they come down, but pulpwood prices, when they come down, then it might be so that you see additional capacity coming on stream. And by that, of course, the supply will increase for a while. And if then the demand is not picking up, then, of course, you will have a pressure in the market again. So it is as easy as that. It's always a question about supply-demand. Andreas Ewertz: And your question on -- I mean, of course, if demand for the finished product goes up and the production goes up, that will, of course, increase the demand for wood raw material, which is already has been tight. Pallav Mittal: Sure. And then if I can ask something on CTMP. So you did mention that CTMP prices have declined in Europe, and now we are seeing new capacity in China as well. But does that impact your CTMP ramp-up? Ulf Larsson: I mean, as it is just now, we have a rather profitable business within Europe in CTMP. But as you say, I mean, we have very -- the margin is not too big in Asia. So yes, in that perspective, we are maybe in -- it's always a marginal calculation. So if we have days with high electricity price or if not now, but before when we saw that we had scarce situation when it comes to pulpwood. I mean then we -- of course, the first production site, we took containers in was in Ortviken and CTMP. So as it is just now, we are a little bit more focused on fine-tuning, I mean, also try to validate products for the European market and so on. So it is very small or from time to time, negative market going from Sweden over to Asia in CTMP as it is just now. Operator: Thank you. That was our last question. I will now hand it back to the host for closing remarks. Ulf Larsson: Thank you, and that concludes our presentation of the third quarter results. We'll come back in January for our full year report. Thank you for watching, and thank you for listening.
Operator: Good day, and welcome to the USCB Financial Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Luis de la Aguilera, Chairman, CEO and President. Please go ahead. Luis de la Aguilera: Good morning, and thank you for joining us for USCB Financial Holdings Q3 2025 Earnings Call. With me today reviewing our Q3 highlights is CFO, Rob Anderson; and Chief Credit Officer, Bill Turner, who will provide an overview of the bank's performance, the highlights of which commence on Slide 3. The third quarter of 2025 continued to reflect disciplined financial performance across all key metrics, marking our third consecutive quarter of record fully diluted earnings per share. For the quarter ended September 30, 2025, the bank posted net income of $8.9 million or $0.45 per diluted share, up from $6.9 million or $0.35 per share in the third quarter of 2024. During the third quarter, our profitability metrics remain among the best in our peer group. Return on average assets increased to 1.27% compared to 1.11% a year ago. Return on average equity improved from 15.74%, up from 13.38% last year. Our efficiency ratio strengthened to 52.28%, reflecting disciplined expense management and operating leverage. Net interest margin expanded to 3.14% compared to 3.03% in the same quarter last year. Net interest income before provision for credit losses was $21.3 million, up $3.2 million or 17.5% from the prior year, supported by solid balance sheet growth and prudent pricing discipline. Total assets reached $2.8 billion as of September 30, 2025, representing a 10.5% year-over-year growth. Total deposits ended the quarter at $2.5 billion, marking a robust 15.5% year-over-year increase. Growth was broad-based across business and consumer segments. Our diversified deposit-focused business verticals, namely Association Banking, Private Client Group and Correspondent Banking now account for $672 million or 27% of total deposits. These deposit-focused verticals are highly scalable. And in the past year, we have added new production personnel to further support our growth plans. Liquidity remains strong and well above policy limits, providing ample flexibility to support loan growth and capital initiatives. Loans held for investment grew to $2.1 billion, an increase of more than $199 million or 10.3% from $1.9 billion on September 30, 2024, reflecting steady customer demand and solid credit quality. Again, as consistently focused -- again, we consistently focus on credit quality and diversity, and our loan book has significantly diversified in composition as 42% of our loans are now non-CRE. Credit performance continues to be exceptionally strong. Nonperforming loans declined to just 0.06% of total loans, down from 0.14% last year. The allowance for credit losses totaled $25 million at year-end, representing 1.17% of total loans. During the quarter, we completed a successful $40 million subordinated debt issuance, providing efficient capital at attractive terms. Most of the proceeds were used to repurchase approximately 2 million shares at a weighted average price of $17.19 per share, underscoring our confidence in the intrinsic value of our stock and our commitment to returning capital to shareholders. Following these transactions, tangible book value per share grew to $11.55, 6% higher than the prior year. Our capital position remains a key strength. As of September 30, total risk-based capital ratios were 14.2% for the company and 13.93% for the bank, well above regulatory minimums. Overall, the third quarter's record performance reflects the strength of our business model, our focus on relationship-based growth and our commitment to deliver long-term value to our shareholders, customers and employees. On the following page is self-explanatory, directionally showing 9 select historical trends since recapitalization. Profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering. So let's now draw our attention to our specific financial results and key performance indicators, which will be reviewed by our CFO, Rob Anderson. Robert Anderson: Thank you, Lou, and good morning, everyone. Looking at Pages 5 and 6, I would describe the third quarter of 2025 as a highly successful quarter for USCB. In fact, it was another record for us. Net income was $8.9 million or $0.45 per diluted share, and that's up 29% over the prior year. Return on average assets was 1.27%. Return on average equity was 15.74%, and these metrics benchmark incredibly well when compared to peers. The most notable activity in the quarter was the $40 million sub debt raise and repurchasing 2 million shares or 10% of the company. The weighted average price per share of the buyback was $17.19. While the 2 million share repurchase happened on September 4, the weighted average diluted share count for the quarter was marginally impacted to 19.755 million shares versus the ending share count of 18.1 million. On a pro forma basis, assuming the repurchase happened on day 1 of the quarter with the same $8.9 million of earnings would have equated to an EPS amount of $0.49. This number should help you when updating your estimates for 2026. While the summer months cooled off our loan growth for the quarter, we put excess cash to work in our securities portfolio. As a reminder, our securities portfolio is still reflective of the COVID era, yielding 3.03%. As discussed in previous calls, this represents a tremendous opportunity for us to improve go-forward earnings. I will elaborate more on this in a bit. With the sub debt raise and the excess cash on the balance sheet and in anticipation of loan demand, the NIM retreated slightly to 3.14%. The efficiency ratio was steady at 52.28%. Tangible book value per share was $11.55 and reflects the impact of the share repurchase. And last, credit metrics remain benign. So with that overview, let's discuss deposits on the next page. Average deposits increased $166 million or nearly 29% compared to the prior quarter and are up $380 million or 18% year-over-year. During the quarter, we issued $100 million of brokered CDs, which were used as hedging instruments as we put on an interest rate collar to mitigate interest rate risk. These are 3-month CDs, which will be renewed every quarter at market rates over the next 2 years. The cap rate on the collar is 4.5% with a floor rate of 1.88%. The swaps have a duration of 2 years at inception. While average DDA balances declined $10.6 million from the prior quarter, DDA still comprised 23% of total deposits. Interest-bearing deposit costs remained stable at 3.29%, down 47 basis points from the same period last year. Total deposit costs increased slightly by 7 basis points, primarily due to the decrease in DDA balances and the higher proportion of interest-bearing deposits. While this mix shift puts some pressure on the cost of funds, we anticipate improvement in our funding base in the fourth quarter as more liabilities reprice with rate cuts. Despite the temporary shift, we remain optimistic about deposit growth and continue to execute our business plan in niche verticals to support sustainable growth in core operating accounts and low-cost deposits. So with that, let's move on to the loan book. On a linked quarter basis, average loans grew by $41.6 million or 8% annualized. Compared to the third quarter of 2024, we grew $220.8 million or 11.8%. Both growth metrics are within our stated guidance. Alongside this growth, loan yield decreased 2 basis points to 6.21% and was negatively impacted by the payoff of consumer yacht loans during the quarter. Excluding the effect of the consumer yacht loan payoffs, the yield would have been 6.25%. On a point-to-point basis, the loan book increased $19 million. As you can see from Page 9, our new loan production was lower than our last 4 quarters, but with a strong pipeline and the summer sluggishness behind us, we look to get on our normal run rate in Q4. New loan production had a weighted average coupon of 6.43%, 22 basis points higher than the portfolio's average yield. On Page 10 is a snapshot of our business verticals. 2 are loan-oriented and 3 are deposit-oriented, namely Association Banking, Private Client Group and Correspondent Banking. All business verticals are led by very seasoned experienced bankers and are pivotal to our branch-light model. As Lou mentioned, they are highly scalable. And in the past year, we have added new production personnel to further support growth. Moving on to Page 11. Net interest income increased by $240,000 or 4.5% annualized compared to the prior quarter and was up $3.2 million or 17.5% year-over-year. Our net interest margin for the quarter was 3.14% and was affected by the higher cash balances, the issuance of $40 million of sub debt at 7.625%, delayed loan production and increased funding costs driven by lower DDA balances. Additionally, we received prepayments on yacht loans, which negatively impacted loan yields and the NIM for the quarter. However, looking ahead, we expect improvement in the NIM as we put excess cash to work in loan volume late in the quarter, added to our securities portfolio and cut deposit rates in September. In fact, the NIM for the month of September was 3.27%. All these items are good tailwinds heading into Q4. With that, let's move on to the ALM model on the next page. In the past several quarters, the strategy has been to prepare for a lower rate environment. And according to our ALM model, the balance sheet is liability sensitive and well positioned for the current rate environment. With rate cuts expected in the short term, we anticipate this will benefit our funding costs and overall margin and the effect of these rate cuts will be seen more predominantly in the fourth quarter. For instance, the ALM model contains a deposit beta assumption of 60%, but we have outperformed this beta over time. With the September rate cut, we achieved a 70% beta on our $1.2 billion money market book, which translates into an $840 million repricing fully at 100% or 25 basis points. On the flip side, we have $2.131 billion in our loan book and 62% or $1.3 billion is variable rate or hybrid in nature. 40% of that book or $620 million will reprice in the next year. In short, our liability sensitivity will be dependent on our ability to reprice our money market book faster than our loan book reprices. With that, let's take a look at our securities portfolio. Total holdings stood at $480 million at quarter end with 67% classified as available for sale and 33% as held to maturity. The portfolio yield has improved compared to the previous year, reaching 3.03%. This represents an increase of 42 basis points compared to the same period last year. A significant portion of this yield enhancement is due to our net purchase of $76 million in bonds during the first 9 months of the year, which carry a yield of 6% and an average duration of 4 years. The modified duration is 5.1 and the average life is 6.4 years, reflecting our strategy to purchase longer duration bonds in anticipation of lower interest rates. 79% of the portfolio is invested in agency, mortgage-backed securities, boosting liquidity. Looking ahead, we expect to receive $14.4 million in cash flows from the portfolio for the remainder of 2025 at current rates and approximately $76.4 million in 2026 with a runoff rate of about 3%. These cash flows provide us with significant optionality. They can be reinvested at higher yields, whether in loans or other investments or used to let go of more expensive funding sources. In this way, our investment portfolio should be viewed as a strategic tool for the upcoming quarters, supporting both margin improvement and balance sheet flexibility as we navigate the evolving rate environment. So with that, let me turn it over to Bill to discuss asset quality. William Turner: Thank you, Rob, and good morning, everyone. As you can see from Page 14, the first graph shows the allowance for credit losses is at $25 million at the third quarter end and at an adequate 1.17% of the portfolio. We made a $31,000 provision to the ACL that was driven mostly by the $18 million in net loan growth with no new classified loans and no loan losses in the third quarter. No significant losses are expected in the fourth quarter. The remaining graphs on Page 14 show the nonperforming loans as of quarter end steady at $1.3 million and remained at 0.06% of the portfolio and are well covered by the allowance. No losses are expected from these nonperforming loans. Classified loans also decreased during the quarter to $4.7 million or 0.22% of the portfolio and represent less than 2% of capital. No losses are expected from the classified loans. The bank continues to have no other real estate. On Page 15, the first graph shows the diversified loan portfolio mix at third quarter end. The loan portfolio increased $18 million on a net basis in the second quarter to $2.1 billion. Commercial real estate represents 57% of the portfolio or $1.2 billion segmented between retail, multifamily and owner-occupied. The second graph is a breakout of the commercial real estate portfolios for nonowner-occupied and owner-occupied loans, which also demonstrates their collateral diversification. The table to the right of the graph shows the weighted average loan to values for the commercial real estate portfolio at less than 60% and debt service coverage ratios are adequate for each portfolio segment. The quality and payment performances are good for all segments of the loan portfolio with the past due ratio at 0.38% and nonperforming loans at 0.06% remain below peer banks. Overall, the quality of the loan portfolio is good. Now let me turn it back over to Rob. Robert Anderson: Thank you, Bill. Noninterest income continues to improve with a variety of different revenue streams. Both wire and swap fees increased over the prior quarter. And as mentioned in previous calls, all loans are booked with prepayment penalties. So in the event of an early payoff, we receive compensation. These fees are booked under the other line item and service fees. Noninterest income was 14.8% of total revenue and 0.52% to average assets. Let's take a look at expenses. Our total expense base was $13 million, and while up from the prior quarter, contained $188,000 in onetime expenses. This includes legal fees for the S-3 filing and the administration expense related to the interest rate collar. Since the end of the first quarter, we have added 5 new sales associates with 3 of the 5 in deposit aggregating business verticals. The efficiency ratio was 52.28% and noninterest expense to average assets was stable at 1.85% and consistent with recent quarters. Looking forward, we expect the quarterly expense base to be at this level and gradually increasing due to additional new hires and potentially adding to the incentive accrual with improved company performance. Let's go to capital. In August, the company issued the $40 million in subordinated notes and used most of the proceeds to buy back 2 million shares or approximately 10% of the company. The impact of these 2 transactions can be seen on all capital levels. In fact, all capital levels remain comfortably above well-capitalized regulatory guidelines. And last, I'll note the ending share count for the quarter was 18.1 million. So with that, let me turn it back to Lou for some closing comments. Luis de la Aguilera: Thanks, Rob. Before we open the call for questions, I want to take a moment to put our results in the context of the broader environment here in Florida because the strength of the state's economy continues to be a key driver of our success. Florida remains one of the most vibrant and resilient economies in the nation. In 2025, real GDP growth is tracking around 2.4%, outpacing national averages and underscoring the state's enduring fundamentals. Population growth remains strong with over 23 million residents and continued positive net migration that fuels housing, business formation and consumer spending. Business confidence across Florida also remains high. From Miami to Tampa to Orlando, the economic landscape is driven by diversification in financial services, trade, health care and technology, which continues to create opportunities across our client base. The moderate normalization we have seen in interest rates and inflation trends has also contributed to a more stable, predictable operating environment. For USCB, this economic background aligns perfectly with our strategy. South Florida's growth in middle market business, real estate development and professional services continues to generate high-quality loan and deposit opportunities. Our ability to serve these sectors with a personal relationship-driven approach positions us exceptionally well within this expanding marketplace. In short, Florida's strength is USCB strength. The combination of a resilient economy, disciplined execution and a focus on long-term relationships allow us to continue growing at a steady, sustainable pace while delivering strong results to our shareholders. Thank you again for your time and your confidence in USCB Financial Holdings. So operator, we are now ready to open the line for questions. Operator: [Operator Instructions] The first question comes from Woody Lay with KBW. Wood Lay: Just a question on the yacht payoffs you saw in the quarter. Could you just -- and sorry if I missed it in the opening comments, but could you just quantify the amount of payoffs you saw in that division in the quarter, and when in the quarter they occurred? Robert Anderson: Yes, I'll take that one, Woody. It was a little over $10 million, and that happened in August, and that impacted our loan yields in August and our margin in August. Wood Lay: Got it. Okay. And then it looks like a majority of the loan production came in September. That will obviously be a strength for the NIM next quarter. But just looking into that production, is it a sign of sustained loan momentum entering the fourth quarter? Or was it September just a strong month? Luis de la Aguilera: No, I believe it is. Historically, we always see a seasonal dip in Q3 as vacation time, school stop, school starts. We had the same situation last year and the previous year. And you're right, September was a record-setting month for the year. As we look forward, the go-forward pipeline is absolutely in line with what we've seen over the last 5 quarters. And I just attended with Rob and Bill a pipeline meeting a couple of days ago. We have enough dry powder, I think, to have a very good fourth quarter. Wood Lay: Yes. And then what are you seeing on the loan competition side, especially on pricing? It looks like the yields on new production came down a little bit, but that was to be expected with the rate cut and that can be driven by mix shift. So any thoughts on how competition is impacting pricing? Luis de la Aguilera: Well, without a doubt, this is a very competitive market. There's no question about it. We price to relationship. We price deposits and an overall relationship. We are not a transactional lender. So every deal is priced based on opportunity and based on existing loan balances and deposit balances and overall relationship. We've been very active on the swap side as rates have gone down, there's been a lot of opportunity for that, and we continue seeing the same for the coming quarter. Robert Anderson: Yes. And even while it was down from the previous quarter at 6.43%, that's still 22 basis points above the portfolio average. I would say, I think our yacht loans are priced right around 6.25% right now. We're probably seeing the majority of our new loan production at 6% to 6.50%. Operator: 00:25:51 The next question comes from Feddie Strickland with Hovde. Feddie Strickland: Just wanted to start on the margin, digging a little deeper here. I appreciate the detail on that 3.27% and the discussion on yields and where yields are going. But given that we have a little bit of additional cost, I guess, coming in from the sub debt in the fourth quarter, does the quarter still, I guess, end at that 3.27% -- I'm just trying to figure out if maybe more of that is coming from the cost side for you to kind of land at recovery in the margin there? Robert Anderson: Yes. On the margin, I mean, it came back to 3.14%. August was a month where we had a lot of cash sitting on the balance sheet because we were anticipating a strong pipeline, but all of the loan demand came in, in September. So -- and then we had payoffs on the yacht portfolio that exasperated that issue in August. But 3.27%, I think, is a good go-forward number for the fourth quarter. We had a rate cut in September. There's like a 97% probability in October. We've already done a round of rate cuts on our money market book. We've lowered CD rates. So I think 3.27% or slightly better for the fourth quarter is still a realistic number. Feddie Strickland: Appreciate that. And just wanted to dig in a little bit on the swap fees as well. Obviously, great to see those come up. Is that still a good new run rate going forward? I'm just trying to get a sense for kind of where we could have noninterest income. And within that same vein, what are you seeing on the SBA side, keeping in mind the government shutdown fees? Robert Anderson: Yes. In fact, I'll start with the SBA. We probably had $200,000 that got slow walked at the end of the quarter that will fall into the first quarter. But that's definitely impacting on the SBA side. But we're seeing a lot of activity on the wire fees, predominantly in our correspondent banking group and our Private Client Group. The swap fees specifically with rates being lower, there's a lot of activity on swaps, and I would anticipate a somewhat similar number, maybe between Q2 and Q3 could repeat again in the fourth quarter. So a lot of the loan volume right now, as Lou mentioned, we saw the pipeline. We see what's in there at either fixed rate, variable rate, what's on swaps, et cetera. So there's a fair amount of swap volume in there, too. Feddie Strickland: Perfect. If I could just squeeze one more in. I just wanted to ask about the opportunity set on the condo association banking business line? And just how much do you think you can grow that segment in terms of loans and deposits over the next couple of quarters? Luis de la Aguilera: We're very bullish about the association banking vertical. I think it's one of our greatest opportunities for scale. Just to put things in perspective, there's a 27,500 condominium associations in the state of Florida, 48% of that is in between Miami-Dade and Broward County. And of the overall condominium inventory, 60% of that falls between 30 to 40 years, and they're all subject to 30- and 40-year recertifications. So we, right now, in the current pipeline have more HOA business than we probably have seen in any one quarter. So we are very bullish on this area. It gives us great opportunities for low-cost deposits, shorter-term C&I lending. We hired about 2 quarters ago, a new production officer, which joined us from one of the largest management companies here. She's doing quite well, and we believe that this is an area that we could probably double the book of business in the next 18 months. Operator: The next question comes from Michael Rose with Raymond James. Michael Rose: Rob, maybe I just want to go back to the margin. I think you said that the September margin was 3.27%. I know you guys are liability sensitive and it looks like loan growth is going to reaccelerate. So is 3.27% kind of a good starting point to think about the fourth quarter? And then I would expect as we move through what appears to be, if I use the forward curve, a few more cuts from here, further expansion as we go ahead? Or at some point, do the forces of deposit competition and lower loan rates went over at some point? Robert Anderson: Yes. No, the September was -- on the margin, it was 3.27% and that -- and we had a full month of the sub debt costs embedded in that month. As Lou mentioned, we really had a record month in terms of loan volume. So we put on some securities. We put on loan volume in the month of September. And I would say that's a good starting point. We profile as liability sensitive. We have been aggressive on the rate cuts on our money market book. We've already cut some rates in anticipation of the October rate cut on what is it the 29th and next week, we'll get another update from the Fed, I believe. So I think we're well positioned for the next -- this rate environment and any further cuts. So we would expect expansion on the NIM. The other thing that we mentioned, too, is our securities portfolio. I mean that's still reflective of a COVID era yield. And I think there's a lot of opportunity on the securities portfolio to either rebalance that. There could be a securities trades in there as well. But we have $480 million yielding 3%, and we're earning just under 16% on our equity. If that securities portfolio moved up 100 bps, I mean, that would give us tremendous earnings power and expansion in our margin. So I think we have a lot of opportunity as we go into 2026 with the rate environment going down, a steeper yield curve and our ability to fix our securities portfolio over time. Michael Rose: That's very helpful, Rob. And then maybe just going back to expenses. I think you mentioned relative stability near term, but obviously balancing that with some investments as we move through next year. I know maybe a little bit early, but is rate of inflation, let's call it, 2%, 3% plus GDP plus or something like that a good way to think about expenses for you guys? Or is there going to be some more concentrated efforts to hire folks and maybe we could be thinking or contemplating something a little bit higher for next year? Robert Anderson: Yes. I mean, right now, our efficiency ratio is 52% in our expense to average assets. I always kind of use a benchmark around peers is if we're under 2, I think we're performing well. I think both metrics benchmark well. In terms of the pure number, we've added some sales-facing FTE. I think we've added 5 since the end of the first quarter, all in sales type roles. Lou mentioned the one in HOA. We've got one on the Private Client group. We have other business development and some business banking personnel as well. Sometimes those get a little costly with some upfront money to get that personnel. But I would anticipate the run rate of $13 million a quarter to be at that level to increase slightly throughout next year. But I would say low 50s in terms of efficiency ratio. And it could dip into the below 50. But I would say right now, I'd say low 50s in the near term, but the pure $13 million could inch up in the fourth quarter and then into next year as well. Michael Rose: Very helpful. And maybe if I could just sneak one last one in. Just going back to the comments that you made on the securities portfolio and where capital is at this point. Have you guys given any updated thoughts on any sort of potential restructuring would that make sense for you guys at this point, maybe not right now, just given the use of capital and cash for the repurchases. But would just be curious as to any thoughts you have. Robert Anderson: I mean that strategy is always on the table. We're looking at it every month in terms of the viability, in terms of payback and what that would be. Certainly, with rates coming down a bit, we'd like to see if we could get out of this without doing a restructure. But certainly, I think $480 million at 3%. If we could move that up significantly to even 100 basis points, that would give us tremendous earning power going forward. So I think that strategy is always on the table and should be. I think well-run companies look at it and can act on it from time to time. Right now, we used a lot of our excess capital or dry powder on the repurchase, which I thought was a unique opportunity to repurchase 10% of the company. We bought that back probably at 1.5 tangible book value, but on a forward earnings basis on 2026, it was probably relatively cheap compared to peers in terms of where we trade and how we perform on a performance basis. So I'd say it's clearly on the table. And whether or not we act upon it will depend upon interest rates, earn back, a lot of different factors. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Aguilera for any closing remarks. Luis de la Aguilera: Thank you again to everyone joining us today. As we conclude the third quarter, I want to emphasize how proud we are of the consistency and strength demonstrated across all aspects of our business, our record earnings, loan and deposit growth, strong credit quality, our direct results of disciplined execution and a commitment to long-term strategic priorities. Looking ahead, we remain confident of our ability to sustain this momentum into 2026. The fundamentals of our business are solid. Our markets are vibrant. Our balance sheet is strong, and our team remains focused on building lasting relationships with our customers and communities. We continue to invest and capabilities that will enhance our growth and efficiency while maintaining prudent risk management and delivering value for our shareholders. As always, thanks to our employees for their hard work, to our customers for their trust and to our shareholders for their continued support. Thank you, and we will be talking at our next earnings call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Eni's 2025 Third Quarter Results Conference Call hosted by Mr. Francesco Gattei, Chief Transition and Official Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you. Francesco Gattei: Thank you, and good afternoon. Welcome to our Q3 2025 results call. Our results are a further confirmation of the successful execution of our distinctive and consistent strategy and innovative business model. We continue to generate growth and value, both from our traditional energy activity, such as E&P and also from emerging opportunities in the evolving energy market. In particular, the 8.5% year-on-year growth in production results directly from our consistent long-term focus and investment in E&P. We are delivering material progress against ambitious strategic objectives and Q3 was a further proof of tangible momentum in this respect. I will comment on our financial results in a little more detail shortly. However, it is very pleasing we have positive news to report from each of our main operating segments. Combining the excellent financial and operating performances and the ongoing progress in valorizing our businesses, we're also able to announce a further improvement of our balance sheet and a higher share buyback. Focusing on a few of the strategic highlights, I would especially pick out. At the beginning of August, Azule Energy, our business combination with BP in Angola and Namibia, began production from its operated Agogo West Hub development with the FPSO coming on stream only 29 months after FID, almost a year ahead of our plan. Indeed, this quarter was notable for the contribution from our upstream satellite start-ups with Vår reaching 400,000 barrel per day production with significant incremental production from the operated Balder X development that started up at the end of Q2 and Johan Castberg ramp-up, driving 45% year-over-year production growth. In October, we announced a joint venture FID on our Coral North floating LNG offshore Mozambique with startup expect in 2028. This leverages our successful Coral South development in production since 2022 with a remarkable 99.4% availability. And together with the 2 vessel in Congo, it will reinforce our leadership in this technology. I would also flag the progress we are making with YPF towards FID on Argentina LNG, employing the exact competencies I discussed in terms of floating LNG in Mozambique and Congo to access a material new integrated resource opportunity. A further successful example of Eni skills and strategy is in Ivory Coast, where in September, we completed the sale of a 30% stake of our operated Baleine field to Vitol, in line with our dual exploration approach. The world-class Baleine field was only discovered in 2021, but has already reached over 70,000 barrels per day from the first 2 phases with a planned Phase 3 to take gross production to over 200,000 barrels per day. Coral North, Argentina LNG and Baleine Phase 3 form just a part of a deep hopper of high-quality project in our development and pre-FID portfolio. In the quarter, we signed an agreement with GIP, a strategic partner in relation to a 49.99% stake in any CCUS holding, our consolidated global CCUS operation, confirming the significant growth and value creation potential in this transition business, unlocked by a further example of a version of our satellite model. Finally, in September, Eni received approval for its application to convert part of our Sannazzaro refinery into a biorefinery. It will add along with 3 sites in operation, 3 under construction and further identified opportunities, including our Priolo chemical sites to the targeted tripling of biofuel production capacity to 2030. This emphasized the meaningful growth in diversified income streams our transition segment is delivering. Turning now to our results. Q3 reflects remarkable progress in our key businesses and another excellent financial outcome. Pro forma adjusted EBIT of EUR 3 billion was 12% higher than Q2 and just minus 6% down year-on-year in U.S. dollar terms despite the 14% fall in crude oil prices. In the Upstream, production was 1.76 million barrels per day, up 6% year-on-year on a reported basis and 8.5% on an underlying supported by a new start-up and ramp-ups, good regularity and production optimization in the base. Pro forma EBIT of EUR 2.6 billion was consistent with the prevailing scenario with EBIT associated split reflecting the rise in production I highlighted at the Vår and Azule. In exploration, we have already added over 800 million barrels of new resource year-to-date. GGP reported another good quarter at EUR 279 million in pro forma EBIT in a quarter that is usually quieter, remaining focused on maximizing value and optimizing the gas and LNG portfolio. Our significantly reconstructed midstream business has become a highly consistent deliverer of financial performance. In our transition activities, Enilive reported EUR 233 million of pro forma EBIT, corresponding to EUR 317 million of EBITDA, around 23% up year-on-year in a quarter that is typically our best one for marketing, but also where we saw a recovery in bioomargin to pre-2024 levels. Plenitude pro forma EBIT of EUR 98 million was softer year-on-year, reflecting the effect of some of the retail incentives coming off, but partially offset by strong growth in renewable capacity. In transformation, refining returned to profit, helped by better industry margin and improved utilization, while chemicals, despite the continuing weak scenario, began to show some benefit from the restructuring now underway, albeit it is very early days. Adjusted net income of EUR 1.25 billion, effectively in line year-on-year came despite the $10 barrel fall in crude price and weaker U.S. dollar. That is a testimony to the growth and performance improvement in the business and a more efficient tax rate at 42% that reflects the impact of high-grading upstream production mix, the transition towards a more sustainable diversified overall income mix and the benefit of our restructuring and performance improvement initiatives. Cash flow from operations once again reflects efficient conversion of our earnings into cash, and we saw a Q3 working capital draw, reflecting our focus on efficient use of the balance sheet. Indeed, we have already realized a EUR 2.1 billion benefit to the balance sheet through prompt cash initiative in response to the weaker scenario. Gross CapEx in the quarter was EUR 2 billion, taking us to EUR 5.9 billion year-to-date. Net CapEx has totaled less than EUR 1 billion year-to-date. Outstanding agreed valorization yet to close primarily related to the agreed Ares investment into Plenitude for which we have completed all the condition precedent and with closing expected in early November, the sell-down in Congo and the GIP stake in CCUS, this totals almost EUR 3.4 billion. After EUR 560 million in share buyback and paying the quarter 3 dividend, net debt was EUR 9.9 billion, down again quarter-on-quarter and leverage stood at 19%. Taking into account the still outstanding announced portfolio action, pro forma leverage was 12%, equivalent to 11% gearing, a level at the minimum of the industry range. Looking ahead towards the full year, we are able to further improve some of our targets. We now expect full year production to be between 1.71 million, 1.72 million barrels per day, up from 1.7 million barrels per day, a 3% underlying increase versus 2024. We expect GGP pro forma EBIT for the full year to be over EUR 1 billion. We expect cash initiative and self-help and mitigating the impact of weaker scenario to deliver around EUR 4 billion benefit, up from EUR 3 billion previously. We confirm gross CapEx below EUR 8.5 billion, but we expect net CapEx on a pro forma basis to be less than EUR 5 billion, down from the EUR 6.5 billion, EUR 7 billion that we previously guided to. And we are raising expected cash flow from operation pre-working capital to EUR 12 billion from EUR 11.5 billion previously, representing an underlying EUR 1.3 billion improvement versus our initial guidance for the year, while we are narrowing our expectation of year-end pro forma leverage to 15%, 18%. Reflecting the strong underlying business performance, the balance sheet metrics and the proven capability of the company to execute its strategy in a very accretive way, we are raising the 2025 share buyback to EUR 1.8 billion from EUR 1.5 billion, of which EUR 840 million has been completed as end of September and around EUR 1 billion to date. This, as we have already done since 2022, effectively share the upside in financial performance we have generated in the year, preserve a conservative position in response to the uncertainty ahead and ensure our ability to invest consistently over the cycle for growth and shareholder value. In fact, Q3 represents all the major elements of our distinctive strategy in action in one place. We are competitively growing our key businesses. We are launching new projects while also securing further opportunity through our industry-leading exploration and technological know-how in the upstream and opening up new opportunity in the transition. Meanwhile, we are managing risk reward, realizing value through our dual exploration satellite strategy, allowing us to bring in down debt and share upside with shareholders. And with that, I am ready along with Eni top management here on the call to reply to your questions. Unknown Executive: Thank you, Francesco. Hello, everybody. We've got a queue of questions. [Operator Instructions] And we're going to start with the first question that comes from Biraj at RBC. Biraj Borkhataria: I have 2, please. The first one is in the Upstream. One of the surprises today was the really strong production figure. And at least according to my model, that's the highest figure you reported since the pandemic. So could you just unpack the moving parts there quarter-on-quarter outside of the strong performance from Vår? And in particular, I believe there was a TSC adjustment this quarter. Wondering whether you could quantify that and tell us if there's any sort of follow-through into Q4 and '26? And then the second question is on Chemicals. Just noted no improvement in the sort of underlying results despite the crackers being shut down. So what should we expect going forward? Should those losses start to reduce from Q4? Or are there sort of additional shutdown costs coming through? Francesco Gattei: Okay. I leave the answer about production and comparison versus previous quarter to Guido Brusco and clearly, the Versalis to Adriano Alfani. Guido Brusco: So the increase quarter-to-quarter, both sequential and year-on-year are due to, as you rightly pointed out to Norway, Johan Castberg and Balder X, but also the accelerated start-up in Angola with Agogo and better performance in the ramp-up of our project in Mexico, Ghana, Nigeria and also overperformance in Ivory Coast. This, along with strong operational continuity in all geographies and an optimized major turnaround plan, particularly in North Africa. So the combination of all these 3 elements resulted into this remarkable performance. Francesco Gattei: Now Adriano. Adriano Alfani: Yes, Francesco. First, thanks for the question. About the shutdown of the chemical plant, as we previously said in different investor call, we always say that the benefits of the shutdown of the cracker start to be materialized 100% after more or less 9, 12 months that we shut down the crackers. So considering that we have stopped Brindisi at the end of Q1 and Priolo at the beginning of Q3, we expect to see some benefits starting from the second half of 2025 that is in the ballpark of EUR 40 million, EUR 50 million compared to the first half of 2025. But most of the improvement we will start to see from the significant improvement from the second half of 2026 that will be materialized in more than EUR 200 million on a yearly basis. That said, the scenario remained very weak, and this is also the reason why despite the improvement on our cost base due to the restructuring, we are not seeing a major improvement in our results quarter-on-quarter because what we are saving from restructuring is compensating the lower scenario. Unknown Executive: Thanks, Biraj. We're going to move to Santander and Alejandro Vigil. Alejandro? Alejandro Vigil: Congratulations for the strong results. The first question is about the outlook in terms of production for the coming quarters because we are seeing a very strong exit rate of about 1.8 million barrels per day. If this could be a good indication of the level for 2026 of volumes? And the second question is about the LNG business. You are very active in new capacity in terms of LNG, the Argentina, Mozambique, the joint venture in Indonesia. Just if you can elaborate about your view about this potential risk of overcapacity and how you're managing your portfolio of contracts? Francesco Gattei: I will give it to Guido the answer. Guido Brusco: So yes, clearly, our exit rate is strong. We are envisaging an exit rate in the quarter between 1.78 million and 1.80 million. We still have quite a strong and visible pipeline of high-quality projects. We still have 2 start-up coming by the end of the year. One is the Congo LNG and also we have a gas project in Angola operated by Azule. We also have project already in execution, as mentioned by Francesco, Coral North and others in the UAE, Hail and Ghasha and some in North Africa, along with projects which are coming in Indonesia, but those are, of course, in the plan period and not in 2026. As far as the LNG portfolio, we have a target of 20 million tonnes per annum. And this target, we want to combine also with a very diversified portfolio of opportunity. Currently, we have LNG assets in Indonesia. We will have soon in Mozambique with Coral North. We have in Congo and we'll expand it in Nigeria, in Angola. And we are complementing this with portfolio with U.S. Recently, you may recall, we've signed a 2 million tonnes per annum contract with Venture Global. And of course, last but not least, Argentina. Argentina is a 12 million tonnes per annum project in the second largest and world-class asset, which is Vaca Muerta. We are doing it with YPF, and we are targeting to have an FID sometime next year. Unknown Executive: Alejandro, I got that mixed up because we're now going to Alessandro. Alessandro Pozzi, Mediobanca. Alessandro Pozzi: I have 2. If I can go back to the production. I'm aware the guidance for next year is provided with the full year results. But I was wondering, given the very strong exit rate, should we -- and also the additional start-ups you will have in 2026, should we assume a further increase from Q4 into 2026 before factoring in the new JV with Petronas? And while on the topic, can we maybe have an update on where we are in terms of negotiations with Petronas? Guido Brusco: So you can imagine, there are a lot of moving parts, but we can confirm what we said at the last capital market update. We have an underlying of 3%, which, of course, we confirm over the plan. Sometimes, this is not a progressive growth because project comes over cycle and -- but we can confirm that growth. As far as concerned, the Petronas deal, we are in very advanced negotiations, and we are planning quite soon to sign binding documents for the joint venture. Alessandro Pozzi: Can you confirm the contribution to the production for next year? Guido Brusco: This is part of the underlying 3% growth year-on-year. As I said, there are many moving parts. There are new projects, new entry like the JV of -- with Petronas. There is also -- there are also some further M&A operations. There are also -- of course, there is also the decline of the field. So overall, we confirm the 3% underlying. Unknown Executive: Thanks, Alessandro. We are going to move back to London now with Josh Stone at UBS. Josh? Joshua Eliot Stone: Two questions, please. Firstly, on the buyback. Can you just talk about the factors that went into your decision to lift it this quarter? Because clearly, your business has been performing better. But at least until recently, oil prices are on a declining trend. So was there any consideration made about maybe holding back some buyback for next year to conserve cash? And to what extent was that factored into your new buyback level of EUR 1.8 billion? And then the second question, Namibia. Just hoping to get some latest thoughts there after your recent well results at the Land finding gas condensate. And maybe if you could just share your latest learnings about the asset and what potential next steps could be in terms of appraisal and whether this could be a potential fast-track development in your view? Francesco Gattei: I will answer about the buyback and then give the floor to Guido for the Namibia questions. On buyback, you have seen that the policy that Eni has already, let's say, confirmed for a number of years is substantially to start with a buyback announcement during the Capital Market Day and then a policy of, let's say, driving or sharing the upside in different form. The upside is the upside related to scenario increasing the CFFO, but also upside related to the capability to perform the strategy faster to benefit of more valuable M&A and deleveraging. Actually, this has occurred 3 times in the last 4 years. And many of these cases was not related to the improvement of scenario that actually declined, but then the capability to do better in terms of execution. This year, we have already announced in July, if you remember, this potential improvement. It's, let's say, a quite unique position in the market. Nobody is able to raise its distribution in this time and then nobody is able to reduce debt during the same period, while executing a full effective strategy in terms of project and growth in different parts of the business. So we are extremely, let's say, happy to share this opportunity and this value creation with our shareholders. And we think that the EUR 300 million was a fair evaluation of the improvement. And clearly, this also proves that we are quite confident on the capability to manage any kind of downturn or soft price in the next year. And then I'll leave back to Guido. Guido Brusco: Yes. On Namibia, as you know, we drilled 3 wells, very successful. The first one, Sagittarius discovered hydrocarbon with no observed water contact. The second Capricornus, we've tested and we were surface constrained with a flow rate of in excess of 10,000 barrels per day. And the third one, Volans showed a high condensate to gas ratio, but -- and we found 26 meters of net pay of rich gas condensate. So 3 successful wells, which they've not only found significant hydrocarbon, but they are also located at a very short distance from each other, in conventional deepwater, less than 1,500 meters. So clearly, they offer an excellent prospect for future development. Unknown Executive: We're going to move to Al Syme at Citi. Al? Alastair Syme: Argentina LNG Phase 3, one of the big changes in Argentina has been this incentive regime for large investments or RIGI. What do you think this legislation does to improve the profitability? And I guess, maybe put another way, would the project work without that legislation? And then secondly, I just wanted to ask, given you've done this big asset transaction, Baleine and Congo FLNG for, I think, $2.65 billion. I'm wondering what the invested capital is -- that you're essentially selling, sort of what multiple of invested capital have you been able to sell this asset at? Francesco Gattei: On Argentina, I give the question to Guido, then I will answer. Guido Brusco: In Argentina, investment in shale are been made since more than 10 years. So in 2013, it started the investment cycle in Argentina, and this is far before the RIGI legislation. RIGI legislation, of course, is a big enabler, particularly for the export of the LNG. And so that's the legal framework, and we are confident with this legislation and with this framework to make an investment decision in the country. Francesco Gattei: About the Congo LNG, as you know from also the other transaction that we have already completed with Vitol. This is based on an effective date that is 1/1/2024. And therefore, there are investments in the meantime, but we do not provide this kind of level of details that will be clearly also part of the final settlement at the closing time. Unknown Executive: Thanks, Al. We're going to move to Irene Himona at Bernstein. Irene? Irene Himona: My first question is on Enilive, where clearly, you're seeing very strong biofuel margins, improvements in your throughput and utilization. Can you give us a sense of how those are evolving in Q4, please? And then perhaps if you can split the marketing versus biorefining contribution to EBIT in the quarter? And then my second question, going back to tax, but not the P&L tax, more the cash paid tax, which fell almost halved sequentially. Is there any guidance at all on that? Is it -- are we likely to see a reduction in that cash tax rate aligned with the P&L reduction? Francesco Gattei: About the -- I will answer about the tax, and then I will give to Stefano Ballista for the Enilive. You've seen that in the last year or years, there is an improvement in the tax rate, both on the -- clearly the reported tax rate and the cash tax rate. This improvement is mainly related to a transformation of the company with the contribution of different geography in the upstream and therefore, the capability substantially to have more production and more results coming from lower tax regimes in this segment. Clearly, the contribution of the transition business, the possibility of the increase of return in Italy related to the fact that there is a transformation activity going on with the possibility to recover the deferred tax effects and also the contribution of satellites that are cash neutral from this point of view. So all this is a structural change that impacted both the nominal tax rate and the cash tax rate. So we have already said that we are expecting in terms of tax rate an improvement versus what we originally thought. So now we are moving in the range between 46% and 48%, while about the tax rate related to the cash tax rate, we are moving around the 28% to 29%. And now Stefano, please. Stefano Ballista: Irene, thanks for the question. Yes, the strong result of Enilive in this quarter have been driven mainly by the significant improvement of the biofuel scenario, coupled with a very good asset performance capturing this increased value. In terms of value, we can think about the sort of 80-20 in terms of overall contribution. Deep diving on biorefinery and looking at the scenario. What's going on is a progressive rebalancing of the supply-demand dynamics. This is fully in line with the direction we expected. There are some key reasons, some structural key reason pretty much on demand. Demand is improving. On a yearly basis, in Europe, we see above 6 million tonnes on a yearly basis compared to the 4.5 million last year. And this improvement has been, let's say, concentrated in the second half of the year. The reason is related to sustainable aviation fuel. We mentioned in previous call, the need for getting logistics in place in order to deliver SAF to customers. This is exactly what's going on. On top, actually, there is also a drive of extra demand coming from the expectation of the deployment in several countries of the Renewable Energy Directive #3. An example, a key example is Germany. It has to be approved, but the proposal is very relevant. The most relevant thing is the ban, the proposed ban of double counting by itself, this means above 1 million ton of extra demand on top of the number I said before for next year. So these are the 2 key structural reasons. On the supply side, I want to mention another structural reason. It has been confirmed the duties for sustainable aviation fuel coming from U.S. There was a doubt in the first half of the year, this duty are there for HVO due to clear the tax credit that is in U.S. It has been confirmed it's going to be applied to SAF as well, and this is another reason strengthening the market. Unknown Executive: Very good. Thanks, Irene. We're going to move to Peter Low at Redburn. Peter? Peter Low: Maybe the first, just on disposals. Can you just confirm the expected time line for the remaining ones, so kind of Congo to Vitol and then the Plenitude stake sale. But then beyond that, should we think of those as being the end of large disposals? Or are there other positions across the portfolio you're working to monetize? And then just on the net CapEx guidance, you've lowered it for the full year, but it looks like gross CapEx is broadly unchanged. Can you perhaps walk through the moving parts that have allowed you to lower that net CapEx guidance? Francesco Gattei: Yes. About the portfolio, we can, as we have already mentioned, confirm that we are very close to cash in the EUR 2 billion related to Ares acquisition of a 20% in Plenitude. All the condition precedents were completed. We do expect to have this contribution in a period of weeks. This will imply substantially a benefit on our leverage in the range of more than 4%. On the other side, we are still clearly waiting all the natural process authorization for the other transaction, the one that is related to Congo that takes some more time. So this is still ongoing, but it is a process that is maturing progressively. And about the contribution for next year, clearly, this year was extremely, let's say, rich in terms of opportunity. We have benefit from disposal that we matured last year in terms of closing, and we completed for the cash in this year. And also, we were able to fast track some of our disposal within the year. This acceleration is also at the basis of the improvement in the net CapEx results. You're right that the gross CapEx are substantially in line with expectation. But clearly, they were revised down during the first quarter once we announced the first estimate for the cash initiative that includes also CapEx reduction. In terms of what are the future, the future is that the dual exploration model is a living model. So it's continued to generate opportunity. You know that we explore with high stake, and there is also some results already emerging in different geographies. You know also that in Indonesia, we have a 10% disposal on the assets that will not be included in the business combination. And clearly, we are also evaluating other opportunities that could come in terms of valorizing our portfolio and aligning capital. Another element that will be cashed in within the end of the year, I was forgetting is the contribution of the CCUS, so the deal with GIP. Unknown Executive: Thanks, Peter. We're going to move to Michele Della Vigna at Goldman Sachs. Michele Della Vigna: And again, congratulations on the very strong results. Two questions, if I may. First, I wanted to start with biofuels. Very clear comment on RD. I was just wondering on SAF, if the mandatory blending does not increase from 2% until 2030, don't you see the risk that with new capacity coming on stream that market could soften over the next couple of years? And then I was wondering if you could give us perhaps a bit more visibility on what drives that EUR 1 billion upgrade in the cash initiative. And in case the macro deteriorates in 2026, how much flexibility do you see on your CapEx budget? And where do you think you could potentially cut some of your net investments? Francesco Gattei: Stefano for the biofuel. Stefano Ballista: Yes, Michele, thanks for the question. On SAF, for sure, is driven by the mandatory mandates, given the penalties -- underlying penalties. So this is, let me say, it's a given. On top of Europe, now at 2%, we got higher target like in U.K. already in place. Clearly, an increase sort of step-up of the target along the time line is going to help demand on SAF. This is something that could be addressed. On top, actually, there are demand like in Japan, this is a global market. In Japan, they approved the 10% in 2030. There are some discussion even in other country in order to get SAF mandatory at defined percentage given it's the only way to decarbonize the aviation sector. On top, actually, there are some sign on voluntary demand. This is going to be driven also by, let me say, the supportive incentives that at specific level will be put in place. An example is the Heathrow Airport, where half of the gap between jet, biojet and jet is supported with a limited amount clearly by the institution. This kind of approach is going to support demand. And then lastly, let me add, there is the CORSIA program. It's a program that has to be fulfilled by all the ICAO countries, all the countries that participate to the ICAO. Up to now, it's just voluntary. It's going to be mandatory from 2027, and this is going to drive demand above in countries that today doesn't have any obligation. In terms of overall demand supply, a biorefinery that can produce -- HVO can produce SAF. So there is flexibility is a core lever to address market evolution. We don't know exactly the growth, the demand of SAF, but there are clear mandates on overall HVO growth. And given current project in place and even current decision, let's say, of delay in terms of projects from other players on top of technical difficulties that other players are getting into in this new business and given current trajectory of overall biofuel, HVO and SAF, we see the market definitely a bit tight in the medium term. Francesco Gattei: Contrary, for the -- sorry, for the difference related to the estimate on cash initiative 2025, the previous one that was EUR 3 billion and now it's EUR 4 billion is substantially a mix of different factors. One is that we derisked some of the actions that we risked in the first half. You have to consider that we have a way to optimize or evaluate substantially our storage activity on oil, some ETB, so our trading activity on trading of oil. We have some additional value coming from swap of bond from fixed to variable, et cetera, et cetera. And the main contribution in this round in this last quarter is related to the additional initiative related to trading, another EUR 100 million that is EUR 300 million, another EUR 100 million that is related to this swap -- liquidity swap on our cash strategic pool and this EUR 400 million -- more than EUR 400 million that is related to the derisking of the previous cash initiative. So almost EUR 800 million are related to these 3 different items. About next year, I can tell you that the flexibility, the plan is under -- still under preparation, early phase of preparation. But generally, we are working with -- in the first year of the plan in a 20%, 25% flexibility. So we are speaking on a gross CapEx, something in the range of EUR 2 billion. Unknown Executive: Thanks, Michele. We're going to move to Henry Tarr at Berenberg. Henry? Henry Tarr: I had one really, which was around the GGP business and the sort of consistency of profits there. We've seem to have had much better profitability sort of through the summer and kind of consistent upgrades over the last couple of years. Is -- do you think this is a durable level of profit for this business? Or do you think it's related to -- so are there sort of structural changes post the change in your supply makeup that mean that this is a more durable supply or stream of profits? Francesco Gattei: Cristian Signoretto will answer. Cristian Signoretto: Well, yes, you're right. I mean, the third quarter has been a good quarter. And I would say, in this case, the major driver of the performance was what I would call the locational spreads. So in Europe, but also globally, we have taken advantage of premium market vis-a-vis the flexibility that we have in our assets in order to move the gas and LNG where the premium was actually higher. I think as we said, as Francesco said at the beginning, I mean, we have reengineered the business. Clearly, the lack of the Russian gas and our development of our new gas projects and LNG projects upstream have really changed the shape of our portfolio. We tend to be much more attentive to make sure that we can create enough optionality and flexibility in our portfolio in order to make sure that the new volatility environment that we are facing, and I think we will be facing in the future will be structurally creating headroom and opportunities for us to tap on. So I'd say, I mean, this is a trend that we will see continuing in the future. Unknown Executive: Thanks, Henry. We're going to move to Martijn Rats at Morgan Stanley. Martijn Rats: Yes. A lot have been covered, but just 2, if I may. So I noticed that Rosneft has a 30% stake in Zohr. And I was wondering if you could say a few words on how -- if that has any impact on you as the operator of the project. Maybe not, but I just wanted to kick that off. And then the other one I wanted to ask about your European gas sales volume. They were down sort of 15% this quarter year-on-year. European gas demand is not very strong, but it's not that weak either. Is that due to the portfolio changes that you just alluded to? Or is there another specific reason for that decline? Francesco Gattei: Cristian, if you would like to answer, and then I will go back to the sanctions. Cristian Signoretto: Well, the drop in the European sales this year have fundamental reason is linked to the fact that we have terminated the contract with which we were selling gas to BOTAS in Turkey via the Blue Stream. This was linked to, let's say, the pipeline itself. So I mean, this is a business that we are trying to unwind also in terms of participation in the pipeline. So that is the biggest contributor to the sharp -- to the drop in the sales into Europe. On the other hand, I mean, as I told you before, I mean, the demand in Europe is shrinking. We are adjusting our portfolio to the new reality. We are much more focused on creating more value from the single molecule than clearly getting more molecules into the market. Francesco Gattei: And about the impact of the new sanction introduced by the U.S. administration, it's still very early because clearly, there are details that have to be analyzed and clearly, the full impact to be completely assessed. What we can clearly say is that we will ensure full compliance with the sanction. But we have to also take into account that we have a very limited interaction with these 2 companies in of our assets. And generally, we are speaking about minority stakes and nonoperated stakes. So we believe at the end that there shouldn't be any material impact on ongoing operation due to this sanction activity. Unknown Executive: Thanks, Francesco. Thanks, Martijn. We're going to move now to Mark Wilson at Jefferies. Mark Wilson: You speak to how this quarter is really seeing strategic initiatives coming through, certainly with the satellites in Norway and U.K., and that's been a number of years in the making. So I'd like to ask about what appears to be clearly another strategic angle, and that's the use of floating LNG. I'd argue you appear to be the leader in that concept now with the second Coral vessel sanctioned, Congo [ FMG ] coming on stream, just 33 months in Argentina, initial development being 2 vessels of an even larger capacity. We know there's certain security benefits and clearly, speed if Congo FLNG is anything to go by. But could you speak to the CapEx, OpEx and emissions intensity benefits versus production of FLNG versus onshore? And any improvements expected between the 2 Coral vessels? And I did note in the previous answer, you spoke to getting more value out of a single gas molecule. So I think that relates to it. Francesco Gattei: Yes, Guido can provide all the details. Guido Brusco: Clearly, we have built a technological hedge on floating LNG. We are currently the largest operator of floating LNG and results, both in terms of delivery and performance are outstanding. Just to name a few of them. On Coral South, we delivered the project on time, on cost despite the COVID and the uptime of the floating LNG is just outstanding. I was mentioned by Francesco in his speech, 99-plus percent. In Congo, we have 2, one in operations and one coming, and we've just sanctioned Coral North recently with the start-up expected in 2028. In terms of security, it's pointless to say that is safer and basically provides and disconnect completely from any turbulence from onshore, and we are seeing it how successful was the choice in Mozambique. In terms of cost, costs are -- I mean, we are in the deepest -- in the, I would say, steepest part of the learning curve. So if I compare cost from the first floating LNG and the cost of the project in -- of the future project in Argentina and the current project in Coral North, the reduction is significant. The industry is making significant progress in driving down to the point that we are reaching level comparable, if not better, in some geographies of the onshore LNG plant on a million tonne per annum basis. In terms of -- you said the emissions, of course, we are applying the best available technology. And in some cases, it's not the floating LNG, but I just want to mention one in Angola on the FPSO Agogo, we are basically -- we are actually capturing CO2 and reinjecting CO2 in the reservoir through the gas injection, which is used for gas recovery. So even on an emission basis, we are doing significant progress and driving down emissions on a unit production basis. Francesco Gattei: I will also add that it is an opportunity to exploit associated gas reserves in certain, say, conditional fields where this gas potential will not be improved, cannot be recovered. And this potentially could become a cap on oil production. This is exactly the case of Congo. So it's not just a matter of cost, but it's a matter of value towards the opportunity and the optionality that this technology will add to your capability to exploit resources. Unknown Executive: Thanks very much, Mark. And I think a subject we'll end up returning to. So we're going to move from Mark to Italy to Massimo Bonisoli at Equita. Massimo, are you still there? Massimo Bonisoli: Two questions left on Enilive. The first on new Sannazzaro biorefinery. Can you explain how the configuration feedstock and product profile differ from your existing biorefineries like Venezia or Livorno? And the second one is on the antitrust fine on Italian biofuel distribution. If you could elaborate on any potential impact this ruling may have on the profitability and competitive positioning of your fuel distribution business following the fine? Francesco Gattei: I will ask Pino to answer to the first, and then I will answer to the second one. Giuseppe Ricci: Thank you, Francesco. About Sannazzaro, Sannazzaro is a brownfield biorefinery because we will recover an existing hydrocracker unit very recently realized in Sannazzaro in 2010, very high pressure. And in this way, because of the high pressure and the good configuration, we will be able to maximize the flexibility to produce SAF. Production of SAF in Sannazzaro is an upside because there is the direct connection by pipe to the big Malpensa airport that is a big hub for the Central Europe. And about the feedstock, the flexibility of feedstock will be the same of Livorno or the other refineries, a mix of western residue and vegetable oil coming from not in competition food areas, including our agri business. The logistics system will provide different channels of supply of feedstock and distribution of products in order to maintain the flexibility. The unit is expected to be completed by 2028 in order to be in production at the end of this year. Francesco Gattei: About the fine that was proposed decided by the AGCM on biofuels. First of all, what we can say that clearly, we appeal against this decision that we judge as substantially incorrect. The biocomponent is aligned in terms of pricing because as you have already -- you know very well and from the fact that there is a very limited number of feedstock and a very, let's say, small market. This is substantially aligning the cost of this element to the different operators. So everything is happening in a very transparent way and the cost of obligation for all the players in the market are substantially similar. Secondly, the change of information that was considered in breaching of the competitive rule was, in fact, a legitimate change between the party on fuel supply agreement that requires this quarterly communication. In terms of competition, clearly, this is nothing to do with competition. As we said before, this is an element that is a key issues for the market, the growing market in terms of capacity is the capacity of the feedstock, the key element of risk. We are working on the capability to develop our own agri hub, and this component is a mechanism to derisk in terms of both quantity and value, the contribution of our own internal production. So we think this is something that we are trying to defend through building an integrated chain also on this side. Unknown Executive: Thanks very much for that question, Massimo. We're going to move now to Nash at Barclays. Nash, are you there? Naisheng Cui: Two questions from me, if that's okay. The first one is around technology. I was very impressed at your Technology Day in Milan earlier this year. I just wonder if you can talk about your progress over there, your deployment of technology, AI and how does that add momentum for your operation and the financial performance into next year and beyond? Then my next question is on working capital movement. Given some of the volatilities we have seen, I wonder if you can give us a bit of color on working capital in Q4 and Q1, please? Francesco Gattei: I leave to Lorenzo Fiorillo, Head of our R&D Technology Group business to answer about the artificial intelligence, and I will come back for the working capital. Lorenzo Fiorillo: Thank you, for the question. What I can say that we use AI since a while, it's not just in the last years. Internally, we are more than 200 use cases we are developing. We found a lot of advantages in using AI application within the company in optimization, find solution and helping us in creating better scenario. The use of a big number of data and important technology and technical expertise as well as digital competencies internally and with high-performance computing, for sure, is a fantastic habitat for us to develop this kind of tool, which is very helpful for us. The progress for us is to continue on agentic model for AI, and this is the way we are going to develop in the next years. Francesco Gattei: About the last quarter, the next quarter, we do expect substantially a very limited drawdown in terms of working capital. This quarter was substantially aligned and neutral. Overall, in the full year, we have a positive working capital in the range of EUR 2 billion. On next year, clearly, we have to assess all the working capital activity based on the new plan that requires also a definition of the scenario first and clearly, all the activity that we are performing in the different businesses. Unknown Executive: Thanks, Nash. We're going to go to the last 3 questions now. So the first one of those is Bertrand Hodee. Bertrand, are you there? Bertrand Hodee: Yes. I have 2 very short questions left. The first one is on Coral North. So you just took FID in September. But when looking at the annual report 2024, in fact, you already booked 329 million barrels of equivalent of proved reserve. Even if your share has risen from 25% to 50% in the project, as Exxon pulled out, looks to me that you've already booked the full reserve of Coral North in '24. And the second question is, so EUR 1.8 billion of buyback for fiscal year '25, EUR 0.8 billion been already bought back. And so there's EUR 1 billion left. How should we split those EUR 1 billion between the remainder of the year '25 and '26, please? Francesco Gattei: I leave the answer to Coral North to Guido. Guido Brusco: Yes, of course, yes, you are right. We booked last year. This year is the JV FID. We took the joint venture FID. And in terms of share, as you rightly pointed out, it is a bit disproportionate compared to our share of the project, which is 25% because we've reached a swap agreement with one of our partner between the onshore and the offshore molecules. Francesco Gattei: About the buyback, we generally do not provide guidance in terms of, let's say, weekly or next or planning plan of buying because clearly, this is a sensitive matter. Clearly, we publish every week what is the amount that we have bought, and you have seen, I would say, some steps or the pace of this buyback activity. As you correctly said, there is still EUR 1 billion to be bought in front of us. We have 3 months of 2025 and then 4 months in 2026. I think that there are different combinations, but will not change too much. Unknown Executive: Thanks, Bertrand. We're going to move to Chris Kuplent at Bank of America. Chris? Christopher Kuplent: I've got one question remaining, Francesco, and it's quite a high-level one. I remember you often arguing why go over and beyond on a CFFO payout promise when you have so many great opportunities to invest. And I just wanted to double check where you are on that theme, in particular, because if I add up the dividend, the new buyback, I end up in sort of plus 40% territory. Is that -- are you signaling something into the coming years that you are now more comfortable being in that 40% plus range than you were previously? Francesco Gattei: First of all, the percentage that you're referring to, the 41%, 40%, I think, is substantially the same number also because we have a quite positive expectation on the quarter that is coming. So I don't think this is an element of concern. On the other side, as you have seen, we are able to find solution opportunity or value inside the organization that you are able to raise on a quarterly basis. I refer in particular in this case as the cash initiative on the capability to execute the strategy on the production performance. So I think that generally, I see more upside. And therefore, I confirm that we are moving within the 35%, 40% range. I confirm that we continue to be selective in opportunity. I confirm that we have still a long list of opportunity that allow us to be extremely capable to select with the best one for the right time. And so I think that we are able to tick all the different boxes to reach our goals and confirming also an attractive distribution plan for our shareholder without modifying our view on what is the right amount of distribution that we should provide in order to ensure growth and capability to defend our balance sheet. Unknown Executive: Great. Thanks, Chris. We're going to move to the last question now. If anybody has more questions, we can deal with those directly afterwards, but I'm conscious we've moved over the hour. So the last question is Matt Lofting at JPMorgan. Matthew Lofting: Apologies for being late joining. I wanted to just come back on the strength of the cash flow generation by the company this year. I think you sort of stated this morning that the underlying improvement or upgrade versus the original plan at the beginning of the year is sort of close to EUR 1.5 billion. And it struck me that it was a higher proportion of the sort of the original plan start point. Could you sort of break down what some of the key wins have been from that perspective? And perhaps then secondly, also, if we take a step back and put it in the context of full year plan cash flow expectations, I'm interested in the extent to which you sort of see that underlying improvement is running ahead of your 4-year plan baseline or whether it's a case of sitting within the 4-year plan, but having accelerated the delivery of that cash? Francesco Gattei: Sorry, but I should ask you to make the second question again because the line was extremely noisy. So if you can repeat the second question, please? Matthew Lofting: Yes. Francesco. I was just interested if you could share any thoughts on the extent to which that EUR 1.3 billion underlying improvement represents an upside or an incremental delivery of cash flow compared to your 4-year plan baseline or whether it's the case that you're delivering cash flow faster within that 4-year plan? Francesco Gattei: Okay. Thank you. Now I can tell you sure that about the performance, the improvement of the underlying that clearly take into account of the scenario impact of this EUR 1.3 billion, we have practically EUR 500 million that are related to the Upstream. Clearly, upstream is a result of the improvement in terms of production that you are referring to, capability substantially to have a different mix that is generating more value. And clearly, in this plan, there is also some benefit from the different tax regime in the different new production contribution that are coming up. There is GGP. GGP, we have revised the guidance during the year, and this clearly is transferring value from the EBIT also to the cash generation. We are here in the range of EUR 300 million. On Enilive, there is again EUR 300 million. This EUR 300 million of Enilive is split between improvement in terms of marketing and from biofuel is related to the capability to have a good performance from our biorefineries. There is also a small improvement in terms of Versalis because clearly, unfortunately, on Versalis, we are seeing the negative side, but this is because it's a scenario that is classically hiding the contribution that Versalis is gaining from the shutdown and from the anticipated shutdown. So overall, these are the key elements that are showing improvement. Clearly, what we can say about next year is early to say. I would say that production enhancement upgrading of E&P is continuing. GGP performance is subject to the volatility, but also to the capability to have a larger optionality in the different contracts in the different assets. So this is another element that should help to capture upside also next year. On Enilive, clearly, we are expecting to have a continuous improvement in particularly a better scenario that we would like also to capture through the budget. And we do expect clearly on Versalis a more visible evidence of the recovery that is related to the new configuration of assets. So I think these are the elements. Unknown Executive: Thanks very much. That's -- and thank you, Francesco. That's bringing to an end the conference call. I'm conscious we have run a bit late, but I wanted to include as many people as possible. Those people who weren't able to ask a question, please do get in contact with the team here, and we'll be delighted to help. That's it. Have a great weekend, and thanks for joining us. Francesco Gattei: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to EastGroup Properties, Inc. Third Quarter 2025 Earnings Conference Call and Webcast. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. And if at any time during this call, you require immediate assistance, please press 0 for the operator. Also note that this call is being recorded on Friday, October 24, 2025. I would now like to turn the conference over to Marshall A. Loeb, CEO. Please go ahead, sir. Marshall A. Loeb: Good morning, and thanks for calling in for our third quarter 2025 conference call. As always, we appreciate your interest. Brent W. Wood, our CFO, is also on the call. And since we will make forward-looking statements, we ask you to listen to the following disclaimer. Please note that our conference call today will contain financial measures such as PNOI and FFO that are non-GAAP measures as defined in Regulation G. Please refer to our most recent financial supplement and our earnings press release both available on the Investor page of our website and to our periodic reports furnished or filed with the SEC for definitions and further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results. Please also note that some statements during this call are forward-looking statements as defined in and within the safe harbors under the Securities Act of 1933, the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements in the earnings press release, along with our remarks, are made as of today and reflect our current views on the company's plans, intentions, expectations, strategies, and prospects, based on the financial information currently available to the company and on assumptions it has made. We undertake no duty to update such statements or remarks whether as a result of new information, future or actual events, or otherwise. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Please see our SEC filings, including our most recent annual report on Form 10-Ks for more detail about these risks. Thanks, Casey. Marshall A. Loeb: Good morning, and I would like to start by thanking our team. They have worked hard this year, and we are making solid progress towards our 2025 goals. I am proud of our results. Our third quarter results demonstrate our portfolio quality and resiliency within the industrial market. Some of the results produced include funds from operation at $2.27 per share, up 6.6% for the quarter over the prior year. And now for over a decade, our quarterly FFO per share has exceeded the FFO per share reported in the same quarter prior year. Truly a long-term trend. Quarter-end leasing was 96.7% with occupancy at 95.9%. Average quarterly occupancy was 95.7%, which, although historically strong, is down 100 basis points from the third quarter of 2024. Quarterly releasing spreads were 36% GAAP and 22% cash for leases signed during the quarter. Year-to-date results were slightly higher at 42% GAAP and cash, respectively. Cash same-store rose 6.9% for the quarter and 6.2% year-to-date. Finally, we have the most diversified rent roll in our sector with our top 10 tenants falling to 6.9% of rent, down 60 basis points from last year. We target geographic and tenant diversity as strategic paths to stabilize earnings regardless of the economic environment. In summary, we are pleased with our results and the increase in prospect activity we are seeing. Converting that activity into signed leases still takes time, but we are pleased to see the growing pipeline. In terms of leasing, the third quarter improved materially from a slower second quarter in both the number of leases signed and square feet. From another angle, those metrics were also markedly improved versus the third quarter of 2024. Similar to last quarter, the market remains somewhat bifurcated such that we are converting prospects 50,000 square feet and below. Our larger spaces have prospects, and we are cautiously optimistic with improved activity in these spaces. In the meantime, with larger prospects being somewhat deliberate this year, it is impacting us in several ways. First, delaying expansion means the portfolio remains well leased and is ahead of initial forecasts. Our quarterly retention rate rising to almost 80% is an indicator of tenants' cautious nature. On the other hand, our development pipeline is leasing and maintaining projected yields but at a slower pace. This in turn lowered development start projections from earlier in the year. And our starts, as we have stated before, are pulled by market demand within our parks. Based on current demand levels, we are reforecasting 2025 starts to $200 million. Longer term, the continued decline in the supply pipeline is promising. Starts were historically low again this quarter. Couple this with the increasing difficulty we are experiencing obtaining zoning and permitting, and as demand increases, supply will require longer than it has historically to catch up. This limited availability and new modern facilities will put upward pressure on rents as demand stabilizes. And as demand improves, our goal is to capitalize earlier than our private peers on development opportunities based on the combination of our team's experience, our balance sheet strength, existing tenant expansion needs, and the land and permits we have in hand. From an investment perspective, we are excited to acquire the previously announced properties in Raleigh, North Carolina, new development land in Orlando, where we will break ground this quarter, and new buildings and land in the fast-growing supply-constrained Northeast Dallas market. Brent W. Wood: Brent will now speak to several topics, including assumptions within our updated 2025 guidance. Good morning. Our third quarter results reflect the terrific execution of our team, the solid overall performance of our operating portfolio and the continued success of our time-tested strategy. FFO per share for the quarter exceeded the midpoint of our guidance at $2.27 per share compared to $2.13 for the same quarter last year, an increase of 6.6%. Our outperformance continues to be driven by good fundamentals in our 61 million square foot operating portfolio, which ended the quarter 96.7% leased. From a capital perspective, we took advantage of favorable equity price early in the year, which allowed us to enter the quarter with a reserve of about outstanding forward shares agreements. During the third quarter, we settled all our outstanding forward shares agreements for gross proceeds of $118 million at an average price of $183 per share. Our guidance for the remainder of the year contemplates that we utilize our credit facilities, which currently have $475 million capacity available and issued $200 million of debt late in the fourth quarter. As we often emphasize, our evaluation of potential capital sources is a fluid and continual process that can result in varying outcomes depending upon market conditions. Our flexible and strong balance sheet with near-record financial metrics allows us to be patient when evaluating options. Our debt to total market capitalization was 14.1%, unadjusted debt to EBITDA ratio of 2.9 times, and our interest and fixed charge coverage increased to 17 times. Looking forward, we estimate FFO guidance for the fourth quarter to be in the range of $2.30 to $2.34 per share and for the year in the range of $8.94 to $8.98, representing increases of 7.9% to 7.3% compared to the prior year. Our same-store occupancy for the fourth quarter is projected to be 97%, which would be the highest quarter for the year. As a result, our revised guidance increases the midpoint of our cash same-store growth by 20 basis points to 6.7%. We lowered our average portfolio occupancy by 10 basis points due to the conversion of a few development projects prior to full occupancy. Considering the slower pace of development leasing, we reduced construction starts by $15 million. Our tenant collections remain healthy, and we continue to estimate uncollectible rents to be in the 35 to 40 basis point range as a percentage of revenues, which is in line with our historic run rate. In closing, we were pleased with our third quarter results and remain hopefully optimistic that signs of macro uncertainty subsiding and consumer and corporate confidence strengthening setting the stage for next year. Now Marshall will make final comments. Marshall A. Loeb: Thanks, Brent. We are pleased with our execution this quarter and year to date, moving us ahead of original expectations. Market demand seems to be dusting itself off and beginning to move forward again. Regardless of the environment, our goals are to drive FFO per share growth and raise portfolio quality. If we can do those, we will continue creating NAV growth for our shareholders. Stepping back from the near term, I like our positioning as our portfolio is benefiting from several long-term positive secular trends such as population migration, nearshoring and onshoring trends, evolving logistics chains, and historically lower shallow bay market vacancy. We also have a proven management team with a long-term public track record. Our portfolio quality in terms of building and markets improves each quarter. Our balance sheet is stronger than ever, and we are upgrading our diversity in both our tenant base as well as geography. We would now like to open up the call for any questions. Operator: Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you are using a speakerphone, you will need to lift the handset first before pressing any keys. And also note that out of consideration to other callers and time allotted today, we ask that you please limit yourself to one question and get back in the queue should you have any follow-ups. Thank you. And your first question will be from Samir Upadhyay Khanal at Bank of America. Please go ahead. Samir Upadhyay Khanal: Marshall, thank you for your commentary. I guess maybe expand on leasing a little bit. Kind of the color that you provided, especially as it relates to the development pipeline. Know you have got World Houston, other projects in Texas. You also take, you know, said the conversion to sign leases are taking longer for those bigger sort of boxes there. So maybe talk around, maybe expand on your comments a little bit and maybe what these prospects need to see to get to the finish line? Thanks. Marshall A. Loeb: Okay. Hey, good morning, Samir. Good question. I will try to cover it. I think I would say a couple of things. One, we are certainly more encouraged at the tenor of those conversations is kind of each month gotten better. Maybe starting in May, which is really, was May was when we felt kind of the tariff impact through today. So better than say, when we were I got asked that question earlier in the week when we were at your conference in September, for example. In our portfolio, and maybe we are a little unique in that so much of our of that a third of our development leasing is existing tenant expansion and movement within a park. So we have seen and you seen it in our numbers, we our retention rate especially in third quarter, ran pretty high at almost 80%. So the portfolio is benefiting our same store numbers are benefiting. And then on the flip side of that, and we have we have hit the pop the slow button on our development pipeline or starts, a few times kind of each quarter, bringing it down of like, look, and and we do have more prospects than we have had as the years played out. It is getting them and and I do not know. I was hoping you know, one, if we have one interest rate cut, According to Your Economist, we will get another one coming, at least the emails I am seeing. This morning and things like that. So hopefully that, maybe a little bit of ceasefire in The Middle East, things like whatever it takes to get business sentiment a little bit better, and I would say it it is. I people got beyond the shock factor. But look, we know our task at hand, which is to lease these development projects once they will the ones that are in lease up where we finish the construction and the ones that have transferred over. So we are we are not assuming any spec leasing in the balance of the year budget. So I am hoping there is potentially upside there. We are running out of time this year. But we also build out spec suites in our our vacancies. So if someone needs to move quickly, which they all do in these smaller spaces, we are able to accommodate that. So things are better, but they are not it just it has been an odd year that you send out leases, and they have not always come back. I remember that more. That has been more eventful this year than it has been in the prior five years. Thank you. Sure. Thank you. Operator: Next question will be from Blaine Matthew Heck at Wells Fargo. Please go ahead. Blaine Matthew Heck: Great. Thanks. Good morning. Following up on development, can you just talk about how construction costs have trended more recently and whether that has been a constraint on starting more projects. And kind of related to that, where do you think market rents are relative to rents that would generate acceptable yields for you guys on those development projects? Marshall A. Loeb: Good morning, Blaine. We are we have seen construction pricing come down really with a lot of it is we have we have been watching with everything going. We have not had labor issues. And usually what our construction teams will say is that we get pricing. It may be a little high, but once they realize you are really serious, that that has come down maybe 10 to 12%. Because people are so hungry for projects given just the lack of outside of data centers. No other sectors are really going as quickly. And I guess thinking of data centers, we do getting transformers and the electrical equipment is challenging. So we can get those, but there is a lot of demand and a long lead time. So the the land we acquired this quarter, we will usually underwrite it on today's rents. Not forecasting any growth I hope it grows, but we are not forecasting that. And today's construction pricing And everything is still kind of penciling out into the seven or low sevens. It is not easy to find the land, the permitting and zoning on these infill sites gets harder and harder, but we are pleasantly pleased with how that is going. It is not construction costs that have slowed us down. So much as demand, which was really strong in fourth quarter a year ago, and first quarter slowing in second quarter. It picked up In third quarter, we got more leases and more square footage than we did in second. Quarter or third quarter last year, so we are pleased with that. We just need to keep that momentum and get our look at our potential revenue get leased up what we have already spent the capital on, and we will look, it is more fun to go as fast as the market tells you to go. But this year, we are trying to go as slow as the market tells us to go as well. Great. Thank you, Marshall. You are welcome. Operator: Next question will be from Craig Allen Mailman at Citi. Please go ahead. Craig Allen Mailman: Hey, guys. Not to dwell on the development pipeline, but the incremental leasing there was was pretty muted quarter over quarter. I I saw you did get some leasing done at Dominguez, but you also kind of pushed out the stabilization date there. But I guess my my bigger my bigger question here is, you know, you talked about sending leases out but not hearing back. I mean, if you look at the availability and the development pipeline, how how much of that availability has active prospects on it? Versus, you know, just quieter from a tours and and interest perspective. And you know, is there a is it rent related where you can toggle that up or down or can concessions, or is it just if people do not want to make a decision because of concerns, they are just it it other pricing stuff does not matter as much. Marshall A. Loeb: Yeah. Hey, Craig. Good morning. I would say during the quarter, kind of since the last call, we ended up with about you are at total, I wish it was a bigger number, about $6,215,000 roughly, 215,000 square feet. What is I guess, being more specific, at least on Dominguez, we oddly enough, we sent out five leases on that space and the fifth one is the one that came back. And so as we threw out a bigger net, we said we would subdivide the building, or even consider a cell, which we are we have not ruled out that, although we have gotten part of it at least. And in subdividing the building, we are adding an an office component on the other end of the building. So that is what we decided, again, trying to rather than lease it as one two sixty that we would break the building up, so it is delayed the delivery adding more a few thousand more feet. Of office in LA. And then kind of broadly speaking, you know, the other thing within our development numbers, and I do not remember us doing this, we got a a 97,000 foot development lease signed for full building in Texas And within a week, and they had a broker, an attorney, they reach back out to us to tell us they have changed their mind. So it has been a little bit of a maddening year and terms of leases sent out that did not come back or this case a signed lease that someone and we are working through the termination and some things like that, but and that is not in our account. So I am leaving that lease Even though it was a signed lease, we pulled that one back out. Now I do not think they are going to occupy. So that is odd or atypical for most years. And in terms of kind of looking at our development schedule, I would say about about everything has some degree of activity You know, we need to get it signed. I am trying to think, and and some of these are are odd, where to me, it it hits me like I am looking at the list. Horizon West 5, where it is probably our seventh building in a park, same architect, same broker, but that building is a little bit slower than we would like. Although we have got activity and Orlando is a good market, that is just it tells me where the market is, where where it is the seventh, eighth building in a park, which usually goes faster than the first buildings in a park, but they are taking a little bit longer. So we have activity. You know, the other thing I will say, and I will say it carefully, we have in the last thirty days, more large tenant more kind of prelease. Again, given that lack of supply, activity, what, 92% of our revenue is from tenants under 200,000 feet, and we have several deals. They will take a few quarters that we are working on with tenants or and or prospects that would materially move that number where we would be building up a non shallow bay building that they are out, that they like our land or their existing tenants who need to expand. So that is promising, and I am hopeful, but I would rather show you those But the good news is there is more in the pipeline and about every building has a certain amount of activity. It is just where things shook out, you know, between third quarter through today's call. So we just we know we have got our officer meeting next week. We are all getting together, and we know our task at hand, which is to get you know, sign space, collect rent. Thank you. Operator: Next question will be from Nicholas Patrick Thillman at Baird. Please go ahead. Nicholas Patrick Thillman: Marshall, you kind of commented on the overall operating portfolio and the leasing volume you have there. As you are kinda looking at the expiration schedule for next year, rents are a little bit lower here as we look at the mix, it is pretty much in line with your exposures Could we see another kind of just overall strong year in spreads here in the mid-30s for a gap Just just kinda looking at the mix and what you guys have been seeing on that activity level. Marshall A. Loeb: Yeah. Good morning, Nick. Yes. I believe we will and if a couple of things. Third quarter was a little lower. One difference and again, maybe offline, welcome for feedback. We are a little bit of an oddity in the industrial REITs in that we report releasing spreads on leases that got signed during the quarter where most of our peers report on what commenced So our numbers we like I think invest trying to be investor friendly. It is a little more real time than what may have gotten signed a few quarters ago that commenced in third quarter. But I guess that and then really focusing on your question, yes, I think we could kind of maintain those third quarter levels. Certainly, next year, end of next year, where I I keep waiting, and I know one of our peers made the comment, this is the best setup they have seen in forty years. I have not I have not done this forty years. I have done it a long time. I am not that level, but I really like the low supply. I saw the deliveries in third quarter nationally were the lowest level since 2018. So it is hard to get inventory built and becoming harder and there is not much of it out there in the shallow bay. So look, I think our we have embedded growth. I think it will level out And then I think when demand turns, it will not take much because there is about 4% vacancy in our markets in shallow bay and there will be a flight to quality as people expand too. So I think we will have another leg up in rents. I think if things stayed where they were, we could keep at that level. But I am hopeful between you know, maybe now and the end of next year that there is you know, in a midterm election year, maybe the headlines will be a little bit less that people will when things turn, they surprise me how quickly they turned at the end of last year. And in the first quarter. It has gotten to where the headline risk has more impact than probably I thought it would, looking back the last the headline in fourth quarter, the headlines in April, and maybe next year if we can avoid some headlines I think you could have a kind of a rent squeeze. Someone used the quote. There is a cost to waiting on leases. And things like that in our peer group. I am not sure we are there exactly yet, but I could easily see that coming. And I again, I would rather I am better at calling things in hindsight than forecasting, I will admit. Nicholas Patrick Thillman: Very helpful. Thank you. Operator: Next question will be from Connor Mitchell at Piper Sandler. Please go ahead. Connor Mitchell: Appreciate all the commentary so far. And Marshall, you have given a couple of specific examples on some of your markets, but just wondering if you can kind of provide a bigger picture or even drill down a little bit on just kinda what you are seeing for the regional breakouts, whether it is Texas, Florida, California, some of the other markets, where where you are seeing some more of the the strength in those markets or weaknesses in those markets for you know, the retention rate that you mentioned, but then also, adding some new tenants into the pipeline as well. Just kinda get a feel for how you are thinking about each of the markets and almost like a ranking of them in a sense. Marshall A. Loeb: Sure. I guess hey, Connor. Good morning. I would say the Eastern Region, you know, with a broad brush has been strongest region or had the strength kind of from mid year on. Florida has been broadly speaking, a good, really strong market there. I wish we were bigger in Nashville, but that is a really good market. And you have seen us growing in Raleigh. We like that market a lot. Texas, generally, you know, we are we like that You saw us acquiring more land there. At the moment, we have got too many buildings and too many tenants, but I will thank our our Texas team. We are a 100% leased in Dallas. So we need expansion space that land for tenants to expand. So we are happy there. The other market, I will complement our team in Arizona, there is a lot of vacancy in the Arizona market. There was a lot of supply that came in, but we are 100% in Phoenix, 100% in Tucson, and been able have been able to push rents and our development leasing is there. So those would be on the good side. On the a little bit of a beat the same drum. I will The California markets are still slower. Than our other markets really with LA, The Inland Empire had positive net absorption but LA has had I think it is 11 consecutive quarters of negative So I would love to have just a flat quarter in the city of LA, a little over a million square feet. Negative in third quarter. I thought they would turn. I am glad we got the activity we did. On Dominguez and got that signed. And then Denver is another market that has been a little bit slower for us. We are not all that big in Denver, but those, if you said, what are the markets where you are kind of thinking a little more Denver has been a little bit slower for us on our development leasing there than we would like. And California has been a tough market for eighteen months or longer. Connor Mitchell: Appreciate all the color. Thank you. Marshall A. Loeb: You are welcome. Next question will be from Richard Anderson at Cantor Fitzgerald. Please go ahead. Richard Anderson: Thanks, and good morning. So back to the releasing spreads, the 22% cash based number for the third quarter, let us just say hypothetically that this deliberate tenant thing continues, for whatever reason. And, you know, it is two years from now, and and we are still sort of on a treadmill ish type of thing. How how much time do you have for that that 22% to sort of close in on a fairly pedestrian single digit type number? I mean, how much more bites of the apple do you have? Do you think, before you need to start to see activity really start to ramp so that starts to revert the direction starts to reverse? Again. Marshall A. Loeb: Hey, Rich. Good morning. I will I will take a stab at it and let Brent add color. I think the one I think I have kidded. I do not remember much about econ one zero one, but when I just look at supply and it would not take much demand to kind of tilt the rents. But but but hearing your question, if we stayed steady state, we typically you know, next year, I think we have got 14% doing this from memory from our supplement, rolling. And so it would take several years before we could address those leases. Again, the later the latter you got into that, what, that would be seven years, but some of those there is a number of leases pending term of that lease that just got signed in the last couple. So there is probably not maybe 20% rent growth in there. But it would take a while just I guess when the market is good, it takes us a while to get to that embedded growth. And as the air goes out of the balloon, which may be kind of your it will take a while for the air go out of the balloon with kind of most of our leases are somewhere between three to ten years. It would take a while for us to move all those to market. And and and I cannot yes. So if that happened, that is how it would play out. I cannot imagine the market seems to net for better or worse, never stays flat like that. Brent W. Wood: Yeah, I would agree, Rich. Hey, this is Brent. Yeah, I mean, when you are rolling 15% to 20%, of course, you can do the math and figure out when when you start having flat and how long in terms of rental rates. Could say four to five years and how far are you into that already. But and again, know that is a hypothetical, but it feels much stronger than that with supply. Supply really in my career and time, seeing supply get this tight really kind of excites me because it would not take much shift in sentiment and some execution for, I think, the markets development starts and those type things to turn very quickly, much quickly, more quickly. I think people are thinking. And kind of along those lines, question of rents and does that impact construction starts. I think the good news there when you kind of think of this as as a four legged stool and the cost side as Marshall said decreasing generally Rents have been very sticky because talking about the third leg supply is very tight. It really comes down to that last leg being demand. As we have talked about, there is there is interested parties there, there is demand there. We are getting leases signed and certainly getting very acceptable yields. It is not a function of cutting rates or trying to increase activity that way. It is just strictly confidence gaining to the point where they are pulling the trigger and then we can move that conveyor belt of new starts along a little more quickly. But yeah, back to your question, how long would it take I think we would still be a number of years out But I do not feel like the table is set for that to play out. Certainly hope we are not on that treadmill you referred to there, Rich. Richard Anderson: Yep. Okay. Agreed. Second question, while you guys are kind of a consumption oriented story, not so much a supplier manufacturer story. Do you agree though that with everything that has happened during the pandemic in terms of simplifying supply chains, and now with tariffs, you know, with one one, you know, result possibly being more in the way of manufacturing, onshoring. Is that the leading sort of dynamic to to help industrial overall get out of, this like, the current sort of, you know, sort of lackluster, situation? Manufacturing lead it followed by consumption? Is that your way of thinking about it? Or do we have that, you know, kinda completely wrong? Marshall A. Loeb: You it it is hey, Richard. It is Marshall again. You may be right, and one, the consumer is certainly our strategy has been to always be how close can we get to a growing number of kind of higher disposable income consumers But that said, the consumers carried the economy a long time. I do not know how much upside there is. Hopefully, the economy gets better and they continue to push the economy You are right though, that new source of demand is, I think, through our portfolio and especially kind of our our markets we are seeing the manufacturing companies and the relocations a lot into Texas, and we do not you are right, that could, that will be a driver in that we do not have we have a number of Tesla suppliers in Austin, and in San Antonio. The new chip plant with Intel's building in Phoenix. We have we actually have Intel related to construction there, a supplier to Intel. Same thing with the Texas Instruments Plan as I am kinda thinking out loud and Northeast Dallas. We have a supplier there. So we do pick up a lot of suppliers. And as those plants get built, it is I guess my hesitancy in putting consumer ahead of or manufacturing ahead of consumer, I think it I think you said, and maybe our children's children, really get the benefit of that, but we are certainly seeing onshoring and nearshoring, we are having those type conversations in Arizona as well of we need more man light manufacturing space. We have got relocations from California type discussions going on. And things like that. So it I would like to think of kinda like ecommerce. It is an it was a new additional tenant within our portfolio. We were already pretty full, but we have seen a pick with e commerce. It was one more demand source And I think now we are you are right, we are seeing it for supplier source for these big plants. And a lot of them are getting built in The Carolinas, and in Texas and Arizona and markets like that. They probably have an outsized market share Richard Anderson: Great color. Thanks, Marshall. Thanks, Brent. Marshall A. Loeb: You are welcome. Operator: Next question will be from Jon Petersen at Jefferies. Please go ahead. Jon Petersen: Oh, great. Thank you. Good morning, guys. So, actually, I wanted to ask you. Is there any change, or can you give us the level of bad debt in the quarter and then related any change in the tenant watch list? Brent W. Wood: Yes. Good morning, John. The bad debt continues to be thankfully a non factor. We are still in that 30% range or something like that. And really the last two quarters have been at a run rate about half of the prior five quarters. Again, it tends to be contained amongst just a small number of tenants. Our watch list has been very consistent this year. In terms of the number of tenants, nothing really growing there. So that has felt good and testament to portfolio and the credit and the groups, the tenants we have in place. But yes, we are still seeing that 30% or so, 30%, thirty five basis points relative to total revenue. As being pretty consistent here over the last couple of quarters. Jon Petersen: Okay. Alright. That is helpful. And then you know, as we are seeing interest rates come down to ten years, just a touch below 4% right now, You guys have allowed your your debt levels to come down. You have leaned more on equity. I guess, what is the right interest rate where we would expect your leverage levels to kinda start to tick back up to to your long term target? Brent W. Wood: Well, think that is a component of a few things. I mean, it would be the interest rate, but relative to say what is our equity opportunity and what are other opportunities. So we are constantly weighing those out. And yeah, in the guidance we showed bumping some capital proceeds, which was and I think I said in my prepared remarks, we are looking here in the fourth quarter doing $20,000,000,250,000,000 dollars maybe in in the way of unsecured term loan. Think that could price in the low $3.04, 4 type range, which we view as very attractive. I would just backing up for a moment, the two and a half, three years we are into these higher interest rates now, take a lot of pride that we have not not that we would be anything wrong with it, but we have not issued debt even with a five handle at this point. And yet, we have continued to fund our growth and we have, as you point out, delevered the balance sheet now to a 2.9 times debt to EBITDA. So very, very low. We have a lot of dry powder there. So I think you are going to see us in the fourth quarter begin to dip into that. We continually are monitoring public bonds, the public debt markets Certainly at some point in the future, whether it is near term, long term, whatever it is, we will be there. But you weigh all that, you weigh your equity, cost of equity. And the balance of that and where you are And so it is all kind of a fluid moving situation. But the other thing I would point out, John, is that our over time, the revolver balance or the revolver rate now, though it is variable, it is much more tied, a little more to how the Fed fund rate moves. And that is now moved into like a 4.7 ish sort of range. So we will probably begin to keep a little bit of balance on our $675,000,000 revolver there. And that gives us time and availability to be patient and look for our different opportunities there. So we feel real good about our capital position, our ability to to tap into that debt. And thankfully, team, three good acquisitions this quarter, continue to to make a way through our development pipeline. And so they continue to we continue to have a need for capital because they are finding good way to put it to work and accretive for the shareholders. But we are in a good spot and feel like things are turning the right way and giving us more options. We are excited about that. Jon Petersen: Alright. Thank you very much. Appreciate it. Brent W. Wood: Yep. Operator: Next question will be from John P. Kim at BMO Capital Markets. Please go ahead. John P. Kim: Hey. Good morning. I was wondering if you could provide the average rent per square foot signed year to date and how we should compare that to the 2026 expiring rents which at the beginning beginning of the year were at $8.42. I know there might be a a mix or timing discrepancy between the two, but just trying to see some of the building blocks for the gap same store NOI next year. Brent W. Wood: Yes. Good question. We can dive into that. I could go off line and see if we can get some numbers for that. I would give you the standard answer that across all of our markets, the average rent per square foot can move around quite a bit. California is certainly very high rates relative to some other areas the country even though there is been softness there. But looking at our average role next year in of where that square footage is rolling, What I would say, John, maybe give you some color backing up for a moment is, even though we have seen rental rates come down off their peak or highs, they still, as I alluded to earlier, they are still very sticky and certainly they have moderated a little bit from the highs, but getting rental rate out of deals has not been the big part of the equation. It is just been more the sentiment and the demand pace more than anything else. But we are not sensing a lot of headwind to still having, as Marshall alluded to earlier in the call, having strong rental rate growth numbers. So I guess what I am trying to say there is we do not see anything there that is going to change that in a material manner. But in terms of numbers on an average per square foot, we could circle offline and give you some color there. We would have to run a few numbers there. John P. Kim: Then maybe as a follow-up, can you comment on the acceleration you saw the Gap same store NOI this quarter and whether or not that is that is a good run rate going forward? Well, Brent W. Wood: the gap yeah. We are having really think, of an untold story here is we are having a terrific operating year in our existing portfolio. I mean, obviously, there is been a little more slowness in the pace of which we have moved our development leasing than we would like But I would point out that our same store guide up into the approaching 7% and you could do the math and work backwards, but to get to our midpoint cash same store for the year guide, we are looking at like 8.2% fourth quarter cash same store number. And that is based off of, as I said in my comments, a 97% exactly ninety 7% same store occupancy number. So the operating portfolio, when you look back, we really hit the low point in fourth quarter last year, at 95.6% in our same store occupancy then that moved in first quarter to 96% and to 96.3% and then the third quarter 96.6%, we are projecting 97% for fourth quarter So a very good steady stable growth story in the operating portfolio at an 80% retention. So all of that feels very good. That momentum feels very good going into next year and hats off and compliments to our team for putting that together. But yeah, in terms of your run rate, we feel good about where we are, where the numbers are trending, throughout this year has been pretty consistent stabilization in operating portfolio as we lead into next year. John P. Kim: Thank you. Brent W. Wood: Yep. Operator: Thank you. Ladies and gentlemen, a reminder to please limit your yourself to one question and get back in the queue, please, if you should have any follow-up. Thank you. Operator: Next question will be from Brendan James Lynch at Barclays. Please go ahead. Brendan James Lynch: Great. Thank you for taking my question. Historically, I think you focused more on stabilized acquisitions and you had a few this quarter as well. When you think and the rationale was that you want to limit lease up risk to the development pipeline, As you kind of bring down the development pipeline now, does that change your perspective on acquiring vacancy going forward? Marshall A. Loeb: Good morning. A good question and this is Marshall. I would say the way we think about it is try to at the end of the day, we want to own well located kind of shallow bay near consumer buildings. And at different points in the cycle, the risk reward shifts. There for a while, I thought that the tariffs cap rates might go up. But they really those have been sticky. And so what we have bought has been pretty strategic. And usually, what we have liked is it and we have got a couple of things we are working on. They are in submarkets. Where we are strong and have we have been for years, and they are immediately accretive is another way we look at them, probably. And and they have all been one off. The portfolio deals get more expensive, but broad brush, we are usually about we have been around up six or just north of a 6% net effective return, new buildings, and so I would put them in the top third of our portfolio. So maybe in a kind of a flatter market where we have been a little bit acquisitions, you are right, are more attractive. I think what we will turn, you will see us be a more active developer And then in that and it is been maybe another interesting trend that I think is a good sign, we have had more inbound calls to us looking for us to to be the equity partner or get involved with a local regional developer. I am not sure the market is quite there yet. You are seeing it in our own development numbers, but it is telling me there is not a lot of capital for development starts. But as the market kind of heats up, we did a number of that or the leasing where we bought vacant buildings or partnered with people to help them build buildings. So we will you know, we will try to step on the gas and that is why we like having a safe balance sheet. When things are good to create that value and sometimes you are better off, you know, again, trying to be patient and find the right quality and kind of build our cluster our buildings that we try to do in the right parts of the markets we like. But that is and again, I think the trick is being nimble enough to turn the dial, kind of figuring out where the market is. And it is usually based on inbound calls of where the best risk return is right now. Brendan James Lynch: Great. Thank you. Marshall A. Loeb: You are welcome. Operator: Next question will be from Todd Thomas at KeyBanc Capital Markets. Please go ahead. Todd Thomas: Hi. Thanks. Good morning. I wanted to follow-up on some of that commentary a little bit. And also around the pace of development leasing and how you are seeing conditions thaw out a little bit. It sounded like some of your peers may be leaning in a little bit to development. Your comments were constructive around the broader environment for starts, which was you mentioned that a low dating back to 2018. And I am just curious if some of the delays on your side push into '26 and you ramp back up with a higher amount of starts? Or if you think the slower pace could sort of persist a little bit further and put a little more pressure on starts in the near term as you think about 2026? Marshall A. Loeb: Hey, Todd. Good morning. I guess it is hard to look, I have been calling the recovery. I have missed it by several quarters. I keep thinking we are about there. It feels like you are at the starter's block. And it keeps getting delayed. I am hopeful next year, and it it would not take a lot, you know, when I look at our development pipeline or our transfers, it is not a huge amount of square footage that is not, you know the if I take out what is under construction, you know, we do not need a lot of quantity of leases. And like the one where the lease as I think about it, where it it flipped, where we had a signed lease, which meant we were out of inventory, We were getting ready to break ground on the next building and the tenant changed their mind on it. So it can kind of just flip that quickly. I would like to think next year, I would to think we will be north of $200,000,000 in STAR That may be back depends on when things pick up. But if the market is not there, I think we should we owe it to our investors to come down from 200,000,000 But if the market picks up, the the beauty of having the parks and the team we do and the sheet is our team will say part of their job is to have the permit at hand. And we can build the building and call it eight to ten months. So as things turn, and we feel pretty confident about the last project leasing up or running out of space, or tenants needing expansion, we will go ahead and break ground. So it will be fun when we reach that point, and we are just trying to be patient and see the demand maybe rather than call the demand on it. Because I think do not think that we really will get punished too badly in any market for being I would rather be a slightly late than than too early. And right now, we are seeing the activity. We just need some signed leases, and that will pull that next that next round of starts. Operator: Thank you. Next question will be from Omotayo Tejumade Okusanya at Deutsche Bank. Omotayo Tejumade Okusanya: Sorry to beat a dead horse about the the mark to market this quarter, but I just wanted to understand or clarify the deceleration this quarter was that mainly a mix related issue, or was there also some pricing pressure? Brent W. Wood: I think this is Brent. I think it is more just a mix Like I say, certainly if you look back a few quarters and look at our peak and high, we are certainly off that a little bit. But it is within reason and modestly. And as Marshall alluded to, we report leases signed which we think obviously gives you direct information about what we did this quarter. If you were to look at just leases commenced for the third quarter, as opposed to a 35% GAAP number, which is what we reported, we would have been 45%. So look, but that being said, can be a different mix, but again, as we talked about that that mid-thirty, 30 range of GAAP leasing increases feels very sticky. Like I say, the the vacancy continues to be tight. When you look at vacancy in the less than 100 square foot space range, which is where we live, work and play, I mean, that is looking at like 4.5%. So again, part of our challenge that potential prospects compare us to eight other options in the market and you are to figure out a way to whittle your rate down to make the deal, it is it is more so just having someone that is really committed to moving their business into and occupy a new space. And once you do that, you have pretty good leverage on the rent side because there are not many options. So certainly from a quarter to quarter, it could move five percent one way or the other just based on the mix. But by and large, it feels like that area that we are in, that 30% gap sort of range is, as I keep saying, pretty sticky. Omotayo Tejumade Okusanya: Thank you. Operator: Yes. Thank you. Next question will be from Michael William Mueller at JPMorgan. Michael William Mueller: Yeah. Hi. You kinda touched on this before, but going going to development, you started the project in Dallas. But out of curiosity, when you look at the overall pipeline at kind of 9% pre leasing, based on what is under construction and recently completed. Does that come into play at all? Like when you are thinking about what to start or not? Is there is there some sort of a cap on spec development lease up space that you want to have? Or is it really the opportunity you are looking at is going to dictate whether or not you put a shovel in the ground? Marshall A. Loeb: Yeah, I guess hey, Mike. Good morning. It is Marshall. And I am trying to be cute. From your answer, it is probably yes. I think it is a It is a little of both. And that we do look at kind of call it risk at the entity level. Yes, there is a level we should have I am not sure we have got a calculation. We have usually looked at it as a percent of assets, kind of valuing it. It may have ended up doing it like maybe 6%. Things like that, and we have not been close to that. And that could be a combination of land value add, meaning unleased build and what is under development. So we do track that on a quarterly basis. We have thankfully been below that. And then really more day to day, it is you know, part by part, submarket by submarket of what is the activity do we have there, and you try to stay ahead of it, but maybe only a little bit ahead of it of you know, it would be Brent and I calling you saying, hey. We are 50% leased. I have got good activity on the balance, and a couple of tenants say they want more space. So that is when we will we will break ground and build the next building or two. So it is I have I have always said, what I what I like about our model versus a lot of the traditional developer model, it is not us pushing supply into the market. It is really getting pulled by our teams in the field saying, I need more inventory And so that is where you know, look, we have we have pulled back and slowed the manufacturing line where we said, okay, you have got the inventory. You do not need anymore. Let us get that accounted for. And then we will we will try to keep the factory going as fast or as slow as the market tells us it wants it. But right now, again, it is yep. I am happy, as Brent mentioned earlier, happy where the portfolio is. It is exceeding our expectations this year. I like our same store numbers. I would like to think our occupancy has more upside. We were coming off record highs, and so we have been battling occupancy declines on same store for several quarters that that have a chance to pick it up on rent and occupancy. And then development is really look, the capital is been spent. The office space has been built out. And a large amount of these spaces that we have either transferred over and lease up, and so we just need to to kinda get those prospects to convert next. And that is what we need to show you. Sure. Got it. Michael William Mueller: Okay. Thank you. Operator: Welcome. Next question will be from Ronald Kamdem at Morgan Stanley. Please go ahead. Ronald Kamdem: Hey, just, I guess, a quick one. Just on the the death starts, coming down, just can you talk through just which markets did you think could pencil or did you want to stuff at the beginning of the year that you maybe have pulled back on currently is part one. And then just if I could just ask a quick follow-up on I think you talked about next year maybe getting a chance occupancy gains and, you know, you have the rent escalators and so forth. So is the spreads really going to be the big sort of delta for you guys as you are thinking about same store for next year? Thanks. Marshall A. Loeb: Well, I will maybe touch on hey, Ron, good morning. And I will touch on developments and maybe Brent or between us will on the on the same store. Look. I we always have kind of a list of starts that that you feel comfortable about and then potential starts based on if a leasing falls one way or the other. So it is not any one market, although I will say one of the Texas markets where we had the signed lease we were out of space in the park and we were starting the next building. That was probably $2,025,000,000 dollar swing. That we you And, again, it is it is okay. We will work our way through it long term. It is not an issue. It just you know, based on what we knew at one point in time, we thought we needed to build another building and And today, we have got inventory we need to backfill. So that is probably the swing there. And and again, there is still I think there is only a couple of three starts this quarter that we have got programmed in. Feel pretty good about those. But but, again, that is some of that is based on leases that are out for signature that would pull that next ticket. And so Yeah. And in terms Ron, good morning. In terms of the same store certainly on the rent side, as I mentioned earlier, it is still feels although off the highs, it is still from the cash standpoint that 20% range still feels sticky. So if you figure you are rolling 20% of your portfolio in any given year, maybe you have got 4% to 5% there in terms of potential growth then as I mentioned earlier, began this year '25 at about a 96% same store occupancy and we are projecting to finish the year closer to 97%. So as you flip the calendar, if we can maintain that or even incrementally build on that, then then for the first few quarters of early next year, ideally that should stack up favorably. Now we obviously have not looked at numbers or looked in specific on that. But certainly, we feel like the ingredients are there for a solid same store run rate going into next year. Kind of tag along with what Marshall says, It excites me that we have been in in the top of our peer group, really in the top one or two in FFO growth Last year, we grew our earnings at about 7.9%. This year, we are four forecasted about 7.3%. So 15% combined. And we have done that despite slower development leasing, which is can be at times a really big catalyst to our growth. And so to have this space poised and ready to go, as Marshall said, money spent office space ready to go, just an incremental increase in activity and signings and confidence and then that would be an entire cylinder that could fire more strongly than it has been that could even give us more lift. So again, feeling that could be a lift to us going into next year. Ronald Kamdem: Helpful. Thank you. Operator: Yep. Next question will be from Michael Anderson Griffin at Evercore ISI. Please go ahead. Michael Anderson Griffin: Great. Thanks. Wondering if you can give some color around leasing costs and how you expect those to trend maybe over the next couple of quarters? And Marshall, maybe specifically as it relates to the development could you look to get more aggressive, whether it is you know, TIs or or other aspects to kinda get these deals over the finish line, or are you expecting to remain pretty judicious and the leasing cost perspective? Marshall A. Loeb: I think and and I will say California, we have seen in terms of lease true dollars out of pocket or maybe on the construction costs, those have been pretty sticky and really lease by lease. We have, with the increase in rents, we will spend I am just looking at, you know, usually a dollar 10, a dollar 20 a square foot, and the it is gotten to where more of that is the commissions. Than the actual cost per pocket. One advantage we have in a as a as a larger entity, and in some cases, the smaller developers who are usually they have a bank loan or this or that, they can be more limited on TI. They can offer tenants, whereas if the credit is there and we can protect ourselves on the credit side, we can certainly fund more TIs than some of our smaller peers can, thankfully. So and it is it is not that I would say it is not that good questions. But it is not that companies do not like the rent. They do not like the TI package or this or that. It is it usually comes back in a one where they took they wanted a full building, then they took the space down and we got a lease signed. This is all this year or in the last few months and now we are talking them about an expansion, which I am glad we are, but it is really people trying to predict their businesses more than the economics we are offering. And I think as they get more comfortable, which they seem to slowly be doing or kind of mentioned, dusting themselves off and ready to kinda look at I have got a run my business in spite of whatever headlines are out there. Then we we are making market deals and those make sense. I do not think near term, I think given the lack of construction going on nationally, I would think our commissions will probably continue trending up just because they are a percent of rents. And our TI should hold pretty steady and look, those are those call it a dollar 20 a foot per year lease term, Thankfully, for industrial compared to other property types, we are we are getting off life. From that front. It is easier to do the credit risk. It is lower. Michael Anderson Griffin: Great. That is it for me. Thanks for the time. Marshall A. Loeb: Okay. Thanks, Michael. Thank you. Operator: Next question will be from Jessica Zheng at Green Street. Please go ahead. Hi. Good morning. It sounds like the smaller tenants have been more active on new leases. Just wondering if you are seeing any changes in overall tenant credit quality or lease term preferences on these leases. Brent W. Wood: Yeah. No. This is Brent. I it is really been same type tenancy that we have seen. As we talked about earlier, our bad debt being good, our we are always betting credit depending on the deal, but we have seen nothing really changing there. And as Marshall alluded to, really the TI packages and that type of thing, it is all been thankfully for us, we are still in that twelve, percent office finished rest warehouse. Any particular deal might have some nuance to it. But all of that continues to be to be pretty consistent. So, really no changes in terms of the specific type or credit of tenant that we are seeing or evaluating relative to any other time, really. Jessica Zheng: Okay. Great. Thanks for the color. Marshall A. Loeb: Sure. Operator: Next question will be from Michael Albert Carroll at RBC Capital Markets. Please go ahead. Michael Albert Carroll: Yeah. Thanks. Marshall and Bren, I would I wanted to tie and try and tie together some of your comments that you made throughout this call. I know that you seemed encouraged about the improving leasing prospects but the company also reduced its occupancy guide, I mean, modestly. The development start guide and pushed out a few development stabilization. So I mean is both true that you are seeing better prospects, but your expectations were a little bit too aggressive last quarter, so you needed to right size those? Or are we just seeing this temporary law right now and things should bounce back as you kind of get into 2026? Marshall A. Loeb: Yeah. Good morning. I think on our occupancy, it is really the the portfolio is more full than we same store portfolio occupancy has gone up. It is the first time I can remember the last two quarters, we have raised our same store guidance but as you said, slightly lowered our occupancy. And that is a reflection of developments rolling in a little bit more slowly. So development leasing as a whole has certainly, over the course of the year, the portfolios outperformed the revenue from developments has not we were aggressive in our underwriting on that. That is come in light. Glass half full or half empty, that is our as Brent touched on, that is our potential for next year to go from zero to whatever those rents are there. So that is the opportunity ahead of us. But that is probably where it is and developments really, I guess, if I am tying the comments together, look, the best way to lease up phase two within our park is not to deliver phase three. So we have slowed down our development starts simply as a fact a function of we have the inventory available. It is still on the shelf. We do not need to create more inventory. So we have slowed the developments. And I think with our retention rate of 80%, things like that, that tenants have been sitting still given kind of some of the headlines. I am more in if I go back, call it sixty, ninety days, our prospect conversations are materially, in terms of just number of prospects and then the size range of a few of those conversations. Give us a couple of quarters, and we will we need to get those turned into signed leases. But I am more encouraged by the prospect activity. Certainly, it is much better than we saw in June. But until it turns into a signed lease, it it it is just that. It is prospect activity. So that is if that helps, I am trying to be consistent and kinda paint, but that is how that is where we have had it direction wise. And we will just kinda go as fast as the market allows us to. Michael Albert Carroll: Great. Perfect. Thanks. Operator: You are welcome. And at this time, Mr. Marshall, we have no other questions registered. I am sorry, Mr. Loeb. We have no other questions registered. Please proceed. Marshall A. Loeb: Okay. Thanks, everyone, for your time. We appreciate your interest in EastGroup Properties, Inc. If there is any follow-up questions or thoughts feel free to reach out to us, and we hope to see you soon. Brent W. Wood: Thank you. Operator: Thank you, 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. Have a good weekend.
Operator: Welcome to Sdiptech Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Anders Mattson and CFO, Bengt Lejdstrom. Please go ahead. Anders Mattson: Hi, everybody, and welcome to our Q3 presentation and Q&A. I am Anders Mattson, CEO of Sdiptech, and I will be presenting the results together with CFO, Bengt Lejdstrom, here today. I will start with the highlights of the quarter before we go into the more general content with the financial results. So in the quarter, we have implemented and streamlined our portfolio and Sdiptech will become a more coherent and better aligned group going forward. Until today, we have consisted of 41 companies in our 4 business areas. We have historically been growing our adjusted EBITA at a good level, but we have, at the same time, been quite volatile. Our portfolio has partially been based on installation companies, companies with exposure to cyclical end markets like construction and quite a few companies with a margin around 10% in the group. And these companies were usually or most of them required before our strategic shift into. So if we look at the financials here for this total portfolio in Q3, we had approximately 19% in adjusted EBITA margin and 12% return on capital employed. If we look in the middle, so what have we done? We have assessed on our key strategic priorities. We prefer product-based companies. We like markets with strong underlying growth drivers. And we would like to see a clear niche, which is usually protected a good way and that's also the reason why we [Technical Difficulty] in many of our business units. So based on this assessment, we have made a decision to divest 11 companies from the group. We have already started the process of finding new homes to these companies, and we have good progress with several of divestments so far. As these 11 companies only stand for roughly 3% of the year-to-date adjusted EBITA, their P&L effect is minor. On the balance sheet, the result will be a write-down of SEK 500 million in goodwill and other intangible assets. And Bengt will come back to this later in the presentation. So if we look to the right here, from today and going forward, we will consist of 30 companies and a better aligned portfolio. We believe we will be able to more proactively drive organic growth with this portfolio. And from our point of view, it's also a better allocation of capital towards our strategic priorities going forward. Financially in the quarter, as I said, is a minor effect. Adjusted EBITA will be reduced by SEK 7 million from SEK 242 million to SEK 235 million. but our adjusted EBITA margin will go up from 19.4% to 21.3%. And return on capital employed will increase from 12% to roughly 13%. So in the presentation going forward now, I will present numbers according to the core portfolio. So summary of the quarter from a financial perspective, net sales increased with 9%. That was 4.5% organic growth and roughly 9% due to acquisition. We were glad to see solid demand from all our business areas. It was positive to see a slow recovery from some larger business units where orders have been pushed forward in the year from Q1 to Q2 and now in Q3, we finally got some sales realized. Adjusted EBITA increased with 9% at 2.4% organic and rough from acquisitions. The increase in sales made EBITA grow as well. So it's not only because of cost adjustment. And year-to-date, we are still behind last year's numbers, but positive with the organic growth in the quarter. We have also been able to maintain the margin of 21.3% in the quarter, which has been quite challenging due to tough market conditions, both on price and also actually to getting the customer to commit to the orders. We had a strong cash flow generation in the quarter as well of 94%, which resulted in SEK 255 million in cash. And that was primarily a result of improved inventory levels from a high level in the last quarter. If we're going into the net sales, the net sales increased with 9% to SEK 1,102 million. And as I said, there was a good demand, solid demand from all our business areas. And the 4.5% organic growth is something we are, of course, satisfied with in the quarter. As I also talked about previous quarters, we have experienced a slow first half of the year, especially from some larger business units in the group. So it's a positive sign that I mentioned as well that we have been able to deliver and recognize sales in the quarter. We have also had a strong contribution from acquisitions. And some of the acquisitions is influenced by strong growth drivers linked to security around data center as one example, and that is in our smallest business area, Safety & Security. In the graph to the right, we have separated the core portfolio since 2023. And from this date, you can see we have achieved a CAGR of 13% in sales growth. If we're looking at the sales split, the sales split of the portfolio looks now a little bit different. After the separation of the core, Sweden has decreased in size and now it's only between 5% and 6% in total sales from the portfolio. U.K. is still our biggest market. We believe we are successful in the U.K. We like the trend with the long-term investments in infrastructure assets. Other Europe is now roughly at 20%. This is a geographic area we foresee to continue to grow in. If you look to the right, turnover by type, proprietary products is the dominant type of revenue for us as a group. Installation has been reduced as a result of the core portfolio. The installation and service that you still hear -- you still see now is primarily on our own products. And we have several companies with a strong service offering that enables stability in the earnings. And that's usually both service on hardware, software and manual labor hours as well. But again, on our -- primarily on our own products then. Coming into the adjusted EBITA. Adjusted EBITA increased by 9% to SEK 235 million. That is, for us, a stable profit growth with 2.4% organic growth. We also had a strong contribution from acquisitions with 10%, and it's coming primarily from companies within Safety & Security and also from companies within Energy & Electrification. And again, that's the trend around security for data center that has been driven this acquisition quite good in the quarter. The margin at 21.3%, we have been able to maintain from last year. As I mentioned before, it's been a price pressure in the market. So being able to maintain this margin is a result of a good cost control, both from activities within purchasing, but also from overall overhead cost development. If we look at the diagram to the right, we see a stable and high level in adjusted EBITA in percentage since 2023. If you also then look at the CAGR, the CAGR of the EBITA is at 11%, and we know we can do better than this. But in this graph, it's affected by a slower pace of acquisitions since last 1.5 year and it's also a weaker, as we know, organic growth since the beginning of 2024. So looking at the development in our 4 business areas, I think it's important to mention that we believe our 4 business areas serves us well as a group. They are broad enough to enable good M&A opportunities within each and every business area. And they also align our focus to the markets with strong underlying growth drivers, which is very important for the long-term development for us as a group. In Q3, all 4 business areas had solid demand. It's also positive to see that our smallest business area, Safety & Security, had a strong development in the quarter. If you look at Supply Chain & Transportation, we have begun to recover in this one after a weaker first half of the year. Several customers in this business area postponed their orders, actually from Q2 during the summer into Q3 and some into Q4. But in Q3, we released some sales, and it was also a good scalability, which led to margin improvements in the business area. Safety & Security, as I already mentioned, had a strong quarter, and there was several smaller units benefiting from favorable market trends, the one I already mentioned around data center, but also around emission control, pollution control, which is a strong area for us. And the new acquired companies in this business area also affected positively. Within Energy & Electrification, performance was mixed. A few units were driven by continued strong demand from energy efficiency, while some units were still affected from some very tough comparison from last year. That was from Q1, Q2 and also now in Q3. In Water & Bioocconomy, several units performed well, although margins were impacted in this business area by some cost pressure. And we are working to -- but we also need to be balanced to foresee future opportunities and future growth in regards to our cost base. And with that said, I hand over to you, Bengt. Bengt Lejdstrom: Thank you, Anders. Yes. And let's have a little bit deeper look into the cash flow and cash conversion for the whole group. As Anders was mentioning, we had a very good cash conversion of 94%, much of that coming from the inventories that were built up during the summer for seasonal sales that have started now and will continue into Q4. Improved the whole situation with inventory levels. We also saw some lower tax payments compared to last year. So all in all, a good quarter. And as you can see there on the chart that typically, we are between 70% to 90% in cash conversion. That's from operations and from working capital ups and downs. And we're now on a last 12-month basis, right in the middle at 81%, comparable with last year's 83%. We also start to show in our reports now the free cash flow per share. We haven't reported that for a very long time, but we report it now. And we had a very good free cash flow. That means all cash coming in from the business and also after the working capital adjustments, but then deducting the amortization of different leasing contracts as well as deducting the capital expenditures for different type of investments in the companies. So really, the only thing not included is when we acquire companies or pay earn-out debts to already acquired companies. So that cash flow was very good. And apart from the good cash flow from the operations, we saw a lower CapEx level in this quarter as we have done also for the full year. We work very closely with the companies, of course, to decide what type of the investments they should do. And we do that by looking at a classical DuPont chart, you could say that we -- where we look at both their EBIT margins and their capital turnover and see what kind of return on capital employed they have and from that decide what's most prioritized. So yes. And also the free cash flow for the last 12 months, as you see here at the last bullet is also very strong coming then both from the operations and from lower capital expenditures. Looking then at some additional metrics. We have the profit after tax, of course, an important measure. And -- but this quarter, it's a bit affected quite heavily actually by this write-down of goodwill when -- and it's all of SEK 500 million, this write-down of goodwill and other immaterial assets. When we moved these companies that will be divested out of the business areas, we could then make a full impairment test of their values. As you know, we do our impairment tests on goodwill, et cetera, based on our business areas because they are our cash-generating units. And all our 4 business areas have been able to defend very well the values that are in there. There is no risk for write-downs of the business areas. But when we then subtract out these specific companies, we have enabled them to look at them individually and in fact did total write-down of SEK 0.5 million. But if we exclude that more bookkeeping exercise, it's not cash generating anything, not affecting the cash flow, then we see that the profit after tax was a little bit lower. The difference is mainly because of the currency effects. We had SEK 14 million of currency loss in the quarter. And as you could see and hear from Anders previously that it affects both top line and profit, of course, this 4%, 5% all in all FX effect. But in our finance net, it affects us with SEK 14 million in the quarter. And that also affects us on the last 12 months. Then total, the finance net is affected with SEK 50 million, most of that coming from currency effects. And as you saw on the chart on our distribution of sales that currency effect could, of course, be quite substantial as the Swedish currency becomes stronger as we have more than 90% of our revenues kicking in from other currencies. Then another measure then taking that profit after tax and take it per ordinary share after dilution, you see then a very hefty minus in the quarter, minus SEK 11.14 per share. But if we then exclude this write-down, it's 2 -- a little bit more than SEK 2 per share, and it's of the same reasons as I just explained. And that also goes for the last 12 months compared with last year. Then taking a look on the leverage. We saw a quite big increase in the financial debt leverage compared with last year and also compared with the year-end last year. And that's because we have paid out earn-out debts. These earn-outs have been provided for in the balance sheet ever since we acquired the companies. So the payout of earn-outs do not affect the net debt in total, the bottom line, but it affects the financial net debt. So that has -- we have paid out about SEK 150 million in the quarter and almost SEK 400 million in the year, year-to-date. So that's, of course, a lot of money going out, but it's going up and it's having performed very well since we acquired them. So it's a good thing to pay earn-outs. The total net debt compared with the adjusted EBITA has decreased since new year since we haven't made so much acquisitions, but it increased from last year September because we have acquired SEK 85 million of profit in the last 12 months. And of course, that affects the balance sheet and since the organic growth hasn't been top notch during that period. That affects the profit and results in an increased -- slightly increase in the net debt leverage. Then as the last financial metric here presented, we look at the return on capital employed, the ROCE. And as Anders mentioned, it was 12% now. It's counted as, of course, on the average capital employed for the last 4 months and then compared with the EBITA profit we have had. And that decreased because we have increased the capital employed from the acquisitions and the organic growth, as I said, has been -- last 12 months have been slightly negative. If we just look at the outgoing balance of capital employed after the write-downs of goodwills, we are at almost 13%. And if we only look at the core businesses, taking their capital employed and their profits, then we're at 13.5% now. So as we divest these companies one by one, then, of course, then the capital employed is reduced and this ROCE will increase slowly, but steadily. If we look upon the operational return on capital employed, that is the average from our operating units, we're at 51%, which is, of course, very good, we believe. Okay, with that, back to Anders. Anders Mattson: Okay. Thank you, Bengt. So coming into acquisitions, which is a very important aspect of our business model. Year-to-date, we have acquired SEK 40 million in EBITA, and we hope to close one small deal before year-end. We have some ongoing discussions that is quite far in the process. So that's the aim for the year. I think it's important to mention our guiding principles here in regards to M&A. Regarding the pipeline, we continue to build the pipeline to meet the customers and customers -- sorry, companies to come to the discussion about the final acquisitions, and we do that, and we have a strong, solid pipeline in place continuously building that one. In regard to valuation, we're disciplined here. We know that it's easy to go away in valuation. And we have -- during this quarter, we have stepped away from 2 deals that I was part of as well due to the valuation was going too high for us. And on the leverage side, as we have said, our aim is to reduce the leverage in the future. So of course, that together with our disciplined evaluation is affecting as well the numbers of acquisition and the number of EBIT we have done so far in the year. I can also add here that we have started to look into Germany. We did it already last quarter, but it's a good progress and a lot of exciting companies in that region for us now and also for the future, we believe. Okay. So last slide before we go into the Q&A, a little bit of the takeaways from the quarter from us. I think the solid underlying demand is positive. A majority of our companies had a stable demand in Q3. It is still uncertainty out there in the market. And the condition for many of the businesses in Q4 is unstable. We see that 2026 is a positive sign for us, but it's still uncertain. And that's what we see right now. And we don't want to say anything more about 2026 than that here today. On the second bullet here, on our strategic actions for the long-term value creation, we have taken some very important steps in the [ quarter line ], our portfolio. We have been talking about that for quite some time, and it's -- I think it's good for us for Sdiptech to finally have done this decision now going forward. Many of the companies, we will divest. We have ongoing discussions with and progress in a good way. We have not set any strict deadline when it needs to happen, the divestment. But both from our perspective, from the company's perspective, we would like to be efficient and fast in the process. So that's what we are driving at. We have -- during the autumn as well, we have looked into our strategy, and we have made some adjustments, and we will present that on a Capital Market Day in end of November. And on the last note then, the acquisition pipeline. It is a solid pipeline that we have. Discussions ongoing, but we keep a strong discipline in our valuation and also around our investment criteria, especially with our aim to decreasing the leverage over time in the future. So that was, I think, everything from us as a presenter, and I think we can open up for our Q&A session as well now. Operator: [Operator Instructions] The next question comes from Max Bacco from SEB. Max Bacco: Well done in the quarter. Three questions from my side, 3, 4 questions. Perhaps starting with the cash flow. As you said, very strong here in the quarter, partly due to lower tax, but also lower CapEx and then quite neutral impact from net working capital. So the first question on cash flow, I think you mentioned this, Bengt. But here in the end of 2025 in Q4, do you see potential for further support from net working capital in terms of the cash flow? Or yes, what's your thought on that, if you start with that one? Bengt Lejdstrom: Exactly. Now typically, Q4 could be quite good from a working capital perspective since we have some seasonal oriented comp. There's no moving equipment and heat work and so on. And they have been building stocks during the summer and starting now then to sell it and turn it into accounts receivables, of course, but then also get the cash in from those invoices. So -- last year, it was actually above 100%, the cash generation. So it's not that high this year, but still Q4 is typically good for net working capital. Max Bacco: Okay. Sounds promising. And then you actually touched upon this also during the presentation that in the quarter, CapEx was a bit lower and that you have a very strict process with the subsidiaries when deciding how to allocate capital. And perhaps thinking a bit more long term than just next quarter, but historically, Sdiptech has been at some 4% of sales in terms of CapEx. Do you see a potential to reduce that number going ahead and perhaps allocate more into acquisitions instead and deleveraging? What's your thought thoughts on that going forward? Bengt Lejdstrom: Yes. I mean it's typically perhaps difficult to say the exact number for the future. But I think if we have been sometimes around 4 and even above, I think we're more around of sales now in CapEx spending. So -- but as I said, it's always depending on the actual situation and what's most profitable for that company, for example. But yes -- but we have tightened up the process quite a bit. Anders Mattson: I can add to that as well, then. Yes, I think what Bengt said there, it's important for us to see the CapEx and the need for the total portfolio and to prioritize in the coming years in a better way. And that's something we have looked into ourselves in our strategic work as well. Max Bacco: Okay. Sounds good. And then changing topic. I mean as you have explained yourself, quite a lot of things going on right now in Sdiptech, I mean, everything from improvement measures in several core subsidiaries. You still have an active M&A pipeline, you have ambitions to divest several companies. And I guess you're preparing as well for Capital Markets Day here in the end of November. Just curious how you allocate responsibilities internally? And do you consider yourself to be able to execute on all parts without, I guess, losing momentum and/or sacrificing quality? What's your thoughts on that? Anders Mattson: Yes, I think from -- I agree, it's a lot of -- on the agenda, but I think we have structured it quite good. The M&A team is not responsible for the divestment. So they are focusing on building the pipeline and meeting and executing on the M&A side. We have other internal individuals responsible for the divestment. And it's going quite good actually with -- we are not going on big broad processes. We are identifying smart, we think, key potential buyers to the businesses, and we drive that process quite efficiently. And from the other perspective is that we are still working on establishing the new business area organization. In August, Daniel started as the new Head of Supply Chain & Transportation. And we are quite far in the process to recruit somebody in the U.K. as well for Energy & Electrification. And I think that will, of course, be very important going forward to have that stable organization in the business area side as well. But so far, it looks -- feels good on that side. Max Bacco: Okay. Perfect. And then one final question, turning a bit more short term again, Just if it's possible, if you could help us how we should think about Q4 here in the next quarter in terms of comparable numbers, both for core and noncore? I mean at first glance, it looks like that noncore or other operations seem to have a quite weak Q4 last year. I guess it's some seasonality into it as well, whereas core had a more -- it looks like more decent quarter Q4 last year. Did you share that view on things? Anders Mattson: Yes. Yes, I can -- definitely, it's correct. In our situation, we look at the divestment process. So it might be that some of the companies might be divested now during Q4. And then, of course, it's going to affect that comparable numbers then. From the core, I think Bengt was touching upon that as well, that it's important that our companies with a bigger seasonal effect deliver now. And it's a little bit -- as we said, it's a little bit unsecured at the moment. We have some more slight negative, so to say. But overall, it's a positive sign for the future. But it's -- right now for Q4, we have said not to guide anything more than this at the moment. Operator: The next question comes from Simon Jönsson from ABG Sundal Collier. Simon Jönsson: First, just I want to say, it's a nice addition with the free cash flow per share KPI. Things like that are appreciated. And then I also have a question, like Max, on the acquisition pace. You -- it sounds like you expect maybe one more smaller acquisition this year. And it sounds like you remain quite active in new deals. So I just wonder how you think about new acquisitions versus your preferred gearing levels sort of what you're comfortable with and where you think your limits might be in terms of gearing and how much you can do on the acquisition side in near term. So I guess that's maybe not Q4, but in coming quarters or so. Anything on that would be helpful how you're thinking? Anders Mattson: Yes. So I think on the first perspective of this, it's important to be active. We prefer to say no to deals than not having the deals to not sit at the table. So we are, yes, definitely building the pipeline and meeting the customer and trying to get to the deal, so to say. But regarding the exact numbers, we will touch upon that, and we have discussed that internally in regards to our Capital Markets Day that we will come up with targets, I think, around some potentially new financial targets there. But right now, we are at 3.2%, as Bengt showed you, but I think we would like to go down from there and not to go up. So that's the balance. We still would like to acquire those value companies that are out there when we can get them at a good valuation, but still ambition is to drive down leverage. But we don't want to make it too fast and not make any stupid decisions when we have the good targets out there. Simon Jönsson: All right. Good answer. Then I just have a follow-up on the margins on the segments, specifically on Water & Bio. You commented briefly on the margins in that segment were impacted by cost pressures. Could you maybe elaborate a bit more specifically due to the margin decline year-over-year and how we should expect that those pressures going forward? Anders Mattson: Yes, we have a company, which is having a lot of big workforce. So from a salary perspective, salary increased quite significantly in the beginning of the year in -- especially in the U.K. And we are having some longer contracts with insurance customers, which is very hard to adjust for those kind of compensation or salary conversations. So there's a tough year for that company specifically in the U.K. And then -- but that's really the majority. And then we have also in other companies, we have been taking some decision to build up a little bit more because it's -- we need that for -- to be able to deliver for a possible upside in the coming quarters. It looks good from a revenue side in projects and orders. Operator: The next question comes from Martin Wahlstrom from Redeye. Martin Wahlstrom: The first one is related to the dynamic you say, where you postpone orders from H1 to H2. Could you give any more color on the split between kind of what lands in Q3 and what lands in Q4? Anders Mattson: I think we have a good -- let's say, part of that was actually now coming into Q3. But yes, it's still -- some of those orders, it's -- I'm thinking specifically of the 3 companies in the group. They have been promised orders. It didn't come in Q3. So yes, potentially, it will come in Q4. The good thing when we have the U.K. companies that they have the budget year in actually end of March 2026. So it's still on the right side in the budget, so to say, for some other companies. But no, it's difficult to say that, specifically how much of it came in Q3 and how much is going to be realized in Q4. Q4 is more about what I think we answered before as well, the seasonality in some of the winter needs to come, and we need to be able to deliver for the season or in season as well. Martin Wahlstrom: I see, I see. And then one final question is related to if you could give some more color on the distribution in your acquisition pipeline when it comes to kind of the split between business areas and geographies going forward? Anders Mattson: So from business area perspective, it's, let's say, it's equally among the 4 business areas. We have had some good discussions within supply chain, but also in Safety & Security in the recent quarter. So I think that's good. It's important that we work with all 4 business areas in acquisitions. From geography, it's actually nothing special there. It's our main geographies. It's U.K., it's the Nordics, it's Italy as well. And then as I said as well, we are going into Germany, and we have some good discussions with German or Dutch as well companies. So the DACH countries. It's -- so that's new and fresh into the pipeline, but nothing more or more significant than other geographies at the moment. Operator: The next question comes from Linus Alentun from Nordea. Linus Alentun: Just a quick couple of questions here from me. Starting off in Water & Bio, what would you say is a normalized margin here once we see a rebound? Bengt Lejdstrom: Well, I could perhaps step in there. Anders Mattson: Yes. Bengt Lejdstrom: Yes, we have seen -- typically, they have been around 24%, 25%. And then as the companies we now count as the core companies in that business area. Now it was 21% in this quarter for the reasons that Anders mentioned. So we're working to get it up there again. So whether it will be 23% or 24%, 25%, that's, of course, still to be seen because there are many different unique situations to take care of. But at least we're working to improve from the current 21%, that much we can say. Linus Alentun: Okay. And on '26 here, you mentioned in the report that, that is when you see a broader recovery. What makes you confident in that? Is there anything -- any indicator you've seen turning more positive or... Anders Mattson: No, I think it's the discussion with the companies. We are in a budget process as well, and we've been asking -- or in our discussions with the companies, it is positive momentum for business areas or business units and orders and they are looking into projects for next year and new potential customers. So no, it's from that perspective, talking to the companies and seeing there what they see for the orders and for the potential in the coming year. Linus Alentun: Okay. Super. That's super clear. And just one last question here. If I remember correctly, you had some swaps here that are contributing negatively in the net financials. What's the time line? When will they stop affecting here? Bengt Lejdstrom: Yes, we have 2 types of hedging arrangements. One is for interest and those interest swaps are right now negative. They were positive before when the interest rates were higher. Right now, we pay an extra 0.2 or so percent on the debt. But they will be closed from end of next year. And so 1, 2 years, you could say. So it's not a very big downside, but still, we pay about 20 basis points more than we should because of those hedging. But they have been giving a good return because they were better before. The other side, we have hedging arrangements on currencies. And there, we tried to hedge our currency exposure in the balance sheet to some extent. And not -- we're still net asset positive, which means that when, for example, British pound sterling is weakening towards the SEK, all in all, we get then a cost in the P&L, but not as much as we would if we hadn't those FX swaps and hedges. Linus Alentun: Okay. Super. So 20 bps there. Operator: [Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments. Bengt Lejdstrom: Yes. And I could kick off then with the questions. We have received 3 questions in the chat here. I think one we have already answered that was regarding the EBITA margin in the Water & Bioeconomy business area. And the second question was that some of the companies we are now intending to divest among the other companies. They have quite well-performing companies with good margins and product based to some extent. Why divesting such companies? Anders Mattson: Yes. I think I can add to that question is that -- so what I said, what we look for in the companies we would like to buy in our strategic priorities is around 3 things. We would like to have a strong promise that actually have their own products. They sell and they make service to them. We also want to have not cyclical end markets. It has been a challenge with some of the companies, which is very cyclical and working, trying to proactively work with organic growth is quite difficult if you don't have the mindset, that's what it is with those companies. And the third thing around the niche. If you have niche, you can protect it and you can drive growth from that niche. And all of these companies that we're giving examples of here, they have some aspect or they are not meeting that criteria. So it's been -- for us, been challenging, and we would like to allocate that money into more our prioritized businesses and future businesses. And we believe many of these businesses, as we said, it's not because they are performing financially bad, it's more that -- to allocate that capital to something that we believe in the future is better according to us. Bengt Lejdstrom: Thank you, Anders. And then the last written question, as I see, it's regarding the write-down if -- was that a one-off? Or could that potentially continue to be more write-downs Q4 and also next year? But what we have done now is to the best of our knowledge, as it's typically called and also to write down the value. So we don't foresee that we need to do any more write-downs. And of course, it's depending on how much money, high considerations we will get for the companies once we divest. But we believe at least that the value of these companies represent their market value and potential than consideration that we will get. So it shouldn't be any major at least. It could be -- go both ways. We could both have some profits or we could have some smaller losses when we divest, but it shouldn't really be any big numbers. But no write-down of goodwill as such because of any impairment. I think that was all of the written questions. So back to you, Anders. Anders Mattson: Yes. I think then thank you for the written question and asked question. And yes, thank you all for listening in, and we are looking forward. And hopefully, we will meet some of you at the Capital Markets Day in November, which will be held here in Stockholm, and we are looking forward to that. So with that, thank you, everybody, for today.
Operator: Ladies and gentlemen, welcome to the Sika 9 Months 2025 Results Conference Call and Live Webcast. I am Mathilde, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dominik Slappnig, Head of Communications and Investor Relations of Sika. Please go ahead. Dominik Slappnig: Thank you, Mathilde, and good afternoon, everyone, and a warm welcome to our 9 months results conference call. Present on the call today is Thomas Hasler, our CEO; Adrian Widmer, our CFO; Christine Kukan, Head of IR; and Jomi Lemmermann, IR Manager. We are excited to share with you the highlights and key messages for the 9 months. Earlier today, we published our results and made the investor presentation available on our website. With this, Thomas Hasler and Adrian Widmer will provide further details on the results and the outlook. Afterwards, we will be ready to take your questions. I hand now over to Thomas to start with the highlights of the 9 months. Thomas Hasler: Thank you, Dominik. And also from my side, a warm welcome to this afternoon call. And let me quickly summarize the publications of today and some highlights underlying that we would like to share with you this afternoon. Sika has delivered a resilient performance in the first 9 months in a market that has -- remains to be dominated by uncertainty of various kinds. We have been able to increase our sales by 1.1% in local currency despite a heavy impact from our China construction business with a double-digit decline. Also this year, we are facing an unprecedented foreign currency impact. It's almost 5% and primarily due to the weaker U.S. dollar. But let me summarize a little bit our regions. And here, starting with EMEA. EMEA has seen for the whole year so far, a very nice double-digit growth in the area, Africa and Middle East. This is in line with the trend we have seen from last year, and it's strong also to continue. At the Eastern Europe business, we see green sprouts of growth. Eastern Europe is moving back to growth. It's mainly coming from the residential, so from the retail side, but it is clear this has picked up in pace and will also support the future evolution in EMEA. The region overall has reached 1.5% organic growth in the first 9 months. Americas on the other side, offers huge opportunities in the U.S. Here, we are collecting everyday data center opportunities that are unprecedented and growing and are not impacted at all by the uncertainties that are influencing other segments. The data center business has become a cornerstone of our direct business in the U.S. Just similar to our infrastructure business, which is doing very well in the U.S. Also here, we see more and more the impact of the Infrastructure Act that is delivering us opportunities from the East to the West Coast. We also see that the U.S. currently has some uncertainty that holds back on the reshoring. But here, plenty of these projects are ready to start, and we are also expecting that soon there will be more clarity and then production or construction start -- can start soon. We also see in the mature market of North America, a huge backlog in refurbishment, which is an opportunity to come soon as this backlog cannot pushed out very long. When I come to Asia Pacific, this is the region which has been most challenged, mainly influenced by the decline in our China construction business. If you would take the China construction business out of the equation, actually, the region, Asia Pacific would have been the region with the highest growth -- organic growth of around 4% in local currency. This comes from Southeast Asia and India with high single-digit growth. But as I mentioned, the China business is challenged and also we have taken here decisive measure to take here the margin and profit orientation above the volume orientation. But let me now move further into the P&L. And here, I would see the material margin increased to 55%, a significant demonstration of the synergies that we have been able to further increase from the MBCC and other acquisitions, efficiencies in our operations, and also a good cost management on the input cost side. This has also then trickles down to the EBITDA margin, which has rise by 10 basis points to 19.2% compared to prior year. Also here, the bottom line impact by the FX is quite significant. It is almost CHF 100 million when we look at the EBITDA alone. As mentioned before, we are taking decisive actions. This is in line with our manage for results key principle. We introduced our Fast Forward investment and efficiency program today, which builds on our leadership position. It will enhance customer value. It will improve operational excellence through digital acceleration and therefore, drive growth and profitability in the future. This program is built on a few blocks like investments CHF 100 million to CHF 150 million in the coming years. It is also coming with a shorter-term oriented structural adjustments in markets where we see ongoing weak momentum. Here, the China construction most pronounced, where we are making adjustments, which come with one-off costs of roughly CHF 80 million to CHF 100 million in '25 and the workforce reduction of up to 1,500 employees. The program overall will drive annual savings of CHF 150 million to CHF 200 million per annum with the full impact to come then implemented in the year of 2028. But now I hand over to Adrian to provide us more details and flavors to the financial 9 months performance. Adrian Widmer: Thank you very much, Thomas, and good afternoon, good morning to everybody attending. After Thomas' highlights, I would like to now put additional insights here to the financial results. In a market environment that remains challenging, as we have heard, we have achieved a modest sales growth in local currency of 1.1% in the first 9 months of the year, driven by acquisitions, while organic growth was flat year-to-date, owing to a minus 1.1% decline in Q3, driven by China. Without China, organic growth year-to-date in local currency was 1.7% or close to 3%, including acquisitions overall. Acquisition growth primarily came from the initial contribution of the 5 transactions we have consummated this year, including some residual impact of last year's bolt-ons, overall adding 1.1% of additional growth in the first 9 months of 2025. Sales were clearly adversely impacted by foreign exchange effects, especially as mentioned, related to a weak U.S. dollar, but also the RMB and the general strengthening of the Swiss franc. Overall, adverse foreign exchange effects reduced local currency growth by 4.9 percentage points in the period under review with a Q3 impact of minus 5.9%, slightly improved from a more significant impact in Q2, but still above the overall run rate. Corresponding growth, therefore, in Swiss francs was minus 3.8% for the first 9 months. Looking at the regions, region EMEA showed a similar Q3 trajectory as in the first half year, growing 2.1% overall, 1.5% organic and 0.6% through acquisitions. As Thomas has highlighted, business performance was particularly strong in the Middle East and Africa, where we recorded double-digit growth, but also with a good momentum in Eastern Europe. Here, foreign exchange effects at minus 3.3% year-to-date remained unchanged in Q3. Sales in the Americas region increased by 2.9% in local currencies, while Q3 growth was in line with Q2. Overall, year-to-date organic growth was 0.8%, while acquisitions continued to add 2.1% of growth in the period under review. While the business year got off a good start, U.S. trade policy measures triggered the mentioned uncertainty in the markets and slowed down momentum. While this caused Sika's growth in the U.S. and Mexico to soften, performance remained solid in Latin America overall, but also in the U.S., as highlighted by Thomas, some strong momentum in several areas. Here, adverse foreign exchange effects were most profound and reduced local currency growth by minus 7% in the region in the first 9 months, driven by particularly here the strengthening Swiss francs against the U.S. dollar of more than 10% starting in Q2, but also the devaluation of the Argentinian peso. Sales in Asia Pacific declined by minus 3.9%, while organic growth was minus 4.3% for the period. This result is mainly attributable to the challenging deflationary market environment in the Chinese construction sector for which we are focusing here on protecting our margins and driving efficiency. If we exclude here the impact, sales in the region would have been around 4% in local currencies. And also here, most -- or the strongest market was in India and Southeast Asia and also in Automotive & Industry, where Sika continued to expand its share in its technologies in both the local as well as international manufacturers. Also here, an M&A impact, namely the acquisition of Elmich contributing here 40 basis points of growth, an adverse foreign exchange impact at minus 4.6% reduced here local currency growth to minus 8.5% in Swiss francs in the first 9 months. Now turning to the full P&L and looking at material margin. Here, we have, as highlighted, driven up gross result by 30 basis points year-on-year due to also a very strong Q3 expansion, 55% of net sales in the first 9 months. This is also in spite of the deflationary environment in China and a small dilution of 10 basis points coming from M&A, but also overall material cost in recent months, also driven by our procurement initiatives showed a slightly declining trend. Reported operating cost this year, including personnel costs as well as other operating expenses, decreased slightly under proportionally in the first 9 months of the year versus the same period of 2024. Here, continued strong MBCC-related synergy trajectory as well as efficiency measures were offset by ongoing yet reducing cost inflation, currency impacts as well as initial onetime cost of around CHF 18 million in Q3 related to our structural cost reduction program. In looking at personnel costs specifically, which were down by minus 0.3% year-on-year on a reported basis, we have seen continued underlying wage inflation at around 3.5% per annum on a like-for-like basis. This is partially and increasingly being offset by cost synergies as well as operational and structural efficiency initiatives, but negatively affected by this initial fast forward severance expenses. Other operating expenses decreased strongly over proportionally by minus 6.5%, driven by accelerated efficiency measures and MBCC synergies. Overall, the integration of MBCC is largely concluded, while strong delivery of synergies is ongoing. Realized total synergies amounted to CHF 130 million in the first 9 months of '25 an incremental CHF 41 million versus the same period of last year, representing an annual run rate of CHF 166 million and therefore, well on track to push towards the upper range of the increased guidance of CHF 160 million to CHF 180 million for this year. Overall, EBITDA margin, as highlighted, increased by 10 basis points to 19.2%, up from 19.1% in the first 9 months. Absolute EBITDA decreased under proportionally by minus 3.3% from CHF 1.702 billion to CHF 1.645 billion due to foreign exchange translation effects, broadly in line with the effect on the top line also here highlighting our strong natural hedge and decentralized cost base in line with invoicing currency. Depreciation and amortization expenses were virtually flat in absolute terms at CHF 407 million or 4.8% of net sales as favorable translation effects were offset by PPA effects on the intangible side as well as a slightly higher depreciation rate. As a result, EBIT ratio decreased by 10 basis points to 14.4%, while absolute EBIT also was impacted by currency translation effects. If we turn below the EBIT, here, net interest expenses decreased and continued to increase significantly by CHF 16 million to CHF 105.5 million in the first 9 months. This compared to CHF 121.6 million in the same period of last year. Decrease is largely related to the scheduled repayment of our first Eurobond in Q4 '24 that was taken out for the financing of MBCC. And in addition, other financial expenses also showed a favorable development, representing a net income of CHF 10.2 million, up roughly CHF 7 million compared to the same period of last year, unfavorable hedging cost development, lower inflation accounting effects and also higher income from associated companies. On the tax side, group tax rate increased from 21.5% to 23.8% in the first 9 months. This is largely related to a positive onetime effect in the previous year. This is primarily the deferred tax benefit relating to a foreseen legal restructuring. And this year, we had also higher withholding tax on internal dividends distributed in the second quarter this year. As a result, net profit ratio was modestly down to 10.1% of sales. This is 20 basis points lower than last year. And also here, absolute net profit of CHF 870.9 million was impacted by currency translation effects. On the cash flow side, operating free cash flow in the first 9 months was CHF 630 million, which continues to be about CHF 220 million lower than cash flow in the same period of last year. However, cash generation in Q3 was strong and in line with last year. And the reduction here is primarily due to unfavorable currency movements compared to last year, particularly impacting here hedging of intercompany financing, but also partially due to a modestly higher seasonal increase in working capital slightly higher CapEx as well as higher cash taxes. For the full year, we expect to partially close the gap in Q4 and full year operating free cash flow in line with our strategic targets of higher than 10% of net sales, additionally supported by group-wide working capital initiatives. With this, I conclude my remarks on the 9-month financials and hand back to Thomas for the outlook. Thomas Hasler: Good. Thank you, Adrian. Yes, let me be short and brief on the outlook. We have published our outlook, and we confirm for '25, our expectation of modest increase in net sales in local currency for 2025. And our EBITDA margin of approximately 19%, including the one-off costs from the Fast Forward program, which I referred to earlier. The medium-term guidance, we confirm our profitability and cash flow expectation with reaching the band of 20% to 23% EBITDA in 2026. And we have created here a new guidance based on the revised growth assumptions for the market of 3% to 6% local currency net sales growth for the period of '26 to '28. Dominik Slappnig: We are -- with this, basically, we are now opening the line for your questions, please. Operator: [Operator Instructions] The first question comes from the line of Ben Rada Martin from Goldman Sachs. Benjamin Rada Martin: I have three questions, please. My first was on, I guess, the annual savings you've introduced today, the kind of $150 million to $200 million amount. Could you maybe break down the source of these between the two programs being the efficiency program and investment program? The second would just be on pricing growth. I assume you're starting to have some conversations around 2026 pricing. Could you maybe just give us a steer on what kind of level of pricing growth you expect at the group level? And then finally, on China construction, thank you for the disclosure today around that business. I'd be interested for our kind of housekeeping side, what share of the China business would be in construction at the moment? And what would be the split between, I guess, the channel side and the project side within China construction? Adrian Widmer: Yes. Thank you, Ben, here for the question. I'll start with the first one. We will provide more granularity here on, let's say, sort of the breakdown and the content of the impacts here then in November. But maybe at this stage, we expect about CHF 80 million out of the CHF 150 million to CHF 200 million to hit the P&L in a positive way in 2026. On maybe the pricing, and I'll take this one here, too, we had about 0.6% price increase year-to-date here, excluding China. China in a negative environment with negative pricing, but about 60 basis points for the first 9 months, which we're expecting to sort of roughly stay at that level for the full year basis. Thomas Hasler: Good. And to the third question in regards to our China business, our China construction business is about 70% of our China business. The remaining 30% is related to the automotive industrial manufacturing business, a business that is growing nicely in line also, let's say, with the transformation to e-mobility and the increased volumes overall. The 70% of the construction-related business, the larger portion, also roughly about 70%, 75% is the indirect business. It's the business that is related to the tile setting business in the residential area. And then the 25% direct business is especially strong with sensitive infrastructure programs and with the foreign direct investments of multinationals building in China. As we all know, the residential business in China has some challenges with huge inventories still being around and the foreign direct investment business has declined this year substantially, roughly 25%. These are the two drivers for the very soft business that we are facing and also then mandating that we take here decisive steps to structurally adjust to this condition as we don't see that quickly to resolve in the near future. Operator: The next question comes from the line of Priyal Woolf from Jefferies. Priyal Mulji: I just got two actually. So the first one is just on the rebasing of the midterm local currency sales growth. Would you mind just reminding us what the contribution was from market growth back when the target was 6% to 9%? Was it around 2.5%? And I'm just asking that in the context that you've obviously cut the midterm target by 3%. Are you effectively now implying that market growth will be flat or possibly even down for the next couple of years? Or is there something else sort of buried in the target cut today in terms of lower outperformance or lower pricing or lower M&A. And then the second question is just on the CHF 120 million to CHF 150 million investments that you're talking about. Is that CapEx? Or is there some sort of P&L cost involved with that? Thomas Hasler: Okay. Thank you, Priyal. I'll take the first one. And here, you are absolutely correct. Our former guidance was built on a 2.5% market expansion. And our current or our adjustment is basically correcting for the current, but also for the foreseeable future and here is more neutral or slightly negative. The elements of the strategy, the market penetration and the acquisition are from our side, unchanged, but the market has changed substantially longer than anybody could have anticipated. And therefore, we made this readjustment, but it's mainly -- or it is the market that really is unpredictable at this point, and we have taken that down to a neutral, slightly negative level. Adrian Widmer: Then the second one here, Priyal, on the investment program, the CHF 120 million to CHF 150 million. This is largely CapEx. There is about a 30% OpEx element as this is also relating to implementation of platforms, ongoing support digitalization, also training activities and so on. So about 30% of this is ongoing here OpEx, which we don't see as sort of onetime costs, but really sort of ongoing implementation and support cost. Operator: We now have a question from the line of Paul Roger from BNP Paribas Exane. Unknown Analyst: It's [ Anna Schumacher ] on for Paul today. I have two. Does the rightsizing China suggests you believe the slowdown is structural rather than cyclical? And will it impact your distribution strategy in the country? And secondly, when do you expect to see any benefits of reshoring in the U.S.? And how meaningful could it be? And what are your expectations for U.S. infra next year? Thomas Hasler: Okay. Thank you. Yes, I think on -- we have to differentiate in China between the two segments. I think the residential market expectation also for the next 1 or 2 years are still on a very low level. So this overbuild is not being addressed and it is also of less a priority for the Chinese government. So here, this is a market that will remain challenged probably for a year or 2 longer. And therefore, our, let's say, adjustments are structural in nature by now serving the reduced volumes with our market leader position that we have in that segment and also adapting the portfolio to the key application, the tile setting and waterproofing area, where we have a dominant position and also, let's say, discontinue low-margin sections of that market. The distribution channels are well established. They are the backbone that we serve. Here, actually, we are adapting that distribution channel to increase the spread and be able to further get closer to the market. So here, actually, we are increasing, and this is also helping to get better coverage and build on our market leadership in the segments where we have very good margins and where we also see possibilities to outperform the market. The construction direct business is a business where we believe that this is cyclical in a way that this foreign direct investment has an impact. But at the same time, we have in China also a more maturing, let's say, base infrastructure in place that requires more refurbishment and renovation. We are working in building up this in China with our competencies. So here, I would say the foreign direct investments, not that speculative how fast that will normalize, but we have there also possibilities to offset. And here, we are structurally adjusting also to be more dominant in the refurbishment, which when you look at mature markets like Europe or the U.S., this is the core of our business in construction. It has been relatively small in China so far, but that's a great opportunity for us to offset some other weaknesses. And then on the U.S., I'm always optimistic about the U.S. market. The U.S. market has seen a great start into the year. It has then been challenged with uncertainties and unpredictabilities, which many projects for industrialization or reshoring have been put on hold, ready to go. These projects have been, let's say, engineered to the level where it can start digging and building. And this is now a bit speculative question when will enough clarity be there. But I think with the tariff discussions, things are more and more becoming, let's say, not predictable, but it is easier for corporations to make conclusions. And I expect that we see in '26 on the reshoring, some nice progression as this holdback of projects as we see at the moment, will probably then be overwhelmed by also serving the increased demand. The consumption in the U.S. is not that bad. And I think this is a bit artificially pushed back. And here, I'm more optimistic that this will take place going into'26. Operator: The next question comes from the line of Elodie Rall from JPMorgan. Elodie Rall: I have three, if I may. First of all, on the China restructuring, you're talking about reducing headcount by 1,500. So can you give us a bit of color about how much that this represent as a percentage of China headcount? And also how much does this represent versus the CHF 80 million to CHF 100 million total cost savings? How much is China from there? And how could we think about China growth in H1, therefore, next year, given still the hard comp, I believe. So all the growth will be H2, I believe. Second, you talk about other weak markets driving this midterm growth outlook cut. So maybe you can elaborate on what they are? And lastly, on dividends, I was wondering if you would aim to protect the dividend level given additional cost savings -- costs this year. Thomas Hasler: Okay. Let me start with the China restructuring. The 1,500 employees and the largest portion from a single country comes from China. And it is a substantial reduction. It's a double-digit reduction of the Chinese workforce that is ongoing. This is something we are implementing without any further delay, but this is substantial. But we also have other markets that are -- or segments of markets is maybe the better way to put it because it's not countries or markets. It is actually segments that have softer performance. And here, this will then, in some, come up with the 1,500 employees. You asked about the China impact in H1 next year. it is clear that we will have some spillover from this year into next year as the effects that you have seen in Q3 and that we also expect to be significant in Q4 will, of course, compared to the base of the first half of '25, still be negative, but it will then also turn in the second half of next year and the impact will also, let's say, reduce. And as I mentioned before, Asia Pacific has a strong performance. It is the strongest if we exclude China. So here, we're also confident that Asia Pacific will contribute to the overall group growth next year, having strong engines in Southeast Asia and India. Then the dividend, maybe. Adrian Widmer: Well, maybe on the dividend, obviously, this is then a decision by the Board. This has not been taken yet, but I'm not expecting here that, let's say, the program will have a negative impact here on our dividend policy. Elodie Rall: And sorry, just to come back on China. How much does this represent in terms of the overall CHF 80 million to CHF 100 million cost savings -- cost this year, cost restructuring? Thomas Hasler: This is a bit too early. I mean we are going to really make an effort then in 4 weeks' time to give you more granularity about the program in regards to the investments, but also in regards to the cost split and so on. But it's clear, it is significant. I mean that's -- but it would be premature now to go into the details, but China is a large portion of the structural adjustment. Elodie Rall: And just to finish up on my previous question, what are the other markets that you have identified as weak? Thomas Hasler: Yes. The point is, as I mentioned, markets are soft. Weak is something I attribute to segments, segments where you see that, for instance, in Europe, we had a very good initiative on energy savings initiative coming from the Green Deal. These are fading. These are implications that we are, of course, considering also in our business. But the markets overall are soft. Europe is soft, but we see Eastern Europe is coming back. We also see that the northern part of Europe. So here, when I look into '26, I'm quite optimistic that we will see positive trends. Operator: We now have a question from the line of Ephrem Ravi from Citigroup. Ephrem Ravi: So two questions. Firstly, given the reduction in the overall growth target to Priyal's point, 2.5% was the market. But does this change your view on the market going forward? Or this is strictly a function of the fact that last 2 years, the growth has been less than your 2023 to 2028, 6% to 9%. So you're just resetting for the -- for what's already happened and your medium-term actual view in terms of how the markets are going to grow hasn't really changed. So it's just mainly a mark-to-market of what's already happened in terms of local currency growth so far? And secondly, China, I thought it was about CHF 1.2 billion of sales last year. And if it is down double-digit percentage, probably goes down to closer to CHF 1 billion. So given the low base, do you expect that to kind of be less of a drag going forward? So in theory, you should see faster growth just because of the mix effect of China not being a drag being on the numbers? Thomas Hasler: Yes. I think what is very important in our adjustment of our midterm guidance, this adjustment is related to our assumptions of the market compared to the original assumption. For us, most important is the outperformance of the market wherever they are. And this is in our strategy clearly outlined with the market penetration. We have not changed our ambitions on the outperformance of the competition and the market. And we also haven't changed our approach to be the consolidator in a very fragmented market through our acquisition activities, which I think also this year, we see with 5 transactions and the full pipeline of prospects. I think we are very confident on those elements where we have it in our hands. The markets, we had to reflect and also consider that there is also not a balancing act between the regions. We have a situation where actually softness is a global topic, with a few exceptions like maybe the Middle East, but not so relevant in the global scheme. So here, it is -- this is the driving factor for the adjustment is that we do reduce the market aspect, but do not change our commitment to outperform organically and then also on the acquisition, we will deliver as we originally have indicated. Operator: The next question comes from the line of Martin Flueckiger from Kepler Cheuvreux. Martin Flueckiger: Martin Flueckiger from Kepler Cheuvreux. I've got three questions. And I suppose I'll take one at a time. Firstly, I'd just like to go back to your statements regarding pricing in the 9-month period. If I understood you correctly, you were talking about 0.6% up year-to-date, excluding China. Now I was just wondering what does that mean for the group overall because that's really the number, I guess, that interests most people. That's my first question. I'll come back with the second one. Adrian Widmer: Yes. I mean, this means overall, it's pretty much a flattish picture for the group overall. Martin Flueckiger: Okay. And then secondly, you were talking about -- I think Thomas was talking about data centers being ramping up pretty rapidly in the U.S. Can you -- if I remember correctly, in the U.S., data centers account for about 8% of sales -- construction sales. Has that number changed in the 9-month period? And what kind of growth do you expect from this vertical in 2026? That's my second question. Thomas Hasler: Yes, you are right. This is about the magnitude. And this is the fastest-growing segment in construction and therefore, also logically, the contribution to the overall construction business in the U.S. is increasing, but it's about 8%. And what makes us very optimistic, I mean, these are also projects that are lined up. They are executed. They are actually rushed in execution whenever possible. So the lineup of projects that we have visibility gives us high confidence for the next 18 to 24 months. So this is a business that we like very much as it is also a premium business. It is driven by customers that buy not, let's say, products or systems, they buy peace of mind. They want to have undisrupted operations 24/7, 365. And that's a key element of our unique position in that market. Not only in the U.S., this spreads all over the globe because the owners of the data centers have very similar names at the end, and they don't want to take risks when they go abroad. And therefore, we are also leveraging that very much into Europe and other parts of the world. Martin Flueckiger: Okay. But sorry, just to clarify, when you say it's the fastest-growing segment in the U.S., I guess that's not really surprising. But I was just wondering whether you could tell us what kind of growth Sika is expecting from data centers in the U.S. in 2026. Do you have any broad idea at this point in time? Thomas Hasler: Of course, I have. And I would sum it up this is double-digit growing and this is significant. So it is not 10% or 11%. It's really a business that has drive and where we also put full focus on. This is the time. Martin Flueckiger: Okay. That's helpful. And then finally, my third question, could you talk a little bit about competitive pressures in construction chemicals this year, what you're seeing on the ground and whether it's intensifying or whether it's stable, whether there are any particular regions apart from China where you're seeing competitive pressures easing or worsening? Thomas Hasler: I think here -- I mean, China is a particular case, and I think Adrian indicated, China is, of course, price is super relevant. And as he mentioned, the overall group is at 0.6% without China. With China, we are at neutral. So China is a market in itself. But when I look at the rest of the globe, you can say -- when you have a booming market, pricing is probably less pressures because it's about getting the jobs done. We don't have booming markets everywhere. Therefore, I would say this is a normal situation where price is of high relevance, but nothing exceptional. Nothing -- would you say this is kind of strange. This is a normal behavior of markets when volume are slow, and this comes from small, medium, large. This is nothing in particular, nothing has really changed. But of course, when you have soft markets, then here, the tendency is that you have more pressure on price. But I think our performance in the first 9 months demonstrates we do have pricing power. We have here a leadership position that we can. This is probably for small players, midsized player, a bit less convenient as they are suffering more in soft times. Operator: We now have a question from the line of Cedar Ekblom from Morgan Stanley. Cedar Ekblom: I've got some follow-ups, please. On the growth for 2026, the exit rate at the end of this year is likely to be breakeven, maybe even modestly negative if trends don't really change in your core markets. I'd like to understand how we get to 3% in 2026. I think Elodie touched on this question, but I'd like to hear explicitly if you actually think 3% is the right number for 2026 based on what you see today, appreciating that things can change or if in 2026, we should actually be anchoring around a number below that range within the potential for growth to accelerate into '27 and beyond. So that's the first question. And then the second question, just in terms of the guidance on year-on-year margin improvement into 2026. So this year, I think it's 19.5% to 19.8% without the costs. And then if I've got the moving parts right, you have CHF 80 million of cost saves from the program next year. You have CHF 40 million synergies still to come if I look at the midpoint of what you're guiding to. So that gives me about 100 basis points of margin improvement. But I'd expect your leverage is still going to be negative. I mean, if I look at that chart on Slide 8, I think it is, you have negative operating leverage this year with growth that's probably not dissimilar to what the growth is going to be like next year unless anything doesn't change. So what other levers should we be thinking about into next year that actually allow us to see margins rise? Is there something we should be thinking about on gross margins improving? Is there some other kind of cost initiative that we should think about beyond this CHF 80 million program, just like sort of ordinary course of business efforts that's sort of coming on top of the CHF 80 million sort of special program? So those would be the two questions. Exit rate on growth is clearly below the 3%. How do we get to 3%? And then how do we actually get higher margins year-on-year even withstanding the 100 basis points or so of improvement that comes from this program plus synergies not yet come through from MBCC. Thomas Hasler: Okay. Thank you, Cedar. And I take the first question, and it's probably the most difficult question because it is clear. We don't know what's going on to happen next year. So let me phrase it in a way. This is not a guidance for next year. But if we assume everything equal, China, Europe, North America and so on, your assumptions are correct, that the exit rate at the end of the year will be low modest growth going into next year. We will still have spillovers from China. We will have benefits from trends that are supporting, but the magnitude to the lower end of our midterm or our adjusted midterm guidance is still there. So this is not yet a guidance, but it's also not a promise that every year of the coming 3 years will be within that range. I think the first year is probably the one that has, let's say, the highest challenge, but we also anticipate that there's a good likelihood in '27, '28, where we can substantially also move on that depending on how markets are evolving. So here, I think we have to be clear. This is not a straight line. This is also a line of recovery, which we can drive to some degree ourselves. I think we have a healthy acquisition pipeline. We see there some opportunities. I think also when we look at the pricing power that we have and also expecting that China is going to, let's say, be less impactful. So we have this element as well. But this is not a guarantee at this point of time that this 3% to 6% will be applicable to every of the consecutive years. Over the 3 years, we are very confident. But going into next year, we will assess the situation, of course, we will assess the markets and then we will establish our proper guidance for 2026. Adrian Widmer: And on the, let's say, the elements here of the margin improvements, and it's essentially the ones we're driving. I think there is also an opportunity on, let's say, the material margin, the gross margin to continue to drive. I mean, you have the synergies, as you mentioned, there will be another 30 to 40 basis points. And our improvement, let's say, bucket, which will clearly be driven here by Fast Forward program here, let's say, the sort of the CHF 80 million impact plus the ongoing activities we have, but there is not going to be an additional, let's say, program on top of it, but really sort of driving the different elements to an EBITDA of above 20%. Operator: We now have a question from the line of Arnaud Lehmann from Bank of America. Arnaud Lehmann: Could we talk a little bit about the gross margin? I guess that was quite a solid performance in the third quarter. I think a 5-year [indiscernible] when there was back in Q3 2020. So is this the new normal? Is 55%, you believe the new normal going forward for Sika and into 2026? That's the upper end of your historical range? Or do you think there could be upside to this? My second question is coming back on the Fast Forward plan. Is it something you've been thinking about in the last years or in the last months, let's say, was it something you were going to do anyway? Or is this more of a reactive move on the back of the recent decline in Chinese volumes or maybe a little bit of both? And the third question and last one on -- you hinted in the previous question around M&A activity. Considering the slower trends in underlying markets, do you think you could ramp up M&A activity while remaining within the criteria of your A- credit rating? Adrian Widmer: Let me take here the first one. Thanks, Arnaud, for the question. I think here, of course, the 54% to 55%, that's is for us clearly sort of also a range where we sort of monitor and steer the business. I mean it's never been sort of a very sort of dogmatic, let's say, hard target. And I think there is several elements obviously impacting here material margin, which, again, for us is an important element to steer the business. I think we're obviously here that the pricing element, selling value, driving innovation, also being able for us to position our solutions at the higher value point is important and an ongoing activity. I think on the input cost side, we have more recently seen, I would say, a more favorable picture also driving here clearly initiatives to improve it. So I think there is obviously a bit of upside here on the material margin, although this is influenced by many sort of different elements. So I think it's obviously something we actively steer as one of our here profitability buckets overall. Thomas Hasler: Okay. Then Arnaud, on the Fast Forward question, it's an interesting question because it has both elements. Digitalization is something we have highlighted as a megatrend in our strategy. And we are doing quite well in progressing. We are doing -- we bring digital solution. We just announced this week our Sika Carbon Compass. You can say, yes, we do. We are implementing SAP across the globe. But honestly, the speed of adoption, the speed of implementation is, in my view, not the speed that I would like to see. Digitalization has a different speed than construction industry and the construction industry is our great opportunity to be here the unprecedented leader in digitalization. So this has been, let's say, something I have observed over a longer period of time than 2, 3 months. And I see this as a great opportunity here to make firm steps, invest into the customer value. The customers are challenged in many different ways. Digitalization can ease, let's say, those complexities, can make business easier to execute and focus on core things. I think this is something that we want to drive, and this is the opportunity to integrate it also into this fast forward program. We have done great. I mean, Sika has a unique data pool. It's the leader in the market, the innovation leader, it's the market leader. We have data all over the globe. We are creating a pool that we can exclusively use to do data mining and leveraging those competencies. So for me, I'm a big fan of this digitalization, and I'm happy that Fast Forward gives us now also the possibility to accelerate substantially, let's say, on the tools, on the solutions, but also upskilling our organization that we also here can adopt much faster than in a regular environment. The other part, let's say, the China, the restructuring in general is something that has become in line with our, let's say, guidance adjustment for the midterm. Markets are soft, markets, we cannot change them. But in markets that are soft, this is the best time to make substantial adjustments. This is the time to act because when you act at this time out of a position of strength, you can then -- when backlogs are worked off, when markets are turning, you are in the strongest position to benefit from a boom in construction that will come, that has to come. The underlying demand is there. It's not served. So it is also a point that came to our realization over the course of this year and then more pronounced in the second half, which ultimately results in this Fast Forward program with the two elements that are super relevant, short term improvements, but of course, then also more midterm, let's say, benefits for the customer, driving our growth and utilizing the unique, let's say, digital footprint that we can have and that we want to have going forward. This is something I consider these digital capabilities, a key competitive advantage that we are going to achieve. Here, size matters. The globalization matters. We have a global input. We have it from Japan, China, India, Middle East, Europe, North and South America. Now all these bundled together gives us huge opportunities, which I want to tackle with our Fast Forward in an accelerated way. Arnaud Lehmann: And on M&A? Thomas Hasler: Sorry, M&A. I think here, I come back to the prior question. I mentioned smaller and midsized companies are more challenged when it comes to pricing power in soft markets. And we see here a clear, let's say, pain level reach for small and midsized player that they are considering selling their companies, even so it is probably not the best time to get the best price, but they hang in there and they consider selling much more now than maybe a year or 2 ago. And yes, we do have here also opportunities to, let's say, to acquire for attractive multiples business that maybe a year or 2 ago would have rejected to entertain. And I do think with our strong cash generation that we also have the ammunition to serve those increased possibilities. But it's also -- I think as always, every challenge has its opportunity. The opportunities on M&A are excellent, and we have the power and the will also to take advantage. Operator: The next question comes from the line of Ghosh, Pujarini from Bernstein. Pujarini Ghosh: So I have a few. So my first question is on the EBITDA margin guidance for this year. So without the restructuring costs, you have not cut your margin guidance. And in 9 months, you've done 19.2%. So to get to the bottom end of the range without the restructuring, you would need to do something like 20.5% in Q4. And looking at the historical trends, we've never seen such a big jump between Q3 and Q4. So could you explain why this year might be different and the various levers that you could pull in Q4 to get close to your target? And my second question is just a housekeeping. So what is your current guidance on the tax rate for the full year and for future years? And finally, coming back to the China restructuring plan. So could -- so of the CHF 150 million to CHF 200 million cost savings, could you give the split between how much of this would come from the restructuring in China and how much from the investment program that you're going to do? Adrian Widmer: Thanks, Pujarini. I'll take here the question one by one. On the 2025 EBITDA guidance here, I think a couple of points. On the one hand, you're right, the 19.2% here in the first 9 months. As I mentioned here before, we have about CHF 18 million of here one-off costs already included in Q3. So that's one element that basically puts here, let's say, the anchor at 19.4% and also in terms of, let's say, the one-offs we're guiding for the CHF 80 million to CHF 100 million, not everything is EBITDA relevant. We have about 25% to 30%, which is more sort of write-downs and impairments overall, which obviously then for Q4, yes, means, of course, a solid profitability quarter to, let's say, get at least here to the lower range here of the 19.5% to 19.8%. On the tax rate, here we had in previous years as reported, also one or the other positive impact, one-off effect. I'm expecting here for this year sort of around 23% in terms of the overall tax rate, which is also the level here of the next years to be expected roughly. And thirdly, on the question here of, let's say, sort of the China impact and the breakdown, again, I would like to defer here the answer and more granularity then to our November event where we will provide more sort of granularity on the various aspects of the program. Operator: We now have a question from the line of Patrick Rafaisz from UBS. Patrick Rafaisz: Two questions. One is on your cash conversion targets. You confirmed the 10% plus for this year. I was just wondering with the extra spending for the Fast Forward program, both on the cost and the CapEx, would you already fully commit to a 10% plus cash conversion also for '26? That's the first question. Maybe related to that, can you also talk a bit about the phasing of these investments? And then the second question would be on China and the portfolio adaptation you talked about. Can you add some color around the share within the China business that we are talking about that you are exiting due to the maybe market conditions or too low profitability? And also how long that will take to implement? Adrian Widmer: Good. Well, let's -- thanks, Patrick. I'll take the first two on the cash conversion, yes, clearly also confirming for '26 here, the targets to remain in place in terms of the cash conversion of at least 10% of net sales. Obviously, here, there is an additional element of CapEx, but that will be within that threshold. Second one on the phasing, again, I'll try again to convince you that we will provide more granularity then on the various sort of elements of the program, also the impact and the phasing then at the end of November. Thomas Hasler: Good. And then Patrick, on the China business. Our China distribution business is built on exclusive distributors all over China. And with the start of the softness of the market, our China team has tried to introduce, let's say, lower-margin trading products to support our distributors so that they can take a bigger share of wallet. And this came, of course, at the backside that the top line was then still showing some progression, but dilutive on material and profit margin. And this came then to a level where we had to say this needs to be reversed. So this has been a rather short-term element that has been introduced, and it is also something that we can flush out relatively soon. But it will be visible this year and next year as we -- some part is still in this year from the first half, and it will be out in the second half next year. So we will have some comps there that are maybe not so clear to read, but this is rather something that has been used tactically, but had to be revised. And that's what I mean with the core range. The core range, which is our tile shaping range and waterproofing range, which we produce ourselves and not tolling products that are adjacencies. Operator: The next question comes from the line of Alessandro Foletti from Octavian. Alessandro Foletti: Just on the automotive business, maybe we don't speak much about it. Obviously, it has been growing strongly in China, but how is it doing in the other regions, particularly also, yes, Europe and the U.S., I would guess. Thomas Hasler: Yes. I take that lately. I think, yes, we haven't talked much. But as you have seen, our growth in the industrial area is at organically 0.8%. It is doing better than our construction organically. It has here support from China, but also our business in Europe and in North America is holding strong despite a declining volume situation. And also, especially in Europe, we have still, let's say, a bigger, let's say, variation of models in the market, which means we are carrying more complexity serving, let's say, our customers. And despite that, we can still have above the build rate top line and especially also maintain a very healthy bottom line in that business. It is having a different direction. I think in Europe, we see also going forward, probably a comeback of the incentives for the electrification. This will be very positive. Germany is considering this for the years to come. So I'm on the automotive side in Europe, with the conversion, we will have more contribution. We have more opportunities. So I think we will see a positive trend in Europe. And in North America, we have there a bit the holdback with the tariffs. The automotive business in North America is highly, let's say, linked between the three countries with the supply chain. We serve the market out of Mexico and of the U.S. But also here, there's a different demand. The electrification is less of a relevance. It is truck and SUVs, pickups are relevant. These are for us higher contribution vehicles anyhow. But we also expect that when the new North American trade agreement is finalized, which hopefully takes place by the beginning of next year, then there will be also clarity and investments in automotive so that they can come back with competitive offerings to the end market, which at the moment is hesitant to buy in North America. I'm optimistic. I mean the business also in Brazil is doing very well. The business in Southeast Asia is doing very well. They are, of course, of smaller volumes than the three main markets. But I think we will have year-over-year, nice contribution from the automotive or industrial side. Alessandro Foletti: Right. But I'm not sure I get it right. It seems from your talk that maybe both in Europe and the U.S. is maybe still slight negative or flattish? Thomas Hasler: Yes. Yes. I mean the build rates are minus 3%, minus 4%, the car build rates. And we are flattish in Europe and slightly below in North America. Operator: We now have a question from the line of Yassine Touahri from On Field Investment Research. Yassine Touahri: Just two questions on my side. We've seen oil prices coming off over the past couple of months. Does it mean that we should see limited raw material inflation in -- at the beginning of 2026? Or -- and also a relatively muted pricing environment? Should we think of the coming quarter being close to what we've seen with relatively prices up a little bit and costs broadly in line with this pricing? And then my second question would be on the competitive landscape. Do you see -- I think some of the largest building material company in China, CNBM and [ Conch ] have started to invest in mortar, in construction chemicals. Do you see competition in China being tougher today than it was 5 years ago? And another one on this -- on the competitive landscape. I think Kingspan in the U.S. is planning to open a PVC roofing membrane next year. Do you think it could have an impact on your activity? Or do you believe they will target different segments? Thomas Hasler: Okay. I think the first question was on oil prices, right? Yassine Touahri: Yes. And whether it means that we should continue to -- we could continue to have an environment with limited price increase and limited cost inflation. Thomas Hasler: Yes. I mean we -- this is quite volatile. It is low at the moment. This is, in general, for us a positive. But I would say it's limited. I mean, this is also what we have talked about this year. There is -- some commodities have some softening, but others are still increasing cement, for instance. So I think on the input side, I think we are having here as far as we can predict, we have a relatively stable environment. So that is giving us also the possibility to make our price adjustments in line with our margin expectation. So I'm not concerned. But of course, things can change if one source comes unavailable and prices could rapidly move upwards. But at the moment, it's not a major concern. The -- and the second question was on the competitive landscape in China. I mean, here, you have to see that we are the only remaining sizable international construction chemical player in China for years. This is not just yesterday or the day before. This is our position in China. We have an exclusive position in the direct construction market. This is -- these are the higher-end construction. I talked about the multinationals, but I also talk about, let's say, sensitive infrastructures, nuclear power plants and others, airports and so on. So we have been able -- I mean, there are thousands of players in China and super aggressive in all aspects, but we have been able to hold strong in this market. And I believe our possibility to benefit through our, let's say, global excellence in a market that is maturing in a market that is also demanding higher building codes. The government is pushing for higher building codes as they see the adversal effect of cheap, let's say, infrastructure built 10 or 20 years ago. And we have a reputation in China that is outstanding, and we can also enlarge our addressable market in China through this trend. So this is on the direct side. On the indirect side, I talked about our distribution. I talked -- but you have to see that this is an application where our company has a market-leading position in China. Our brand, our international brand stands for reliable products to the homeowners. Homeowners, they buy, let's say, expensive tiles from Italy and homeowners do care that they are installed with a brand of trust. That's our unique -- of course, our products are up to the highest standards. But it is also our network that involves not only the applicator, but also the owner bring across this value. And this is very difficult for, let's say, the mainstream Chinese competitors to attack us. They attack themselves. So it is Oriental Yuhong and Nippon Paints that are crossing each other's way left and right and through brutal price war try to steal each other's market. Our market is much more protected through our unique positioning with our brand in China. And then... Yassine Touahri: Kingspan, yes. Thomas Hasler: I think -- I don't know if I should comment. I mean, I don't see it as a threat, not at all. I mean the North American roofing market is huge, and it has sizable players. I mean, sizable. And we are active in a very, let's say, clear designated area with large commercial buildings, where we have a reputation, where we have specifications, where we have applicators, I feel well protected. I have no fear. But if you go in such a market where there are the big boys playing, I would say I have respect for the courage to go into that market, but that's not me to comment and it's not me to make assessments there. It is an attractive market. I agree. It is for us, a fantastic market. But I think we have here also a unique position with our focus on the high end on durable and sustainable solutions with owners, with the focus on clear commercial large-scale roofs. Dominik Slappnig: Thank you very much. I think this brings us to the end of our call. We take this opportunity as well to highlight the date of our Fast Forward Investor and Media Conference on November 27. The conference will be held in Zurich, Tüffenwies, and it will start at 10 a.m. CET. So for all these who would like to fly in and out the same day, I think this will be possible. With this, we thank you for listening to our call and for your interest in Sika. We wish you all the best. Thomas Hasler: Thank you. Adrian Widmer: Thank you very much. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Linda Palsson: Good morning, everyone, and warm welcome to our presentation of Afry's Q3 results. I will begin with some of the highlights from the quarter, and then our CFO, Bo Sandstrom, will provide a more detailed overview of the financials. So in the third quarter, we delivered stable results and improved our EBITA margin to 6.4%. We also saw a positive development of the order backlog, which increased 3.6% compared to the same period last year, or 5.3% when adjusted for currency effects. We achieved this despite a decline in net sales with a total year-over-year growth of minus 5.1%. Similar to what we saw in the second quarter, currency effect had a significant negative impact on sales. For Q3, it amounted to minus SEK 118 million. Sales volumes were also impacted by a challenging market we experienced in parts of our business, mainly in our global division Industry. The third quarter was also the first within our new group structure and our three global divisions. Under the new group structure, we have intensified our efforts to improve utilization and to structurally address the cost base. As part of this, we have continued executing on the restructuring agenda that we initiated during the second quarter. And for the third quarter, we report restructuring costs of SEK 31 million related to this, and they are classified as item affecting comparability. So to summarize, I can conclude that we have been able to deliver stable results despite a decline in net sales, and we continue our efforts to pave the way for profitable growth. Moving on then to the market, and let's start with Energy. We see a continued strong long-term demand across segments and on a global scale. Market activity is particularly high in areas such as transmission and distribution, hydro, and nuclear. At the same time, we are seeing some short-term regional variations. This is evident in areas such as thermal, solar, and wind power, where, for example, demand in the Nordics is currently somewhat slower. With that said, this kind of variations are expected over time for a growing and dynamic sector like the energy sector. For Global Division Industry, the demand remains mixed. We see that persistent global uncertainty continues to impact the overall investment sentiment in several segments. For example, in the Pulp and Paper, where the demand for new large-scale projects remains at low level. The slowdown in the Nordic industrial market is also impacted in the automotive segment. At the same time, we see strong market opportunities in areas such as defense and also within mining and metals, which is encouraging to see. And finally, in Transportation and Places, public investments in transport infrastructure and water remains at good levels across the regions. The investments are driven by large-scale infrastructure programs and increasing focus on climate and defense-related projects. At the same time, we see that demand in the Nordic real estate market remains at low level and is mainly driven by refurbishments and public investments. So now let's dive a bit into our new global divisions and their performance in the quarter, starting with Energy. We continue to see high project activity in several of our segments, which reflects the overall market that we experience in Energy. We report negative total sales growth in the quarter, which is impacted by significant currency effects of minus SEK 45 million as well as short-term regional variations in some segments. We keep profitability at a solid level of 9.8%, which is slightly lower than last year. Moving on to our Global Division Industry, a challenging market reflects the net sales development in some of our segments. Despite this, profitability improved year-over-year, and this is due to the ongoing capacity adjustments and the improved utilization in the quarter. In the second quarter, we announced the acquisition of Reta Engineering, a Brazilian company specializing in project and construction management services with a strong foothold in the mining and metal sectors. And in the third quarter, we completed the acquisition, and the numbers are consolidated into the Industry division as of September 1st. And finally, Transportation and Places. Here, we saw some sales growth in the quarter, which was driven by high activity in projects as well as improved attendance rates. Also on the EBITDA side, we continue to see positive development, driven by the continuous efficiency measures that we do in the division. I would also like to highlight some of our key project wins in this quarter. In the Mining and Metals segments, we were selected by the British mining company, Anglo American, to lead the pre-feasibility study for the Sakatti mining project in Finland. The mine is planned as a highly automated underground operation with low carbon footprint. And once operational, the mine will supply critical minerals that are essential for Europe's green transition. And Afry's strong expertise in sustainable engineering makes this a great fit. On the Energy side, we have signed a strategic framework agreement with Svenska Kraftnät, Sweden's national grid operator. This is the second of two recently announced agreements and covers technical consultancy and design planning services within transmission and distribution, which will strengthen Sweden's energy system. Svenska Kraftnät is one of our key clients in the Swedish energy market, and we are pleased to strengthen our partnership with them through these agreements. In Denmark, we have won a contract in the Road and Rail segment, covering comprehensive advisory services in intelligent traffic systems, traffic management, and emergency preparedness. With Afry's extensive experience in traffic engineering, this project is a great opportunity to deliver innovative and effective solutions that improve road user safety and mobility. And with these great projects, I would like to hand over to you Bo. Bo Sandstrom: Thank you, Linda. So I will cover the financials for Q3 2025. Quarter three showed net sales of SEK 5.7 billion and EBITDA, excluding IAC of SEK 362 million. On rolling 12 months, we are now at SEK 26.2 billion on net sales and remain right below SEK 1.9 billion on EBITDA. On the rolling 12 months development compared to 12 months ago, we carry significant negative currency and calendar effects, explaining approximately SEK 600 million on net sales and SEK 240 million on EBITDA. In Q3, with a net sales of SEK 5.7 billion, adjusted organic growth came in at negative 3.7%, where volume continued to be pressured by capacity adjustments during the last quarters. As previously, the decline in volume was partially compensated by positive pricing. For Q3, we continue to see higher average fees, although at a somewhat lower level than the last number of quarters. Total growth is reported at minus 5.1%, affected also by FX movement from a strengthened SEK compared to last year. The negative adjusted organic growth in Q3 was sequentially lower, and global divisions, Energy and Industry, both saw lower growth levels. In particular, Industry experienced a challenging market and continued capacity adjustments pressure growth rates. In Q3, Industry also saw show lower sales of material than last year, affecting the quarterly growth. Transportation & Places showed sequential improvement, mainly driven from the Road and Rail segment. The order backlog continued to develop favorably and is reported at SEK 20.4 billion, improving to last year, but somewhat lower sequentially. Currency adjusted, the backlog has improved 5.3% to last year with improvements primarily from Global Division Industry. The Energy division maintained the largest order backlog in relation to net sales at a level in line with last year, but improving 3.7% adjusted for currency effects. EBITDA excluding IAC is reported at SEK 362 million, and the EBITA margin was at 6.4%. Calendar affects EBITA with plus SEK 15 million and the EBITA margin with plus 0.2% to last year, so that calendar adjusted margin was marginally better than last year. Currency movements have marginal impact on the EBITA margin, but on absolute terms, we estimate a negative currency impact of SEK 13 million on EBITA compared to last year. Global Divisions Industry and Transportation & Places support the calendar-adjusted margin development of the group, while Energy reports the highest margin of the global divisions, but somewhat lower than last year in this quarter. We reported utilization of 72% for Q3 in line with the rolling 12-month level. Looking at the year-over-year development by quarter, we see that Q3 '25 is again behind last year, but with a decline at a lower rate than seen last two years. Utilization is a clear focus for Afry, and we are determined to turn the negative trend. We report SEK 31 million restructuring costs as items affecting comparability in the quarter. The restructuring costs again primarily relate to redundancies across the group. In the new group structure, we will continue to address our cost base as well as making portfolio optimization in quarters to come. And we reiterate our estimate of restructuring cost of SEK 200 million to SEK 300 million in the quarters from Q3 '25 to Q2 '26. We have not guided on phasing, but given that the cost levels were slightly lower in Q3, it is fair to assume that they will, on average, be higher for the upcoming quarters. Cash flow from operating activities in Q3 was stronger than last year. Available liquidity remained at SEK 3.8 billion. Net debt remained at SEK 5.1 billion, where the positive operating cash flow compensates completion of the acquisition of Reta Engineering that was completed during the quarter. On net debt to EBITDA, we remain at 2.9x. Normal seasonality would provide significant deleveraging in the last quarter of the year and take us to around or below our financial target of 2.5x. With that, I leave back to you, Linda. Linda Palsson: Thank you for that, Bo. So I would also like to say a few words on our next chapter and what we've achieved in the third quarter. So as I mentioned in the start of today's session, we launched a new group structure in the third quarter. We now operate through three global divisions, representing 14 core segments, which all will drive global sales and delivery. This has been a key milestone, simplifying our operating model and paving the way for profitable growth. During the quarter, we also intensified our efforts to improve utilization and to structurally address our cost base. As a part of this, we continue to execute on our restructuring agenda, which remains on track and will proceed as planned through the second quarter of 2026. We have also reviewed our existing incentive structure, and we took action to align and harmonize them. This will reduce complexity and suboptimization and ultimately drive group performance. And finally, strategies for each global division and segment are now in place, which provides a strong foundation to deliver on our strategic ambitions going forward. And even if we are still in the initial stage of our strategy execution journey, it's encouraging to see the progress we are making. As we finalize our group strategy and have the organizational foundation in place, we are ready to fully move on to strategy execution. We will share more details about this at our upcoming Capital Markets Day. In parallel, we are progressing according to plan with the implementation of the fit-for-purpose operating model while continuously working to address operational efficiency and our cost base. And as mentioned, we are looking forward to welcoming you to our Capital Markets Day on November 4, where we will be presenting our new strategic direction and our plans ahead. I'm excited to meet many of you there and to good discussions and insights. And with that, let's open up for the Q&A session. Linda Palsson: [Operator Instructions] And let's start with Raymond Ke from Nordea. Raymond Ke: A couple of questions from me. I'll take them one by one. The short-term regional differences in energy, could you elaborate a bit in terms of whether it's due to market, certain customers being hesitant, or where you are in these projects? Any color to help us understand sort of how long this might persist would be helpful. Linda Palsson: They are related to wind, solar, and partly to thermal, and it's mostly related to the Nordic region. We don't expect it to be that long-term. We see it more as a temporary bump, but there are delays in some investment decisions from clients in the Nordic market. On the other hand, on the same segments, we see a strong growth in Asia in the same segment. Raymond Ke: And regarding your restructuring plans ahead then, which, of course, may impact personnel. How many FTEs or how should we think about this when we compare sort of consultants against back-office employees? What's the sort of share of headcount reduction distribution there? Bo Sandstrom: Well, I'll provide some light on it, and then hopefully, you get even more light when we come to CMD. We haven't provided guidance on that split. But like we elaborated last time, Raymond, you will have a split between different kind of redundancy costs coming out from this restructuring. There will be a part that is more on a managerial level. There will be a part that is more based on the support structure of the company, and then there will be an operational part as we move ahead into the restructuring efforts. We experienced that in Q2. We see it again in Q3, and we'll elaborate a bit further when we come to CMD. Raymond Ke: Looking forward to that. And just one final one. On the new incentive structure that you talked about there briefly, could you maybe just clarify how was it before and why you expect it maybe to make a major difference or where you expect it to make a difference this time around? Linda Palsson: As we talked about before, now when we have deep dived into our organization and the setup and our ambition to simplify, we actually saw that we had a lot of different incentive structure programs that were somewhat contradictory to each other. So, by harmonizing this, this will drive our efficiency, it will drive internal mobility. And ultimately, it will support the development of Afry. Then we'll open up for Johan Dahl from Danske Bank. Johan Dahl: Just on this -- interesting to hear that you finalized the plan for the new divisions here to sort of improve the margins. I presume that's some sort of multiyear progression to achieve financial targets. And the question is, you have been quite clear on cost-out actions in the near term, the coming 12 months. But what other buckets do you identify in this plan to sort of drive towards financial targets? If you could just broadly outline those. Linda Palsson: I can start. Yes, of course, we have the cost side, but we also have the revenue side. And here, I mean, our sales effort is paving the way for that. As you have heard over the last quarters, we have been quite successful in securing important contracts going forward, and we are building our order backlog. And this will continue. So we've continued to put a lot of efforts into our sales force and also to our structured key account approach. And this is evident that this is a way forward for us. So that's related, I would say, to the revenue side and our structure going forward. And then maybe you should comment, Bo, on the other initiatives. Bo Sandstrom: No, I can just add to it. I mean, ever since we started the work with the next chapter of Afry that we will present in just a couple of weeks, it has been clear that it's a multi-component effort that we're working on, kind of starting in sense with the clients and the commercial aspect of the business that we're doing, but also looking at what is actually the portfolio and how do we structure that and then leading into the operating model and the cost-out actions that you are referring to. So it is a multifaceted, and we'll do our best to explain that in better detail also on CMD. Johan Dahl: Do you see currently -- you talked about positive pricing in the operations. But can you see currently in the order book proof of concept that the sort of intense -- you start talking about improving the order book quality quite some time ago. Can you see that for a fact now that's having an effect? Or is that still something you expect going forward? Bo Sandstrom: Yes, I'll elaborate a bit. It is tricky. I mean the order book is, of course, a very long-term -- it's a very long-term order book, particularly given what we do and the length of many of our large projects. At the same time, the market is developing and the market is developing fairly short-term in that sense. So it's that combination. But of course, we're happy with the order book and the profitability margin in it, and the steps that we're taking towards a better profitability through the order book. But it's really difficult to see, in a sense, quarter-by-quarter, the development. But over time, we're happy with where we are also compared to 1 or 2 years ago when we started talking about these things. Johan Dahl: Final question. Just the increase, 5%, 6% FX adjusted on the order book, when will that translate to revenues, do you think? Or when would you see that inflection point on reported revenues? Linda Palsson: I start, yes. Yes. And that is exactly the tricky ones, as the order book contains of large projects over many years, and it's also very short-term. So of course, we see that continuously, we will improve, but it's difficult to say exactly what kind of revenue is converted from the order book in Q4, for instance. So -- but we see a slight improvement quarter-by-quarter. Next question is from Fredrik Lithell from Handelsbanken. Fredrik Lithell: Maybe a follow-up on Johan's question there. The order book, is it broad-based the development? Or is it sort of very narrow in certain pockets of exceptionally good demand? Or how does that look? Linda Palsson: No, I would say it's broad. We present the differences between our new 3 global divisions here. But you can see that there are some differences. And of course, that Energy, for instance, had relatively stronger order book than the others. But I would say with -- it is a broad base that we have in our order book. So it's no segment that is without orders. Fredrik Lithell: Another question is on sort of your support platforms. You have earlier, and we have talked at length many times before about your upgrades of CRM, HR, ERP, maybe billing systems, maybe something else. Where are you on that route? And how big of an impact have you had so far in better being able to follow your trends, offboarding, onboarding, billing rates, and what have you. So it would be interesting to hear you elaborate. Bo Sandstrom: Yes. It is a broad question, Fredrik. But we come quite a bit on that journey. It is a long-term journey because, like you said, it involves kind of several parts of the company. It's not just a one system, and then you can measure how far you are progressing. It's a combination of different things. I would say that we're more than halfway in that sense, but we still have a bit to go kind of to get to fully there. And successively, we're getting -- I would say that in the phase where we are right now, we're getting better and better transparency. We're shifting into the part where we can also translate the transparency to efficiency and improvements. But that is also kind of a gradual shift, if that is elaborating a bit on your wide question. Fredrik Lithell: Yes, yes, it's very helpful. And on that, just a follow-up, do you have any sort of heavy lifting? Are there any specific big steps in this project in any way? Or is it really just a gradual work every day? Bo Sandstrom: It is, to a large extent, from an overall perspective, it is a gradual work. Then, of course, we have internal milestones that we are kind of kicking off as we go. But from kind of from an investment and cost perspective, we're not expecting any significant effects kind of shifting upwards that will be material for the group as such. Linda Palsson: Thank you, Fredrik. Then we welcome Johan Sundén from DNB, Carnegie. Johan Sundén: A few questions from my side as well. I think, firstly, a little bit curious to hear some kind of high-level comments on the kind of sentiment within the organization. How has voluntary employee turnover developed over the summer? How is commitment among employees? Just curious to hear those kind of feedbacks. Linda Palsson: Thank you. That's a good question. I would start by saying it was a big shift for us of what we are doing. With that said, I think it's quite logical and well understood why we're doing it. So there's a lot of commitment within the organization towards our new strategic direction. But of course, when you are impacted directly, there will be some additional question marks. So it's not all sort of 18,000 super happy. But I would say the overall direction is good, and we have our employees with us on this journey. The second one was related to the employee turnover. Was that right? Yes. Actually, we haven't seen any sort of negative development on that. So it's in line with what we have seen the last quarters. So no change there. Healthy level. Johan Sundén: And also on the kind of more of an HR place, maybe the leadership within Transportation places, where are we in the process there? Linda Palsson: Yes. So Robert Larsson will do his last day here at AFRY, the 31st of October. And then from 1st of November, we have an acting solution in place, Tuukka Sormunen, who will take on the division as acting. And we are in the final stages of the recruitment process for the successor. Johan Sundén: And then maybe a little bit of a nitty-gritty question for Bo. Firstly, on the order backlog, and there's been pretty negative news flow regarding the forestry sector in the Nordics recently. Should we be worried for cancellation or those kind of things that could impact the order backlog going into Q4? Bo Sandstrom: No, I wouldn't be particularly concerned, Johan. I mean you're right. We're not floating a lot of positive news now, but we haven't really had that positive news flow over the last couple of years. So we're not necessarily looking at a large order backlog that is particularly exposed. So I don't see a big kind of downside risk on that from where we are right now. Johan Sundén: That's encouraging. And then 2 small nitty-gritty questions. Firstly, on working capital. If it's just possible, been a busy reporting day, I haven't had time to go into all the details, but can you please go through the dynamics between the kind of how you come with such good working capital release in this quarter? Bo Sandstrom: Yes. I mean you're right. We had a healthy working capital flow on an overall perspective, particularly if you look at a normal Q3 for us, it was a bit stronger this year than it was in a normal year. We don't have a big reason for it to present in that sense. You should expect that, that would be more seasonal swings also, then looking at how Q3 is normally then composed, then this could very well kind of have a contradicting effect in Q4. That's how it's normally played out. But it's nothing out of the ordinary in that sense, more referring to seasonal swings that we saw in a positive way, of course, in Q3. Johan Sundén: And on overhead cost, which has trended a little bit higher first quarter this year, I think you mentioned in Q1 that there was some intra-year phasing that pushed that up a little bit in Q1. Should we expect very low overhead cost in Q4 then? Or how should we think there? Bo Sandstrom: I mean we're clearly -- I mean, now we closed Q3, so we're pretty far into the year. So as been seen throughout the year, we will expect -- I mean, you should expect a higher full year than last year. That's pretty evident where we are kind of 3 quarters out. Looking at Q3 specifically, then the main rationale for the year-over-year is we have -- we carry a very high activity level currently, or particularly during this year. That's one side of it. And then we have some currency-related effects that sneak into the net group cost that we report as well. But in general, I would more look at the activity level that we are carrying at this moment. Johan Sundén: And when should we kind of be ramping down to more normal levels? Is it '26? Bo Sandstrom: Yes. No, I don't necessarily see that. I mean, over the next few quarters, we will be looking at more normalized levels. That is to be expected. Then whether it will happen in Q4 or going into '26, too early to say. But this is not -- it's not a permanent level, I would envision. Linda Palsson: Next question is from Dan Johansson from SEB. Dan Johansson: Two additional ones. Linda, I think you spoke briefly on the billing ratio declined slightly versus the quarter last year, but perhaps less so than previously. And connecting this to the restructuring program, how do you think it's progressing versus the initial plan you had when you introduced it? I know it's a short period. And I assume you did not see much now in Q3, it's a summer quarter. But you have taken out SEK 120 million of restructuring costs now. So for Q4, if we look into that, do you expect to see some first positive signs in terms of utilization? Or will it take a bit longer to see the effect from that? Just so I get it right from a run rate level here going forward. Linda Palsson: I start? Yes. Our important topic of utilization rate. And actually, as you saw on both slides, this was actually the -- it was still lower compared to Q3 last year, but not as much lower as we have seen before. So that's why we say we see some early positive signs within the quarter, and we also see the end of the quarter going better. So we will keep our focus on this question during Q4 for sure and during next year. In terms of the capacity adjustments, that is ongoing at the moment. And as Bo said, we can also expect relatively more in Q4 from that adaptation, our capacity towards our current workload, and see that we get that right, and by that, also improving our utilization rates going forward. Bo Sandstrom: Just to add a bit on it. I mean we are progressing according to our plan, and we're seeing the effects that we expect in a sense so far. But still, also with the guiding of the restructuring program that we launched right before the summer, I mean, you're completely right. We just passed a summer quarter. And then looking at the SEK 200 million to SEK 300 million that we guided, we have just stepped into that bucket, so to say, in terms of restructuring efforts. So where we are right now, a bit early days still, but we are seeing the effects that we anticipate, but more to come. Dan Johansson: And maybe a final one, if I may. In the industry, I'm still a little bit stuck in the past on your old segment structure here. So just to improve my understanding, the industry margin uptick, is that mainly an effect of your Process Industry business, the Pulp and Paper part, I guess? Or is it more like a -- the local broader industry part you have in Sweden that's a little bit better than last year, i.e., the Industrial Digital Solutions, we look at your previous segment structure. What sort of the improvement here in the quarter? Bo Sandstrom: If you're talking about the order backlog, it's more related to the Process Industries part. If you're looking at the net sales development and the negative growth, it's more related to the historical the IDS part. Linda Palsson: Thank you, Dan. And those are the questions we had today. Super. So then we say thank you for today, and we look forward to talking to you again at the Capital Markets Day. Have a nice weekend.
Operator: Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Anand Srivatsa: Okay. Thank you, and welcome again, everyone. This is Anand Srivatsa. I'm the CEO of Tobii. Joining me today is Asa Wiren, who is our Interim CFO, along with Rasmus, who heads our Investor Relations. I want to remind you that I have announced my decision to resign from Tobii in August of this year. My intention is to move back to the United States for family reasons, and my family has already relocated. I will remain with Tobii in my current role until the end of January 2026, and the Board is in the process of looking for a new CEO. And at this point, we do not have any additional information to share on the process. Now let's move on to the quarterly results. Q3 was a weak result for Tobii on both the net sales basis as well as on overall results. The net sales reduction is related to the end of acquisition-related revenue as well as lower-than-expected revenue in all 3 segments. In the Products & Solutions segment, we saw a year-on-year decline in revenue because of weakness in the U.S. market, while other regions demonstrated growth. In the Integration segment, we saw weakness in our XR NRE project pipeline, but we do expect to see some improvement in Q4 as customers shift their focus to new smart glasses type of solutions. On the Autosense side, we had a reduction in year-on-year revenue, but this is related largely to revenue recognition timing based on NRE projects. We expect that the Autosense business will show robust growth on a full year basis, and we expect that quarterly revenue levels will become more stable as we transition from NRE to license revenue over the next couple of years. The overall lower levels of revenue resulted in lower overall result, but we have still taken steps to move towards profitability with one clear example of our -- being our cash-related OpEx being 30% lower than the comparable quarter last year. Beyond the financials for the quarter, this was a milestone quarter for our Autosense business with our single camera DMS and OMS offering launching at IAA Munich. I will speak more about the significance of where we are with Autosense at the end of this presentation. Finally, we continue to be extremely focused on addressing our financing needs for the company. This has been an explicit focus over the last 1.5 years. Evaluating where we stand at the end of Q3 2025, we assess that we need additional cash to ensure that we are adequately financed for the next year. We intend to take the following steps to address this. We're taking a new cost savings target to reduce cash-related OpEx by SEK 100 million versus our Q2 2025 baseline for the 12 months that follow that timeline starting in Q3 2025. We're also continuing our strategic review process, including the divestment of assets, and this effort has made progress over the quarter, and we expect that a successful outcome will substantially strengthen our cash reserves. The Board has also selected an external adviser to evaluate capital market options as a backup for these strategic initiatives if needed. With the combinations of these tools, we believe that we can address our financing need for 2026. Before we discuss our financial results in detail, let's take a quick overview of our 3 business segments. Tobii is organized into 3 business segments with each of them at different stages of maturity and scale. Our expectations are that the Products and Solutions and Integration business segment will be profitable in the near-term, while Autosense is still in an investment phase. The Products & Solutions business delivers vertical solutions to thousands of customers every year, ranging from university research labs to enterprises and PC gamers. In Q3 of 2025, the Products & Solutions business represented 53% of Tobii's net sales. The EBIT result of Q3 of negative SEK 22 million is a slight improvement versus our last year results despite revenue decline because of our lower OpEx level. The Integration business segment engages customers who integrate Tobii's technologies into their offerings. This segment also includes some revenue from acquisition-related revenue. The onetime effects of that have ended in Q2 2025. In Q3 2025, this business represented 43% of Tobii's net sales, and this business was profitable for the sixth straight quarter. The result for the quarter does reflect temporary effects of the Dynavox contract that we signed in Q2 2025. The Autosense business segment sells driver monitoring and occupancy monitoring software solutions to automotive OEMs and Tier 1s. In Q3 2025, this business represented 4% of Tobii's overall net sales and delivered overall net sales. The business delivered minus SEK 42 million EBIT, a slight improvement versus last year despite a lower revenue level, lower capitalization and higher levels of depreciation. We expect the Autosense business to show solid revenue and profitability improvement on a full year basis. Now over to Asa for the detailed financials. Asa Wiren: Thanks, Anand, and good morning, everyone. Needless to say, Q3 was a weak quarter. Product & Solutions has its market challenges, for example, in the U.S., integrations, where the last part of the Dynavox deal did not fully compensate for the acquisition-related revenue that ended in Q2. For Autosense, we see a timing matter. Operating result and margin have decreased compared to last year, even if our cost levels is significantly lower. On that note, I will already now put some more flavor to our new savings target that Anand mentioned. When we presented our Q2 results, we emphasize that our cost reduction and efficiency focus still remains. Our target is to lower cost by at least another SEK 100 million for the 4 quarters starting Q3 2025 compared to Q2 2025. This is the same methodology we used for our previous initiative for which we reached savings of SEK 263 million, SEK 63 million above the target. This demonstrates that we have the ability to deliver. The savings will further rightsize the company for us being able to continue our product development and meet customer demands. That being said, let's move to Page 6 and look at some group details. I've already commented on the figures as such, but what this illustrates is the impact of the work that has been done. We see overall EBIT and EBIT margins lower than the comparable quarters last year. This is, of course, driven by lower revenue levels, but also by lower levels of capitalization and higher level of depreciation in this quarter. If we normalize for effects of capitalization and depreciation, we would have an improved level of profitability in this quarter. This improvement is due to the significant progress we have made on cost reductions. We are on the right track, but more work needs to be done. Turn to Page 7 for some Product and Solutions comments. The negative sales trend continues with a decline of 5% in organic growth and is mainly related to the Americas. Cost level is lower than previously. And to remind ourselves, in Q2 this year, write-downs of SEK 33 million impacted EBIT. Turn to Page 8 for some integrations comments. The last part of the Dynavax prepurchase deal did not fully compensate for the acquired imaging-related revenue that ended in Q2. As mentioned in Q2, from Q3 and onwards, there is a quarterly minimum guarantee in the Dynavax deal until 2029. We also saw fewer nonrecurring revenue projects during the third quarter. Turn to Page 9 for the Autosense segment. This segment is still in a phase with lumpy timeline dependent revenue as well as with nonrecurring revenue. These elements impact both how revenue is recognized and cost, such as capitalization and depreciation, as mentioned before. In Q3, revenue was pushed forward, capitalization decreased and depreciation increased. Let's continue to Page 12 for comments on our balance sheet and cash flow. During Q3, Tobii repaid SEK 91 million of its COVID-related tax release. This remaining -- the remaining debt has been reclassified to short-term and long-term interest-bearing debt previously reported as current liabilities. In Q4, we received the last SEK 45 million from Dynavox prepurchase deal. Where we are right now, there is a risk of insufficient financing for the coming 12 months. Having said that, with the measures taken and in progress, I repeat that we believe we can address the financing needs for 2026. With that said, thank you for your time, and over to you again, Anand. Anand Srivatsa: Thank you, Asa. Now I'm going to spend a few minutes talking a little bit more about Autosense. Q3 2025 was a milestone quarter for this business, and I want to share with you where we stand in our journey to become a leader in automotive interior sensing. First, let's take a look back at what has happened since our acquisition of the FotoNation business in February 2024. Since making the acquisition, we have built a comprehensive and combined road map that enables us to offer a leading in-cabin sensing product portfolio. This was capped off with the successful launch and final release acceptance of our SCDO product in Q3. We have continued to demonstrate our credibility in bringing our solutions to vehicles on the road over the last 1.5 years. We've increased the number of OEMs who are choosing Tobii solutions from 9 to 12, and our solutions are being deployed in volume from 300,000 vehicles on the road at the time of the acquisition to more than 800,000 vehicles currently. We are working hard on ensuring that our solutions meet the demanding requirements of the automotive industry in terms of quality and process. Notably, we have achieved ASPICE Level 2 for our SCDO program operating as a software Tier 1 to a leading European OEM. Our solutions have also achieved regulatory approval with EU homologation for both our DMS and SCDO offering. Finally, we have built an efficient and empowered team where Autosense engineering has been consolidated into Romania, and the organization has more centralized responsibility to deliver on our ambition by having functions from engineering to sales reporting into the same leader. We have realized the investment synergies as part of getting this efficiency by reducing our investment levels by more than 40% versus our 2024 peak. Looking back, I would say that we have substantially realized the rationale for the acquisition, including the synergies we expected. We have done this by reducing our overall investment, building a leading product portfolio and increasing our credibility in the automotive industry. A critical aspect of building automotive credibility is showing that your technology can get through the rigorous testing and validation of OEMs and start shipping in vehicles on the road. Tobii's Autosense Interior solutions have been shipping in vehicles on the road in 2019, and we continue to see significant growth in this footprint. As of the end of Q3 2025, we have more than 875,000 vehicles on the road with Tobii solutions, and we expect that this number will continue to accelerate as our high-volume passenger car wins get into production in 2026. Now I want to talk a little bit more about building a leading product portfolio for in-cabin sensing. The rationale for making the acquisition of FotoNation was the realization that for success in this space, Tobii required a full offering, not just driver monitoring systems. We could already see in 2023 that RFQs were looking for offerings that could support both driver and occupancy monitoring. Our belief was that the market would see increased adoption of DMS and OMS to the point that they would both become required capabilities. We are already seeing the early stages of this play out as we expected. Camera-based DMS is already a requirement in the EU starting in 2026. And we now see that Euro NCAP requirements for 5-star safety require more occupancy monitoring capabilities over the next few years. We believe that for new platform shipping in 2028, OMS will be required to get a 5-star rating. Tobii has been shipping DMS and OMS systems into vehicles in the road since 2019 and 2021, respectively. We recognize that while in DMS, we are not the market leader, our bet has been to move -- that move into a leading position in the space is based on our leadership in single camera DMS OMS and that this method will be the preferred deployment for in-cabin sensing systems in the future. Over the last 3 years, Autosense has pitched single-camera DMS OMS, but this approach has been met with skepticism as companies were unsure whether DMS from a rearview mirror location would get regulatory approval. This concern from the industry reflects the fact that DMS methodology from a rearview mirror position is quite different than the typical DMS systems that are deployed today, which have a much clearer and closer view of the driver's face. Given this context, our achievement this quarter is extremely meaningful in both getting EU homologation for our support regulatory approval and getting acceptance for our final release for our premium European OEMs launch in the second half of this year. We expect that our SCDO system will start shipping with our OEM in the second half of 2025 and be in end customers' hands in early 2026. Now we have expected over the last year -- last 3 years that a single camera DMS and OMS solutions mature, that the industry as a whole will also validate our view that this approach is not only feasible, but the most cost-effective approach for in-cabin sensing. The question, of course, is when would the industry take notice of SCDO and share their view on this approach? I am thrilled that we have seen significant industry momentum already this month with the keynotes and presentations at in-cabin Barcelona 2 weeks ago. At the event, Volkswagen, Magna and Gentex, leading OEMs and Tier 1s in the industry, shared their view of the suitability of doing DMS and OMS from the rearview mirror position. Volkswagen was even more specific, as you can see the slide that's shared on the screen about the benefits that this approach offers over traditional DMS and OMS systems that require 2 cameras. They shared that the single camera approach from a rearview mirror position saved over 30% of BOM cost, implementation cost, design complexity, et cetera. This is a stunning number that validates our view that SCDO will likely be the volume deployment for in-cabin sensing in the future. The outcome from this event is certainly surprising to us, but surprising for industry analysts as well. To quote Colin Barnden, principal analyst from Semicast Research from his post on LinkedIn following this event, he says, "What came over me in Barcelona is the sudden shift in industry awareness of the viability of both driver and occupant monitoring from the mirror. For several years, it has been clear there was a campaign of misinformation from some parties saying that the mirror is unsuitable for driver cabin monitoring. Those voices magically have become advocates of this idea already. He declares in his post that after the event, the question is, why wouldn't an OEM do DMS and OMS from the mirror? We at Tobii could not agree more. With a proven and mature offering that has gone through grueling acceptance test at one of the most demanding OEMs in the world, Tobii is well positioned to win as more OEMs come to the conclusion that DMS and OMS from the mirror is the most cost-effective and scalable approach for in-cabin sensing. Okay. Let's wrap up. Q3 2025 was a mixed quarter where we saw significant milestones achieved in Autosense, but where we saw weak revenue in the quarter that resulted in lower profitability. Our ambition in the long-term is clear that we intend to be leaders in all of our business segments and execute in a profitable and financially self-sustainable way going forward. We are already leaders in our Integrations and Products and Solutions business segments. And the progress that we have made so far in the Autosense business segment and industry validation of our approach puts us in a great position to build a leadership position as SCDO scales in the market. In the near-term, we have a key focus on addressing our financing needs. We will address this with 3 major approaches. The first is our new cost reduction target, which will reduce our cash need in 2026. We're also executing on a strategic review, which includes potential divestments, and our belief is a successful outcome in this area will substantially strengthen our cash reserves. Finally, the Board has engaged an external adviser to evaluate capital markets options as a back for these strategic initiatives. We are confident that with these tools, we will be able to resolve our near-term financial needs and allow us to focus on our objective to achieve sustained profitability, which we remain fully committed to. With that, thank you, and over to Q&A. Operator: We have received several questions about our combined DMS and OMS solution, how our offering compares to our competitors, what Tobii's position in the market is relative to our competitors and how we view the time line regarding ramp-up of SCDO. Can you please provide a comment on these questions? Anand Srivatsa: Absolutely. As I shared in my deeper dive on Autosense, we believe that we have been the clearest voice around the fact that the most scalable and most cost-effective approach for in-cabin sensing is a single camera DMS and OMS offering from the rearview mirror position. There are other players who have launched hardware solutions. And from our proprietary research, we believe that at the time of our launch, we have the most complete offering as well as an offering that delivers both DMS and OMS. We believe that our position in this space is that we have the leading offering here as well as an offering that has both proven itself and has matured as we have had to go through acceptance as a software Tier 1 for one of the most demanding OEMs in this space. We acknowledge that, of course, in this in-cabin sensing arena, we are not the -- driver monitoring systems, but our bet for getting to a long-term leadership position is that as SCDO sales, our leading position will put us in a great place to go and win future RFQs. We recognize again that over the last couple of years, there has been industry skepticism about whether a single camera approach will work, especially because the position of the sensors are farther away from the driver. We believe that a lot of these concerns are being addressed now with the successful launch that we have enabled, and we believe that RFQs will increasingly request this type of approach, and we are well positioned to win in the space. Operator: Is Tobii provider for eye tracking to Samsung Moohan? Anand Srivatsa: Samsung announced a new high-end VR headset. We are not the eye-tracking provider for that headset. Operator: Did you receive the SEK 30 million out of the SEK 100 million in Dynavox revenue in cash this quarter? And did you also receive the SEK 45 million in royalty from Dynavox from previous quarter this quarter? Anand Srivatsa: And I'll let Asa take that and clarify that question. Asa Wiren: We received the SEK 30 million in Q3 and the SEK 45 million in Q4. Operator: What types of assets are you planning to divest? Would you consider divesting one of the business units? Anand Srivatsa: Again, as you can imagine, these strategic reviews are extremely sensitive. We're not going to go into details of exactly what assets we are planning on divesting except for the fact that we believe that a successful outcome here will substantially strengthen our cash reserves. We will share more details as possible as these activities progress into maturity. Operator: Thank you for this presentation. On Autosense, in materials from Qualcomm, Tobii is a pre-integrated partner. What does this mean? Also, this seem to be a much wider opportunity than with EU regulatory requirements. What is your look on this? Anand Srivatsa: One of the big advantages of the engagement that we have had is that our solution is shipping on Qualcomm's Snapdragon Ride platform with our premium OEM. This has meant that we have done substantial work to go and pre-integrate the solution. Qualcomm's expectation is that they want to sell a pre-integrated solution that delivers their domain controller type architecture along with their ADAS functionality. The ADAS functionality does depend on capabilities that are enabled by in-cabin sensing technologies that we have -- like we have. We believe this is a big asset for Tobii, not only that we've gone and delivered a mature and proven platform, but that partners like Qualcomm see our solution as pre-integrated and an easy way for them to scale their offerings into the automotive industry as well. Operator: What is the total cost in absolute numbers for OMS and DMS for the car manufacturer? Please elaborate on the topic. Anand Srivatsa: We cannot, of course, share algorithm pricing levels. And in terms of overall system cost, you will have to go and speak to the Tier 1s who typically provide the hardware. Again, what I think is super meaningful as we look at the in-cabin sensing opportunity as a whole is that DMS and OMS are increasingly becoming requirements in this market. And therefore, from a regulatory perspective, these are required systems. And again, there's high interest from the OEMs to offer these in the most cost-effective and scalable way possible. The fact that Volkswagen has been clear that there is a substantial cost savings by offering DMS and OMS from a rearview mirror position in a single camera offering validates our view that this will be the way that in-cabin sensing is typically delivered to go and ensure that you can meet your regulatory needs. Operator: Is it correct to assume that you are involved in Samsung XR through your collaboration with Qualcomm? Anand Srivatsa: So you should assume that we are talking to lots of different companies in the XR space. We're talking to most of their leaders. We understand that people make decisions on their choices of algorithms for a variety of reasons. As I've mentioned before, on the specific Samsung Moohan VR headset, we are not the eye tracking provider in that system. Operator: Is the total Dynavox royalty SEK 52 million or SEK 45 million from Dynavox? In that case, when are the remaining SEK 7 million received in cash? Asa Wiren: The total is SEK 52 million, and the cash was delivered in Q4. Operator: Congratulations to fast acting. Is Tobii eye tracking integrated in Sony Siemens XR headset? Anand Srivatsa: I don't think we have made any announcement there. We will -- again, we will not comment on that particular headset. Okay. Thank you very much. That's the end of the Q&A section. Thank you all very much for participating, and we look forward to sharing our next set of results with you in 2026. Thank you. Operator: Thank you.
Operator: Welcome to the Trelleborg Q3 2025 report presentation. [Operator Instructions] Now I will hand the conference over to CEO, Peter Nilsson; and CFO, Fredrik Nilsson. Please go ahead. Peter Nilsson: Hello, everybody. Peter Nilsson speaking. Welcome all of you to this Q3 of 2025 results. What we're going to give you some of our, let's say, input on how the quarter developed. Joining me on this call is also Fredrik Nilsson, our Group CFO; and also Christofer Sjögren, who is heading our Investor Relations. So as usual, we're going to refer to a slide deck from our web page. And then on that, turning to Page 2 on that section, the agenda slide and a normal starting with some general highlights, some comments on the business areas, and then Fredrik's going to guide us through the financials and then finishing off with a summary and some comments on the outlook for the running quarter. And then finally, ending our call with a Q&A session. So that's the agenda for this call this morning. Turning then to Page 3. Heading of our report, organic growth with higher margin. So a solid quarter in more or less all aspects, the development in the right direction in more or less all aspects, sales ending up relatively flat compared to last year in Swedish krona, an increase of 1%. But behind this, a very solid organic growth, plus 4%, which is something we have not seen for quite some time. M&A also benefiting. We have done several acquisitions, several smaller bolt-on acquisitions here in the last 12 months. And that is, of course, also bringing in some sales. So that is adding 3%. And then we have a currency headwind, well known by everybody, which is 6% in the quarter, which is then once again ending up with a 1% on the total sales. EBITDA also up and also with an improved margin, which is an all-time high margin and results for the third quarter. We are, let's say, a notch above 18% EBITDA margin in the quarter. And this is, as I already said, it's a stronger third quarter to date for us, both in terms of profit and margins. So solid. And I mean, the great thing, you're going to see later also is coming from all business areas. We have a substantial negative FX on EBITDA, almost SEK 100 million or SEK 90 million, bringing us in the wrong direction, if you may say. Items affecting comparability running as planned, relatively high level this year, but also coming from this rather high number of acquisitions, which is then kind of creating opportunities to improve the structure and then make sure we get all the benefits from these acquisitions as we move forward. Cash flow, very strong. I mean, we have to admit, surprisingly strong ending of the quarter on the cash flow, which, of course, is going to bounce back a little bit here in Q4. But nevertheless, we are happy to have the money in our pockets instead of sitting somewhere else. So very solid cash flow, which is, of course, yes, creating a stronger balance sheet and overall, a better business. We've done a smaller acquisition, small but important acquisition in Singapore called Masterseals, which is an acquisition which is strengthening a little bit, oil and gas markets and generally more in the kind of aftermarket-related segments of Sealing Solutions, which is an area which we are developing at the moment, an area we're growing into kind of a global business for us. Also note, continued share buyback on a level slightly north of SEK 500 million being spent on share buybacks in the quarter. So this is the quarter. This is what it is. And I mean, overall, once again, a solid quarter. So turning then to the next page, Page 4, where you see new slide for us, which I hope you will give some more input on the sales split per geography, which I don't going to comment that much on. But we also, more importantly, we see organic growth in all 3 major geographical areas, with Europe for us being the softest, slightly better in Americas, 5% organic growth in Americas, which is kind of on a high level, driven a little bit by project deliveries, but that's the way it is. But nevertheless, good solid quarter and a very solid quarter also for Asia, then particularly strong in China for us. But overall, strong in Asia and kind of a little bit bounce back in Americas and then Europe a little bit softer. So this is the -- and in all areas or levels, which, I mean, we have not seen for some time, especially if you talk both Americas and Europe while Asia continues on a good level, as you've seen throughout the year for Trelleborg. Turning to Page 5, the agenda slide, business areas and then quickly turning to Page 6 with some more detailed comments on Industrial Solutions, organic growth and we say stable margin, a slight uptick in margin. Organic sales 2%; M&A, adding 4%. And then, of course, also, as others here, a negative exchange rate of some 6%. Also behind these figures, we see oil and gas project declined in the quarter, sales declined in the quarter, but that is mainly due to a rather tough year-on-year comparison. Overall market still developing well and a very solid cash flow. But some of these sales is rather project heavy. It is that it sometimes goes a little up a little bit and sometimes it will be down and this quarter was a little bit down in the sales, but it's not -- once again, it's not a reflection of overall lower activity in this part of the business. Construction industry is still muted but we noted satisfaction that is getting slightly better if you look sequentially, although still, let's say, quite strong decline if we compare year-on-year. But once again, some light in the tunnel and some improvements kicking in. Automotive sales increased in the quarter. I mean it's been a little bit -- how should I say a little bit strange quarter, if I may say, for automotive. Those of you following automotive, you see that it's still relatively tough sales in Europe and North America, while China was extraordinary in the quarter, which as I said, 10% plus organic growth. And I mean, the business that we have in Industrial Solutions has a very good market share in China. And that is where we benefit from this. So we have actually a strong development in automotive within Industrial Solutions in this quarter. And then EBITDA and margin improved slightly. I mean Industrial Solutions is a fairly diverse business, and there are some ups and downs always. But overall, we continue to move in the right direction. We continue to improve. It's not major steps. It's a hard work coming from kind of operational focus and also some of the structural investment, structural improvements kicking in. Overall, a good quarter, well managed in more or less all aspects. And then we also should note that when we look at the margin here, this acquisitions that we've been doing is on a lower margin than the overall, and we have some tens of a percent negative kicking in for that. It could be -- I don't know, looking at Fredrik, 0.3%, 0.5% on the margin actually coming from kind of this acquisition kicking in and it will take us a year or so before we can get them back to the overall margin of Industrial Solutions. But that is also something that you need to note when you look at the margin development within Industrial Solutions. Turning to Page 7. Trelleborg Medical Solutions, strong organic sales growth. Organic sales is up by 13%. M&A, not doing any changes, so 0 impact from that. But we have to note here as well that we have some project deliveries related to one of our major customers, which is, let's say, boosting the sales dramatically -- in the sales. I mean, if you look underlying and try to kind of neglect these organic sales, I mean the more correct probably underlying organic sales is more in the kind of mid-single-digit territory. Medtech sales, we see also medtech sales in Europe developing well. North America, where we still -- struggle is the wrong word, but we still see some negative development where we still have some inventory issues. We don't see the overall activity going down, but we still see our sales is a little bit below where it should be. So we are pretty certain that we're still impacted by inventory reductions especially in North America, which we have been for some time, and we honestly, we believe that it's going to turn the corner, but we see it continuous. It is difficult to really see through exactly when it will turn, but we continue to gain business. We continue to gain orders, and we are overall satisfied with the development, even though the sales, we would like to sell more, of course, in Americas as well going forward. Life Science, which is kind of the smaller segment of medical, is developing, if I may say, very nice, and we are growing that. And we are starting -- we have been investing in that segment with new factories, both in North America and in Europe, and with satisfaction, we see that these investments is slowly, let's say, benefiting us, and that is an area also where we see continued growth going forward. EBIT margin up and also, let's say, in absolute terms, we have EBITDA up. I mean there's higher volumes, as you expect, but also continuous structure improvements, especially starting to benefit from -- continuing to benefit from this acquisition of Baron that was made, let's say, a year ago now. Turning then to Page 8, Sealing Solutions. If I may say, very solid organic growth in the quarter coming from several areas. But I mean, if I should highlight something, it's really that we have underlying kind of industrials, the big kind of industrial segment of TSS is starting to do better. We see now growth in Europe kicking in. Asia continued on a good level, which has been good for us for quite some time. We continue to see some weakness in North America. But overall, these core segments of Sealing Solutions improved in the quarter. Both in sales and also kind of a higher activity level. Automotive for TSS is still below last year, particularly still impacted by, let's say, very soft development, very soft development in the aftermarket business. And we cannot -- I mean, it's not like the aftermarket in itself is down. It's more that we see very, let's say, uncertainty, especially in the North American market, this is -- we see that they are downsizing. In stock, inventories is down, and we do expect it to kick back. But also here, we don't know exactly when, but it is kind of we are supplying substantially below the market demand for a few quarters here, and we do expect that to bounce back eventually. We note in automotive here as well as we also commented on TSS, a very good development in China. We have a good market share for some of the products, in TSS, especially that's our shim business, our brake business has a solid market share in China. And of course, we are benefiting from that as the Chinese market has been developing very, very good in the quarter. Aerospace, very strong all over. We continue to, let's say, get more orders than we sell. So let's say, order book is growing and the activity level is growing. Of course, we note, as a trusted -- the ones of you was following aerospace that's about Airbus and Boeing is very ambitious in the growth plans going forward, and we, of course, do our best to follow that. So good development in aerospace. And overall, this means that EBITDA and margin is improving, higher production volumes kicking in. We have been underproducing for some time. And we see also the benefits from the operational improvements, but we also have to note also here we have a negative impact from acquisitions being made, which is kind of the same dimension as we see in Industrial Solutions, some 0.3%, 0.5% negative impact on the margin if we were trying to kind of adjust for the acquisitions. But we're doing the acquisitions, of course, because we believe they are good for us and they are improving the business overall, but it will take some time to get all business improvements into the margin. Already commented on the Masterseals acquisition in Singapore that is part of small acquisition, but it's part of an overall game plan to strengthen our activity within, let's say, aftermarket for seals and especially related to oil and gas and mining and other segments, which is more kind of project-related where you need, to say, local presence in order to get this business into our books. So that's -- we're happy to be that, and we think it's a good strategic add-on, although once again on a very minor level compared to the overall sales of Trelleborg. Turning to Page 9, some comments on sustainability, continue to improve substantially. I mean, we say here, we are not getting to the end of the game, but we are getting down to levels of CO2 emissions from our Scope 1 and Scope 2, which is kind of becoming very low. We're, of course, going to continue to improve. We continue to do better also in this aspect. But I mean, do not expect these kind of improvements steps going forward. Next page, Page 10 and it's basically the same here, where we have a substantial tick up in share of renewable and fossil-free electricity. We are now up to 92%. And I mean the remainder here is very difficult because in some geographies, you actually cannot get it, and we are getting also here to a situation where we cannot improve that much anymore to you on this because we are, let's say, stopped either but by very major investments to turn it around or that is simply not available in a few geographies. So very good development, very happy to show this. There was continued good development in sustainability, and we are doing good in these aspects. And I mean, once again, the focus -- we cannot improve on this criteria. So the focus going forward will be more smaller steps and more kind of what we call say, energy excellence programs. We'll be working hard with all the factories in order to improve and to do better in more minor aspects. So these big steps, you will not see these big steps going forward, but we're getting to a situation. I don't say it being perfect, but we're getting to a level where we cannot justify the final steps to get it even better. Turning then to agenda slide again, Page 11, financials on Page 12. I'll leave it over to Fredrik to guide us through this section. Fredrik Nilsson: Thank you, Peter. Let's then start on Page 12, looking at the sales development. Reported net sales increased by 1% from SEK 8.442 billion to EUR 8.532 billion. We have organic sales growth in all 3 business areas in total 4%. Structural changes added 3% growth in the quarter. And then as Peter mentioned, we have negative translation effects that reduced growth by 6% during the quarter. If we then move to Page 13, showing historical sales growth. In the third quarter, we were close to our sales growth targets, achieving 7% sales growth at constant FX. Looking at Page 14, showing the quarterly sales and rolling 12 for continuing operations. The sales in the quarter, as I said, reached SEK 8.5 billion at net rolling 12 months, it's reached SEK 34.7 billion. Moving on to Page 15, looking at the EBITA and the EBITA margin, that continued to improve further. EBITA excluding items affecting comparability, increased by 5% to SEK 1.541 billion in the third quarter. We saw profit growth in all 3 business areas. And looking at -- we start with Industrial Solutions, which was up 1% in EBITA due to operational structure improvements, which was partly offset by negative translation effects. And then Medical Solutions, up 10% in the quarter. And then finally, Sealing Solutions was up 6% in the quarter due to higher production volumes and operational improvements. And margin-wise, we rose from 17.3% up to 18.1%, supported by the organic volume growth and the operational improvements. Looking at then the EBITA and EBITA margin on a rolling 12 months basis. EBITA amounted to SEK 6.331 billion with a margin of 18.2% and EBITA has been growing with 6% during the last 12 months. Moving on to profit and loss statement. Looking into some more details in the income statements, items that are affecting comparability, SEK 72 million in the quarter, which was entirely related to restructuring costs for adjusting our cost base and due to the recent acquisition. Financial net I would say, on par compared to last year, SEK 126 million compared to SEK 128 million. This is actually despite that the debt level is higher this year. So that is also a good achievement. Tax rate for the quarter, excluding items affecting comparability, amounted to 26%, a slight increase due to timing. Page 18, earnings per share, excluding items affecting comparability, amounted to SEK 4.20 in the quarter and increased by 11%, and that was due to the higher profitability and the effect of the ongoing share buyback program. And for the group, including items affecting comparability, earnings per share were up SEK 3.94, also 11% up. Moving on to Page 19. As Peter mentioned, we have a very strong cash flow in the quarter, which reached SEK 1.741 billion. On a high level, half of the improvement came from the higher EBITDA and the rest from efficient management of the working capital. CapEx is well aligned with the communicated guidelines for the full year but marginally higher than Q3 last year. Moving on to Page 20, the cash flow conversion. The cash flow conversion was 92%. So we continue to deliver a high cash conversion ratio. Moving on Page 21, the gearing and the leverage development. Net debt at the end of the quarter at SEK 8.280 billion. Share buyback during the quarter was SEK 554 million, ended the quarter with a debt-to-equity ratio at 22%. So small improvement compared to Q2. And then net debt in relation to EBITDA, 1.1, which was slightly higher than year-end. But of course, we have also paid out a dividend during the second quarter, and we have continued the share buyback program. In other words, our balance sheet remains strong. Moving on to Page 22, return on capital employed reached 12% for the quarter, and our capital employed has increased compared to last year mainly due to the acquisitions, but I think also I would like to note that our return on capital employed has sequentially increased for Q2 to Q3. And then finally, the financial guidelines for 2025, unchanged compared to what we communicated after our second quarter CapEx, SEK 1.650 billion for the full year, restructuring costs around SEK 500 million for the full year as well. Amortization of intangibles, SEK 650 million and underlying tax rate for the full year around 25%. And by that, I would like to hand back the microphone to Peter. Peter Nilsson: Thank you. Agenda slide, summary and outlook. Quickly turning to Page 25. Looking at the quarter, organic growth with higher margins, good quarter overall, but it picked out a few highlights. We see in the quarter in improved -- generally an improved demand, higher activity levels or continued high activity level in some areas. We see an improvement in that. And we also note with satisfaction, of course, that all our 3 business areas recorded organic growth in the quarter, which has been quite some time since we saw that the last time. So overall, better activity, although not kind of a big jump upwards. But nevertheless, improvements in most areas. We also note that these higher sales is also improving our margins. We have a fairly sizable uptick in the margin year-on-year. And it then boils down to the strongest quarter -- strongest third quarter to date, both in terms of profit and margin. We also note that we continue to do value -- what we call value-adding M&A, although impact, this is our 10th bolt-on acquisitions since Q3 last year. And of course, this is a high activity level in [indiscernible] we said before, is impacting our margin negatively in Sealing Solutions and Industrial Solutions, but we are, at the same time, improving our overall positions, and we are very certain that this -- when that's fully integrated, there will not be a drain on the margin or rather the opposite, but it takes some time to get there. And we also note that continue buybacks, we continue to have a solid balance sheet, which is, let's say, allowing us both to continue on high CapEx level, continue to do M&A, continue to absorb the growth, which is in the quarter in terms of working capital, but also on top of that, we also continue to do share buybacks. So that was the summary and then turning to -- for the last quarter and then turning to Page 26 and some outlook. We expect the demand to remain on this level. For those of you who have read the reports see that we have this extraordinary sales or project sales within medical, we were not going to kick in. So with this outlook, you should read it that the continued overall demand, we might be -- we don't know exactly, as we otherwise were sitting exactly where we end up. But of course, we believe that this is probably not going to be of north of 4% in the next quarter, but we could be a 1 percentage point or some lower than 4%, but we believe it's going to be on a similar level. And I mean if this continued higher activity level, remain, then we will look with more positivism on the future. But with this comment, of course, also, we all know there is a big year -- still a big, what we call political situation or geopolitical challenges out there and things might happen, which could impact the demand short term. So that is, of course, with this comment on the continued good market, it comes with this kind of comment. And then turning to Page 27 agenda and into the final agenda point and turning to Page 28 and opening up for questions. Operator: [Operator Instructions] The next question comes from Alexander Jones from BofA. Alexander Jones: If I can have two please. The first on Sealing Solutions and specifically the Industrial business within that, you talked about higher growth this quarter. Could you help us understand was that broad-based or the particular end markets within Industrial driving that? And to what extent was that the end market improving or more market share gains and innovation success that you've had as Trelleborg? And then the second question, if I can, just on the Medical business. Can I clarify on the one-off project sales this quarter. Is there any element there have pulled forward that will be reversed in future quarters? Or is that just sort of one-off extra sales that we should not extrapolate in our future numbers? Peter Nilsson: Alexander, talking -- starting with the medical one, I mean that is really a startup of a new program for one of our customers, which is a one-off delivery. So it's not really about impacting the future. So it's not kind of a pull from any future sales. It's simply sales in the quarter due to the [indiscernible] starting new programs. So that is kind of the way it is sometimes, but it's not kind of any forward buying or something, it's simply a one-off sales. So nothing really that we need -- we don't expect it to -- yes, to impact the sales going forward. So that's it. And then if you talk about Industrial, I mean, one thing is also on the industrial sales of Sealing, which you've seen in the quarter, I mean we have been, for quite a few quarters, talking about destocking in these activities. So one of the impacts in the quarter is no more destocking, and we are kind of supplying in line with underlying demand. I mean, so that is one of the impacts. But we don't see still as an inventory buildup, but we still believe that there is supplying. But we are not kind of oversupplying in the way that they are building stock. And I mean -- and the core driver for this is kind of the biggest subsegment, if I say in Sealing, which is more hydraulics, machinery and this kind of core industrial business. That is where we see the improvements. So we're not surprised, I shouldn't say we're surprised because it's been undersupplying for a few quarters. And now we feel that we're supplying in line with the overall demand. So I don't know whether that is enough for you. Alexander Jones: Yes, that's very helpful. . Operator: The next question comes from Agnieszka Vilela from Nordea. Agnieszka Vilela: So I have a few questions, maybe starting with the first one on the growth trajectory in the quarter, if you could share any flavor of how was development in September? And then also, how is it progressing in October? And then also, Peter, I think before you used to refer to your order intake. So how is that developing right now for you? Peter Nilsson: I mean there was an improvement throughout the quarter, but also the trick on Q3 September is always important. Since the other 2 months is a little bit impacted by vacation period. So it was kind of an acceleration in the quarter, so a stronger ending than beginning in the quarter, but we don't, let's say, put too much emphasis on that one. But it is kind of an improvement in the quarter, if I may say. And October, I mean, we don't see any kind of differences and we don't really want to comment on it. So it's really overall guidance remains that we believe is going to be same growth in Q4 with, let's say, some adjustments coming from this extraordinary sales in Medical. So my read this, I mean it might be 4, it might be 3. But I mean, we don't really know. We have an overall good order intake. We have overall good activity level. I mean, we should say book-to-bill in the quarter is positive. We have booked more orders in Q3 than we have been selling. So we are growing the order book. But we also remain a little bit cautious on this because we know there is inventory focus, cash flow focus on some customers. So we don't really want to read too much into it. But if we simply did the Excel sheet calculation, then of course, we will, let's say, be more positive than negative in that one. I don't know whether that is enough, Agnieszka. Agnieszka Vilela: Yes, yes, absolutely. But then maybe if you could give us some color on the regional development as well. Obviously, you have -- you have had very strong development in Asia, now followed by Americas, Europe also now slightly positive. In the next few quarters, do you expect any changes to this order like any other -- any region taking over? Peter Nilsson: No. I mean I think Asia, little bit, has been a little bit extraordinary strong, especially in automotive since we have this big boost. I can't remember exactly, but I think production levels in China for automotive was up by some 12%, 13%. So that's, of course, since we have a high -- good position with a few of our automotive segment, that is benefiting us, but also the overall industrial development in Asia, especially in China has been good for us, somewhat difficult to fully understand, to be honest, but it's been ongoing for quite a few quarters, and we do not expect that to be -- of course, comps getting more difficult going forward. But nevertheless, a good development in there. Europe is probably more tricky in a way to read. But we see -- I mean, in the core, as I commented before, the core Industrial segments of TSS is improving. And that is more -- part of it is a reflection that no more destocking and more of kind of delivery in line with underlying demand. We do not see any kind of inventory buildup at the moment, and that is, of course, if it turns more positive, we will see that as well. So we've been undersupplying for a few quarters. We do expect as the market -- if the markets turn more positive that we will be oversupplying. But we don't really see that happening short term. But if you go into early next year and this development continues, we're probably going to have some of that. U.S. is probably, for us, a little bit more positive than it should be because we have a few project deliveries in U.S., which is kind of impacting the sales there. But nevertheless, let's say, for us, a good positive territory also coming there from kind of hydraulics and the pneumatic segments, which is also a part of our core business in North America for Sealing. I guess that is -- I don't know, Fredrik, if you want to elaborate. I think that is kind of just to be a little bit more color for that development. Agnieszka Vilela: That's very helpful. And then the last one from me. I noticed that you didn't really mention the tariff impact in your report or in your presentation. Was there any kind of growth tariffs now affecting you in the quarter and how are you mitigating those? Peter Nilsson: We have a few individual businesses where we need to kind of redo the supply chain and working with that. But I mean, overall, this kind of minor activity. So that is why we don't see that as a kind of impacting us. We have a very regional setup. We have as I said, manufacturing in Asia, we have manufacturing in Europe, we have manufacturing in the U.S., and we don't really have a lot of these flows going across. I mean, the challenge here is more the metal content where we need to find out. We have a few products, but we have metal content, and that is something where we need to work. And that is also our question going forward on these tariffs in Europe because some of the export business from Europe into other territories might be impacted by that. But it kind of remains an action point and that is something we're working on. But overall, on a group level, we don't see this at any topic in a way, to be honest. Underlying demand could be impacted, I mean to say. But I mean for our trading and margins, it's not really something that we discuss too much. Operator: The next question comes from Forbes Goldman from Pareto Securities. Forbes Goldman: Yes. One question on the TSS margin, which was quite strong here in the quarter. Is this the start of a sustained recovery there? And how are you thinking about the 23% target from here? What do you sort of need to reach it? Peter Nilsson: No. I mean it is a solid, let's say, step in the right direction. Looking at the margin, of course, once again, you need to remind yourself as well that we have also a negative impact from the acquisitions. Of course, it is a step up compared to last year. And we have always said that we're going to get this back to our levels and is kind of step in that direction. And then I don't want to guide exactly what kind of quarter, but it is coming as expected, as planned, if I may say, this margin expansion coming from a little bit bounce back in our core segments of TSS. I mean that is what we've been waiting for. Once again, we refer to this kind of fluid power, hydraulics, pneumatics, that segment, which is the major part of Sealing Solutions, and that is the area which is going to drive this improvement by extra volumes. And also in that extra volumes in the right areas, if I may say, because it's also driving kind of a positive mix within Sealing Solutions. So this is a step in the right direction, and we still have the kind of overall objective to get back to this, say, '22, '23, '24. I mean that is where we want it to be. And we are fairly certain that we are moving in that direction. Forbes Goldman: Great. I have a follow-up on that. TSS margins are typically seasonally weaker during the second half of the year. So could you maybe just say anything directionally about Q4? Peter Nilsson: No, we don't want to do. I mean, we are moving in the right direction, and we are -- of course. I mean TSS is more, should I say, consumable where we supply into the supply chains of a large number of industrial customers. And I mean there is always Christmas breaks and all of that. So it's always a bit softer by the end of the year depending on the activity level that they're planning for after the holidays. And that is the same seasonality as we always have. So it's -- I don't know if we can comment any more on that. I don't think so. I mean that is the way it is. Forbes Goldman: Final follow-up. On the restructuring cost, it looks like quite a big step-up here into Q4. Anything in particular happening there? Fredrik Nilsson: No, nothing really. It's more a timing. So there are some projects that we have worked with for a while, and that will be booked as restructuring costs during the fourth quarter. Operator: The next question comes from Hampus Engellau from Handelsbanken. Hampus Engellau: Could we discuss organic growth on the group level and I guess also in Sealing Solutions, if you would remove Automotive, just to get a sense on how the underlying ex autos is moving, given that we have an opinion on autos going forward? Peter Nilsson: Automotive in Sealing Solutions was not positive. So that is something where we -- because they are severely hit, but they are hit by specialist aftermarket dropped for our brake business. So that is kind of negative. So I mean, if you neglect for Automotive, in Sealing Solutions, is actually going to be even better. So that is the one. We are benefiting from the China OE sales, but that is in no way compensating for the drop in the aftermarket business. But for TSS, I mean it's not a major impact, to be honest, but there is a slight positive in Industrial Solutions in this -- what we call our boots business, where we have a very strong market share in China as well. So that is where we are benefiting. But I mean it's neglectable in a way if you look at Industrial because it's not a major business of Industrial Solutions, but it is positive. So that's one. So the underlying kind of non-automotive organic growth in Sealing Solutions is actually slightly better. Hampus Engellau: Excellent. And do you bear giving some indications on how you see autos -- autos part in Sealing maybe for Q4. I guess you presume you're looking at the S&P numbers and also have an opinion on aftermarket? Peter Nilsson: On the aftermarket -- sorry, your... Hampus Engellau: Yes. I guess on fetching for if you're expecting some contribution in Q4. Peter Nilsson: To be honest on that, we are a little bit surprised that it continued on this low level. It's not that people are kind of changing less brakes. And the only thing we can read into this that there is where we have some carriers, we have some metal content in those and some of our aftermarket customers are kind of reluctant to build. Also, when they order from us in Europe, and we are sending to U.S., it takes 6 to 8 weeks. And it seems like they are not buying, they're not speculating. But of course, the stock is going down and eventually, they need to fill it up. So that is -- I mean, where we are a little bit surprised, to be honest, about this rather dramatic drop in aftermarket, which is not -- I mean, it's not that either that they can buy from anybody else. They need to buy from us and because we are specified and we are kind of regional equipment suppliers, and so that is kind of a strange, which we have now seen for 2, 3 quarters -- 2, 3 quarters. So that is something where we don't fully understand. I mean sometimes you try to understand, but sometimes you cannot get the right answers, but it cannot continue on that. I mean, let's put it, you cannot continue on that level, unless people are neglecting, not changing brakes anymore. Operator: The next question comes from Timothy Lee from Barclays. Timothy Lee: I have a follow-up question on margin. So for Sealing Solutions, there's definitely a very good margin development in the quarter. Can I also say that it is implying some synergies that you get finally from the previous acquisition of MRP. Is it something that kicking in the quarter. And also in terms of the -- your previous target of the 20% run rate EBITDA -- EBITA margin by the end of this fiscal year. Is that still something you are looking for? Peter Nilsson: To talk about synergies, of course. I mean we have always said on MRP that I mean some of the major impact is coming from the hydraulics fluid power segment. And as that now we see finally some improvements in that. Of course, we're getting some benefits from that into the figures. But I mean it's -- MRP is getting more into normal business for us. So it's not really synergies as such. It's more that the market segments, which was strengthened by the MRP has been very soft. And now we see these markets getting back. And then, of course, we get the benefit into the figure. But we are not at the end of that one because it still has to go up. It should still -- I don't know exactly the figures, but we are probably still some 15% or something below kind of the levels where we believe it should be in that particular segment. So that is still at a low activity and especially you're talking about the farming in U.S., you look at little bit construction equipment, which is still, especially the agriculture looks still very soft. And that, of course, we're starting -- if you talk to the new administration in the U.S., I don't know -- it's difficult to kind of guess where they're heading. But one of the areas which I have not been kind of supporting yet and which have been suffering is, of course, the farmers in U.S. So if something comes into that area, we should see even better improvements, especially in that segment. About 20% is still within reach, but I mean it's going to be tough to get there, I mean, to be very open to get to that level here already in Q4, but we are moving in the right direction. And we still see that with the reach in a not-too-distant future. But I mean I shouldn't sit here and say that we can get to 20% in Q4, because that has been -- there has been some market development. We know the tariff situation. We know the geopolitical areas and we know this kind of softness still in the construction and, let's say, still -- yes, quite some distance to go before we are back to normal, especially in this fluid power, which is once again the major segment of Sealing Solutions. Timothy Lee: Understood. Very helpful. And my another question would be on your M&A potential. So Continental actually previously mentioned, they could probably look for the divestments of the ContiTech business. I'm not sure whether you can comment on this or whether it is something that you may see interest or if it's in your M&A portfolio? Peter Nilsson: Yes. I mean the overall ContiTech is definitely a lot of interest for us because the majority of the ContiTech business has no -- I would say, we are in the same overall segment. But if you look at their conveyer belts or timing belts or also this what I call surface solutions. I mean it's nothing to do with that. We have some overlap in terms of nonautomotive anti-vibration and some fluid or [indiscernible], which, of course, we will be interested if we could cherry-pick, but I don't think there will be any kind of cherry-pick possibilities. So I mean, we're watching it. We're looking at it. But overall, ContiTech is a not of interest for us. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Peter Nilsson: Thank you. And thanks for listening in our quarterly call. And summary of a good quarter for us, a good organic growth, good margin development and an improved demand throughout the quarter. We still note that there is still a lot of uncertainty in the, let's say, the global arena. And that is, of course, something we're watching, but we feel confident that we're going to continue to improve Trelleborg, and continue to build a better Trelleborg with ambition, of course, to deliver even better figures going forward. So thanks to all of you, and I am happy to support you in individual calls. Christofer is always available and so are Fredrik and myself, if you want any follow-up discussions or get some clarity on other issues not covered in the call. So thanks again, and see you soon and do take care.
Operator: Thank you for standing by, and welcome to the First Hawaiian, Inc. Third Quarter 2025 Earnings 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, Kevin Haseyama, Investor Relations Manager. Please go ahead, sir. Kevin Haseyama: Thank you, Jonathan, and thank you, everyone, for joining us as we review our financial results for the third quarter of 2025. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, CFO; and Lee Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements, so please refer to our Slide 1 for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now I'll turn the call over to Bob. Robert Harrison: Hello, everyone. Thank you, and thanks for joining us today, and I'll start by giving a quick overview of the local economy. The state unemployment rate continued to drift lower and was at 2.7% in August compared to the national unemployment rate of 4.3%. Through August, total visitor arrivals were up 0.7% compared to last year as strength in the U.S. Mainland arrivals more than offset weaknesses in Japanese and Canadian arrivals. Year-to-date, visitor spending was $4.6 billion, up 4.5% compared to the same period of last year. The housing market remains stable. The median single-family sales price on Oahu was $1.2 million in September, up 3.8% from last year. The median condo sales price on Oahu for September was $509,000, down 1.7% from the prior year. Before we move on, I wanted to discuss the federal government shutdown, and it's too early to measure the full impact on the Hawaii economy, but with a large civilian federal workforce, we expect that many families will begin to face financial hardship. Through the Hawaii Bankers Association, all the local banks have asked affected families to contact their local bank to discuss available relief measures. Turning to Slide 2. We had another strong quarter as net income increased compared to the second quarter. The improvement relative to the prior quarter was driven by higher net interest and noninterest income, partially offset by a higher effective tax rate. As you might recall, our second quarter results included the impact from a change in California tax law, which resulted in a net benefit of $5.1 million last quarter. The effective tax rate in the third quarter returned to a more normalized 23.2%. Turning to Slide 3. The balance sheet remains solid as we continue to be well capitalized with ample liquidity. We held the investment portfolio relatively flat and loans declined by $223 million. Average deposits were higher during the quarter, and we saw a surge at the end of the quarter due to inflows in public operating accounts, and Jamie will cover this in more detail in a little bit. We also repaid the $250 million FHLB advance that matured in September. And during the quarter, we repurchased about 965,000 shares at a total cost of $24 million. We have $26 million of remaining authorization under the approved 2025 stock repurchase plan. Turning to Slide 4. Total loans declined by about $223 million in the quarter. The decline was primarily in C&I. Dealer flooring balances fell by $146 million and paydown on lines of credit by several Hawaii corporate borrowers added about $130 million to the decline in the C&I balances. We're seeing strong originations so far in the fourth quarter and expect to end the year about flat to year-end 2024. Now I'll turn it over to Jamie. James Moses: Thanks, Bob. Turning to Slide 5. Total deposits increased about $500 million in the third quarter. Commercial deposits increased $135 million and were partially offset by a $43 million decline in retail deposits in the quarter. The decline in retail deposits seems to be largely due to seasonality, where we have seen a pattern of declining balances in the third quarter, followed by growth in the fourth quarter. Total public deposits increased by $406 million, and all of that growth was in operating accounts. There was no change in the balance of public time deposits. In the fourth quarter, we expect seasonal increases in both retail and commercial deposits, while seeing outflows in public deposits. The total cost of deposits fell by 1 basis point and the ratio of noninterest-bearing deposits to total deposits was a strong 33%. On Slide 6, net interest income was $169.3 million, $5.7 million higher than the prior quarter. The NIM in the second -- third quarter was 3.19%, up 8 basis points compared to the prior quarter. The increase in the margin was primarily driven by higher asset yields as well as some nonrecurring items such as loan fees. The run rate NIM for the month of September was 3.16%, and we continue to expect positive NIM momentum in the fourth quarter, and our current thinking is that the margin will advance a few basis points from the September NIM. This guidance reflects the impact of our fourth quarter loan and deposit outlook and additional 25 basis point rate cuts in both October and December. Turning to Slide 7. Noninterest income was $57.1 million in the quarter. Noninterest income benefited from higher BOLI income due to favorable market movements and swap income. We continue to expect the normalized run rate of noninterest income will be about $54 million per quarter. There were no unusual expense items in the third quarter. And based on our year-to-date expenses, we now expect that full year expenses will come in below our most recent outlook of $506 million. And now I'll turn it over to Lee. Lea Nakamura: Thank you, Jamie. Moving to Slide 8. The bank continued to maintain its strong credit performance and healthy credit metrics in the third quarter. Credit risk remains low, stable and well within our expectations. We are not observing any broad signs of weakness across either the consumer or commercial books. Classified assets increased $30.1 million due primarily to a single borrower, who is a long-time customer that we know well and are continuing to work closely with. Quarter-to-date net charge-offs were $4.2 million or 12 basis points of total loans and leases. Year-to-date net charge-offs were $11.3 million. Our annualized year-to-date net charge-off rate was 11 basis points or 1 basis point higher than in the second quarter. NPAs and 90-day past due loans were 26 basis points at the end of the third quarter, up 3 basis points from the prior quarter, resulting from a slight increase in nonaccruals. Moving to Slide 9. We show our third quarter allowance for credit losses broken out by disclosure segment. The bank recorded a $4.5 million provision in the third quarter. The asset ACL decreased by $2.6 million to $165.30 million with coverage remaining at 117 basis points of total loans and leases. We believe that we continue to be conservatively reserved and prepared for a wide range of outcomes. And now we would be very happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of David Feaster from Raymond James. David Feaster: I wanted to talk on just kind of the growth outlook. I mean, obviously, we've had some dealer floor plan with a headwind, some just natural declines in C&I. I was hoping you could first maybe touch on kind of how the pipeline is shaping up, demand that you're seeing and other opportunities that you'd be interested in helping accelerate organic growth, whether it's -- is there any appetite for full purchases or C&Is? Just kind of curious kind of your thoughts on, again, what are you seeing now in the pipeline and demand and organic growth and other opportunities to accelerate that? Robert Harrison: David, this is Bob. I'll maybe start off, hand off to Jamie. So yes, the third quarter was a little unusual in that we saw some pretty significant paydowns in dealer floor plan. Part of that was one of our customers sold several franchises. So that impacted that negatively. But overall, we're still very bullish in that business. We're seeing very strong production in the pipeline. There are some of that's already closed for the fourth quarter. Some of that's C&I, a lot of that is CRE. So we think we're going to have a very strong fourth quarter. And as we look to the future, we have considered pool purchases, but maybe I'll ask Jamie to just comment on that. James Moses: Yes. Thanks, Bob. I think we're looking at just in totality, as Bob said, I think we're looking at being able to get back to flat at the end of '25, roughly to where we were at the end of '24, which speaks to the strength of the pipeline that we see today. But to the broader question of pools and purchases, I think we always look at things. And to the extent that we feel like we have some level of expertise or knowledge in particular areas, we look maybe to carve out things that we have expertise in. So for example, maybe like a residential pool of Hawaii loans, right, might be something where we would think the long and hard about purchasing or if there are opportunities around properties in Hawaii that we might look at as well. So for the most part, we see where that we want to grow loans, but we're really looking for areas where we have some sort of expertise or niche knowledge around in order to be able to do that. David Feaster: Okay. That's helpful. And then maybe just -- I mean, the core deposit growth was tremendous. I was hoping you could maybe touch on a bit. You talked on some continued growth in core deposits. Obviously, there's some seasonality that you alluded to. But could you talk about where you're having success driving core deposit growth? And then just, again, the good and the bad of that is we built liquidity. Like how do you think about deploying some of that liquidity in the coming months? James Moses: Yes. Thanks, Dave. So I guess we're going to expect that our deposit total balance is probably going to be like roughly flat at the end of the year to where we are today. And that mix is going to shift a little bit from -- we expect to see some of our public deposits kind of run out here in the fourth quarter, but sort of replaced by retail and commercial deposits. So where we're having success really is our retail teams and our commercial teams are really out there and really talking to our customers and doing a really good job of maintaining, strengthening relationships in the community. And I think we're really trying to focus on that relationship activity. And so we've had a lot of success with that, and that's due to the efforts of our retail and commercial teams primarily out here on the ground. Robert Harrison: And to add to Jamie's answer, as far as the liquidity that we have, we have been -- we are no longer letting the investment portfolio run down. So we're holding that flat. So we have kind of restarted some purchases after a number of years of letting it run down. So we're keeping that relatively flat with similar duration and very similar categories of securities that we're looking at to purchase. David Feaster: Okay. That's helpful. And then maybe just last 1 for me. I appreciate the margin commentary I mean, look, you're naturally rate sensitive just given the strength of your core deposit base and the floating rate nature of some of your loans. Just kind of curious I mean there's a lot of moving parts in here, right? You got liquidity deployment and all -- there's a lot of moving parts. But I'm just kind of curious, first, how do you think about managing deposit costs as the Fed cuts? And then just given the tailwinds from back book repricing, remixing and some of the liquidity deployment that we're talking about, do you think that we can see the margin continue to expand even with Fed cuts next year? James Moses: I think Dave, that depends kind of on the timing and the magnitude of those cuts. I think that would -- that is ultimately by the end of the year, it could be a challenge to see NIM expansion at the end of the year. But for now, I think, for now... Robert Harrison: End of the year and then 2026. James Moses: That's right. Yes. But for now, what we see is that we have sufficient loan growth and sufficient loan growth just sort of cover this, right? So we're still -- we're looking at -- we're looking at $1 billion of cash flows over the next 12 months. At like -- we'll call that like a 125 basis point spread right now to loans that we're putting back on the books. And we have a 200 to 250 basis point spread on the investment portfolio, right now that we're sort of -- that we're keeping flat. So there are a lot of underlying dynamics. And of course, those spreads will decrease, right, the more the Fed decreases as well. But I think the trajectory for now looks like we can still support increasing expansion of the margin. But of course, there will be a natural spot. I think that's maybe like 1% or so from now. So 4 to 5 rate cuts, something like that. There'll be a natural floor to our ability to drive out further decreases in the deposit book. So good and bad news, right? We got a great deposit base, but it can only go so low, right? There's a floor on that. And so I think there is opportunity to continue to expand the NIM. And again, I think that is going to be largely dependent on our ability to generate loans. Operator: And our next question comes from the line of Charlie Driscoll from KBW. Charles Driscoll: This is Charlie on for Kelly Motta, if you could remind us of your capital priorities, how you're viewing the buyback? And from an a perspective, the environment is obviously heating up. Just remind us of your strategy on that front? Robert Harrison: Yes. Thanks, Charlie. So the capital priorities continue to be the same. We'd love to -- we're doing all the loans that fit our credit box and profile. We want to do all those that we can -- and we have a share buyback authority of $100 million. You see that we've done $74 million so far, and the rest of that is going to depend on, I'll call it, market conditions for sure. And I think the dividend is pretty good yields kind of a place. And also just in terms of the ratio of earnings that we pay out is relatively high. So probably not going to see an increase in the dividend or anything like that as part of that at the moment. Charles Driscoll: That's helpful. And then I guess, like circling back to the deposit rate conversation. The pricing has been rational and anticipating some cuts, like we've been hearing some changes in expectations from bank. Maybe just put some numbers around how you're thinking about betas on the way down? Robert Harrison: Yes. So Charlie, we tend to talk about it as beta on our rate-sensitive portfolio. So we continue to have roughly $4.5 billion rate-sensitive deposit portfolio. We've been very successful in -- with past rate cuts. We're talking maybe 90%, 95% betas on that portfolio relative to a Fed rate cut. We think that we're -- that drives a little bit lower and it gets successively lower for each rate cut that we have, but I think right now, I think about maybe like a 90% beta on the next rate cut, 88% on the next 1 after that, 85%, something like that. So we -- we still think we have a range there where we can drive deposit costs lower of course, when the Fed cuts rates as well. So it's a decreasing ability to do that for sure, but still relatively high at the moment. Charles Driscoll: Great. And then I guess, just like a little bit of detail with the margin expansion and the 50 bps of additional costs, are you assuming any loan purchases in that or... James Moses: No loan purchases in that. That's just what we're looking at in terms of looking at our pipelines and talking with the teams over the past month or so, we just expect to have really strong loan growth here in the fourth quarter. Operator: And our next question comes from the line of Anthony Elian from JPMorgan. Anthony Elian: Jamie, just a follow-up on NIM. Just a follow-up on NIM. Slide 5 to 6, you saw a really nice tailwind from loan repricing and looks like every 1 of your loan yields increased from the prior quarter. I'm just wondering how much of a tailwind is left from loan repricing, maybe in 4Q and beyond, just given the outlook for rate cuts on the forward curve? James Moses: Yes. So I think there's still a tailwind there. I guess I'll start with that. But then as we look out, we have $1 billion of fixed rate cash flows coming off of the portfolio over the next 12 months. And right now, we think that, that's repricing higher at like a 125 basis point spread at the moment. So there's still a pretty significant tailwind there. Now the 125 basis points, that's an average. And more the Fed cuts, the tighter that spread gets for sure. But there is still an ability to reprice those cash flows higher. On the investment portfolio, where we're seeing $500 million to $600 million of runoff over the next 12 months, we're getting like a 225 to 250 basis point spread on those purchases. So there's still a really significant sort of balance sheet role impact that we're seeing. That should be a tailwind not only in the fourth quarter, but into the first and second quarters as well. Now again, all of this is dependent upon being able to replace those cash flows with loan growth. And we think we can do that. but it will be dependent upon that sort of loan growth trajectory. And to the extent that we don't get the loan growth, we would consider other things we would consider maybe increasing the size of the investment portfolio. It's not our preferred option. But there are things that we would do to manage the balance sheet and to try to manage that NIM to continued expansion or at least sort of trying to keep it flat as we get those third and fourth and fifth anticipated rate cuts. Anthony Elian: Okay. And then my follow-up, I think you pointed to $54 million of fee income in 4Q. Just what are the areas or headwinds you expect to decline this quarter? Is it just the 2 items you call out on Slide 7. James Moses: Yes. I think that's right, Tony. Yes. It's not really headwinds. It's just we kind of got some good positive surprises here in the third quarter and wouldn't necessarily expect that to continue into the fourth. Robert Harrison: Yes. And to add to that, we have been kind of messaging more in the 51% to 52% range. And now just given the strength of the overall fee business, we're moving that up to 54% as kind of our expected run rate. Operator: And our next question comes from the line of Matthew Clark from Piper Sandler. Matthew Clark: Just to close out the NIM discussion, do you have the spot rate on deposits at the end of September? James Moses: That was 136 basis points end of September. Matthew Clark: Okay. And then the negative migration you saw in substandard this quarter. Can you just speak to what drove that increase? Lea Nakamura: So it's primarily that single loan to our long-time customers. And we're not really worried about loss or anything like that. We work closely with the customer. We just feel it's prudent to continue to update the ratings as we see the financials. Matthew Clark: Okay. I may have missed it, but the type of customer and the situation there? Robert Harrison: We didn't share that one, Matt. So we'd rather not. It's a small town. Matthew Clark: Understood. And then just on the capital question. I don't think you finished up on the M&A piece. But -- and again, I may have missed it, but just any updated comment on M&A discussions you might be having, whether or not things have changed materially since last quarter. Robert Harrison: No, unchanged. We're still open to talking to people and we certainly consider the right opportunity, but no change from previous guidance and discussion. Operator: [Operator Instructions] Our next question comes from the line of Timur Braziler from Wells Fargo. Timur Braziler: Jamie, your comment on total deposits, I want to make sure I heard that right. Is it flat for 4Q or flat for the year? James Moses: It's flat third quarter to fourth quarter. So we expect public to run out in the fourth quarter a little bit, while we increased retail and commercial. Timur Braziler: And then maybe back to Matt's last question. Just more specifically, Mainland M&A. It sounds like that's been something that's at least on the table more recently? Just is that still the case? And maybe just remind us if that is the case, kind of what you'd be looking at as far as criteria goes? Robert Harrison: No change to what I said. Timur, I think the only thing would be it would only be mainland M&A for us because with our HHI market share here, there's nothing we'd be able to do in Hawaii. So but no change. We're certainly open to talking to people and would consider the right opportunity. Timur Braziler: Okay. That's a good point. And then, Bob, your starting comment on expecting many families will face potentially some real hard ships here from a prolonged government shutdown. I guess that comment and then looking at the last few UHERO report, which is calling for a mild recession over the course of the next year. I mean is that any different really from kind of the operating trends on the island over these last couple of years? Does that change the way that you guys are thinking about the local economy and, I guess, more pointed just how much of that is already factored in, in the reserving that you have, particularly on the consumer side. Robert Harrison: Yes. Maybe I'll start and ask Lee, if she has any additional comments. Really no change. We think that the local economy is resilient. I mean people are not the first time this has happened. It's been a little while since there's been a shutdown that's affected salaries and all that. But we just want to make sure, and that's why we want to do it with all the banks here. I want to make sure we're open and people know they can approach us if there's a need. But we've had just very few inquiries, Lee, maybe if you have any additional comments. Lea Nakamura: Not really. We haven't really seen any effects in the credit metrics yet. And -- but we're always cautious and we always take it into consideration, when we try to figure out what the right valuation is for the ACL. Robert Harrison: And on that, I mean, to speak to consumer credit metrics. Lee did mentioned it earlier, but the 2 that tend to pop up soonest is credit cards and indirect and they're doing quite well. So really no -- nothing observable at this point, Timur. Operator: And our next question comes from the line of Jared Shaw from Barclays. Jared David Shaw: Everybody. Following up on that, when you look at the impact of federal spending apart from military in Hawaii. Do you -- are you concerned at all that it could be impacted by reshifting of federal priorities? Or is it still pretty heavily defense focused. So while we're dealing with the shutdown now, you still feel that's not going to change the long-term contribution of federal government spending into Hawaii? Robert Harrison: Yes, Jared, this is Bob. Totally agree. The long-term trend is defense focused, and it's going to be very strong. I'm heading down to Guam for next week, and the spend there is phenomenal and the projects on deck here are very, very strong. So we're not expecting that our core federal employee workforce is pretty stable. The largest employer being the Pearl Harbor and naval shipyard, which is -- and has been identified as a key resource in the Navy. So really stable to improving, I guess, would be the long-term view. Jared David Shaw: Okay. And then in conversations with your floor plan dealers, what's their expectation for sort of auto sale volume going into the next year? Are they -- are they thinking that there's going to be a slowdown in purchase activity? And is that incrementally, I guess, better for you with floor plans if inventories stay around longer? Robert Harrison: Certainly, we have really great customers with strong credit, so we'd love to see higher balances with those same customers. The discussions haven't been as much around next year. It's really been more topical about tariffs and the impacts of tariffs and different manufacturers are picking up some of the impacts of those additional costs. Others, I think we'll start based on the conversations we're having, we'll start to soon start passing those through to customers. And so there's a fair amount of uncertainty still on the end impact of the tariffs that started at the beginning of this year and what consumers will do with potentially higher price points and how that will affect demand. If it slows down demand, maybe not in the next year, but even into the fourth quarter first and second quarters of 2026. That would definitely help us. Jared David Shaw: Okay. And then just finally for me. Have you seen any change in sort of pricing behavior from some of the change in ownership of other Hawaii competitors over the last year. It sounded like earlier in the year, there wasn't really any big change, but are you seeing any change in how they're approaching pricing in the markets? James Moses: Yes. We haven't seen any change in the market as far as competitive dynamics or pricing. Operator: And our next question comes from the line of Janet Lee from TD Securities. Sun Young Lee: Hello. Going back to M&A, just quickly, I know you guys touched upon it just a few times on this call. But can you remind us what is your stance -- what is your current stance on that M&A -- potential M&A opportunity if you are looking to -- you're considering opportunities? Like what would be -- what would make sense in the Mainland? Robert Harrison: Really nothing to add to our earlier comments, I guess the only thing would be in the Western states. It's not that we're going to go center or East. But it's just -- we're open to talking to people and we're considering the right opportunity and really nothing more to share than that at this time. Sun Young Lee: Okay. Got it. Fair. I think people are entertaining the idea of resi mortgage coming back if the rate comes down to the 5 handle, is was that something that would be helpful to your market or perhaps not because it's more of a supply issue. How should I think about the positive impact from that point on your resi? James Moses: Yes, Janet, it's a good question. I think that the lower the rates go, just the more activity you will see. You are correct that there is some sort of supply constraints around that for sure. But I think it will be helpful for balances. I think that there's -- that there should be some good opportunities there. So yes, I mean, I think, ultimately, for the mortgage business, in particular, if you -- if the rates go a little bit lower, we could see some increased activity in that area, and that should be constructive. Sun Young Lee: Got it. And apologies if this was already covered, but the paydown on $130 million of paydown on corporate lines, is that -- was that just seasonality that is coming back or just one-off? Or is it really a big quarter for paydowns? Robert Harrison: No, it wasn't necessarily seasonally. These were earlier draws for specific things, and now that that's done, they're getting repaid. It's it was odd in that several happened in the same quarter, but there is nothing unusual about the borrowing and repayment. It's just -- just all kind of lend -- the draws weren't in the same quarter, but the paydowns were. So that's why we didn't call it out on the way up, but we're calling it out when it got repaid. Operator: [Operator Instructions] And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Kevin Haseyama for any further remarks. Kevin Haseyama: Thank you. We appreciate your interest in First Hawaiian, and please feel free to contact me if you have any additional questions. Thanks again for joining us, and have a good weekend. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good afternoon, everyone, and thank you for joining us today for Ategrity's Third Quarter Fiscal Year 2025 Earnings Results Conference Call. Speaking today are Justin Cohen, Chief Executive Officer; Chris Schenk, President and Chief Underwriting Officer; and Neelam Patel, Chief Financial Officer. After Justin, Chris and Neelam have made their formal remarks, we will open the call to questions. [Operator Instructions] Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to in our press release issued today, our final prospectus and other filings filed with the SEC. We do not undertake any obligation to update the forward-looking statements made today. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today, a copy of which may be obtained by visiting the Investor Relations website at investors.ategrity.com. I will now turn the call over to Justin. Justin Cohen: Good evening, and thank you all for joining Ategrity's third quarter 2025 earnings call. This is Justin Cohen, and I am joined here today by Chris Schenk, our President and Chief Underwriting Officer; and Neelam Patel, our CFO. Ategrity delivered record results this quarter. Gross written premiums grew 30% year-over-year, including accelerating growth in property lines. Our combined ratio improved to 88.7% as we began to demonstrate operating leverage. With investment income, our adjusted net income was $22.8 million, translating into 78% year-over-year growth. These results were ahead of guidance despite industry data pointing to a deceleration in the E&S market. We believe that's because we are executing a model that is truly differentiated. It's built on specialization, analytics, automation and distribution, and we are capitalizing on these strengths to drive sustainable growth and profits. This was a quarter characterized by expanding top line, operating leverage and improved economics. First, on top line growth. We achieved a 30% increase in gross written premiums, supported by 70% submission growth. That's 7-0, not 17. Our distribution network is exceptionally large for a company our size, and we are driving deeper engagement by bringing new and attractive solutions to the market. Second, on operating leverage. Our operating expense ratio improved 2.7 percentage points as prior investments in infrastructure and process efficiency began to deliver. Expense growth moderated while earned premiums accelerated, and we are realizing this upside even as we invest in new lines of business and next-generation technologies that are expected to drive the next phase of leverage. Finally, on improved economics. Our policy acquisition ratio improved 1.8 percentage points as we continue to optimize our business mix. We have been deliberately increasing the percentage of our premiums written in our brokerage channel where acquisition costs are lower. This has been underway for several quarters and is now earning through in our results. Now turning back to the broader E&S market, where headwinds have emerged in certain areas. Competitive intensity has increased, but conditions remain rational in the small- and medium-sized space. This segment has remained relatively insulated given the challenges that new entrants face in trying to profitably write $10,000 policies without the requisite scale. Against that backdrop, we are focused on extending Ategrity's structural advantages of speed, competitive products and technical pricing to drive disciplined share gains. So with that, I'll now turn it over to Neelam for the financials. Neelam Patel: Thanks, Justin. We delivered another strong quarter of financial performance. Adjusted net income came in at $22.8 million, up from $12.9 million in the same quarter last year, driven by top line growth, improving margins and higher investment income. Let me walk you through the main line items, starting with premiums. Gross written premiums grew by 30% in the quarter. Casualty premiums increased by 41%, while property premiums went up by 11%, both contributing meaningfully to our overall growth. Net written premiums grew by 42%, reflecting a higher retention rate year-over-year. Net earned premiums were up by 29%, reflecting the natural led earnings recognition of our growth trajectory and a quota share reinsurance treaty we placed in 2024. Net earned premium growth accelerated sequentially, consistent with our prior comments of abating headwinds in the second half. Our fee income came in at $2.2 million compared to $0.2 million a year ago, reflecting higher policy fees as we continue to implement standard market practices. Turning to underwriting results. Our underwriting income for the quarter was $10.6 million, up nearly 208% year-over-year. This translates into a combined ratio of 88.7%, an improvement from 95.3% last year due to reductions in both our loss and expense ratio. The loss ratio declined 2.1 points to 60% with strong underlying results in our property business. In the current quarter, we had no prior year development compared to 1.7 points last year that were related to a change in how we reserved for legal expenses. Catastrophe losses represented 4% of net earned premium this quarter, down from 12.1% last year, which had an active hurricane season. Our expense ratio declined 4.5 points to 28.7%, reflecting improvements in both operating efficiency and business mix. Operating expenses represented 10.8% of net earned premiums, down 2.7 points from last year and also lower than the second quarter of 2025. The declines were driven by expense leverage and higher fee income. Policy acquisition costs as a percentage of net earned premiums declined to 17.9% from 19.7%. The improvement was primarily driven by favorable mix shift as growth has been concentrated in lines of businesses carrying lower gross commission rates and higher ceding commissions. Moving on to investment results. Net investment income was $11 million in the third quarter, up from $6.8 million last year, driven by increased assets from our IPO and higher yields on our fixed income portfolio. Realized and unrealized gains contributed another $9.2 million, supported by strong results in our absolute return portfolio. Our effective tax rate for the quarter was 20.6%, bringing the net income to $22.7 million. Adjusted net income, which adds back IPO-related compensation costs was $22.8 million or $0.46 per diluted share. Turning briefly to the balance sheet. Our cash and investments grew by $86 million from the second quarter to $1.1 billion, reflecting strong operating cash flow. Book value increased by $29 million, driven by $23 million attributable to increased retained earnings and the rest to increased AOCI. Our book value per share ended the quarter at $12.24. With that, I will hand it over to Chris to talk about our underwriting and operating performance. Chris Schenk: Thanks, Neelam. Ategrity grew 30% and improved margins this quarter. I'll talk to you about the contributors to those results, and then I will provide some perspective on why our differentiated underwriting approach is resonating in the current market. I'll start with top line production. Retentions remained stable. We achieved mid- to high single-digit renewal rate increases. That was in both property and casualty and new business growth was very strong. Four key points illustrate the quality of this growth. First, there was record high demand for Ategrity quotes. This was in both property and casualty, where we saw submissions increase more than 70% year-over-year. Second, we saw stronger partner engagement. Our 2023 and 2024 distribution cohorts contributed meaningfully. They delivered same-store growth in the range of 80%. Third, we expanded our distribution reach. After more than doubling our distribution network from 2022 to 2024, the number of active distribution partner once again grew this year by another 25%. This extends our runway for growth. And fourth, we maintain discipline underwriting. Our hit ratio was in line with plan. That is low single digits in brokerage, and this is because we are staying selective and firm on price. Last quarter, we highlighted 3 growth initiatives: the retail trade vertical, which we launched in brokerage, our professional liability lines and Project Heartland, our Midwest regional strategy. Each once again contributed meaningfully in Q3. Together, they accounted for about half of our growth. Turning to underwriting margins. In our property book, we experienced lower frequency and lower severity. And relative to expectations, casualty losses are developing favorably. We recorded a conservative firm-wide loss ratio of 60%, although our pricing loss ratio is meaningfully lower. From an operating leverage standpoint, while net written premium grew more than 40%, we realized efficiency gains across our business. This translated into only moderate expense growth. In Q3, we processed record submissions and quotes and manage a larger in-force book, all while delivering the speed and service that our brokers expect. As we maintain a conservative hit ratio, automation continues to safeguard operating margins. We also reduced acquisition costs. This is because we wrote more business in our broker channel and capitalized on 2 new growth initiatives. The first initiative is our digital brokerage channel. We launched a technology-enabled solution that provides small business agents with streamlined access to our brokerage product. These agents occasionally need to place midsized policies and have limited options to do so. Through Ategrity's digital brokerage, they can now receive quotes on midsized accounts with what we believe is market-leading response times. The second initiative is a specialty offering for our real estate vertical. We innovated a product that addresses the evolving lending requirements for multifamily developers. These requirements are imposed by Fannie Mae, Freddie Mac and the larger banking sector, and we have developed a casualty product that responds to those requirements. This is very different than our standard casualty offering. And as far as we know, there's nothing comparable in the market. As a result, we have been able to distribute it while achieving superior policy acquisition economics. Finally, turning to our competitive positioning. In Q3, a record number of brokers wanted to present an Ategrity quote to their clients. As we have talked about, our pricing tends to be higher than our competitors. So we believe that this demand is driven by the appeal of our product. Instead of relying on unfair exclusions and wording ambiguity, we deliver fast, high-quality quotes with coverage that the insured actually needs. And for that, we charge a fair and technically sound price. Brokers are telling us that they want an integrity quote because they know and trust our product. With tighter lending standards and a more volatile political and judicial environment, there is heightened focus on coverage quality and contract certainty. And our product strategy, which offers clear comprehensive coverage with only the necessary exclusions is standing out in a very crowded marketplace. So those are some of the dynamics behind our results. In short, Ategrity's productionized underwriting model is doing exactly what it was designed to do. It's delivering disciplined growth and expanding margins and at the same time, it's strengthening our position in the market. With that, I'll hand it back to Justin. Justin Cohen: Thanks, Chris. This was another strong quarter for Ategrity. It reflects an organization that is analytical, efficient and innovative. We are a company that does what we say we're going to do, and we remain focused on driving towards sustainable world-class returns. For the second quarter in a row, we delivered gross written premium growth more than 20 percentage points above the E&S market. As we look toward the fourth quarter, we believe we have the partner engagement, submission flow and delivery capabilities to achieve that outcome again. Based on the industry's current growth pace, we believe that would translate into roughly 30% year-over-year growth. From a margin perspective, we are aiming to deliver a 90% combined ratio in the fourth quarter. Finally, we look forward to spending time with investors and analysts in the days ahead. In addition to discussing our results and strategy, we would love to hear investor input on balancing additional insider support through open market purchases with the desire to increase public float. We intend to increase our float in the course of time at appropriate valuations, as other specialty insurance companies have after their IPOs. We greatly care about doing the right thing for investors, so I would appreciate your feedback on this topic. With that, I thank you again for your time and interest in Ategrity. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Alex Scott with Barclays. Taylor Scott: First one I had is on the property market and just what you're seeing in the environment. On the casualty side, it sounded like some of the things you're doing are pretty bespoke and nuanced. Do you feel like as we head into 2026, you're going to be able to continue growing in property, the rates you've been growing though? Justin Cohen: Yes. In property, if you'll recall, we talked about last quarter that in the third quarter of 2024, we began raising rates actually somewhat materially in small- to medium-sized property. In the third quarter of this year, therefore, we lapped those rates. We're not going to get into 2026. But as we're looking forward, you see that we accelerated. Well, you see that we accelerated in this quarter from the growth from last quarter, and we're hopeful that we can achieve the same. It is more of just doing -- executing our business model and having now gotten ahead of the curve on pricing. Taylor Scott: That's really helpful. Second thing I wanted to ask you about is just some of the continuation of what we've been doing with technology, but I think it was mentioned earlier on the call that you were looking to advance some of that further. And I was just interested in some of the things you're working on, some of the areas you might push on the tech front to further what you're doing in the market. Justin Cohen: Great. I'll pass it over to Chris to talk about some of the innovations that are actually launching now and others as well in the future. Chris Schenk: Yes. So as you know, we've been launching pre-price solutions and some OCR AI-enabled intake automation processes and a number of different innovations across the business. We have an innovation lab that we funded about a year ago that is now bringing all of these stand-alone solutions into one single platform. That is going to be a critical unlock for us in the coming quarters. But what it does, it makes delivery of innovation much more efficient and which we already have an efficient approach to development. But in terms of maintenance of an innovation ecosystem, having everything in one platform allows us to get more value out of it and also enhance it as technology evolves. Operator: The next question comes from the line of Pablo Singzon with JPMorgan. Pablo Singzon: With the employment picture and small business optimism softening a bit, have you seen any change in the economic health of your clients? Justin Cohen: We have not seen any direct change, but it really matters vertical by vertical. Pablo Singzon: Yes. So in the small -- you said change in our clients? Justin Cohen: Yes, the end clients. The end clients. So there is a dynamic of what we call nano accounts. Nano accounts are accounts that they're very -- they're priced at admitted market pricing. So let's say, a small business with sub-$1,000 pricing. That business is always in between E&S and admitted and there is some pulling back of it into the admitted space. Sometimes a lot of that business also go away. So it has never been core to us, and they don't provide really good economics because lower retention and they could be volatile. So we are seeing that sort of disappearance again of the nano accounts. So it's not a lot of premium. Chris Schenk: It can be volume. But in terms of the -- we are 2 degrees removed from our end clients, but we do study that, and we study the economy. We talked about last quarter how each of our verticals has a different sensitivity. But overall, we have not seen any material change in our end clients' financial and economic health. Justin Cohen: Yes. So what -- where we are seeing some change in consumer preference or insured preferences is in the midsized middle market clients. So think of a family real estate investment firm, 5 apartment buildings. They're now facing tougher lending requirements from Fannie Mae and Freddie Mac. Banks are scrutinizing their financing. Meanwhile, there is regulatory uncertainty that's being driven by adoption of building codes on the property side as well as some things like even the New York City municipal elections, which would affect housing and real estate development. So you have all these dynamics that they are really attentive to coverage. So I've had the privilege of meeting some of our retailers and actually some end insurers over the last quarter. And that's what I'm hearing from them. They're worried about these developments and how they will affect coverage. Pablo Singzon: Okay. And then my second question, the submission volumes, interesting data point there. Are you able to process and quote as much of those submissions as you're seeing? Or is there any bottleneck in your operations right now? Justin Cohen: No, we have a very efficient operation, and that's been part of our story is to be able to handle this kind of volume, and we've done it. And we talked about during the IPO process, how we had front-loaded the investments ahead of growth to be able to manage these. One thing we have done is we've been very conservative about the box and our underwriting appetite. Chris, do you want to talk about that? Chris Schenk: Yes. So on the underwriting -- sorry, the restriction. Ultimately, what you're seeing is a lower hit rates for our business or stable hit rates at relatively low levels, which really speaks to the conservatism of what we're doing, but we can handle this volume. Justin Cohen: Yes. Sorry. Yes. So in one of the -- in my comments, I said also quote volumes went up, right? I think that's a really strong story for us because we have been investing in the technology capability to handle high volume at the top of the funnel, the top of the funnel being submissions, right, where you need to sort through a lot and not everything is going to fit the box, and we have been tightening the box in each of our channels. So we are able to -- we were able to handle and absorb that volume with significantly lower relative cost. And when it comes to quotes, our streamlined quoting process for the small to medium-sized to low medium-sized accounts, which is our simplified productionized underwriting where we're looking at the essential things that matters for the risk at hand and not following the industry's randomness, if you will. For that category, we were able to crank through a lot of quotes with the resources we had in place. Operator: Your next question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, within the fourth quarter guide, right, you guys said that you expect to continue to grow about 20% above the industry. Is that a target? Like when we think out to '26, '27 and beyond, is that something that you guys think you can kind of hit on a consistent basis? Justin Cohen: So thanks for that question. We're not going to talk about '26 guidance, but this is the way we think about the business. And you can -- as we come to the next quarter, you'll hear from us in how we describe how we expect to take share, and we measure that in outsized growth relative to the market. We obviously think we have a big runway here. Our network continues to grow, and we have lots of -- not only our existing growth initiatives that you've been hearing about are still in the early days. We also have new growth initiatives in the pipeline that are to come. As you heard, these type of growth opportunities are really truly proprietary to us, and therefore, we think we have an edge to be able to continue taking share in the market. Elyse Greenspan: And then the fee income, right, piece continues to grow a little bit over $2 million in the quarter, and I think, right, just around 2.4 points a contra on the expense ratio. Is that -- how do we think about modeling going forward just relative to the fee income contribution? Chris Schenk: Yes. The fees can be variable depending on the type of business that we write in the quarter. This happened to be a quarter that lined up for higher fees. We think that we'll even guide to here that as we look to Q4, we think the number would be more like $1.5 million. But furthermore, when you think about how you model that as well, there are direct third-party expenses that go along with those fees. So it's not just a pure top line adjustment. Justin Cohen: So it's really important to understand there's a service at the end of the fee, right? So if the service is required for the insured at hand, that's when we charge it. So depending on what we're writing, it's not premium driven, it's volume driven. Elyse Greenspan: That makes sense. And then from a loss ratio perspective, it doesn't sound like there was anything one-off in the loss ratio. Obviously, some shifting with mix shift towards casualty. But anything within the loss ratio? I know there was no PYD and a small amount of cat, but anything else you would call out in the quarter? Chris Schenk: No. I would just describe that if you're looking at our ex-cat ratios, for example, and you will see that there was some increases there. This is really all associated with conservatism in property. And so we have had a lower, effectively a lower amount of claims. But as a public company, we are not taking any risk in terms of late claims coming in. So we have booked at higher losses. So that's really the dynamic that you're seeing there, conservatism in our property. Elyse Greenspan: And with the conservatism in property, would you settle that in the fourth quarter like in the current year? Or if there's favorable development? Or would that be something you would think about next year? Chris Schenk: It really is rolling, and it's really actuarial based. And so we leave that to our Head of Reserving to do that and look at it on a claim-by-claim basis as well as the trends and the expected downside in terms of late reported claims. Operator: Your next question comes from the line of Andrew Kligerman with TD Cowen. Andrew Kligerman: Justin, I think you guided to just a little while ago to like a 90% combined in the next quarter. And I was -- I thought that the expense ratios were particularly compelling, particularly the operating expense ratio at 10.8%, but the acquisition expense ratio worked better than I had expected as well. Should we be looking at the overall expense ratio at about 29%, maybe a touch less than that as a run rate in that 90% combined ratio that you just cited? Justin Cohen: Yes. That is not far from it. We -- there will be some small benefits coming through on the commission ratio sequentially. but that is going to be an overtime type situation. On a gross basis, it is -- there are strengths there. Remember also that we have the quota share rolling off, which is going to provide more income to us, but that will be an offset as we move forward as well. And then with the operating expense ratio, with the adjustment in fees, there will be a tick up in the fourth quarter, but we are very enthusiastic about our ability to continue to drive operating leverage over time. And so those are some of the dynamics there, and that would lead to that 90% combined. Andrew Kligerman: Got it. That was helpful. And yes, I mean, pretty exciting 70% increase in submissions and I know earlier you were talking about the hit ratio not being super high. But what I'm kind of interested in is the expansion of your distribution and the type of expansion? Is this coming mostly from the brokers as opposed to the agents that are doing kind of smaller ticket stuff? Like maybe a little color around the type of distribution expansion you're seeing more of. Justin Cohen: Yes. It is very broad-based across both brokers and agents, and it also weighs in with our growth initiatives, which are -- we're obviously opening new relationships for these growth initiatives. I'll pass it over to Chris to talk further about the details there. Chris Schenk: So we're attracting sort of a broad spectrum of agents and brokers who focus on the small and medium-sized risk that we are aligned to plus those who have access to unique geographies such as the Midwest. So it's really exciting to watch the numbers come in on our Midwest strategy because these are partners who are -- they are in South Dakota, and you may not think many of our peers would maybe not even visit them, and we have and we have built a strong relationship and explain the value proposition, it's appealing. So that's one demographic that's driving it. The other demographic is really what we've talked about before. It's the digital native brokers. It is that new generation of brokers who are a little bit fed up with the way the business is transacted in this space. And the 5 days -- waiting 5 days to hear back if you're even going to get a quote is just not working for them. we are able to offer something that is appealing. There's a lot of enthusiasm there. And then there is your sort of more established brokers within the larger agencies within the larger brokerages who really value just the straightforwardness of what we're offering to the market. They know what they're getting. They have gone through cycles. They've seen p gimmicks and they're kind of over it. And when you can speak plainly to them and say, this is what we offer, this is what we don't do, it works. Andrew Kligerman: Got it. And maybe if I can just sneak one more in. I was on the Chubb call this morning, and they talked about pricing being particularly soft in property in the large end of the market, and now it's kind of seeped into the larger end of mid but the lower end of mid, it just hasn't gotten there yet and certainly not in small per their commentary as well as many others. So my question to you is, how are you thinking about pricing down the road? Do you think your small business and maybe the lower end of mid will hold up for a long period of time? Or do you see this pricing pressure keeping in eventually and maybe sooner than later? Chris Schenk: Thanks, Andrew. We are endeavoring not to make a market call here. We are -- what we are seeing is we are getting mid- to high single-digit rate increases in property, which is in our space, which is really quite good. You'll remember that we -- I mentioned earlier that we had higher rate increases that we've anniversaried, but we're getting solid rates. Justin Cohen: Yes. So pricing is one of those foundation stones for us. Technical pricing cost, charging the cost of product is essential. So I mentioned product, and that's becoming more and more the requirement. It's not optional for the insured, right? So there's been this hypothesis that it's all about pricing, customers don't care about coverage once they're in E&S. Well, that's not the case anymore because there's a mandate. There's a requirement at the federal level. So I'll give you -- if you'll indulge me, I'll give you a very obscure example that is really impactful and what's happening in the industry right now is nobody else is thinking about it, which is a problem. So there were -- there's new national electrical codes that were established in 2023 that have to do with things like basically grenifying of buildings, right? So when there's a coverage on the property, ordinance and law, where you have to effectively coverage for bringing buildings back up to code once they are repaired. Well, these new requirements are driving up the requirements for ordinance law. So people might say property market is soft, but someone is going to get a loan and they need to now have 25% of their value -- building value towards ordinance and law. So when you start talking about coverage and what is required, they're going to pay a premium for that because they need the loan. So it's not a -- in that mid space, I don't see a soft market or a perceived soft market filtering up. I see actually maybe a hardening in that space because of lending requirements. Operator: The next question comes from the line of Matthew Heimermann with Citi. Matthew Heimermann: A couple of quick ones, I think. Just it's not like you're growing property very rapidly relative to total. But I'm just curious, how much more growth before we have to think about reinsurance structures changing relative to how you've historically articulated PMLs and other risk tolerance metrics. Chris Schenk: Yes. No. If you'll recall, we operate a limited cat strategy, and so we are not exposing ourselves to incremental amounts of cat risk. And our growth is manageable here, and it's well within the context of our existing reinsurance contracts. Matthew Heimermann: Okay. And that's just tying the -- or connecting the dots that's a lot of the property growth you talked about getting was going to come out of Midwest strategy, and that's effectively what we're seeing at this point? Justin Cohen: Yes. So we have talked about our geospatial spread approach to writing property. That's really coming through in the Midwest. There are about 730 hamlets, I'll call them across the Midwest where we never had a footprint, and we are now writing business there. Those are large spaces where we are spread out, right? So that geospatial spread element is coming through as we win in the Midwest. The Midwest, as I mentioned, was along with some other initiatives was responsible for about 50% of our growth, and that was particularly strong in property. So we are not adding in Florida. That's the thing. We're not adding in Texas. We're not only adding in Texas and Florida rather. We are everywhere. Matthew Heimermann: Okay. That's good. As a Minnesota kid, I never really thought about my backyard as the English Country side, but I appreciate the compare. The other -- a couple of other questions I have was just, can you give us any sense of just kind of what the growth rates look by maybe the premium cohorts because you add a couple of brokerage clients through your digital channel with a small agent in the Midwest, right, like that's a disproportionate kind of impact. So I'm just wondering if there's other -- another lens on growth kind of by account size or cohorts. Justin Cohen: Yes. The account size bands have not changed meaningfully in any way. We have -- as Chris mentioned earlier, we've written less of these nano accounts, but we're also writing small midsized accounts. So there are offsets there. So really, overall, the bands themselves are not changing very much. Matthew Heimermann: That's helpful. And I guess the last one is -- well, one numbers question quick was just can you give the -- can you split the utility income disclosure in the press release between kind of income and mark -- sorry, in your investment income disclosure, can you split the utility income between income and marks? Justin Cohen: Yes. It's less than $100,000 net in core NII for the utility and infrastructure investments in NII. Are you asking for further split in the realized and unrealized gains? Matthew Heimermann: No. If I've got that, I can -- I think I can back that out of the utility, and then I can wait for the queue for the rest. The other question was just can you elaborate -- you used this term improved economics, and it wasn't clear as I was listening and maybe I didn't hear what you were trying to say. But in your opening comments, you talked about improved economics. in the quarter. And it implied more than just kind of what's happening with the expense ratio, but I just wondered if you could revisit that if there's anything you'd embellish or clarify there. Justin Cohen: Yes. We were referring to the holistic nature of now that we have scale in brokerage that as we're writing more business in brokerage, that is accretive to our bottom line. And you're seeing that in the commission ratio. You can see it in the expense ratio, but you can't exactly see how that's coming through, but that's what's happening. Matthew Heimermann: That was helpful. I was trying to contrast that with your rate comment, and it wasn't obvious from that, but that would have in and of itself explain it. Justin Cohen: We're expecting for that to acquire an account to fill it. Operator: Your last question comes from the line of Alex Scott with Barclays. Taylor Scott: I just wanted to see if you could give any color on products that you may be prepping to expand into the brokerage area like going upmarket a bit. Can you talk about if you have any of that kind of activity going on over the next, call it, 6 months or so? Justin Cohen: Right. In terms of the -- this question of upmarket, what you've seen, we don't think of it that way. What we've done in the past 6 months is we have taken products and verticals that we underwrite and we have opened them in the brokerage channel. Those are paying off. And those -- we're going to continue to have those work over the next several quarters. Anything else, Chris, you'd like to add to that on product? Chris Schenk: Yes. So we launched a retail vertical, most recently in brokerage, that's an example of what's to come. In terms of true product launches, nothing on the road map that we can discuss now. And what we are continuously doing, though, for the micro segments we're in, we are genuinely studying the external environment and trying to model out those cause and effect scenarios and optimize our offering within each of those verticals. So when we think of product, we don't think about doing more products, we think about like really meeting the evolving needs of these markets that we're already in, and that's a huge opportunity for us. Operator: There are no further questions at this time. Management, do you have any closing remarks? Justin Cohen: No. We just want to thank everyone for joining and listening, and we look forward to catching up with many of you in the days ahead. Take care. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Jane Morgan: Good morning, and welcome to the Amaero Investor Webinar. I'm Jane Morgan, Investor and Media Relations Manager. And today, I have the pleasure of speaking with Hank Holland, our Chairman and CEO, who's going to be providing a company update. As usual, we will be taking questions throughout the presentation. So please use the Q&A function, which can be found at the bottom of your screen. Hank, I'll hand to you. Hank Holland: Thank you, Jane. Good morning, everyone. As you're aware, Amaero lodged its quarterly financial results yesterday. I'd like to highlight some of the information from the results. And then as always, we'll be happy to take questions as follows. It was quite a transition for Amaero. We reported revenue of AUD 4.7 million, an increase of 445% over the same period a year ago. This included AUD 4.1 million of powder revenue and about AUD 600,000 of revenue from PM-HIP manufacturing of large near net shape parts. During the quarter, we increased atomization by 240% over the prior quarter. Again, that is in the September quarter, we increased atomization by 240% over the June quarter. Notwithstanding the significant step function and increased manufacturing, we could not manufacture enough product to fill all of our orders. And thus, we carried it into the current quarter approximately AUD 0.5 million of order backlog. All of those powder orders have now been shipped that carried over into this current quarter. We ended the quarter with AUD 9.9 -- I'm sorry, excuse me, we used cash in operations of AUD 9.9 million during the course of the quarter. This included AUD 4.7 million of bar stock inventory purchases. We've been very mindful of the last 12 months to carry buffer stock, thus mitigating the risk of any trade disruptions or tariff risk, somewhat timely given the tip that arose about a week ago with the threatened heightened tariffs with China. We are in very good position as far as inventory in stock. We have 20 tons of titanium bar that arrive this week. We have another 20 tons -- another 40 tons actually that will ship before the end of the month. The threatened tariff was to take place in November. So again, we are in very good shape as far as buffer stock of inventory. We ended the quarter with AUD 50.9 million of cash. Moreover, 3 days into the quarter on October 3, we received USD 5.7 million or about AUD 8.8 million from EXIM Bank draw. This was from CapEx spent in the prior quarter. So as of October 3, we had a cash balance of roughly AUD 59.7 million after drawing on EXIM Bank. We've got about another USD 7 million or about AUD 10.8 million left to draw on the EXIM Bank loan, and we will draw that over the course of this fiscal year. Moving on, one of the real focuses this year, really, there will be 2 primary focuses: one, to continue scaling manufacturing production, our throughput and the other will be continue to scale our commercial contracts. Anyone that has been involved in manufacturing, scaling manufacturing is not easy. When you go from development to production, it's a very different process. In anticipation of this, in May of this year, we brought in a gentleman that I've known for many years, Eric Olson. Eric headed up manufacturing consulting at Accenture for 3 decades. I met him at a former portfolio company. We had a SWAT team in for about 6 weeks. They reviewed all of our processes, met with our entire staff, all of our quality controls, all of our safety controls, and they put forth a plan in anticipation of not only scaling from fiscal year '25 to fiscal year '26, but scaling from atomizer, which we had before all the way up to 4 atomizers, which is our plan. They had no shortage of input and recommended changes over time. In fact, there's about 42 items that they identified in our processes and our people and our staffing and various protocols, much of which has already been implemented and some more of which will be implemented in the coming months and/or years as we begin to further scale and automate, for example, the way that we handle and move powder within the facility to do so in a way that is more expedient, but also less risk of contamination and safer. As part of the changes they recommended, our operations over the prior 2 years had really been focused on building our facility and commissioning the equipment. Obviously, now we've transitioned a very different type of operations, which are centered around manufacturing. As part of this, we brought on a new VP of Manufacturing Operations, who is essentially now running our operations, Mark Struss. I'll talk a bit more about Mark later. Mark comes with 25 years of manufacturing experience, including in the auto industry, a much more complex manufacturing process or series of processes than we have here. But again, he has been very instrumental in helping us think about how we begin to scale, how we begin to change these processes. I'll come back to this in the last point here in a minute, but we've gone through a real step function in operations. To that point, we have ordered additional equipment, much of which was ordered earlier this calendar year, some of which arrived in the first quarter of the fiscal year, more of which will arrive in the current quarter and next quarter that will again continue to scale the processes beyond atomization. We have a 5-step process, the first step of which is atomization but a series of processes that follow and this capital equipment will help us further scale those processes. Over the prior quarter, and again, I repeat, over the prior quarter, we had a subsequent or sequential increase in powder shipments of 153% in a single quarter. We shipped about 5 tons of product in the fourth quarter of fiscal year '25. We shipped over 12 tons of product in the first quarter of fiscal year '26. We had a 240% increase in atomization from about 8 tons in the fourth quarter, the June quarter to 27 tons in the September quarter. We were operating in June one 8-hour shift, 5 days a week on a single EIGA. We finished September operating two 10-hour shifts a day, 6 days a week on 2 atomizers. So again, significant scaling over the course of the quarter. In anticipation and recognizing the transition period of which Amaero is in, my wife and my family and myself relocated to Chattanooga during the course of last quarter. We're thrilled to be here for 3 years. I've been traveling back and forth and with a new baby at home, did not want to continue to be away from the family and moreover, have very long days here. I get to the office about 6:30 in the morning. We have a 7:00 a.m. production meeting. It's a little bit after 8:00 p.m. now, which would be a typical day. So again, it gives me a chance to be here all day, every day and be less away from family as I travel. So thrilled to do so, work alongside a great group of colleagues. And one of the things I've always said is people around here can attest, I want to ask anyone to work harder than I work and that being said, there's plenty of people here working just as hard as I am, and it's a heck of a team. Some significant improvements during the course of the quarter from a qualification standpoint as well as ongoing material improvements. As you might recall, with Castheon and ADDMAN, we signed a 5-year preferred supplier agreement in April of 2024. We then qualified C103 in September of '24. This was a very big deal. The founder of Castheon, Dr. Youping Gao is the foremost expert in printing C103 and refractory alloys. ADDMAN owned by one of the leading private equity firms in the industrial space in the U.S. has been very active in additive manufacturing as well. And so qualifying with Castheon and Dr. Youping Gao is a very big deal. We then immediately did some additional work on refining chemistries and we announced in December of '24 that we have made some slight tweaks to C103 chemistry that had shown some improvements. And then we've been continuing since then to make some other refinements. We have completed that. Thrilled to say that we have qualified with ADDMAN on top of the qualifications that we've done before. We've achieved performance specifications that are rock-like. Much of additive manufacturing material is subpar to rock material properties. The prior supplier that Castheon had achieved rock-like material properties, and it was important that we achieve consistent properties with other supplier, and we've now done so. So another significant advancement both in our qualification standards as well as our relationship with Castheon and ADDMAN. We will continue to advance, particularly as it relates to propulsion systems and thermal protection systems. These important systems on hypersonics and space applications, and we'll work closely with Castheon and ADDMAN going forward. Also during the course of the quarter, as you know, we achieved qualification, which was a predicate condition with Velo3D. We achieved that with Auburn University's National Center of Additive Manufacturing Excellence. I'll announce later one of the interesting things, Dr. Jonathan Peck, who had been a senior technician at Castheon, very few people, again, understand and know how to print C103. He had left Castheon and gone to Auburn. That is who we worked with at Auburn. I'm pleased to say that Dr. Jonathan Peck will be joining Amaero at the end of this month and again, one of the important technical hires that we have made. During the course of the quarter, as everyone is aware, we completed a AUD 50 million Placement that was very well supported, strong institutional support and participation. We also had an SPP. The SPP was AUD 3 million, and I would say modestly supported AUD 470,000, same terms and same issue price as the Placement. The Board considered this very seriously and that we were fully funded before -- but the Board felt it was important given that we were 2 years into commercial engagement, go ahead and pull forward some growth initiatives that had been planned for fiscal year '27 and beyond as well as to make investment in Argon recycling that will further improve our cost -- unit cost advantage that we have over competitors and further uniquely position us not only as the largest capacity U.S. domestic producer of spherical refractory and titanium alloy powders, but also the lowest cost. Some important hires that we made during the course of the quarter. Brett Paduch, our Chief Financial Officer, has been fantastic, brings a great audit background in accounting as well as FP&A experience. Mark Struss, I mentioned before, essentially assuming leadership in the manufacturing operations. Dr. Jonathan Peck, I mentioned, has joined us as VP of Technology Development was at Castheon and then Auburn. And then Dr. Arun has been an amazing force at Amaero. He's been promoted yet again. This is actually a second promotion, and he is leading all of our applied research as well as process development and working hand-in-hand with Mark Struss as we continue to refine and develop our operating systems. Also during the course of the quarter, we gave updated financial guidance. Pleased to report for fiscal year '26, we anticipate revenue of AUD 30 million to AUD 35 million and we expect roughly 40% of that would be achieved during the first half of the fiscal year, roughly 60% of that to be achieved in the second half of the fiscal year. On the commercial side, we made progress on a number of fronts. As everyone is aware, we announced a 5-year exclusive supplier and development agreement with Titomic, ASX-listed company for refractory and titanium alloy spherical powders. One of the things that perhaps isn't as well appreciated in the ASX market is spherical powders are very different than angular powders, also very different gas atomized powder than, say, HDH powders. Also reactive or titanium alloys very different than nonreactive, such as nickels and so forth. And so Amaero plays a unique role in the supply chain and particularly when you're qualifying in parts. What Titomic was finding is that the defense primes came to them for development and production parts, mission-critical aerospace and defense applications, the defense primes required it be spherical powder. So they give very specific material specifications. And in some cases, will also define how the powder is manufactured. This is more true, for example, in medical applications, where it is most often plasma atomization or gas atomized powder. We've already begun working with Titomic on a project, and I would expect you'll hear more about that in the coming months. But again, important opportunity for us, I believe, for Titomic as well in the refractory space, in particular, and really scaling their expertise in cold spray applications. Knust-Godwin, we did not announce this as a stand-alone announcement in the course of the quarter. As people will know that have followed this company closely, we tend to be somewhat guarded with not announcing things unless we feel it has a very material immediate financial impact. That being said, Knust-Godwin is an important relationship for us. Knust-Godwin is located near Houston. They're a very pivotal integrated additive manufacturing and advanced manufacturing firm, primarily focused on the oil and gas industry, but increasingly focused on other areas, including aerospace. We work with them on the PM-HIP side of our business, and now we'll be working more closely with them on the titanium side of their printing business. They also use largely Velo3D machines. And obviously, with our partnership with Velo3D, it ties in here nicely with Knust-Godwin as well. During the quarter, we announced about a year ago, we received a contract a little bit over [ $1 million ] with the U.S. Defense Prime Contractor and that we expected to complete First Article parts. Those parts have now been completed. We said we expect to do that in September or October. We will continue to do some testing with our customer over the balance of this calendar year, expect to hopefully finish that by the end of December. And then that will be -- the acceptance of those First Article parts will be a very important milestone as we move forward to advance other development opportunities, but even more importantly, production part contracts with this customer. It also further validates PM-HIP manufacturing as a mature, what in the U.S. we call technical readiness level or TRL level, a mature and scalable alternative to large castings and large forgings, which is very important, particularly in the maritime industrial base, the submarine industrial base, but also in the oil and gas industry. And then finally, we announced in the quarter a development collaboration with a Boeing company. This also, I think, is a very important example of the benefits as well as the immediate insertion of PM-HIP. We are -- we've not disclosed the nature of the part that we're working on with Boeing, but it is a structural part in a next-generation aerospace application. And I would expect you'll hear more from us as well as Boeing as this collaboration advances. I thought it might be helpful to give investors just a representative list of some opportunities that we're advancing. We won't come out and essentially announce these or announce the counterparties until we have binding contracts. That's just our practice. But we are continuing to advance development and production opportunities that support the U.S. Navy and the maritime industrial base. We're continuing to advance C103 powder opportunities, specifically within Missile Systems. Tungsten powder opportunities for the munitions complex. Munitions, as those you might know, is a very significant opportunity given our depleted stocks. And tungsten, very, very important. Tungsten, as you might know, has got a characteristic as a heavy alloy it penetrates, but also it sharpens as it penetrates. And so it's a very important material that is used in munitions. Very few people and very few technologies. Tungsten has a very, very high melting temperature, and thus very few technologies can atomize tungsten. Zirconium opportunities, which are important for nuclear power as well as nuclear propulsion systems. Refractory powder opportunities for cold spray applications, as I mentioned with Titomic. I have been advancing a strategic supplier agreement with a large integrated additive manufacturer, continued to advance a strategic supplier agreement with a large multinational medical device company, investment tooling for a semiconductor large company in the U.S., production contracts for oil and gas, actually companies plural. We're working on an upcycling/recycling opportunity that takes titanium coarse powder and the stubs from our bar to upcycle and recycle that. Atomization and testing of development refractory alloy powders as a more cost-effective alternative to C103 for applications that aren't so mission-critical that they would insist on C103. And then finally, integration and/or co-location of adjacency manufacturing and processing capabilities. This is particularly important to the U.S. Navy. Part of the challenge that we have right now is parts on average are taking about 28 months to manufacture. And yet much of that time has been queued up as these parts travel all over the country for various processing. And so to the extent we could co-locate some of those adjacency processing, it would enable us to shorten the time of production as well as mitigate the risk and improve the resiliency of our production supply chains in the U.S. Jane, I hope that is helpful and would be more than happy to take any questions. Jane Morgan: Wonderful. Thank you so much for that, Hank. And if you could please send through your questions using the Q&A screen that would be great. We've had a few come through already. So let me jump into it. This one came through an e-mail actually, in fact. So one of Amaero's competitive advantages has been stated that the company can produce a far greater percentage of the high-value aerospace grade powder versus the low-value sort of off-spec powder than competitors. So from Amaero's production results so far, is the company achieving the advertised figures across the range of metals? And did this affect Amaero's ability to produce enough finished powder to fill orders this quarter? Hank Holland: Great. So kind of 3 questions in there. First, for those that may not be as familiar, the whole idea of yield. So when we start with the bar, we atomize that entire bar and we had a distribution of powder. And different applications use different particle size distribution. So we might have powder from essentially 0 micron to 400 micron. But in the case of laser powder fusion, which is the most valuable cut of powder, it will tend to be about 15 to 53 microns. Now what the question is referring to is the prior generation of EIGA technology got about a 25% or 30% yield of that 15 to 53 most valuable cut. Plasma atomization, again, a proven and very, very well-accepted form of atomization gets somewhere around a 30% to 35% yield. EIGA premium, the new generation of the technology that we're using is getting a 50% and 50% plus yield. And yes, we are -- we'll continue to improve our yield as we continue to dial in our manufacturing, but all the results that we're seeing today are consistent with what we would have expected. By the way, the other thing that I would say is there's other forms of atomization where you start with scrap and whether what's called HDH, which is a chemical process or other ways that you're making powder. And they might stipulate they've got a higher percentage yield than, say, that 50%. But that's implicit on starting with the correct size powder. That is if you want 15 to 53, you've got to start with 15 to 53 feedstock, right? So again, we're talking about 50% of the entire bar, right? So the EIGA premium has got the highest yield from a bar standpoint of any technology. It also uses half the Argon gas. And so again, our significant unit cost advantage that we drive. Jane Morgan: Wonderful. Thank you. So next one is, in the quarterly, you mentioned that you shipped to Velo3D 500 kilograms of C103 and 500 kilograms of Ti64. So were these included in the revenue performance for the quarter? Hank Holland: Yes. So over the course of the quarter, we had a pretty balanced distribution of revenue. In the course of the quarter, as you mentioned, we shipped C103 to Velo3D. We also had shipments of tungsten, TGM, I'm missing another alloy or two. But anyway, we had -- so we had C103, we had development refractory. We had what we call other refractory and then we had Ti64. So a broad portfolio of powders that were shipped during the quarter. And then as you know, of the AUD 4.7 million of revenue, about AUD 600,000 of that was PM-HIP. We actually had a couple of PM-HIP projects that got pushed into this quarter as part of that AUD 500,000. That AUD 500,000 back order was about half powder and about half PM-HIP, the powder of which that backlog has already shipped so far this quarter. So it was a nice balanced quarter as far as where the revenue came from. What I would say going forward, including the current quarter that we're in, I think that you'll see a consistent increase in the kgs that we ship. So the amount of powder that we ship, though it will be somewhat lumpy in revenue and there will be quarters, for example, we don't ship C103, right? Obviously, C103 has a price 20x higher than Ti64. So where we don't ship C103, that can impact the revenue. But I think you'll see a consistent increase in kgs that we're shipping quarter-to-quarter. Jane Morgan: Wonderful. And so next one is, you mentioned delivery of First Article parts to a defense contractor in September, October 2025. Have these been delivered? And if so, what is the process to progress from First Article to purchase orders or ongoing contracts? Hank Holland: Yes. So the First Article parts have been completed. They are back at our facility. Our customer has seen these parts. We will do some further testing with our customer on these parts through the end of the year. We hope to have it finished -- our customer hopes to have it finished before the end of the calendar year. And that will be a very, very important milestone. We understand from our customer, and I think it is fair to represent that in the area of PM-HIP, Amaero, and I really credit Eric Bono, Fred Yolton, Dr. Aman, we have absolutely have leading pioneering experience in this area and we hear this back from our customers as well. We are addressing some of the most difficult manufacturing challenges as far as parts that are not only bottleneck in the forging ecosystem, but are very difficult to make even with the forging and machining capabilities that we have today. So we feel very good, as does our customer about where we are. And the importance of having these First Article parts accepted is what is in the wings after this to follow is more development opportunities, but even more importantly, immediate production opportunities. And I think that, too, speaks to the technical readiness level and the maturity of PM-HIP as a manufacturing technology. Jane Morgan: Yes, absolutely. I think -- and this one has come through a few times actually, Hank. So what impact is the U.S. government's budget shutdown having on that sort of defense and aerospace contracts? Hank Holland: Yes. It's a very good question, and there's not an easy answer. So for those in Australia that might not be as familiar with the U.S. budget process, our federal budget fiscal year begins October 1 and goes through the end of September. So October 1 of this month, we began our fiscal year '26 budget. As you might recall, last year, a continuing resolution was passed through the end of fiscal year '25. So that expired September 30. And historically, what you would then do is you would pass a new continuing resolution that would be a short GAAP measure until the fiscal year '26 budget is passed, which typically has happened in December, if you look historically. Instead, the House and the Senate could not reach terms on passing a continuing resolution. The continuing resolution we had expired at the end of September. And today, we have no continuing resolution and no pass budget, thus, our government in the U.S. is closed down. Essential services continue to operate, but we are already hearing from customers. And when you -- even when you're in a CR, you can't have new starts or restarts, but this is not even a CR, right? You're just closed, if you will. And so we have not yet seen an impact on our business. We've not yet seen an impact on the immediate quarter or the immediate pipeline. But if this was to go on much longer, I believe this is already the second longest shutdown that we've had in U.S. history. I believe 42 days or 40 days thereabout is the longest. And here we are 23 days into it. If it goes on longer, a, it's not good for our country. It's certainly not good for our readiness as a country, and it will begin to have an impact at some point. So I wish I could give a more definitive answer. Stay tuned. Hopefully, we will -- it's not a great way to run a country. It's certainly not a great way to fund a Department of War. And hopefully, we'll get this resolved shortly. Jane Morgan: Yes. So great. So another one that's come through. So what progress are you making with nondefense, non-aerospace customers who need to buy U.S. sourced materials? You've previously spoken about potential customers in the medical center. Is there any progress happening there? Hank Holland: So one of the areas that we got lucky, if you will, was when we first invested in Amaer 3.5 years ago, a big part of our premise was anticipating that the U.S. would reshore defense industrial base. And obviously, we've seen that in spades. What we didn't anticipate was an administration would take policy actions such as the Trump administration is now to so resolutely reshape international trade policy. And obviously, in the U.S., we've done this with tariffs, and we've done this with other non-tariff trade policies. And what this has created is significant, and I say significant movement of particularly U.S.-based companies that are multinational that had offshored their manufacturing really from the early 90s onward. Obviously, much of that had gone to China and other lower production cost areas. And those companies that their end market is back in the U.S. So take a company such as Stryker, I think I've mentioned this before, 75% of their knees and hips, their orthopedics by value that they sell, they sell in the U.S. But today, 100% of those are manufactured in Ireland and 100% of their powder is sourced in Europe and Canada, right? So you're seeing a lot of companies like that now begin to reshore and better align the manufacturing footprint with their end markets. So a significant part of the opportunity that we're seeing in addition to the defense industrial base are these commercial markets. It's also important for us because we've got to work on immediate now opportunities and then be planting seeds for longer qualification period opportunities. For example, if you're going to qualify powder for a jet engine part, it could be 2 to 3 years before you qualify that material. If you're going to qualify an orthopedic for a medical device, it could be 12 to 24 months before you qualify that material. So we've got to find some now opportunities and then be planting the seed for these longer term, and that's the way we're approaching this. So when I say we're making progress, which I think we are, think of that as we've planted those seeds, we've commenced those commercial engagements, we provided them powder, and we're trying to advance that towards qualification internally. Jane Morgan: Thank you, Hank. Lots coming through, so bear with me. Okay. So is EIGA #3 still on track to arrive in calendar year '26? And are you confident you will have enough orders building to sort of fully utilize the 3 EIGAs into calendar year '27? Hank Holland: Yes. So our strategy has always been not to fully utilize. And this is part of what gives us the opportunity to go after some of these very large commercial accounts. If we were at full capacity utilization, imagine you're a 1 million square foot office building downtown Sydney and you've got a 95% occupancy rate, well, you can't attract a very large single tenant, right? So our strategy has been to be on our front foot making these investments and to operate in the early years at about 50% capacity utilization and thus have room that we could accelerate production further if we can land some of these large commercial accounts. And by the way, in our current plan, we don't assume any of that happens. We assume that we methodically absorb that capacity utilization over a 4-year period of time, right, between now through FY '30. If we do land some of these accounts, it will accelerate that. So that's the first part of the question. As far as timing, what we've announced is the first atomizer we commissioned in June of '24, and that's essentially dedicated to refractory. The second atomizer we commissioned in June of '25. That is in a separate production room much larger that has capacity for 5 EIGAs dedicated titanium. The third atomizer in total, the second one, which will be dedicated titanium is scheduled to ship from Germany in January and to be commissioned by June of '26, so next year. And then with the recent capital raise, we announced that we will go ahead and order a fourth EIGA. We expect to order that before the end of the calendar year, and then that one commissioned 1 year later than the third one. So we'll have a cadence of June '24, June '25, June '26 and June '27, commissioning the 4 EIGAs. Jane Morgan: Thank you. A bit of a different one here. So has Amaero considered atomization of low alpha, high-purity aluminum, which is used in the casing of silicon computer chips and currently produced by some of the largest Japanese manufacturers to obviously supply the next generation of semiconductor fabs being built in the U.S.? Hank Holland: Yes, it is a great question. And part of what I love about having so many great partners right here that are smarter than I am on various issues. If Eric Bono was on the phone, he would have an immediate a very thorough answer to that. I don't have an answer to that question. We are working right now with some semiconductor companies, both on the capital equipment side, which is really a PM-HIP opportunity, but also on advanced materials side. So there is interesting work being done there. I do not know specific to that material. If Jane, if you want to forward me the e-mail, I'd be happy to get to Eric Bono and we'd be happy to respond. Jane Morgan: Absolutely. Okay. Next one. Sorry, there are a lot coming through and a few double ups here. But okay, so looking at the quarterly, as production scales into the December quarter, will there be additional working capital requirements to further build input inventories? Hank Holland: So I'm not sure if the question means more than we have anticipated or simply working capital scales. Certainly, as we scale the business, working capital scales, right? So if you think about as you have more production, you need more feedstock, you carry more inventory. So absolutely, one of the things that we follow very closely is work in progress. And candidly, the immediate priority is scaling production. You kind of take this in sequential steps, if you will. As you scale production, then you'll want to circle back on optimization and you'll be then focused on, okay, we want to do certain things such as further enhance yield to the question earlier about getting to 50%, we actually think we can get materially higher than 50%. In doing so, you reduce your cost per kg. And there's other things that we can do to further reduce the cost per kg. So it becomes a bit of a circular process. But yes, naturally, as you scale the business, the working capital required for the business will also scale, and that is in our model and very much accounted for in the capital that we have on hand. Jane Morgan: Thank you, Hank. Sorry, that's come through. So let me just double check that there's nothing that's sort of been already covered. Look, I think that does cover most of the questions that have come through. I mean, finally, what kind of 3 key messages would you like investors to take away from today's webinar? Hank Holland: Look, I think what's most important for this year, and again, this will be a transitional and transformative year for the company as we transition into commercialization, and we begin to significantly scale production. So what am I paying the most attention to? What are we collectively in leadership, scaling production and scaling commercial contracts, right? That is going to be our focus over the course of this year and candidly, into fiscal year '27. So we hope to have more commercial announcements. Obviously, we had a cadence of long-term agreements and strategic announcements. We hope to have more of those. We certainly hope to have some progress with the U.S. Defense Prime that we've been working with. You can't really control when these things happen. And candidly, when you're working with the U.S. Navy, they don't really care about this quarter. They care about getting it right for a generation of our sailors, right? Getting it right for our next generation of submarine. And so on one hand, most important to us is to be a great partner and do great work. We want these things to happen as quickly as they can. A, it's not within our control; and b, candidly, it's not what's most important. What's most important is for this business to be successful long term. So I would say those would be the key takeaways. Follow our progress in scaling production, follow our progress on additional commercial contracts and scaling our revenue. Jane Morgan: Thank you, Hank. Well, that does look like we've answered all the questions for today. Should we miss anything, please feel free to reach out by the contact details on the bottom of our ASX releases. But thank you all for joining us. Hank Holland: Thank you very much, Jane. Thank you, everyone.
Baard Erik Haugen: Good morning, and welcome to Hydro's Third Quarter 2025 Presentation and Q&A. We will begin shortly with a presentation by President and CEO, Eivind Kallevik, followed by a financial update from CFO, Trond Olaf Christophersen. And as usual, we will finish off with a Q&A session. [Operator Instructions] When we get to the Q&A, I will then read your questions on your behalf to Eivind and Trond Olaf. And with that, I turn the microphone over to you, Eivind. Eivind Kallevik: Thank you, Erik, and good morning, and welcome from me as well. Safety, as always, is our key priority. It's the most important metric in our quarterly reporting. The health and well-being of our employees is fundamental to the success of the company. And we have had positive development and lowered the number of injuries and incidents for a long period of time. The downward trend continued also over the last few years has continued also this quarter. And I'm pleased to report that both the total number of recordable injuries and the number of high-risk incidents are lower compared to the last quarter. However, we're also well aware that good results and safety cannot be taken for granted. This situation can change rapidly. Maintaining these low numbers demands continuous attention and commitment from all employees across all our locations. Our strong safety culture is rooted in genuine care for our people, ensuring everyone remains healthy and safe while working for Hydro. The commitment to safety is also essential for keeping our operations stable and efficient 365 days a year. By fostering a safe work environment, we are able to achieve our strategic targets and to increase our long-term value creation. Now let's have a look at the key highlights this quarter. We will get back and dig deeper into this also later on in today's presentation. Challenging markets are affecting the results this quarter, leading to an adjusted EBITDA coming in at NOK 5.996 billion. Now despite this, I'm also happy to report a solid free cash flow generation at NOK 2.2 billion, yielding an adjusted RoaCE of 11%, which is above our target of 10% over the cycle. Measures have been taken to meet the uncertainty in the market, and many initiatives are being executed to further increase robustness. And we can already now report progress on our strategic workforce adjustment and the cost reduction initiative announced back in June. On the energy side, we are pleased to have added another long-term power contract to our sourcing portfolio. Alouette has signed an agreement in principle for continued long-term power supply. This quarter, we also received a final judgment in the Dutch court dismissing all claims against Hydro filed by Brazilian Cainquiama and 9 individuals back in 2021, based on both legal as well as factual grounds. And lastly, we can report concrete results coming from our targeted strategic approach to partnerships. We continue to advance our low carbon and circular solutions through close customer collaborations. Executing on strategic workforce and cost reductions as a response to market uncertainty, we did launch a new cost-cutting measure in addition to strategic workforce adjustment measures back in June. The workforce adjustment project aims to reduce white collar manning by 600 people in 2025 and another 150 people for 2026. In addition, we introduced the hiring freeze and limitation on travel and consultancy expenditures. The estimated gross redundancy cost is estimated to be around NOK 400 million this year and estimated cost savings are NOK 250 million. This gives us a net cost of around NOK 150 million in 2025. As we can see from the graph, annual net run rate savings included travel and consulting cost reductions are estimated to be NOK 1 billion from 2026. This gives an adjusted EBITDA improvement altogether for the improvement programs for 2030 of NOK 7.5 billion. Processes like these are always challenging, and we are doing our best to be considerate and to be transparent towards all our employees. And to ensure a professional process, we work in close collaboration with employee representatives. I do want to emphasize that this project is done in parallel with other ongoing performance and capital discipline measures. We still conduct our improvement program with undiminished strength. There is also a parallel restructuring process in Extrusions with large reductions in employees already taking place. And lastly, we have reduced our CapEx guidance announced last quarter. These initiatives aim to strengthen Hydro's ability to navigate global uncertainty. We're not pulling the brakes on our strategy, but we are ensuring that when we grow, we do it with the right structure and with the right priorities. Moving on to some good news on Alouette, where Hydro holds a 20% ownership stake. This quarter, Alouette has signed an agreement in principle to secure supply of power from 2030 to 2045. The agreement is signed with the government of Quebec as well as Hydro-Quebec. This will ensure long-term competitive prices in a market where the energy balance is tightening. As you can see from the graph, our total power consumption in the years to come requires us to constantly explore alternatives for renewable power sources in order to maintain our energy resilience. And this agreement is an important step to ensure stability for Alouette and to further strengthen Hydro's global portfolio of long-term renewable power. Now let's move to another strategic priority. It's been almost a year since we announced the phaseout of Hydro Batteries, a decision driven by persistent market challenges. And I am pleased to report that we have made progress on the phase-out process. We have recently done 2 battery portfolio transactions in line with Hydro's strategic ambitions for 2030. Earlier this month, Hydro Energy Invest entered a transaction to exchange its minority stake in Lithium de France for a minority shareholding in the listed company, Arverne Group. In addition, Hydro signed an agreement to divest its entire ownership stake in a maritime battery company, Corvus Energy, and the closing is expected to happen early November. Hydro continues to remain engaged in the energy transition, but these transactions help us concentrate on core business within energy and step up our ambitions within renewable power generation in line with the 2030 strategy. Another important event this quarter was the final judgment issued by the Rotterdam court in the case for against Norsk Hydro ASA and its Dutch subsidiaries on September 24. The court fully dismissed all claims, including claims of pollution caused by Alunorte following the heavy rainfalls in the region in February of 2018. The court's dismissal was based on both legal and factual grounds. During the proceedings, Hydro presented extensive evidence, including expert analysis as well as empirical data. On this basis, the court confirmed an established fact that there was no overflow from the bauxite residue deposits back in 2018. And consequently, no harm was caused to the environment. And this is an important confirmation supporting our position throughout the years since the lawsuit was filed. Lastly, I will round off my part of the presentation with 2 customer cases from the past quarter. A key priority in our 2030 strategy is to shape the market for greener aluminum in partnership with customers. We are pleased to see the results of our increased efforts in this area. Our strategic partnership with Mercedes-Benz has continued to accelerate over the years, aiming to decarbonize their value chain. This picture is from the last month where the new electric CLA cars produced with Hydro REDUXA 3.0 aluminum from Årdal, drove from Oslo to Årdal. Hydro can provide Mercedes-Benz low-carbon aluminum, ensuring a traceable and transparent value chain. And this is important for Mercedes to be able to deliver on their ambitious sustainability targets. Another exciting collaborative initiative this quarter and in fact, a large milestone for us is a new bridge in Trondheim called Hangarbrua. This is the first aluminum bridge built in Norway since 1995. The pedestrian bridge is made entirely from recycled aluminum sourced from the decommissioned Gyda oil platform from the Norwegian continental shelf. It is built by Leirvik in collaboration with COWI, partnered with Hydro, Aker Solutions and Stena. This project demonstrates that aluminum can be used in producing bridges of tomorrow, contributing to innovative solutions for the infrastructure sector. And it shows how end-of-life aluminum can be transformed into durable and valuable building materials. Although this project is relatively small, it's a tangible example of the significant potential for aluminum in public infrastructure development, a sector where demand is expected to grow substantially in the years ahead. So for me, these 2 partnerships illustrate the growing demand and potential for low-carbon aluminum and our success in expanding the market for circular and sustainable solutions. With that said, let me give the word to Trond Olaf for the financial update. Trond Christophersen: Thank you, Eivind, and good morning from me as well. So I'll start my part with the market side and starting with the bauxite and alumina markets. After an eventful 2024 dominated by refinery disruptions and bauxite supply challenges, the global alumina market balance has been normalizing since the start of 2025. Around 10 million tonnes of new alumina capacity is expected to come online from India, Indonesia and China this year with full impact expected in 2026. After the drop in alumina prices we saw in Q2 this year, alumina traded around USD 360 per tonne for most of Q3. With more capacity ramp-up, especially in Indonesian refineries, we saw alumina prices falling to around USD 320 per tonne at the end of the quarter. The excess supply is putting pressure on global refiners. If prices stay at the current level, we could see curtailments for high-cost refineries, especially in China. We would then expect a future tightening of the alumina market, pushing back prices to a more normalized level. According to CRU, a small surplus of around 500,000 tonnes is expected in '25, down to a 300,000 tonne surplus in '26 in the 58 million tonne world ex-China market. Consequently, the market would remain sensitive to any production disruptions. Moving to the primary aluminum market. Despite the rate increase to 50% of U.S. Section 232 tariffs on aluminum coming into effect in Q2, the LME and premiums continued to digest its consequences in Q3. Looking at the global primary aluminum balance, external estimates suggest that the market will remain roughly balanced in '25. The 3-month LME aluminum price rose during the quarter, starting at USD 2,599 per tonne and ending at USD 2,681 per tonne. The U.S. Midwest premium continued to surge in Q3, starting at USD 1,432 per tonne and ending the quarter at USD 1,631 per tonne, driven by 232 tariffs, the structural aluminum deficit and the need to attract metal into the U.S. In Europe, the quarter opened with a duty paid standard ingot premium of USD 185 per tonne, increasing to USD 258 per tonne at the end of Q3. As in previous quarters, Hydro's main concern remains the broader risk of a global economic slowdown from tariffs, which would weaken demand and challenge current price levels as a consequence. Then moving downstream. Extrusion demand stabilized at moderate levels in both Europe and North America during Q3 compared to the same quarter last year with light uptick in order intakes. In Europe, extrusion demand is estimated to have remained flat in Q3 '25 compared to the same period last year, but decreased by 20% from Q2 due to seasonality. Demand for building and construction and industrial segments has stabilized at historically low levels with some improvements in order bookings. Automotive demand has been negatively impacted by lower European light vehicle production, partly offset by increased production of electrical vehicles. For Q4 '25, CRU estimates that European demand for extruded products will increase by 1% year-over-year. Overall, extrusion demand is estimated to be flat in '25 compared to '24. In North America, extrusion demand is estimated to have increased 2% in Q3 '25 compared to the same quarter last year, but decreased 2% compared to Q2. Extrusion demand has continued to be very weak in the Commercial Transport segment, driven by lower trailer builds. Automotive demand has also been weak. Demand has been positive in the Building and Construction and Industrial segments, while the ongoing impact from the introduction of tariffs are still uncertain, order bookings have developed better for domestic producers due to lower imports so far this year. In Q4 '25, North American extrusion demand is expected to increase by 5% year-over-year. Overall, extrusion demand is estimated to decrease 1% in '25 compared to '24. Looking at our own numbers, Hydro Extrusions sales volumes increased by 1% year-over-year in Q3 '25. Similar to the previous quarter, transport volume developments were negative, but headwinds are moderating compared to previous quarters. Shipments to the U.S. transport market were down 5% in Q3 compared to minus 11% in Q2. Automotive sales in Q3 were still negative in Extrusions Europe, driven by continued moderate production at some car manufacturers. Automotive sales in North America increased 5% in Q3 from a low base than the same quarter last year, as negative overall market development was offset by increasing volume to key customers. Sales volume growth in the Industrial segment was stable in Q3, while sales in the Distribution segment increased by 8% in Q3, mainly driven by increased shipments in the U.S. After a significant increase in volumes in the HVAC&R segment previously in 2025, the trend turned negative in Q3 '25, mainly caused by tighter consumer spending and an inventory offloading at customers. For Q4, total sales volumes in Hydro Extrusions for EU and the U.S. are expected to be in line with underlying market growth expectations. Then moving to the financials. When looking at the results Q3 versus Q2, adjusted EBITDA decreased from NOK 1.8 billion -- from -- sorry, NOK 7.8 billion to NOK 6 billion. The main driver was normalization of eliminations. Realized all-in aluminum and alumina prices contributed negatively with around NOK 300 million. Upstream volumes had a net neutral impact where somewhat higher volumes in aluminum metal were offset by somewhat lower volumes in bauxite and alumina. Raw material costs contributed positively by approximately NOK 700 million, mainly driven by lower alumina costs in aluminum metal. This was partly offset by higher energy costs and a slight increase in other raw material costs. Extrusions and recycling margins and volumes had a negative impact of around NOK 300 million. 85% of the effect came from Extrusions and the remaining 15% from recycling in metal markets. The negative development in Extrusions was largely driven by lower sales, partly offset by positive impact from the metal effect through the higher Midwest premium. In Energy, lower production and lower prices impacted results for the quarter with a net negative impact of around NOK 100 million. Furthermore, fixed costs were around NOK 200 million lower compared to Q2 with positive Extrusions. Currency effects negatively impacted the results by around NOK 400 million with 70% of the effect related to aluminum metal and 30% to bauxite and alumina. This was mainly due to a stronger NOK compared to U.S. dollar. The largest negative effect this quarter was normalization of eliminations, which amounted to NOK 1.4 billion. In the second quarter, realization of previously eliminated internal profit had a positive contribution of the same size. Finally, net other elements had a net negative impact of around NOK 100 million. And this concludes the adjusted EBITDA development from NOK 7.8 billion in Q2 to NOK 6 billion in Q3. If we then move to the key financials for the quarter. Comparing year-over-year, revenue increased by around 1% to NOK 51 billion for Q3. Compared with Q2, revenue decreased by around 5%. For Q3, around NOK 200 million positive effects were adjusted out of EBITDA, mainly related to NOK 206 million unrealized derivative loss, mainly on LME-related contracts and a net foreign exchange gain on risk management instruments of NOK 66 million. The result also included NOK 116 million in rationalization charges and compensation for termination of a power contract, of which NOK 251 million is related to future periods. This results in an adjusted EBITDA of NOK 6 billion. Depreciations were around NOK 2.5 billion in Q3, resulting in adjusted EBIT of NOK 3.5 billion. Net financial income for Q3 was around negative NOK 450 million. This was largely driven by net interest and other finance expenses of around negative NOK 730 million. This was partly offset by an unrealized currency gain on around NOK 380 million, mainly reflecting a stronger NOK versus euro affecting embedded euro currency exposures in energy contracts and other euro liabilities. Furthermore, we have an income tax expense of around NOK 900 million for Q3, and the quarter was mainly impacted by high power surtax. Overall, this provides a positive net income of around NOK 2.1 billion and foreign exchange gains of approximately NOK 380 million are adjusted out together with the EBITDA adjustments mentioned earlier and partly offset by income taxes of around NOK 120 million. And this results in adjusted net income of NOK 1.9 billion in Q3. Adjusted net income is down from NOK 3.5 billion in the same quarter last year and down from NOK 3.6 billion in Q2. Consequently, adjusted EPS was NOK 1.02 per share. And let's then go to the business areas and give an overview of each of the business areas, starting with Bauxite & Alumina. Adjusted EBITDA for Bauxite & Alumina decreased from NOK 3.4 billion in Q3 '24 to NOK 1.3 billion in Q3 '25. This was mainly driven by lower alumina prices, higher fixed costs from a low level in Q3 '24 and negative currency effects caused by a weaker U.S. dollar against the NOK. This was partly offset by higher sales volumes and positive year-on-year effects from the full implementation of the fuel switch to natural gas. Compared to Q2 '25, the adjusted EBITDA decreased from NOK 1.5 billion to NOK 1.3 billion in Q3 '25, mainly driven by negative currency effects caused by a stronger BRL versus the U.S. dollar and lower sales volumes. Alumina realized prices decreased but maintained above market prices indications due to intra-group pricing mechanisms. Raw material costs were slightly higher Q3 versus Q2 and fixed costs remained stable. For Q4, we expect the production volume at nameplate capacity. And compared to Q3, we expect stable fixed costs and raw material costs are also expected to remain relatively stable. Moving then to Aluminum Metal. Adjusted EBITDA decreased from NOK 3.2 billion in Q3 '24 to NOK 2.7 billion this quarter. The main drivers year-on-year were negative currency effects caused by a stronger NOK against the U.S. dollar, partly offset by higher sales volumes and lower alumina costs. Compared to Q2 '25, adjusted EBITDA for aluminum metal decreased from NOK 2.4 billion, and this was driven by lower alumina costs, partly offset by higher energy costs, currency effects caused by stronger NOK against U.S. dollar and lower all-in metal prices, mainly caused by a sales mix pushing premiums to the lower end of the guiding. The raw material cost release was around NOK 700 million, which was lower than we guided for in the Q2 reporting. The reduction was lower than expected, mainly due to intercompany alumina pricing mechanisms, where the opposite positive effect is realized in higher B&A alumina price and result. These effects cancel each other out on the group level. Decrease in fixed cost was above guidance at around NOK 200 million caused by currency translation effects. And this brings me then over to the guiding for the next quarter. For Q4, AM has booked 72% of its primary production at USD 2,597 per tonne, and this includes the effect from our strategic hedging program. We have booked 40% [indiscernible] USD 423 per tonne, and we expect realized premiums to be in the range of USD 310 to USD 360 per tonne. On the cost side, we expect stable total raw material costs and increased fixed costs in the range of NOK 100 million to NOK 200 million, and sales volumes are expected to remain stable. Moving to Metal Markets. Adjusted EBITDA for Metal Markets decreased in Q3 from NOK 277 million in Q3 '24 to NOK 154 million due to lower results from sourcing and trading activities. And those were partly offset by increased results from recyclers. Excluding the currency and inventory valuation effects, the results for Q3 was NOK 174 million, down from NOK 375 million in Q3 '24. And compared to Q2, adjusted EBITDA for Metal Markets decreased from NOK 276 million due to lower results from recyclers and from sourcing and trading activities. Recycling results ended lower at NOK 93 million, down from NOK 136 million last quarter. The decrease was mainly due to seasonally lower volumes, partly offset by positive premium development. For Q4, we expect lower recycling results following continued margin pressure. In our Commercial segment, we also anticipate a lower contribution from sourcing and trading activities in Q4. As always, we emphasize the inherent volatility of trading and currency fluctuations. And given the realized results year-to-date, we have adjusted down the guidance for the commercial area adjusted EBITDA, excluding currency and inventory valuation effects to NOK 200 million to NOK 400 million for the full 2025. Moving to Extrusions. The adjusted EBITDA increased year-over-year from NOK 880 million to NOK 1.1 billion, driven by positive metal effects from increasing Midwest premiums, partly offset by pressure on sales margins. We saw 1% higher sales volumes as well as somewhat weakened sales margin primarily in Europe. Furthermore, lower recycling production negatively impacted the results with around NOK 100 million. And compared to Q2 '25, adjusted EBITDA for the Extrusions decreased from NOK 1.2 billion due to seasonally lower sales volumes, partly offset by positive metal effects and lower costs. Looking into Q4, we should always look towards the same quarter last year to capture the seasonal developments in Extrusions. External market estimates suggest a positive volume development year-over-year of 1% for Europe and 5% for North America. However, we foresee increasing pressure in both Extrusions margins and Recycling margins. We expect further metal effects year-over-year of NOK 50 million to NOK 150 million based on current spot Midwest premiums, reminding that metal effects are strongly dependent on the movements in the Midwest premium. And then moving to the final business area, Energy. The adjusted EBITDA for Q3 increased to NOK 828 million compared to NOK 626 million in Q3 '24. The increase was mainly driven by higher gain on price area differences, partly offset by lower production. Compared to Q2, adjusted EBITDA decreased from NOK 1.1 billion, mainly due to lower production and lower commercial results. The price area gain was NOK 330 million in Q3 at a similar level as in Q2. Looking into Q4, as always, we should be aware of the inherent price and volume uncertainty in energy. For the next quarter, production volumes and prices are expected to increase mainly due to seasonality. Furthermore, price area gains are expected to be lower following seasonal convergence between area prices. And then let's move to the final financial slide this quarter. Net debt decreased by NOK 1.9 billion since Q2. Based on the starting point of NOK 15.5 billion in net debt from Q2, we had a positive contribution in adjusted EBITDA of NOK 6 billion. During Q3, we saw a net operating capital build of NOK 1.4 billion, mainly driven by increasing inventories and receivables related to indirect CO2 compensation, partly offset by a release in net accounts receivables and accounts payables. Under other operating cash flow, we have a negative NOK 200 million impact, mainly driven by net interest payments, settlement of taxes and reversal of net income from equity accounted investments, partly offset by positive mark-to-market reversals and adjustments for noncash effective bonus accruals. On the investment side, we have net cash effective investments of NOK 2.2 billion. As a result, we had a positive free cash flow of NOK 2.2 billion in Q3. And finally, we also had negative other effects of NOK 300 million, and this was mainly driven by payments of new leases, partly offset by positive net currency effects on cash debt. As we move to the adjustments related to adjusted net debt, hedging collateral has increased by NOK 400 million since the end of Q2. And furthermore, during Q3, the net negative pension position decreased by NOK 700 million, turning into a net asset position of NOK 600 million positive. And finally, we had no changes in other liabilities during Q3. And with those effects taken into account, we end up with an adjusted net debt position at the end of Q3 of NOK 21.1 billion. And with that, I end the financial update and give the word back to Eivind. Eivind Kallevik: Thank you, Trond Olaf. Now as we conclude today's session, I'd like to summarize our continued priorities going forward. As always, health and safety remain our top priority, and we are fully committed to safeguarding the well-being of our employees. While we recognize that strong performance metrics can shift in just a moment of inattention, the ongoing positive trend in this area stands as a clear evidence of our dedication. We are navigating an increasingly volatile geopolitical situation that continues to affect our markets, but in response to these uncertainties, we are proactively refining our operational structure to target our most critical strategic priorities. This quarter, we have taken steps to execute on the phaseout of our battery operations in accordance with our strategy. We have several performance and capital discipline programs ongoing to help us better navigate global uncertainty and keep up the attention on profitability. We are seeing positive outcomes in our power sourcing portfolio highlighted by the Alouette recent long-term contract, which strengthens our energy resilience. Continuing to identify and pursue new opportunities in power sourcing remains essential to secure our future energy needs. Achieving tangible results on our 2030 strategy remains critical, and we are proud to see that we are taking steps in the low-carbon aluminum transition. Our market for recycled low-carbon products continues to advance, exemplified by the partnership with Mercedes-Benz and the infrastructure project in [ Tonya ]. We create growing markets through partnerships while we execute on our decarbonization and technology road map. And these concentrated efforts on growth and profitability ensure that Hydro continues to stay relevant. And we are committed to our decarbonization strategy, and we will continue to pursue our 2030 ambitions with unwavering determination. Thank you so much for your attention. And with that, I hand it over to you, Erik. Baard Erik Haugen: Thank you, Eivind, and thank you, Trond Olaf. We will then move into the Q&A session. [Operator Instructions] And we have a few already, so let's get started. First one is from Liam. Can you please give your latest thoughts on CBAM? Do you expect implementation from early 2026 or potential delays? Eivind Kallevik: Thanks, Liam. The way we look at this today, we do expect CBAM to be implemented from 2026. What we are, I would say, excitingly awaiting is any changes or adjustments to CBAM, for instance, around the scrap loophole. That remains to be seen as we get towards the tail end of this year. Baard Erik Haugen: And then there's a second question from Liam. Is it possible or likely that you will underspend versus the NOK 13.5 billion CapEx guidance for 2025? Eivind Kallevik: We are keeping the CapEx guidance at NOK 13.5 billion. Remember that Q4 is typically the quarter with highest maintenance and sustaining capital. Now if we have any updates to that, we will certainly be sure to give it at the Investor Day that we have in late November. Baard Erik Haugen: Then there's a question from Amos. Can you discuss the state of play with the Tomago's energy contract? Is it reasonable to assume that the smelter shuts in 2029? Eivind Kallevik: So Tomago is, of course, placed in an area where renewable power is hard to get in Australia and the power situation is pretty tight, leading to high energy cost. Currently, today, energy costs is roughly 40% of operational costs for the Tomago smelter. We continue to work with the stakeholders to see if there are any opportunities to get renewable power post the end of '28, but it is a challenging situation. And we will make sure that we update the market if and when there are news in this context. Baard Erik Haugen: And another one from Amos. Is there any change to guidance for Metal Markets trading and commercial EBITDA contribution for '25? I think that one was covered already. Trond Christophersen: Yes. So as I said, we have reduced the guiding to NOK 200 million to NOK 400 million, down from NOK 300 million to NOK 500 million, as we said in the Q2 report. So that is the reduction in the guiding. Baard Erik Haugen: And then a question from Matt. Considering the recent volatility in alumina prices and the increase in refinery capacity from Indonesia with potential developments in Guinea, how is Hydro approaching the balance between LME linked and PAX-based pricing for future alumina contracts? Also, could you please provide some more color on the Alba supply agreement in Q3? Eivind Kallevik: Yes. So when it comes to pricing of alumina, PAX remains the predominant pricing parameter and that I suspect you should also expect going forward for the new contracts that we enter into. When it comes to the Alba contract, it's a contract that we are very happy to enter into. It's a long-term partner in the Gulf. Other than that, I really cannot comment on specific commercial details of any contract. Baard Erik Haugen: And then there's a question from Hans Erik. Any news regarding potential tariffs on scrap exports from Europe? Trond Christophersen: Yes. So the commission in the EU had planned for an announcement late in Q3. That has now been postponed until late Q4. So that is the latest information we have. So then again, we expect the news at the end of Q4. Baard Erik Haugen: Question from Magnus. There seems to be a miss versus guidance of NOK 300 million on raw material costs, looking at the group combined. Can you explain the drivers here? Trond Christophersen: Yes. So Magnus, on the raw material costs, I think you need to look at bauxite and alumina and aluminum metal together. And we guided on NOK 1 billion to NOK 1.2 billion. We realized NOK 700 million. But if you add roughly NOK 200 million plus from B&A to that guiding due to the internal pricing mechanism, we are closer to the NOK 1 billion. And then with some slight increases in energy costs and less reduction of carbon costs, both below NOK 100 million. But if you add all that together, you are within the guiding. So that is basically the difference. Baard Erik Haugen: Then we have a question from Bengt. Looking at actual price changes for premiums during the quarter and your expected range of USD 310 to USD 350 per tonne, the midpoint implies lower realized premiums quarter-on-quarter, whereas premiums are up quarter-on-quarter. Are there a temporary change in sales mix that explains this? Eivind Kallevik: So thanks, Bengt. And you are correct. When we've looked to the value-added products market, both in Q3 and when we look into Q4, we do expect to produce somewhat more standard ingots compared to what our normal product mix would be. And that, of course, drags the average premium somewhat down. Baard Erik Haugen: Then there's a question from Ioannis. Market expectations were for a meaningful increase in extrusion volumes in 2026 from through levels. Q1 '26 outlook suggests just 2% to 4% improvement year-on-year. Can you provide some color on end markets and whether you are seeing any uptick in Automotive and HVAC going into next year? Trond Christophersen: So I would say that the overall extrusion market is the market where we see a lot of uncertainty. It is difficult to give sort of additional flavor on the expected volumes going into next year. We use the external CRU as a reference. And as we said this quarter, we roughly followed the development for CRU, which we also expect for the coming quarter. We have been expecting a recovery in extrusion market for quite some time now. But again, as always, it's very difficult to tell when we will see the market turn. Baard Erik Haugen: Then we have a follow-up from Bengt. Follow-up on the standard ingot. Is that normal seasonality or changes in end-user demand? Eivind Kallevik: So I think you need to look at this 2 ways. One is that demand in Europe has been relatively weak, as Trond Olaf has been through. That's part of it. Second part of it is that customers -- our customers is then also drawing down their inventories quite significantly, both in the U.S. and in Europe towards the year-end. And as such, we produce somewhat more standard ingots to get our operating capital also out the door. Baard Erik Haugen: Then there's a question from Magnus. Are we done seeing significant positive eliminations? Our impression was that there was more to come as the Q2 release was smaller than the buildup in the year before. Trond Christophersen: Well, eliminations are unfortunately difficult to predict also for us internally. But if you look at the total accumulation of negative eliminations through the price increase for alumina, we accumulated roughly NOK 2 billion. And now we have released, I think, yes, around NOK 1.76 billion in total. But the remaining level we keep in the balance will fully depend on the development of the alumina price. And I think sort of the positive twist on this is that since we now are generating much better cash flows in bauxite alumina compared to the situation before the alumina price surge we saw last year, we then will have a higher eliminations in the balance if the current market prices stay. Baard Erik Haugen: Then there's a question from Amos. What is your guidance for Q4 working capital movements? Trond Christophersen: Yes. So we maintain our guiding that we gave at the Capital Markets Day last year that we will deliver the NOK 30 billion at year-end. Baard Erik Haugen: Okay. Then there seem to be no further questions, in which case we will round it off here. Thank you all for joining us here today. Please don't hesitate to reach out to Investor Relations if you have further questions. And we wish you all a great day. Thank you.
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2025 Third Quarter Results. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you, Anders. And also from my side, a good morning. Happy to present results for the third quarter '25. So -- and when I summarize the quarter, we can state that SCA continued to deliver a solid result in a rather challenging environment. Our high degree of self-sufficiency in strategic areas continued to be an important factor to mitigate higher costs, not the least related to wood raw materials. Our EBITDA reached SEK 1.64 billion and by that, an EBITDA margin of 33% for the third quarter. In Q3 '25, we had substantially lower prices in the Pulp segment in comparison with the same period last year. Our planned maintenance stops in pulp and containerboard were also considerably more extensive compared to the same quarter last year. Delivery volumes in the Containerboard segment increased this year compared with the same quarter last year, driven by the continued ramp-up of our Obbola containerboard mill. The uncertain market situation, mainly dominated by changing tariffs continues to affect market conditions. The forest industry in general is momentarily challenged by a weaker -- with a market with soft underlying demand in many product areas. Turning over to some financial KPIs for the third quarter '25. As already mentioned, our EBITDA reached SEK 1.64 billion in the quarter, which corresponds to a 33% EBITDA margin and a 22% EBIT margin. Our industrial return on capital employed came out just over 6%, counted for the last 12 months. And the leverage was at 1.7x with our -- while our net debt to equity reached 11.2%. I will now make some comments for each segment, starting with Forest. Higher harvesting levels from our own forest have not the least contributed to stable supply of wood raw materials to our industries during this period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs as can be seen in the graph on the bottom left. Regarding pulpwood, we have now passed the peak, I guess, and the prices have started to come down during this quarter. Demand for sawlogs continues to be high, especially for spruce logs. When one compares Q3 '25 with Q3 '24, sales were up 14%, while EBITDA was up 17%, mainly due to higher prices for wood raw materials. Turning over to Wood. In general, we still have a slow underlying market for solid wood products. As said before, we have noted signs of improvement in the repair and remodeling segment this year in comparison with the last year, but the uncertainty in general economic development continues to affect the market recovery negatively. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce. Stock levels at customers continue to be on the low side. The volumes in both production and deliveries were good for SCA during the quarter, resulting in a close to unchanged stock level of sawn goods. The price for solid wood products decreased by 5% in the third quarter of '25 in comparison with the second quarter of '25. This development is in line with what I said when I presented the report for the second quarter. As expected, the cost for sawlogs has increased from the second to the third quarter, and we also expect them to continue to increase going into the fourth quarter. Sales were in line with the same quarter last year. EBITDA margin decreased from 19% to 15% due to higher raw material costs and a negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA level is rather normal. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmills production has been on a normal level during the first 8 months of '25. In the diagram to the top right, we can note that the price decreased during the third quarter. The decrease in pine has been larger in comparison with the spruce products. Going into the next quarter, I estimate that prices on average again will decrease by up to 5%, somewhat more for pine and somewhat less for spruce. And this is driven by the momentarily high availability of pine products. In the construction sector, we can conclude that start of new buildings continues to be low. As said before, uncertainties are still present, but we see improved consumption in the repair and remodeling sector. The level of duties now put in place on wood products from Canada delivered to U.S., about 45% in comparison to the level for wood products from European Union, delivered to the U.S. about 10% has strengthened the competitiveness for EU producers in comparison with Canadian producers. And I guess it's likely that the price level in U.S. will increase when stock levels are coming down from today's high levels. So over to pulp. When comparing Q3 '25 with Q3 '24, sales were down 21%, mainly due to lower prices, a lower delivery volume and a negative currency effect. EBITDA was down 57%, compared to last year, mainly due to lower prices, a negative currency effect and higher cost for wood raw materials. The cost for the planned maintenance stop was SEK 83 million this quarter compared to SEK 35 million in Q3 '24. Global demand for pulp was at a healthy level during the first quarter of '25. During the second quarter, the market changed with reduced demand and prices came under pressure, much due to uncertainty related to U.S. tariffs. During the third quarter, prices on NBSK pulp were stable at low levels. On the demand side, we saw increased activity in China during the quarter. The weakening of the U.S. dollar in relation to the Swedish krona, which started already in Q1, continued to have a negative impact on the pricing in SEK also in Q3. Tariffs on NBSK pulp from the European Union to the U.S. were removed during the third quarter, and this allows us to maintain a competitive offering in the U.S. Looking at CTMP, prices have been unchanged in Asia at low levels and have decreased slowly in Europe during the third quarter. Inventories of softwood and CTMP have been increasing in July and August, as you can see in the diagram and are now on the high level. Hardwood inventories on the contrary were stable during the third quarter. Moving over to Containerboard. Sales were up 10% in Q3 in comparison with the same period last year, driven by higher delivery volumes and higher prices, somewhat mitigated by a negative currency effect. EBITDA was down by 39%, very much driven by long planned maintenance stop with a cost of SEK 204 million versus SEK 87 million in Q3 2024. Higher costs for wood raw materials and a negative currency effect also had an impact. We have seen a softer box demand during the last quarter, but still with a positive development on a year-to-date basis. The retail business remains on a positive driver. On the other side, we continue to see a weak European manufacturing industry, which, for the moment, drives the demand in a negative direction. After a stable first half of the year of European demand of containerboard has started to decrease in Q3, due to the current turbulent macro environment, it's difficult to have a view on the long-term demand. In Q3, we have seen additional supply coming on stream with the vast majority coming in testliner. We do not expect further capacity increases in Q4, except from the ramp-up effect of newly started machines. Kraftliner inventories remain above average level in Q3, as you can see in the graph. During Q3, the availability of OCC has been good, driven by the lower demand in the quarter, which in its turn has led to decreasing prices of OCC. Moving into Q4, we see the availability of OCC to be stable and expect prices to be more or less unchanged. Prices for brown kraftliner in Central Europe has during Q3 decreased with EUR 20 per tonne, driven mainly by slow demand and reduced prices of OCC. White kraftliner has remained stable. Finally, I will say some words about renewable energy. In this area, we have had a weaker quarter compared to the same period last year, mainly due to lower prices in wind power and solid biofuels. Continued improvements in ramping up Gothenburg biorefinery are partly compensating for this. The market for solid biofuels in Northern Sweden continues to be weak due to warm weather and low electricity prices. This factor increases our export share and by that, reduced margin. For liquid biofuels, we have seen higher margins compared to previous quarters. The main reasons are tighter supply due to maintenance stops in biorefineries, European countries implementing RED III and better control mechanism within the EU regarding imported feedstock. We expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both from -- both in HVO and SAF. Electricity prices were low during the quarter, which impacted on our wind business negatively, but it is good, of course, for SCA as a net buyer of electricity. SCA's land lease business is stable at 9.7 terawatt hours, which is equal to 20% of installed capacity of wind power in Sweden. Installed capacity on our land is expected to reach 10.5 terawatt hours by the end of the year. And by that, I hand over to you, Andreas. Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I'll start off with the income statement for the third quarter. Net sales decreased 5% to SEK 5 billion, driven by negative currency effects and lower prices, which was partly offset by higher delivery volumes. EBITDA decreased 18% to SEK 1.6 billion, driven by negative currency effects, lower prices and higher costs for planned maintenance stops. EBIT decreased to SEK 1.1 billion and financial items totaled minus SEK 103 million. With an effective tax rate of just below 20%, bringing net profit to SEK 0.8 billion or SEK 1.19 per share. On the next slide, we have the financial development by segment and starting with the Forest segment to the left. Net sales decreased to SEK 2.4 billion, driven by lower delivery volumes compared to the previous quarter due to several planned maintenance stop at SCA's industries. EBITDA decreased to SEK 912 million due to seasonally lower harvest from SCA's own forest. In wood, prices decreased compared to previous quarter, while the cost for sawlogs continued to increase. Net sales decreased to SEK 1.5 billion, driven by lower delivery volumes and lower prices compared to the previous quarter. EBITDA decreased to SEK 232 million, corresponding to a margin of 15%. In pulp, net sales decreased to SEK 1.65 billion, driven by lower delivery volumes and lower prices. EBITDA decreased to SEK 242 million, corresponding to a margin of 15%. Higher costs for planned maintenance stops and lower prices were offset by lower costs. We had lower energy and raw material costs in the quarter, and Q3 is also a low-cost quarter for indirect costs in all segments, which had a positive impact. In Containerboard, net sales decreased to SEK 1.8 billion and EBITDA decreased to SEK 194 million, corresponding to a margin of 11%. Result was negatively impacted by planned maintenance stops in both Munksund and Obbola of SEK 204 million. The market for renewable energy continued to be weak. EBITDA decreased compared to previous quarter and amounted to SEK 79 million, corresponding to a margin of 21%. The decrease was mainly driven by lower deliveries of solid biofuels. On the next slide, we have the sales bridge between Q3 last year and Q3 this year. Prices decreased 2%, driven by lower pulp prices. Volumes increased 1%, driven by higher volumes in containerboard, which was also offset by lower volumes in pulp. And lastly, currency had a negative impact of 4%, bringing net sales to SEK 5 billion. Moving on to EBITDA bridge and starting to the left. Price/mix had a negative impact of SEK 99 million and higher volumes had a positive impact of SEK 14 million. Higher costs for mainly wood raw materials had a negative impact of SEK 57 million, which was mitigated by our highest degree of self-sufficiency. We had a positive impact from energy of SEK 37 million and a negative impact of currency of SEK 169 million. This was impacted by higher costs for planned maintenance stops. And in total, EBITDA decreased to SEK 1.6 billion, corresponding to a margin of 33%. Looking at the cash flow. Operating cash flow increased to SEK 1.1 billion for the quarter, and SEK 2.5 billion for the first 9 months. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Looking at the balance sheet. The value of the forest asset totaled SEK 108 billion. Working capital decreased compared to previous quarter and totaled SEK 5.6 billion. Capital employed totaled SEK 160 billion and net debt decreased compared to the previous quarter to SEK 11.7 billion. And we have now almost finalized our large ongoing investment projects. Equity totaled SEK 104 billion and net debt to equity was 11%. Thank you. With that, I'll hand back to you, Ulf. Ulf Larsson: So thank you, Andreas. And well, just to summarize, I mean, as I said, we have continued to deliver a solid result in a rather challenging environment. . I guess the market has bottomed in more or less all areas except from solid wood products. On the other side, we will see a cost pressure coming in our solid wood business, wider price for pulpwood has now stabilized and are on its way down, I would say. In pulp and kraftliner, I guess, the market is going sideways now, and we are 100% focused on what we can have an impact on ourselves, which is meaning that we are focusing on the ramp-up of our big projects. And they are going very well -- did go very well during the third quarter. So by that, I think that we open up for some questions. Operator: [Operator Instructions] And we will now take our first question from Ioannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: I've got 3 questions, if I may. I'll take them one at a time. First on pulpwood costs. Given the small decline that you show in your slide deck for Q3 and the typical lag in your business, what should we expect for cost development in your industries in Q4 this year and also Q1 2026? Ulf Larsson: You asked about pulpwood. And as I said, I mean, we see that now that prices for pulpwood is coming down in the market. But as you say, we have a lagging effect. And I could say that we have -- it's around 6 months or less. Andreas? Andreas Ewertz: Yes. So in the fourth quarter, I mean, fairly flat, maybe we're talking about 1% decline in pulpwood prices. So fairly flat, while the cost for sawlogs will continue to increase a bit into Q4. Ulf Larsson: And in the beginning of next year? Andreas Ewertz: Then I think that pulpwood will slowly continue to decrease. But as I said, I would say, it's around 6 months of lag effect in the terms of sawlogs. I think they will start to peak also around maybe Q1, Q1 next year. Ioannis Masvoulas: And then going back to pulp, looking at NBSK inventories on days of supply were pretty much at the top of the historical range, do you see the recent temporary curtailments among your peers to help rebalance the market in the short term? Or do we need to see more aggressive supply response? Ulf Larsson: It's hard to say, I mean, maybe I didn't say that, but I mean we are still at a very high operating rate in NBSK, and we should because we have a very low cash cost, of course. But on the other hand, we see announcements now from many areas where they have started to take curtailments. I guess also in the statistics that you see now, we haven't included the typical longer maintenance stops that we have had now during the autumn. So I guess that the inventory will come down. And as always, it's a question, it's a supply-demand issue. And I guess we will see a better balance, but I mean, underlying, we have to wait for an increase in consumption before we can say that we have a stronger market. Ioannis Masvoulas: Understood. And then just last question for me on the FX hedging. Looking at your disclosure, you seem to have brought down your USD hedge ratios for the next 4 quarters. Is that a conscious decision to avoid locking in an unfavorable FX rate? And could these ratios come down further in the coming quarters if spot FX rates persist? Andreas Ewertz: We use statistical model for our hedge strategy. So we have -- for the next 6 months, we hedge around 50% to 85% of our net exposure and then it goes down. But then it depends on statistically how favorable the currency is. So we use model and for the U.S. dollar currently in the low range of that while for euro, we are on the normal range. Operator: And we'll now take our next question from Linus Larsson of SEB. Linus Larsson: Couple of questions on use of funds. It seems to me that you have a very strong balance sheet. Cash flow is robust through the cycle. You're running at high operating rates, like you say, your competitiveness is strong. How do you look at buybacks in this context, given where your share price is trading and given your investment plans for the time being? Ulf Larsson: If we start with the investment plan, as I said, we are just now 100% focused on ramping up what we have started, and we feel that we are doing that in a good way. As I've also said, I mean, just now, we sit on our hands. We will not start up new big projects. And I guess, as all other companies, we also try to -- yes, not do too many current investments because we have an uncertain market coming going forward, I mean, that's the position we have just now. And the question about buybacks, I mean, that is more question for the Board, honestly. So let's see. We are now focused on ramping up what we have started. And by that, as you said, we expect that we will increase our cash flow capacity substantially. Linus Larsson: Yes. Yes. No, that's great. But I mean, principally, how does the Board look at buybacks? Is there like a principal view on whether or not buybacks is part of the toolbox? Ulf Larsson: Again, that's a question for the Board. But as far as I understand, we have no principles in this matter. I think we have done since the split 2017, I mean, we have invested 20% of the net sales in the company every year. For us, that's a lot of money. For all companies, it's a lot of money. So we are more focused just now to realize the cash flow that we suppose -- that we will have from these ongoing investments, so that's our focus now. Linus Larsson: Yes. No, that's clear. And just to finish off that, what's your CapEx guidance for 2025 and 2026, respectively? Andreas Ewertz: If you look at CapEx for '25, I think that current CapEx will be around SEK 1.5 billion. We might have some spillover to next year, so SEK 1.4 billion, SEK 1.5 billion. And then in terms of strategic CapEx, also depending on timing of some payment, but around SEK 1.3 billion, SEK 1.4 billion. So maybe SEK 2.8 billion in total for current and strategic, but it depends on certain timing of certain payments. For next year, strategic CapEx will go down. We have some payments left in the ramp-ups, but strategic CapEx will come down. And then I would guess that current will be slightly higher than this year since we have some spillover from this year to next year. Linus Larsson: But how much will the strategic CapEx go down? Is it SEK 0.5 billion or SEK 1 billion or around the backlog? Andreas Ewertz: It depends on some timing, but I would guess we have a couple of hundred millions left on our current projects. Operator: And we'll now take our next question from Charlie Muir-Sands of BNP Paribas. Charlie Muir-Sands: I wanted to start on the round wood market. So you mentioned obviously log prices are high and if anything, still slightly moving up due to high demand. But equally, it sounds like the wood products market in general is still quite soft. So I'm just trying to understand, is this a demand that's for other uses? Or are you basically saying this is more of a supply issue for the market? And if so, is this just of a hangover from the spark beetle delivery from prior years? Or is there any other reason why we could expect some better balance coming back on the supply side soon? And then just on the pulpwood cost side, very helpful the detail you've given so far. But just in terms of the timing effects, the changes in pricing of pulpwood hit the forestry and then the industrial segment at the same time? Or is there a phasing effect whereby the P&L benefit on forest is reduced before the cost tailwind on the industrial segments come through or anything like that to be aware of. Andreas Ewertz: Yes. So if you look at the pricing, I mean we base our internal prices of what the Forest division pays for its sourcing and a lot to buy on stumpage. So you buy the right to harvest. And then, I mean, you optimize the harvesting to try to have some larger areas to have efficient harvesting. So it can be vary. I mean, some of these -- what the harvest is couple of months. You bought it for some might be 3 months ago or 6 months ago. And then that average price is what the industry gets to pay. But the pricing is -- when the prices goes down, the industry will get a lower price, but then, of course, our Forest division will earn less money on their own harvest. But one day, what they source externally that they get paid for. And then the second question -- the first question was around the demand for sawlogs. Ulf Larsson: The coming demand. I mean, as we see just now, we have, as you saw on the graph in Sweden and Finland, the production is still on a normal level, even if we know that the price -- log prices are very, very high. And profitability in the business is, in general, rather low. We feel rather confident with the profitability we have in our own Wood division. But I mean we -- up until today, we haven't seen any signs of decreasing log prices actually. Andreas Ewertz: And also -- it's also difference between pine and spruce sawlog. On spruce sawlog, you have much lower supply compared to pine sawlog, sort of pricing and demand difference there. Charlie Muir-Sands: And then just on the wood products side, you mentioned the relative competitive advantage for EU exporters to the U.S. now versus Canadian. Can you just talk about the relative profitability of your U.S. business compared with your European business today? How big an opportunity might this be? Ulf Larsson: Yes. First, if we take the tariffs, I mean, as I said, the tariff just now going from Europe over to U.S. is 10%, and coming from Canada over to U.S., then the tariff is 45%. As it is just now, in U.S., the stock level is on the very high side. So, so far, we haven't seen any impact on the, let's say, the local price in U.S. But I guess when the inventory level is coming down, then, of course, customers, they have to start to buy and then they can buy some volume from Europe and they have to buy some volume from Canada. But then I guess that prices can in a short while, increased quite dramatically. We don't have a big volume for U.S. We do, let's say, 80,000 cubic meter per year. But again, it's a global market. So if we start to see better trade in U.S., I mean, that will, of course, have also an impact on the European market and also the Asian market and so on and so on. So we have to wait and see. But I mean, as it is just now, I guess, it's more a question of time. We will have a slow fourth quarter, as we always have. And I guess it will be rather slow also in the first quarter. But then I guess, in the beginning of the second quarter next year, then we might start to see something. Charlie Muir-Sands: But Canadian volumes can't get displaced into other parts of the world or even coming into Europe to offset that benefit? Ulf Larsson: Yes, not really. I mean, of course, you will see some Canadian volumes in China and you might -- I don't think you will see too much of it in Europe. Again, it's -- you have the distribution cost and many of those sawmills, they are located inland. And so it's also a question of distribution, inland distribution cost within in Canada so I guess if this remains, which you never know, I mean, then you probably will see further closures and capacity reductions. And honestly, I don't know really how the U.S. -- I mean, we know that U.S., they need a lot of solid wood products coming into U.S. So I guess it might be so that we see some further changes going forward now. Also when it comes to tariffs and things like that. So I mean, it's -- but all these -- I think we had a question before. But I mean, tariffs, we are not directly too much impacted by tariffs. We can handle that in a good way. But I guess that this discussion has created uncertainty globally. And that's the reason also why we have a rather slow demand in Asia in more or less all product areas. And so I mean that is the -- I guess the worst thing with tariffs is it is creating some kind of uncertainty in all areas and globally. Operator: We'll now take our next question from Robin Santavirta of DNB. Robin Santavirta: Thank you very much. Firstly, I have a question related to the Containerboard business. Looking at the delivery volumes now this year, they have been quite steady, but it seems still Obbola is not running at full capacity. And now you had the log maintenance shut. So could you give some guidelines on volume outlook for that segment in Q4 and early 2026? Should we expect a bit of a step change or more of a slow gradual ramp-up during the end of the year and next year? Ulf Larsson: When it comes to Obbola, we have said that Obbola will produce 600,000 tonnes this year, and they will do so if nothing expected will happen in the fourth quarter. Then it is a tough market in kraftliner. So we have seen during the third quarter, increasing inventories in kraftliner. And so that's the case. And as you said, we also had a rather long maintenance stop in Q3. So that also had an impact on deliveries. But production-wise, Obbola will reach 600,000 tonnes next -- this year. And then the plan is to reach 700,000 tonnes next year. Robin Santavirta: Okay. Okay. Can I ask about this EU deforestation regulation? How do you view that? Will that have any kind of impact for your businesses in Europe either way, what is your view? Ulf Larsson: I mean, it has also created a lot of uncertainty. But I guess for us, we can manage EUDR, but of course, it would be an administrative burden, which we don't like. But we can handle it. Robin Santavirta: But what about your competitors? Could it be a setup where some pulp had been imported from some countries or some paperboard that has been imported from Asia or Americas, they could end up in a bit of difficulty to do so in the future? Or will this impact trade flow at all in your view? Ulf Larsson: Yes, it's very hard to predict. I mean, we have been working quite hard to find out a system which will not create a lot of administration. And I mean, typically, we are for free trade. I think that's good. And I think that EU in the long run, they will benefit from a free trade. We don't know what -- how this will be implemented in the trade up till today. So again, this is also another thing that really creates uncertainty. But the honest answer is we don't know how that will -- this will play out. The only thing we can do is to focus on our own ability to meet the requirements that might come. Robin Santavirta: Yes, for sure, for sure. Follow-up question related to the pulp market. What is going on in the softwood pulp market? There's a lot of curtailments now during early autumn. Certainly, Finland, some in Sweden as well, I understand some in Canada as well. And historically, when you do that, you tighten up the market quite quickly. Now we're not seeing that. Is this a bit of a substitution into hardwood pulp? Is it some Chinese volumes that -- I mean, historically, they do not produce a lot of softwood pulp. Now I understand there is some production going on in China as well. So why is not the market tightening despite the quite significant production curtailments in the Northern Hemisphere? Ulf Larsson: I guess the first thing is that the underlying demand is weak. So that's the first explanation. The second thing is substitution. I don't think that we will see more of substitution today than we did last year. I mean, it's not as easy as that. And we have always had a delta between hardwood and softwood prices. So I mean, if possible, I guess, it would have already been done. So I haven't heard anything -- no structural changes in that area. What we know is that a lot of capacity in pulp is -- will be built up in China. And that, of course, sooner or later, that will -- might have an impact. As it is just now, we are more considered about the CTMP volumes. And as we have understood, I mean, the board market is very weak. And while companies in Asia while they closed down the converting and stop producing boards, I mean, they still produce CTMP, and that will, of course, give a surplus in the market. Then also, I guess, that the statistics that we also saw on our side was from August, Andreas, and I guess we will see some other figures now coming into September, October and so on. We also have had a lot of big maintenance stops in pulp. But you're right. I mean, we also hear that companies, they are taking curtailments now. So far, no big changes. But I mean -- and the prices maybe -- I guess that the price has already bottomed because at this level, we see that curtailments are taken instead of continuing to produce and of course, creating a negative cash flow. So we have reached the bottom. I guess we will see some result of actions taken now later this year. But again, the fundamental challenge is the underlying demand that must come back. Robin Santavirta: Thank you very much. Operator: And we'll now move on to our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three questions for me, if I may. The first one is just on the lower wood cost. You mentioned this in the Pulp division sequentially, but not in containerboard, sorry, not lower pulp costs, lower wood costs, having a positive impact on pulp, but it didn't seem to have it on Containerboard. What's the reason for that? Should I go on with the other questions? Andreas Ewertz: No, we take 1 at a time. So I mean, we have maybe 1% lower pulpwood prices in both Containerboard and in Pulp. In Pulp, we had a better yield in the quarters, we had lower consumption of both energy and wood and they generally have low cost quarter. But I would say it's more on the consumption side that we have lower cost on pulp in this quarter. Oskar Lindström: And in Containerboard, was it just the maintenance stop that sort of... Andreas Ewertz: The Containerboard, we had large maintenance stop both in Munksund and Obbola, the cost around SEK 20 million. So that quarter was impacted by that stop. Oskar Lindström: Right. Moving on to cash flow. You say that you will increase your cash flow significantly in 2026, and I presume beyond as well, while CapEx looks as if it's going to come down quite a bit. If we only look at the ramp-up of Obbola, can you say anything about what kind of contribution you expect from that 2026 versus 2025? If you reach the 100,000 tonnes, could you put a monetary value on that? Andreas Ewertz: Currently, I would say it's hard to put the money on the excess volume because you said that currently have a weaker market, and that means that the extra volumes you would place on -- you have a worst customer mix and country mix on those extra volumes that will, of course, depend on how the market develops. If you have a stronger market, I mean, those volumes would be placed in customers in Europe and places nearby. And that will have a larger impact. But if you have a weak market, of course, then we'll have to put it further away. So it depends on how the market develops. Ulf Larsson: And also to add, I mean, if you have -- yes, maybe that was exactly what you said. I mean, if you have an additional volume already this year, if you go from a little bit over 400 up to 600, I mean that puts a pressure in a tough market that puts a pressure on the market side, of course. So I mean you also have a -- you have ramp-up production-wise, but you also have a ramp-up in the market. So of course, we have to find markets overseas not at least as it is just now. Oskar Lindström: Of course. And my third question is, I mean, we've seen other companies in your sector announcing cost savings and even structural changes as a consequence of the tough market, which both they and you seem to feel is not about to change anytime soon. I mean, do you see any need for you to take actions if demand does not improve, either cost-saving actions or structural changes? Ulf Larsson: I mean, if we go back to 2017, as I said, we have been invested 20% of the net sales more or less every year. And by that, we have also top-class sites as it is just now. We have also, during this period, closed down our publication paper business. and we are focused on pulp, containerboard and also solid wood products and to some extent, also renewable energy. And step by step, I mean, as soon as we see that we can reduce the manning or if we can do something else to improve our cost position, we will do that. So for me, it's -- I don't like those programs because that means that you haven't done your work -- your ongoing work, so to say. Andreas Ewertz: For the last one and half year we had a program to reduce our personnel at our pulp division with around 80 people and has gradually begun to give an effect. Ulf Larsson: And we reduced the manning by 800 people when we closed down the publication paper business. So I mean, if you have structural changes, then, of course, you have to follow up with personnel reductions, but otherwise, that is something that you have to do. That's the everyday work. Oskar Lindström: My final question is on CapEx, which you talked a little bit about here. You say that you expect next year for current CapEx to be -- I can't remember the exact wording, but slightly higher. And then how much higher is that? And then you said the strategic CapEx will be a couple of hundred million. How many couples of hundreds of millions are we talking about? Is it possible for you to be a little bit more precise? I'm just wondering. Andreas Ewertz: It depends, of course, on what overspill we have to next year, and then it depends. I mean, we have our base CapEx for next year. And then we have some potential projects, and it depends on which of them we go through with which timing, but if we go around 1.5 this year, then you're talking maybe SEK 100 million, SEK 200 million more next year on current CapEx. But again, it depends on what projects we do. And also on the strategic side, it will -- I mean, it will be between 0 and SEK 1 billion but it depends on the timing of our strategic CapEx. For example, we have 1 payment that would either go at the end of this year or the early next year, which is around SEK 150 million, and we have a couple of hundred millions next year. So it depends. But just to give a rough figure. Ulf Larsson: But CapEx will come down. Andreas Ewertz: Yes, CapEx will come down, yes. Oskar Lindström: Thank you very much. Those are my questions. Operator: And we'll now take our next question from Martin Melbye of ABG. Martin Melbye: Given tariffs and new volumes to place, could you give some hints on prices for Pulp and Containerboard at volumes heading into Q4 quarter-over-quarter? Ulf Larsson: I mean, we don't know. That's the honest answer. But as I said, we -- I guess, we are in Pulp at the bottom level just now. I mean, as we -- as I said before, I mean, we have seen substantial curtailments taken now. And so I guess, Pulp prices will -- if they -- the only way from this point, I guess, is upwards. When will that come? Well, remains to see, I guess. I think for Containerboard, we have more capacity has come on stream during the third quarter. No additional capacity will come on stream, but we will see some ramp-ups. I guess we will see some closures in testliner going forward. The balance for kraftliner is much better, of course. I mean, the only additional volume coming in now is our own from the ramp-up in Obbola. On the other side, the inventory level is on the high side coming down a little bit now when we had the new statistics. So it's always -- it's a question of supply-demand balance, of course. But my best guess is sideways, maybe we will start to see upward trend in Pulp and maybe sideways in Containerboard. And as I already said, I guess, we will see somewhat decrease in prices in solid wood products, I guess, another 5% in the fourth quarter and then the first quarter is always -- it's tricky to increase prices in the first quarter. If something is happening now in U.S., that might have a faster impact on the pricing for solid wood products. But otherwise, I think we have to wait for the second quarter next year. Andreas Ewertz: And in terms of volumes, forest, you harvest a bit more from our own forest in the fourth quarter. In solid wood products, I sort of mentioned, you seasonally weaker quarter compared to the summer months so they have lower delivery volumes. In Containerboard, it will be slightly higher since we had a big maintenance stop in the third quarter, which we won't have in the fourth. And in Pulp, I would say it's slightly up or flat. Operator: Thank you. And we'll now take our next question from Cole Hathorn of Jefferies. Please go ahead. Cole Hathorn: I'd just like to ask what do you see would be the positive catalyst for each of your segments and like to take it in turn. But maybe starting on Pulp. What do you think is truly needed exit the demand? Do you think it's going to be capacity closure potentially something out of Canada considering they've got elevated wood costs and you see a sawmill go down and then pulpwood closure that tightens the market. Wood product, is it ultimately just a demand that's needed rather than any form of supply response? And Containerboard, I'm just wondering what are you looking for in the market for kraftliner. Is it -- do we need to rely on the recycled closures and to follow that? Or are you seeing the ability to kind of keep this premium versus recycled considering the less imports from the U.S. and much better supply-demand balance in... Ulf Larsson: If we start with pulp, I guess, it's again, it's about demand. The tissue business is rather slow, of course, it might be impacted by closures also, again, it's a supply-demand issue. And it might be so that just my speculation, but I mean, if we will have a tough -- if tariffs will remain in Canada for solid wood products that will have a negative impact on the raw material supply to the pulp mills that might have an impact over time, of course. Otherwise, it's demand and mainly then in the tissue segment. In wood, as already said, I mean, we are in the slower season just now in Q4 and Q1. I guess that sooner or later, Americans, they have -- they must start to buy solid wood products. And if the tariff level from Canada over to U.S. will remain of 45%, that definitely will mean that we will see increasing prices in solid wood products even if you're not a big supplier to U.S., which we are not, but still, that will have an impact on the global trade rather immediately, I would say. And then we know that it can start to move quite fast. But I guess if you look at the inventory level in U.S., we have to wait for at least a quarter before we can see something. In Containerboard, I mean, we look at the box consumption, and we feel that we have a slow demand from the industry while I mean, in other businesses for food and yes, maybe trade and that part -- that is going quite in a normal pace. So -- but the industry for us, I mean, heavy-duty spare parts and things like that where we typically can find a premium for kraftliner. My -- I don't know, but my guess is also that we will see closures in testliner, I guess that the main part of testliner produces just now, they don't make money. And I guess we have a chicken race on the testliner side as this just now. The balance both for Containerboard, kraftliner and also for NBSK, it's much, much better than for recycled-based production. Cole Hathorn: And then maybe just following up on capital allocation. You were clear that you're ramping up your projects, your past peak CapEx. And beyond that, you've got flexibility for consider capital returns via dividends and buybacks. But you didn't mention anything on M&A, and I'm just wondering how you think about that? And what are your criteria there? Would you consider anything in Central Eastern Europe if a very low-cost asset came available? Are you staying with your production base in Sweden? Just like your thoughts. Ulf Larsson: I mean, typically, we are a company based on organic growth. And typically, we are a company focused on Sweden where we have our own forest. We don't like to stay in countries where we can see a higher risk really. So I guess we are -- but on the other hand, you shall never say no. But typically, we are based on -- and focused on organic growth as it is. Andreas Ewertz: And as Ulf mentioned before, currently, I mean, we're focusing on our ramp-up of our current project before we add some too much complexity. Operator: And we will now move on to our next question from Andrew Jones of UBS. Andrew Jones: Can you hear me okay? Andreas Ewertz: Now, we hear you. Andrew Jones: Sorry, apologies, I missed the start of the call. So if you've mentioned this, my apologies. But on the actual solid wood products, what usually give a bit of the sort of guidance range in terms of pricing? I mean, how do you look at pricing going into the fourth quarter on -- in the Wood division? And then also, I think on the last quarter, you sort of gave us like a percentage changes you expect in the Forest division in both logs and then pulp. What sort of percentage changes are you sort of thinking about in the Forest for those 2 categories? Ulf Larsson: The first one, yes, we did mention that one. And as I said, I mean, we lost 5% in terms of price from -- in the third quarter in comparison with the second quarter. And I guess that we will lose another 5% in the fourth quarter. And that is mainly a seasonal effect as the demand always -- we always have a slower demand in the fourth quarter and in the first quarter. Forest, Andreas, you can... Andreas Ewertz: Yes. So Forest, pulpwood, I mean, they have peaked. We saw a very slight decrease here in the third quarter, maybe 1%, and we expect fairly flat, maybe 1% down in Q4 because of this lag effect. In terms of sawlogs, they will continue to increase a bit in the fourth quarter, maybe 5% compared to Q3, but that's also because you saw that the logs were quite flat within Q2 and Q3. But that's more of a mix effect. We had lower dimension on the logs, which have a lower prices. So we didn't get that so underlying, the prices increased also in Q2 to Q3. But since we had that mix, we didn't see that increase. But now we'll get that in Q4 so maybe 5% up. Andrew Jones: So it sounds like a pretty tough quarter, fourth quarter if you're sort of saying price is 5% down, log import prices 5% up. And you're probably seeing some seasonal volume weakness, I guess, maybe and it's about 5% last year. So anything to mitigate or offset those moving parts? Andreas Ewertz: Yes. So but on the solid wood products, I mean, as Ulf said, the prices will go down 5% and also the log will continue to increase a bit, but of course, continuing to focus on cost and what we can affect. Andrew Jones: Okay. And just 1 question just about the structural change. On kraftliner, I mean, you've kind of talked about the market being more balanced in kraftliner, obviously compared to testliner, but I mean, how -- why can the actual premium kraftliner and testliner fee in the medium term given the sort of substitution potential, I'm curious like to see whether that premium can be maintained in the near-ish term. Ulf Larsson: It's hard to say. I mean, the delta just now is EUR 280 or something like that. So that is a rather wide gap. And I guess if customers -- if they can substitute, they will substitute. And we see the same trend in -- we have the same question always in softwood and hardwood pulp. But the same answer, I mean, if customers, if they can substitute, they will do it because if something is cheaper, of course, they will use that instead. So I guess my perspective is more that I think we will at least remain on rather high delta between testliner and test recycled products and base products and virgin-based products as virgin fiber will be a scare resource going forward. So strategically, I guess, we will widen this gap, which we have also seen in the past years. So I think that will remain, honestly. And also, when you look at the capacity increase. I mean, the absolute main part capacity is coming in the recycled business. But in order to get raw material to the recycled business, you must have some virgin-based production. Operator: And we'll now take our next question from Pallav Mittal of Barclays. Pallav Mittal: Pallav Mittal on behalf of Gaurav Jain. So a few questions. Firstly, you and your peers have all highlighted good availability of pulpwood because of which we are now seeing this decline in pricing. And now given demand is weak and there are a number of production curtailments, how do you think these pulpwood costs could change if you start seeing some sort of improvement in demand? Ulf Larsson: Then, of course, it might be so that you have bottleneck again in raw material supply. So again, to have a stable long-term increase in the market, then the consumption must come up, the demand must come up. So that's the simple answer. And I mean, then it might be so that if -- when sawlog prices, if they come down, but pulpwood prices, when they come down, then it might be so that you see additional capacity coming on stream. And by that, of course, the supply will increase for a while. And if then the demand is not picking up, then, of course, you will have a pressure in the market again. So it is as easy as that. It's always a question about supply-demand. Andreas Ewertz: And your question on -- I mean, of course, if demand for the finished product goes up and the production goes up, that will, of course, increase the demand for wood raw material, which is already has been tight. Pallav Mittal: Sure. And then if I can ask something on CTMP. So you did mention that CTMP prices have declined in Europe, and now we are seeing new capacity in China as well. But does that impact your CTMP ramp-up? Ulf Larsson: I mean, as it is just now, we have a rather profitable business within Europe in CTMP. But as you say, I mean, we have very -- the margin is not too big in Asia. So yes, in that perspective, we are maybe in -- it's always a marginal calculation. So if we have days with high electricity price or if not now, but before when we saw that we had scarce situation when it comes to pulpwood. I mean then we -- of course, the first production site, we took containers in was in Ortviken and CTMP. So as it is just now, we are a little bit more focused on fine-tuning, I mean, also try to validate products for the European market and so on. So it is very small or from time to time, negative market going from Sweden over to Asia in CTMP as it is just now. Operator: Thank you. That was our last question. I will now hand it back to the host for closing remarks. Ulf Larsson: Thank you, and that concludes our presentation of the third quarter results. We'll come back in January for our full year report. Thank you for watching, and thank you for listening.
Operator: Good morning. My name is Audra, and I will be your conference . At this time, I would like to welcome everyone to the Stellar Bank Third Quarter Earnings Call. Today's conference is being recorded. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the conference over to Courtney Theriot, Chief Accounting Officer. Please go ahead. Courtney Theriot: Thank you, operator, and thank you to all who have joined our call today. Good morning. Our team would like to welcome you to our earnings call for the third quarter of 2025. This morning, the earnings call will be led by our CEO, Bob Franklin; and CFO, Paul Egge. Also in attendance today are Steve Retzloff, Executive Chairman of the company; Ray Vitulli, President of the company and CEO of the bank, and Joe West, Senior Executive Vice President and Chief Credit Officer of the bank. Before we begin, I need to remind everyone that some of the remarks made today constitute forward-looking statements as defined in the Private Securities presentation Reform Act of 1995 as amended. We intend all such statements to be covered by the safe harbor provisions for forward-looking statements contained in the act. Also note that if we give guidance about future results, that guidance is only a reflection of management's beliefs at the time the statement is made, and such beliefs are subject to change. We disclaim any obligation to publicly update any forward-looking statements, except as may be required by law. Please see the last page of the text in this morning's earnings release, which is available on our website at ir.stellar.com. For additional information about the risk factors associated with forward-looking statements. At the conclusion of our remarks, we'll open the line and allow time for questions. I will now turn the call over to our CEO, Bob Franklin. Robert Franklin: Thank you, Courtney, good morning, and welcome to the Stellar Bancorp's Third Quarter Earnings Call. I'm pleased to report that we delivered solid results, including increasing our net interest income and our net interest margin. Our balance sheet expansion was driven primarily by deposit growth, reflecting our bankers' emphasis on getting the full client relationship. Credit quality has found its way back into the headlines. While we experienced some charge-offs in the quarter, they were spread over several small credits, most of which were already identified and appropriately reserved. We feel comfortable at our present level of reserve based on our portfolio and the markets that we serve. We have little exposure to nonoriginated credits and only have 3 shared national credits, all with long-standing and additional business ties to the bank. Overall, credit trends remain favorable and our market's stable. Paul will provide more detail on our expenses during the quarter, including some onetime expenses and some increased advertising spend. As we continue to strengthen our capital position, we have repurchased shares, and we have paid down $30 million of our subordinated debt just after quarter end. Our well-capitalized position gives us valuable flexibility and we remain committed to deploying capital in ways to enhance our shareholder value. We are focused on growing our company. We believe that if we continue to be disciplined in building quality assets protecting margins and focusing on full balance relationships, we will drive long-term value for our shareholders. Now I'll turn the call over to Paul Egge, our CFO, for more content. Paul Egge: Thanks, Bob, and good morning, everybody. We are pleased to report third quarter 2025 net income of $25.7 million or $0.50 per diluted share as compared to net income of $26.4 million or $0.51 per share in the second quarter. These -- represent an annualized ROAA of 0.97% and an annualized ROATCE of 11.45%. Key highlights of our third quarter performance were improvements in our net interest income and margin on incrementally larger interest-earning assets. Our balance sheet growth was driven by strong deposit growth, and we feel great about our liquidity, capital and overall balance sheet positioning. So during the third quarter, net interest income was $100.6 million, representing an increase from the $98.3 million booked in the second quarter, largely due to higher earning assets and net interest margin for the quarter. This translated into the net interest margin of 4.2% relative to 4.18% posted in the second quarter. Purchase accounting accretion in the third quarter was $4.8 million, down from $5.3 million in the second quarter. So if you were to exclude purchase accounting accretion, tax equivalent net interest income increased by slightly more to $95.9 million from $93.1 million in the prior quarter, and that change in net interest margin, excluding purchase accounting accretion, was also greater going from 3.95% in the prior quarter to 4% in the third quarter. We're really proud to get NIM excluding purchase accounting accretion back to a 4% level, and we continue to feel good about our ability to defend and perhaps incrementally improve on our top-tier margin profile by focusing on staying true to our core relationship banking model. Walking further down the income statement, we booked a provision for loan losses of $305,000 in the third quarter, which was driven primarily by an increase in our allowance for unfunded commitments and growth in that category. While we did experience $3.3 million in net charge-offs in the third quarter relating to over 10 relationships, most of these were previously identified and already specifically reserved for, therefore, not impacting our quarterly provision. For a year-to-date perspective, our net charge-offs totaled $3.7 million or approximately 7 basis points annualized. Our allowance for credit losses on loans ended the quarter at $78.9 million or 1.1% of loans, which is down slightly from $83.2 million or 1.14% of loans at the end of the second quarter. Moving on to noninterest income. We earned $5 million in the third quarter versus $5.8 million in the second quarter of 2025. This third quarter decrease was mostly due to approximately $445,000 of write-downs on foreclosed assets and other -- lower other noninterest income during the quarter. On to noninterest expense. Our expense increased to $73.1 million from $70 million in the second quarter, primarily due to an increase in salaries and benefits into a lesser extent, increases in professional fees and advertising. Salary benefits expense included severance expenses reported relating to 2 upcoming branch closures in the fourth quarter, which totaled about $0.5 million as well as elevated medical insurance expenses relative to prior quarters. We view our third quarter expenses as an outlier, and we expect fourth quarter expenses to be closer to our run rate for the first half of the year. So all of this drove solid bottom line results of $25.7 million in net income, which continues to fuel our track record of internal capital generation and our very strong capital position. Total risk-based capital was 16.33% at the end of the third quarter relative to 15.98% at the end of the second quarter. Year-over-year tangible book value per share increased 9.3% from $19.28 to $21.08 per share and that is after the effect of dividends and meaningful share repurchases. I should note that our share repurchases in the third quarter was lighter than prior quarters, totaling just under $5 million relative to a total of approximately $64 million in share repurchases year-to-date. In closing, we really like where we sit, both financially and strategically. Even more so, since recent M&A disruption in Texas accentuates our key differentiation among the only truly focused franchises with scale in a competitive landscape comprised of increasingly larger out-of-state competitors. We've built a strong balance sheet that can support quality growth and with growth, we're positioned to deliver positive operating leverage through adding scale to the Stellar Bank platform, while maintaining the financial flexibility to be opportunistic. Thank you, and I will now pass the call back over to Bob. Robert Franklin: Thank you, Paul. And operator, we're ready for questions. Operator: [Operator Instructions] We'll take our first question from David Feaster at Raymond James. David Feaster: I just wanted to start on -- let's start on the growth side. I know somewhat of the decline is strategic, and we've talked about that given your focus on a balanced approach. But I just wanted to get a sense on, first off, what's driving the payoffs and pay downs. How much of that is competition versus just asset sales and those kinds of things? And then just how do you think about the growth outlook as we look forward? I mean, Texas is a very competitive market on 1 hand. And that's -- maybe that could be a headwind. But at the same time, you talked about the disruption and that creates a ton of opportunities, just given the strength of your franchise and your relationships. Just wanted to kind of taking that all together, like how do you think about growth? And just any insights you can provide on that? Ramon Vitulli: Sure, David. yes. So I'll start maybe a little bit with what's impacting the growth when we talk about the payoffs, like you asked the color around that. So payoffs this last quarter were about $50 million more than the previous quarter. So we talked about a run rate of around $300 million of payoffs. They were $330 million in last quarter. Year-to-date, about 44% of our payoffs are related to sale of collateral sale of business. About 25% is kind of in that competitive area of refinance elsewhere. So -- and those are the things that we take a look at around 1, and as Bob already mentioned, us remaining disciplined around full relationships. So some of that, it will go away. But on that refinance elsewhere, if we put our best foot forward to try to keep some of that, but that's some of what we're faced with. On the other component of that in the waterfall is, we call it -- we've talked about it before, but what we call our carry, which is our advances versus our paydowns and scheduled payments. And as Paul mentioned, we had a reserve related to unfunded that continues to grow, but we're still not seeing the lift from that. So compared to the previous quarter, that was almost another $50 million of increase in the payments and paydowns exceeding the advances. So I mean that's an area where we think we will get a lift as we continue to originate loans. We're really pleased with the originations last -- third quarter, we originated almost $500 million of loans compared to $640 million the previous quarter. But the real thing that I think we want to make sure we communicate is just overall year-to-date or compared to last year, first 3 quarters, we're up 62% of loan originations and the mix that we like with a little bit more C&I in that mix. So things are headed in the right direction. We just have to continue to convert on our pipeline. And pipeline remains healthy. I think a little bit of the originations that were down compared to the previous quarter were really due to -- in some cases, it's competitive, obviously, but also just some things that are going to get pushed into the fourth quarter. But the pipeline remains healthy, and we're really pleased with where we stand there. David Feaster: That's great. Maybe touching on the credit side a little bit. Concerns are -- they've gotten heightened in the industry right now. I guess, first, I was hoping you could maybe touch on -- what are you seeing on the credit front? Is there anything that you're seeing broadly that's causing you any concern? And then secondarily, I was just hoping you could maybe touch a bit on your approach to credit. Collateral management, stress testing and ongoing monitor. It seems like some of those are what maybe the investors are concerned about in the industry. So just was hoping you could elaborate maybe a little bit on your process and your approach to managing credit. Paul Egge: Yes. I think -- the best way to manage credit is when they come in through the front door, David. I mean so that's how we manage that most of the time. However, we do stress testing. We do all the things that folks do to monitor portfolios. And we're moving our portfolio from what those 2 smaller community banks into a larger community bank. And it has a different look. I think you see that on our balance sheet as we've gone from where we used to run our banks that say 90% to 100% loan to deposits, we're now down about in the low 80s, we feel comfortable there. We're able to make money there. We're changing the mix of debt. To try to have a little more emphasis on stickier C&I credits. Now -- we do -- we are very careful about how we approach C&I and how that's getting monitored and what we do to make sure that we have solid results around C&I. But we also continue to do real estate loans, and those things have been good to us over the years. We're in a market that continues to grow. And so real estate continues to be a good active place for us to put money. So we're -- I think we would be more concerned, if we are in a less dynamic market, but we're in a very dynamic market all the things that are affecting the world, for that matter, of tariffs and the various things that are happening today, I think, are being absorbed pretty well in Houston and Dallas and the markets that we're in [indiscernible]. So we feel supported by our markets and I think it's about decision-making with them, and that's kind of how we approach it. David Feaster: Okay. That's helpful. And then just wanted to maybe switch gears to the deposit side. I mean your growth was really strong this quarter, cost decline. Just wanted to get a sense of some of the drivers behind that how much of that is new clients versus increasing liquidity or relationships with existing clients? And then just, again, with the liquidity build, I mean, even after paying down borrowings and buy a little bit of security. Just kind of curious what your plans are for some of that excess liquidity going forward? Ramon Vitulli: David, I'll touch -- well, let me touch a quick. On the deposit growth piece. So really pleased there, as we've already mentioned. So of our new deposits that were onboarded in the quarter 51% were to new customers that have not been here before. And we've seen that kind of hover in that 40% to 50% all year, which we really like. And we think that's really a reflection of continued brand awareness of Stellar, our bankers that are really having good success with market share gains. We've had improvement in our Net Promoter Score, really getting into like a best-in-class area there and customer satisfaction is all heading in the right direction. I think that just points to the fact that we continue to bring new customers to the bank as well as this expansion of our existing customer base, which represents that other 50%. But -- so really, the growth is really around those new accounts and the deposits associated in that, that are well exceeding in dollar amount the closed accounts and our carry was nice and gave us a little lift. Robert Franklin: Yes, David, we just feel very strongly that low-cost deposits is something that everyone is going to be fighting over, and it's something we put a big emphasis on in any relationship that we have. And so we're going to continue to do that. I think we've seen some success as we did this quarter. And hopefully, we'll continue to see that as we keep the push on that going forward. We are building some liquidity. And I think deploying that, both in loans and securities is something that we intend to do in the future. But we want to grow the loan portfolio. We want to -- that's where we grow customers and that's how we continue to grow the bank. And it's important to us to continue on that block. A lot of turmoil in our markets, a lot of M&A going on, a lot of -- so it's given us opportunity for customers. It's given us opportunity for new employees and people to join our company, which is great. I think it's -- but it's also had some negatives to it and that you have new players in that want to buy the market, and you're seeing some interesting things around not only pricing, but covenant packages and sort of credit light. And we're not going to join that party. That 1 doesn't fit us and if we have to retreat a little bit we'll do it. But we've been operating in a competitive market for a long time. We feel like we know how to do that. We'll get our share. And if we continue to do the right things, which I think we are, from a customer acquisition standpoint, we'll continue -- we will grow the bank. So that's kind of how we're approaching it. Operator: We'll move next to Stephen Scouten at Piper Sandler. Stephen Scouten: Just following up on the deposits quickly. You've tended to have some seasonal strength in the fourth quarter. Is that something you would expect here this coming quarter as well? Paul Egge: We talk about that all the time because we do have seasonal strength of some of our government banking deposits. And in fact, last year, we had about a $200 million deposits that came in, in the last day of 2024. It's kind of hard to predict as it relates to that. We'll keep you guys abreast, if there's anything that majorly kind of create a meaningful deviation from norm as we did, I think, last year. And [indiscernible] checked how much represents what we would call seasonal excess. So we'll note that when we report the third quarter -- fourth quarter, I should say, if and when some of that tax revenue seasonality comes in before year-end. A lot of it really hits in January and February, and it's kind of gone by March. But sometimes in last year was a great example, where sometimes it comes in right before the end of the year. Robert Franklin: But that's not reflected in this quarter's deposit growth. It doesn't happen until late in the fourth quarter in most government deposit. Paul Egge: Precisely. Stephen Scouten: Perfect. Great. That's great color. -- when you were talking a little bit about the expense ratio, saying it looked like this was maybe a bit of an outlier this quarter and can get back to that $70 million level. What makes this quarter more of an outlier. I know there was the severance payment in there in salaries. But what makes this an outlier? And do you think that kind of $70 million range is the level you can hang around in '26? Or should we see just some kind of general inflation build from here? Paul Egge: I'll say to be more specific. I said that we'll see fourth quarter earnings closer to our first quarter -- or first half run rate than what we posted in the third quarter. So it might not be just as great as the $70 million per quarter we were posting in the first half of the year, but definitely closer to that than the $73 million we posted in the third quarter. Separately, we will see some inflation. I mean as you guys know, we've been focused on holding the line, where we can and really being focused on just that. We feel great about how we've been able to kind of stop the creep in expenses, particularly as it relates to a lot of what we had to build in crossing over the $10 billion threshold. We're in optimization mode on a go forward, and we've been really pleased at how we've been able to do just that, while remixing kind of with attrition and things along those lines in our human capital base. So we feel really good about where we sit. And the goal is to continue optimizing and holding the line as much as we can going into 2026 and beyond. Operator: Next, we'll move to Will Jones at KBW. William Jones: So Paul, maybe just sticking with you and moving to the margin discussion. I mean, if you exclude purchase accounting, we've kind of hit that 4% and those on that felt like kind of the overarching near-term target for you guys. And I go back to your comments on the call about feeling good about the ability just to defend that level, if not even improve from here, but as we think about this next period of Fed easing, will that ability to defend will that really be more of just some tailwinds from fixture pricing? Or do you intend to be relatively aggressive lowering deposit costs from here? Paul Egge: We're going to be focused on lowering deposit costs, where we can that predominantly is going to be on more of your specials and exception level pricing. That's where we've got some index pricing for certain deposit products that we're going to get immediate benefit from when rates change. So we feel really good about kind of the initial repricing dynamics. And then separately, there is some tail trends that are helping us in how our securities and loans reprice. So we're still in a kind of a pretty good backdrop to defend that margin. As the deck get reshuffled at every rate cut, there could be some timing distinctions. But we feel like we've got the benefits are likely to sufficiently mitigate the drawbacks of how those reprices go on. So we're feeling good about the pending. Actually, we're pleasantly surprised to have gotten the 4% NIM, excluding purchase accounting accretion as fast as we did. We certainly did not promise that to the market and do not expect it necessarily to materialize as quick, but we're really pleased that we were able to do that, notwithstanding being a little less loaned up than what our budget and forecast are in our plans to drive loan growth really, are. William Jones: Yes. I mean well done there. And could you just remind us, is there a kind of a terminal interest-bearing deposit beta that you guys are trying to manage to through this cycle? Maybe just as you look at what you were able to accomplish on the uprate cycle? Paul Egge: We don't necessarily think of it in terminal basis, we're trying to gain as much ground as we can where we can. So just like on the upswing, where we didn't -- we weren't as mean, as aggressive and necessarily moving a lot of our kind of base sheet rates. And we're more focused on, okay, how do we manage this exception population and what -- in this index population, how do you really manage your most price-sensitive customers on the deposit side and we're going to continue to do that on the way down. And it's a nuanced approach. We feel like we're approaching it with more discipline than we really ever have in having a game plan for every rate cut and being ready to manage all those conversations and really get the highest beta out of our most -- out of our largest absolute value exception customers. And that's all a reasonable ask and so far has functioned pretty well in the September rate cut. So we'll follow the same game plan as we go forward. William Jones: Yes. Okay. And then maybe to follow-up, when we talked about deposits and the growth that's happened there and kind of the excess liquidity that you have as a result, if we do continue to find the paydown bug a little bit and to the extent loans don't really ramp up in growth meaningfully in the near term. Could you look to be a little more opportunistic adding to the bond book from here? Paul Egge: It's definitely an option. And it's something that we talk about every day, really what is the right size of the bond book, how do we manage our balance sheet best. We feel awesome about the fact that we're building an even more fortress-like balance sheet with strong capital, strong liquidity and a really nice foundation to grow upon. So we think that flexibility can allow us to be opportunistic, when more meaningful loan growth presents itself or when other strategic opportunities can present themselves. So we are very pleased to be having a very healthy and strong balance sheet. Operator: [Operator Instructions] We'll go next to Matt Olney at Stephens. Matt Olney: I want to circle back on the loan growth discussion. And we talked about the elevated pay off few months ago. I'm just curious, when do you expect this to slow? I mean we're seeing rates move lower in the fourth quarter and expectation that continues now for a little bit more. I would think that would just create more payoffs, not less. But just curious what your expectations are as when we could see this pressure ease up? Ramon Vitulli: Matt. So 1 of the things that we will get a lift we will get a lift from our advances exceeding our paydowns and payments. And that's -- when we go back and look at our history of when we were getting a lift, it patterns kind of that it matches up with our loan originations. So as I said, we -- loan originations were up 62%, but we will get some lift there, whether that's -- we may be a couple of quarters away from that, helping us and not taking away from loan growth. So that's kind of in the good news category, I think we're going to have to manage through the fact that we've got the way the portfolio the nature of the portfolio of this $350 million of payoffs that we have, and we'll do our best to try to limit that through some of those loans that refinancing elsewhere to put our best foot forward. But the real story is going to be on that side is going to be the funded portion of the new loans that we originate. So our -- again, our pipeline is healthy. If we're in this like last quarter, $600 million of origination, that's getting us closer to where that will give the fundings even with the payoffs to get us -- as you know, last quarter, we had a slight gain or slight increase in net funded loan balances. So it's just -- it's a matter of delivering on that pipeline and continuing on the path that we've seen in the last couple of quarters and really year-to-date, we said before that we thought growth would manifest in the second half of the year. Of course, we still have the fourth quarter. But going into '26, we feel good that we will pivot to that. Matt Olney: Okay. Appreciate that, Ray. And also want to get the updated thoughts around M&A. We're definitely seeing more M&A deal announcements in your backyard. Just curious about the conversations you're having with strategic partners and expectations for finding a partner for Stellar Bank? Robert Franklin: Yes, Matt, we continue to own conversations. We've talked to a lot of folks. I think you've seen some transactions that we have some interest in and some not. But I think the thing to remember and the thing that we want everyone to understand is that we're very protective of the balance sheet that we've built and the deposit base that we've built. And as we look at partners out there and how they've structured their funding, it would be -- it would not behoove us to join somebody that takes away from the funding base that we have just to be larger. So I think what we want to do is make sure that we find the right partners that think about the world the same way we do and find themselves in a similar fashion. So -- we continue to have conversations. I think there's a possibility that we could be active in this space, but we're going to be careful about how we approach it. Matt Olney: Okay. Thanks for the commentary and I agree, it's a high-class problem to have protecting the balance sheet. And just lastly for me, I guess, over to Paul. Paul, I heard you mention the purchase accounting accretion in the prepared remarks, looking for the updated fair value mark on that portfolio? Paul Egge: I believe that $58.1 million of what's left of the loan discount. Operator: And that concludes our Q&A session. I will now turn the conference back over to Bob Franklin for closing remarks. Robert Franklin: Thank you very much for joining our call today. And with that, we are adjourned. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.